It is not uncommon to hear about corruption and unethical behavior within the supply world, even in larger Fortune 500 companies. Many companies have adopted a zero-tolerance policy on purchasing practices that are unethical. The definition of ethical behavior can differ from organization to organization, or individual to individual, which is why it is important for companies to clearly state what is considered unethical.
Expand to explore some areas that comprise general ethics for both businesses and individuals.
Fraud / Dishonesty
No company wants to be the victim of supply chain fraud, due to the potential impact of financial loss, as well as the impact of negative public relations.
In addition to large-scale fraud, individual dishonesty may include misrepresentation by a buyer, exaggeration, gaining information through deception, lying, using corporate purchasing for personal needs, misleading a supplier, disclosure of confidential or proprietary information to a supplier’s competitor, or sharing competitive information with other suppliers.
Clear separation of duties should be put in place that make it more difficult for employees or suppliers to act fraudulently. For example, no one single person should have the authority to create and/or authorize a purchase order, and then be responsible for payment of that purchase order.
Conflict of Interest
It is imperative that purchasing personnel avoid any potential conflicts of interest when dealing with suppliers. That includes staying free from unethical influences in the selection of suppliers, or dividing loyalties between their own firm and that of a supplier. An example would be when a manager or buyer is a stockholder in the supplier’s firm, or is a close friend or relative of that supplier.
There is a very fine line between what is legal and illegal in this area, and it is usually determined by whether the activity restricts competition, such as looking more favorably on bids from suppliers that purchase the buying organization’s products or services.
Reciprocity, or countertrade, is giving preference to suppliers that are also customers of the organization, including making that a condition of a purchasing contract. In other words, “If you’ll buy from me, I’ll buy from you.”
Bribery and Corruption
Corruption has been identified as a leading barrier to conducting business in many of the world’s economies, making it an obstacle to economic and social development around the world. Corruption scenarios within procurement might include:
Firms often address the acceptance of bribes or gifts by defining a dollar value limit for existing suppliers that may simply be thanking the buyer, whereas gifts from potential suppliers can be strictly off-limits. Different standards of behavior should not exist within the same firm, e.g., purchasing is prohibited from accepting gifts from suppliers, but marketing can send gifts to potential customers.
Anti-corruption legislation is in place in many countries, giving companies a clear mandate on how to avoid unethical behavior and enforce anti-corruption policies within their organization and their supply chain.
Organizational Best Practices
Organizational best practices for avoiding non-ethical behavior include:
Basic Rules for Procurement
Some basic rules for ethical behavior by procurement professionals include: