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Best Practices

Your Vendor Has Significant Management Turnover. Why Should You Care?

Nov 26, 2019 by Branan Cooper

Turnover… it’s great if it’s an old-fashioned type of apple pie, but not so great if it’s the departure of key executives from one of your high-risk or critical third parties. It may seem simple, but this is one of the most overlooked facets of third party risk management. Ask yourself this question: Do you know if your key vendors are required to notify you if members of senior management or your primary business contacts are departing the organization? If you don’t, then you should write it into the contract.

Departure of a Significant Management Executive: Now What?

Imagine this. You’ve learned that one of your high-risk or critical vendors has experienced a change in executive leadership. You’re wondering how this is going to impact your organization; therefore, you need to determine what questions you should ask them.

You should think about a few very basic questions:  

  1. What’s the reason behind their departure? You may never know, but it’s at least worth asking.
  2. Is there a strategic shift in direction or is it just normal course of business?
  3. Have they hired a replacement or how are they handling business in this person’s absence?
  4. Do the replacements hired have the same or correct qualifications?
  5. Are they selling out?

Common Vendor Scenarios and How to Handle Them

Here are some example reasons behind executive staff leaving and what to do next.

New Opportunities: If the departure is because the person found a terrific opportunity elsewhere, well a congratulations is in order to them and best wishes for continued success, but you should have a conversation with the vendor about the qualifications of their replacement.

Financial Struggles: If the departure is for financial reasons, or if there are other members of management leaving or a huge slice from the top of the apple, you need to have a much different discussion with management to understand exactly what’s going on. This will help you learn if the same issue will funnel down to others and/or impact your service levels.

Sunsetting Products/Services: If the departure means they are discontinuing a product line or cutting key services, this is where you really need to make sure you’re involved and keeping your senior management and board involved as well. Start looking at the contract for recourse. Sadly, that may mean thinking about alternate providers.

Warning Signs the Turnover Is Negatively Affecting the Vendor and You

Often times, there are other indicators that may be good early warnings signs that change in staff is causing negative consequences. Some early indicators may include things like the following:

  • A breakdown in regular communications with the vendor. For example, they may be missing routine meetings or deadlines.
  • A failure to deliver reports. Remember, often times, you can write reporting requests in the vendor contract. If you’re no longer receiving the reports like you normally do, then that may indicate an internal problem at the vendor.
  • A sudden change in tone or downturn in performance. The vendor may respond to requests at a slower rate, when they do respond to a request or assist with an issue they may not perform as well as they once did, etc.

Managing Significant Turnover Is Possible

The keys to proactively managing turnover are the following:

  • Require management, in the contract, to notify you of all sorts of changes, like management changes
  • Maintain open lines of communications in good times and in bad
  • Be willing to work through issues together and not in an adversarial “gotcha!” manner
  • Stay alert and react if something doesn’t seem right

Turnover at your vendor organization will happen. What matters is understanding why the turnover happened and if it’ll at all impact your organization’s use of the outsourced product or service.

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Branan Cooper

Written by Branan Cooper

Branan Cooper is the Chief Risk Officer at Venminder. Branan has nearly 30 years of experience in the financial services industry with a focus on the management of operational and regulatory processes and controls—most notably in the area of third party risk and operational compliance. Branan leads the Venminder delivery team as the third party risk management subject matter expert in residence. Branan also serves as an industry thought leader. He's a member of InfraGard and the Professional Risk Management Industry Association (PRMIA). And, he was selected in 2018 as an advisor to the Center for Financial Professionals (CEFPro) and board member for the Global Sourcing Resource Network (GSRN).

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