Digital doubts for CPOs

BY Richard Summerfield

Procurement has continued to deliver solid savings and manage risk, according to the eighth annual 'Global Chief Procurement Officer Survey' from Deloitte.

While most procurement leaders feel supported by their executives, they are, however, unsure about whether they are contributing significant strategic value, the report suggests.

However, more procurement leaders believe that their teams have sufficient capabilities to deliver on their procurement strategy – 49 percent of those surveyed, compared to 40 percent in 2017. The survey also indicates that while many CPOs have high hopes for the potential of analytics to transform their profession, only a third of them are utilising such technology.

Though many organisations have identified digital skills as a major area of focus, the majority of companies are neglecting to prioritise digital functions. Just 3 percent of CPOs believe that their teams possess the skills required to maximise digital capabilities. Only 16 percent of procurement leaders surveyed were focused on enhancing these skills. Seventy-two percent of procurement leaders are spending less than 2 percent of their budget on training, compared to 66 percent in 2017. Furthermore, 17 percent of procurement leaders do not have a digital procurement strategy.

“With today's global supply chains, risk exists across geopolitical and economic disruptions," said Brian Umbenhauer, principal and global head of sourcing and procurement at Deloitte Consulting LLP. "There are demonstrated techniques to help drive value, reduce risk and meet goals – from digital transformation to increasing visibility and properly training teams – but CPOs right now are struggling to make the most of them. Major benefits and competitive advantage await those who do.” 

Despite uncertainty around issues such as Brexit, NAFTA, weakness and volatility in emerging markets, rising geopolitical risks in the Middle East and Asia, as well as the spillover effects of a slowdown of China, many procurement leaders remain cautiously optimistic about the future.

“Lack of visibility is a major concern for CPOs as they look to navigate global headwinds and prepare their teams for the future of procurement and innovative technologies,” said Mr Umbenhauer. “Visibility throughout the supply chain is a key tool for meeting regulatory and corporate social responsibility requirements while mitigating risk.”

For most respondents, cost reduction, product and market development and managing risk are the top business priorities. Despite concerns, 61 percent of CPOs delivered better year-over-year savings performance than last year, with the highest-performing leaders excelling in executive advocacy, leadership, talent and digital.

Report: The Global Chief Procurement Officer Survey 2018

Third-party offences top 2018 ABC risks, says new report

BY Fraser Tennant

Third-party violations of anti-bribery and corruption (ABC) laws are top of the list of perceived risks for compliance professionals in 2018, according to a new report by Kroll and the Ethisphere Institute.

The ‘2018 Anti-Bribery and Corruption Benchmarking’ report reveals compliance teams are having to deal with the convergence of regulatory mandates, critical reputational factors and data security issues as they try to protect their organisations from substantial financial and reputational harm, as well as regulatory and legal exposure.

Furthermore, 93 percent of 448 study respondents said ABC risks will remain the same or worsen in 2018. Those who expect a greater level of ABC risks attribute the rise to increased enforcement of existing regulations, followed closely by new regulations.

“The report brightly illuminates the challenges facing today’s compliance experts, including the likelihood that third-party risks will grow in relevance and impact,” said Erica Salmon Byrne, executive vice president and executive director of the business ethics leadership alliance at Ethisphere. “We are encouraged, however, that partnerships across organisations continue to grow as company leaders assign greater priority to the adoption of best-in-class ABC programmes that protect not only individual organisations, but also the integrity of the global business ecosystem.”

Reputational and integrity concerns remain the number-one reason why a third-party fails to meet an organisation’s standards, with organisations stating they were “concerned” or “very concerned” with beneficial ownership risks associated with their third parties.

“The stakes are high and so is the risk level, which is likely causing some sleepless nights for the average compliance professional,” said Steven J. Bock, global head of operations with Kroll’s compliance practice. “In today’s hypersensitive business environment where a company’s hard-earned reputation can be easily lost through a lapse of judgment by a third-party, the job of a conscientious compliance professional has never been tougher or more central to the success or failure of a business.”

On a positive note, 36 percent of respondents indicated that their organisation dedicated more resources to ABC issues in 2017 than in 2016. Executive leadership support also remains strong, as 92 percent of all survey respondents said that their leadership team is “highly engaged” or “somewhat engaged” in their ABC efforts.

Mr Bock concluded: “Ongoing monitoring that includes a regular refresh of the underlying third-party data emerged among the report findings as a key strategy for maintaining the effectiveness of ABC programmes overall, and especially for keeping up with potential ownership changes.”

Report: 2018 Anti-Bribery and Corruption Benchmarking

Drugmaker Orexigen plans assets sale through Chapter 11

BY Fraser Tennant

Following years of battling to bring its finances into the black, biopharmaceutical company Orexigen Therapeutics, well-known for its focus on the treatment of obesity, has filed a voluntary petition under Chapter 11 of the US Bankruptcy Code.

In addition to the Chapter 11 filing, Orexigen also intends to file a motion seeking authorisation to pursue an auction and sale process. The proposed bidding procedures, if approved by the court, would require interested parties to submit binding offers to acquire substantially all of Orexigen's assets, which would be purchased free and clear of the company's debt. 

According to Orexigen, bids from strategic and financial buyers are expected to be submitted by 21 May 2018, with a structured auction targeted to commence no later than 24 May 2018 and a sale to be concluded by 2 July 2018.

"The board and management team have thoroughly assessed all of our strategic options and believe that this process represents the best possible solution for Orexigen, taking into account our financial needs," said Michael Narachi, president and chief executive of Orexigen. "While we have been working closely with our noteholders and have the support of a controlling number of senior secured noteholders, our debt covenant requirements and near-term cash flow needs have necessitated the protection afforded by a court-driven process."

Focused on the treatment of weight loss and obesity, Orexigen’s first product, Contrave, was approved in the US in September 2014 and has since become the number one prescribed weight loss brand in the US. However, Orexigen has struggled to market the obesity drug (known as Mysimba in Europe), resulting in weak sales and massive debt. 

Orexigen is seeking to continue normal operations throughout the Chapter 11 process and has the support of a controlling number of its senior secured noteholders, who have made a $35m financing commitment in order to fund the process (including the sale of assets), and meet its operational and financial obligations.

Mr Narachi concluded: “Orexigen’s mission is to help improve the health and lives of patients struggling to lose weight. Since the launch of Contrave, nearly 800,000 patients in the US have benefited, and through a successful transaction process, we intend that this growing patient demand will continue to be served." 

News: U.S. drugmaker Orexigen files for Chapter 11 bankruptcy

The UK and EU – counting the cost of a no-deal Brexit

BY Richard Summerfield

Companies in the UK and European Union could face additional annual costs of £58bn if the UK’s divorce from the bloc results in a ‘no-deal’ Brexit, according to a new report from Oliver Wyman and Clifford Chance.

The financial services industry in the UK would be the hardest hit sector, according to the report. In the EU, the automotive, agriculture and food and drinks, chemicals and plastics, consumer goods and industrials industries would be the most impacted.

'The "Red Tape" Cost of Brexit' report estimates that the direct costs will total around £31bn for EU exporters and around £27bn for UK exporters, with non-tariff barriers accounting for more of the effect than tariffs. The report focuses only on the direct impacts of the UK’s exit from the EU which are of immediate importance to companies for Brexit planning. It does not model additional impacts such as migration, pricing changes or third-country free trade agreements, which are likely to increase the overall impact.

In the absence of an agreement by the end of the transitional period, which is due to begin in March 2019, after the official Brexit deadline, Britain’s relationship with the EU would revert to World Trade Organisation rules.

Just five sectors – finance, automotive, agriculture, food and drink, and consumer goods – would bear 70 percent of the burden of additional costs resulting from this scenario, according to the report.

Kumar Iyer, a partner at Oliver Wyman, says: “There will be both winners and losers from Brexit. In order to navigate the uncertainty companies should be thinking about impacts under different scenarios both operationally and strategically. We see the best prepared firms taking hedges now based on the direct impacts on themselves, their supply chains, customers and competitors. Unfortunately we see that small firms are least able to take these steps at present.”

However, if the UK were to remain in a comprehensive customs union with the EU that provides market access, the costs arising from tariffs would be avoided and some of the border costs reduced.

Yet the chances of the UK opting for a customs union appear slim. In February, UK prime minister Thereasa May reiterated that remaining within a customs union would “betray the vote of the people”. Furthermore, membership of a customs union would prevent the country from striking its own trade deals with emerging economies, including China and India.

Report: The Red Tape Cost of Brexit

Broadcom bid for Qualcomm could be quashed

BY Richard Summerfield

According to the Committee on Foreign Investment in the United States (CFIUS), Singapore-based Broadcom Ltd’s $117bn bid for Qualcomm is a national security risk which requires a full investigation.

The decision, which was communicated in a letter to the lawyers representing the two companies from a senior US Treasury official, has complicated, and potentially jeopardised, an already contentious deal. Sending the letter is an unusual move for CFIUS, which normally opines about a transaction once it has been completed.

However, CFIUS’ recent activity reflects wider concerns over the role of Chinese acquirers in important sectors, including the technology space. The letter noted that it was important to have a well-known and trusted company “hold the dominant role that Qualcomm does in the US telecommunications infrastructure". Any loss of that competitiveness, the letter said, “would significantly impact US national security".

CFIUS also expressed concerns about the national security implications for the US if Chinese companies were able to dominate the nascent 5G market. Broadcom pledged that it would keep the US at the forefront of the 5G market in an attempt to allay the government’s concerns.

Furthermore, CFIUS believe that the merger would alter Broadcom’s relationships with foreign entities and weaken “Qualcomm’s technological leadership", which would allow Chinese companies, such as Huawei, to steal a march on their US counterparts.

“China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” said Aimen Mir, Treasury Deputy Assistant Secretary for Investment Security in the letter.

CFIUS also identified a number of other concerns surrounding the transaction, such as Broadcom’s reputation for cutting research spending and potential national security risks that could arise from exploiting or compromising Qualcomm’s assets through arrangements with “third party foreign entities”.

Despite CFIUS’ concerns, Broadcom remains optimistic that a deal can still be reached in time for a Qualcomm shareholder meeting due to be held later this month. Typically, CFIUS does not offer opinions involving purely domestic transactions. In November, Broadcom filed to redomicile to the US and is looking at ways to expedite the process.

“We are fully cooperating with CFIUS, and are absolutely committed to making the combined company a global leader in critical 5G and other technologies,” Broadcom said in a statement. “There can be no question that an American Broadcom-Qualcomm combination will provide far more resources for investments and development to that end. Entrusting this effort to a failing Qualcomm management who lacks the support of its owners, and that pays out much of its excess cash flow in fines as a result of serial lawbreaking, would not be in America’s long-term interests”.

News: U.S. sees national security risk from Broadcom's Qualcomm deal