Black Swan Third Party Risk: How to Master the Unpredictable

In our ever-evolving world, increasingly volatile markets, businesses, and geopolitical environments make black swan events more likely each day. Companies must become prepared for any and all potential risk scenarios, particularly when it comes to third-party relations. It is essential for organizations to secure their data, goods, and services in the face of the unknown.

When it comes to managing third-party relationships, many organizations still rely on outdated methods for governance and contract management. However, with black swan events on the rise, changing weather patterns, and growing geopolitical volatility, risk management in the era of the black swan has become much more complex. Companies must become more adept at monitoring and controlling their third-party relationships to both mitigate and capitalize on risks.

Implement a Contract Lifecycle Management (CLM) Software

To manage third-party risk, businesses must implement an automated Contract Lifecycle Management (CLM) software with integrated artificial intelligence (AI). A CLM system is a comprehensive solution that helps manage and streamline the entire contract lifecycle— from negotiation to execution, compliance, tracking, and reporting. It provides the ability to store, track, and search contracts, amend contracts quickly, evaluate risk, monitor deadlines, and automate documents. Furthermore, a CLM system can be quickly deployed and integrated across an enterprise, providing an efficient and cost-effective way to manage contracts.

Monitor Clauses, Security, and Preparation

Organizations must also monitor contractual clauses for compliance and execution. Black swan events often require immediate action to mitigate risk through agreements or other approaches. Companies must be prepared for any potential risk and have clauses in their contracts that allow them to quickly respond to changing conditions. Furthermore, they must monitor their security and compliance measures to ensure the safety of their data and business operations.

Force Majeure Clause

A force majeure clause is a provision in a contract that releases the parties from their contractual obligations when certain events occur. Examples of events covered in a force majeure clause includes acts of god, terrorism, war, pandemics, and natural disasters. Organizations should be proactive and include such a clause in all contracts with third-parties. This ensures that they are protected from liability and able to act swiftly if a black swan event occurs.

Conclusion

Navigating the unpredictable risk associated with black swan events has become increasingly difficult for companies. Organizations must increase their risk mitigation efforts by monitoring all contracts for their reporting and risk identification clauses, implementing a robust CLM system with AI, and having a well-defined Force Majeure clause in all contracts. By taking the right steps, businesses can become more agile and better prepared for black swan events.