Who is responsible for enforcing compliance when issues arise?
Contracts are critical in providing transparency and setting expectations between OEMs and their channel partners. OEMs put significant thought into developing pricing programs, program policies and guidelines, and distributor and reseller agreement terms and conditions. When there is a complex issue of non-compliance, who is responsible for ensuring that the channel partner is complying? Are there any consequences?
We have found that that because of the various stakeholders involved, (e.g., Sales, Marketing, Compliance, Operations, Pricing, Legal, Finance) in managing an OEM’s channel program, there is often a lack of an assigned owner which results in increased risks of no response (and consequently loss of revenue) and/or inconsistent responses across channel partners.
The lack of a recognized contract owner complicates efforts to maintain consistency across channel partners and determine who is responsible when contract issues arise. Often times we’ll find that Compliance or Internal Audit are tasked with enforcing agreement terms but are not involved with the relationship between the OEM and the channel partner.
Companies may use a variety of strategies to compel channel partners to comply, including written reminders, incentives, and sometimes implementing penalties. There are of course heightened sensitivities around penalizing a channel partner (e.g., clawbacks); however, allowing a channel partner to continue to be non-compliant to agreement or program terms offers an unfair advantage for that particular partner and can result in reduced margins for the OEM. If you want to reduce monetary loss and regulatory non-compliance risk, develop strategies for enforcing contract terms.
As a best practice, the first step to compliance success is to designate a team or department that has responsibility for maintaining channel integrity. This stakeholder group is responsible for developing and monitoring consequence management for partners that participate in claims abuse and non-compliance to contractual/program terms (e.g., gray market). Then you must announce this stakeholder group to the channel and the market and provide updates, training, and publish guidelines for non-compliance.
Below are recommendations to help you achieve compliance from your channel partners:
- Agree among internal stakeholders the plan for enforcing compliance and develop ongoing monitoring of partner activities and implement changes as needed.
- Implement various communications protocols (e.g., partner portal, emails for approved deals, on claims forms, direct emails from account managers, telephone calls OEM account manager) and customized messaging for each channel partner and especially for the partners that are not complying with agreement/pricing program terms.
- Integrate monitoring results into message boards on your partner portal (e.g., progress on achievement, notices on deals about to expire, warnings if they are not tracking towards commitments).
This will increase awareness, eliminate surprise, and lay the groundwork for any potential repercussions (e.g., clawbacks or ineligibility for certain pricing programs) as a result of non-compliance. At this point, the partner will have had to been aware of the risks.
Partnering with Experts to Develop Enforcement Strategies
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