Ethics

Ethics

 

Ethics comes from a Greek word ethika, which means “character” or “custom”. It relates to the principles or standards of human conduct, sometimes called morals (Latin mores, “customs”). Ethics, as a branch of philosophy, is considered a normative science. It is concerned with norms of human conduct. Each individual makes decisions out of an ethical framework. Each organization creates ethical framework as part of its organizational culture that drives and constrains behavior.

 

Numerous factors influence ethics, including family, education, religion, peers, gender, age, socioeconomic status, culture, and experience. When a group of divers people are brought together in one organization, it is important to consciously create an ethical culture. This culture is documented by the standards of conduct in a code of ethics. It is brought to life by the attitude, behavior, anf practice of company leaders as well each individual in the organization. This is especially true especially true when ethical challenges occur. It is reinforced by the producers put in place to monitor ethical behavior and by the language used in the course of doing business.

 

Purchasing represents the exchange of money for goods and services. Often, a very large amount of money is involved in this exchange. It is , therefore, vital that the transactions associated with this process be carried out at the highest ethical level. Unfortunately, temptation is always present where large amounts of money are involved. Sometime suppliers will go to considerable lengths to secure business and resort to unethical practices, such as bribes or large gifts. Sometimes unscrupulous purchasers take advantage of their privileged position to extract personal rewards that are unethical as well as illegal.

 

Clearly, both suppliers and purchasers are responsible for ensuring that unethical conduct is no tolerated. Both the Purchasing Management Association of Canada (PMAC) and the Institute for Supply Management (ISM) have codes of ethics and principles and standards of purchasing practice that guide the professional behavior of their members.

 

Internal Federation of Purchasing and Supply Management (IFPSM) is the union of 43 National and Regional Purchasing Associations worldwide. About 200,000 supply professionals are members of these associations. The IFPSM facilities the development and sharing of the practice of the purchasing and supply management profession through its network of member organizations. The IFPSM has adopted a Code of Ethics.

 

Most large organizations deal specifically with standards of behavior of supply personnel and their relationships with suppliers in their procedures, Many organizations are moving to a congruent position that equates the treatment of customers, employees, and suppliers as identical. Simply stated, “Every customer, employee, and supplier of this organization is entitled to the same level of honesty, courtesy, and fairness.” Buyers are urged to behave in a manner that reflects the organization’s wishes.

 

Several areas help establish and maintain the reputation of the supply group and the organization. These are perceptions, conflict of interest, gifts and gratuities, relationships with suppliers, and reciprocity.

 

Perceptions

 

Perception is often as important as reality. If a buyer’s action is perceived by others to be inappropriate, the both the buyer’s and the buying organization’s reputations may be harmed. Because of this danger, everyone in supply must think about how an action will appear to others.

 

Conflict of Interest

 

Conflict of interest touches on the issues of perception. There are situations where two parties cannot agree on the existence of a conflict. Often, the person involved truly believes that he or she remain objective despite having conflicting interests. It may never be proven otherwise, but others may perceive that the business interest was sacrificed for personal interest.

 

For example, a supply professional may be in a decision-making position tha involves a friend or family member’s business. No matter how thorough a job the person does, some observers will always believe the business was won on personal and not professional relationships.

 

Gifts and Gratuities

 

Supply personnel can avoid ethical entanglements through conscious behavior. Whether or not to accept entertainment, gifts, and gratuities is relates to perceptions. Many purchasers argue that their decisions are not swayed by a free lunch. Others argue that even If the buyer knows the entertainment did not influence the decision, others (especially rejected bidders and personnel other functions) may not be so sure.

 

There is also concern that any perceived imbalance in a relationship will subconsciously motivate the parties to move to parity. For example, after accepting several dinner invitations, most people feel a sense of obligation to return the favor. How does one know for sure that one can remain objective after receiving gifts and entertainment from a sales person?

 

            Targets of Unfair Influence

 

Supply personnel are not the only targets of attempts to influence decisions unfairly. Executives, managers, supervisors, and others in production, marketing, information systems, engineering, or elsewhere may be targeted. Anyone with direct responsibility for, or large influence on, decisions about procurement may be approached. Even when the buyer is not directly influenced, the buyer’s task is affected. If undue influence is considered a serious issue, all employees can be prohibited from receiving any gift, no matter how trivial, from any supplier, actual or potential.

 

In some organizations non supply personnel are allowed to receive or extend entertainment and gifts and supply personnel are not. This policy may undermine the integrity of the supply process. Sales representatives focus their attention on non supply personnel who they believe can influence the decision. An astute sales representative can quickly determine who the real decision maker is and how serious the buying organization is about following its own processes. The impact on total cost of ownership is often overlooked by those who argue that there is no harm done in accepting gifts and entertainment.

 

            The Sales Perspective

 

A salesperson’s job is to influence and persuade decision makers. This can be done most effectively by knowing the product or service and potential customer’s need and wants and presenting proposals that represent good value. People learn about others and their situation by spending time with them. They also build relationship and a foundation of trust. The easiest way is to spend time together in a social setting.

 

            Maintaining a Professional Relationship.

 

The challenge is finding ways to foster the development of trust and mutual understanding of the goals and objectives of each other’s organization while maintaining a professional relationship. In buyer-supplier partnerships or strategic alliances, this issue is even more pronounced. Now the supplier may be a single source in a long-term deal that brings together people from the two organizations on a regular, sometime daily, basis. Special attention is required to ensure that the business focus is maintained.

 

How, then, shall the supply manager deal with the problem of excessive entertainment and gifts in any one of its varied and subtle forms? This practice is designated to influence the decision maker by creating a sense of obligation through gifts, entertainment, and even open bribery. It is, of course, often difficult to distinguish between legitimate expenditures by suppliers in the interest of good will and illegitimate expenditures made in an attempt to place the buyer under some obligation to the supplier. In these borderlines cases, only a clearly written code of conduct and ordinary common sense can provide the answer.

 

The code of ethics of most supply professional associations strongly condemns gratuities beyond token gifts of nominal value. However, every year a small number of cases is uncovered of individuals who do not abide by this code, thereby placing the whole profession under suspicion.

 

Part of the blame must clarify lie with those who use illegal enticements to secure business. For example, a sales person calls on a purchaser and extends an invitation to lunch so they may discuss a transaction without losing time or as a matter or courtesy. Such action is presumed to be in the interests of goodwill, although the cost of the lunch must be added to the selling price. An attractive but intensive gift may be given by the supplier’s company to adorn the desk of the buyer. The supplier’s name appears on the gift, and therefore it is construed as advertising. The sales representative may send a bottle of wine or sporting event tickets after a deal has been completed.

 

The custom of giving simple gifts may develop into providing much larger ones. It is difficult to draw the line between these different situations. In some organizations, the supply manager or buyer frequently refuses to allow salespeople to pay for luncheons or insists on paying for an equal number.

 

            Commercial Bribery

 

Aside from its economic aspects, commercial bribery is the subject of many legal cases. Fundamentally, the rulings on commercial bribery rest on the doctrine of agency. The agent is recognized by law as keeping a fiduciary position. Any breach of faith on the part of the agent is not permitted. Therefore, the agent’s acceptance of a bribe to do anything in conflict with the interests of its principal is not permitted by law.

 

The evils of commercial bribery are more far-reaching than first imagined. Although originating with only one business, it may quickly become an industry practice. No matter how superior the quality of goods or how low its price, a producer will have difficulty competing with businesses that practice bribery. The behavior of the buyer who accepts bribes will change he or she will likely pay higher prices than normal. Defect in workmanship or quality are likely to be hidden. Materials from other manufacturers may be deliberately damaged or destroyed. The total cost of ownership rises as a result of commercial bribery.

 

Even though bribery is outlawed in almost every country in the world, it often flourishes, legally or not. The spectacular revelations about the bribery involved in the UN-sponsored oil for food program in Iraq were a sad reminder of the pervasiveness of such practices.

 

In the last 10 years, both international organizations and individual counties have passed and begun to enforce antibribery and anticorruption laws. Multiple laws and jurisdictions bring greater transparency to employees’ actions and greater force behind refusals to engage in bribery in countries where it has been prevalent. However, it also adds complexity in terms of knowing and abiding by the applicable laws.

 

In the United States, enforcement of the Federal Corrupt Practices Act (FCPA) has increases dramatically as have the assessed penalties. According to the Securities and Exchange Commission (SEC), there has been “more enforcement of FCPA in the past two years than in the past 30 years.” Money laundering, fraud and tax issues, and enforcement around exports to banned countries are also receiving increased enforcement action. Similarly, new regulations that govern private business, including hedge funds and financial products like derivatives, could extend to foreign activities.

 

For the supply executive team formulating global ethics policy and procedures, there are three key questions to ask

 

  1. 1.      What did you do to stay out of trouble?
  2. 2.      What did you do when you found out?
  3. 3.      What remedial action did you take?

 

Appropriate answers are

 

  1. 1.      The company has systems in place such as a company code of conduct and the policies and procedures present to implement the code companywide, as well as an anonymous hotline. The company provided training on these policies and processes. They were used actively is business. For example, the company used due diligence on business partners, agents, distributors, and suppliers.
  2. 2.      After an FCPA/ compliance issue arose or was discovered, the company launched an investigation. No persons involved with the underlying matter were involved in running the investigation. Or the investigation was handled by an outside agency or law firm.
  3. 3.      After completing the investigation, the company voluntarily disciplined the persons involved in the FCPA/compliance violation. The company voluntarily disclosed the matter to the Department of Justice (DOJ). The company cooperated with the DOJ in the ongoing investigation.

 

Promotion of Positive Relationships with Suppliers

 

Most organizations have policies and procedures about relationships between the supply organization and supplier’ representatives. Purchasing and supply management associations in many countries around the world have adopted their own codes of ethics governing the relationship between supplier and purchaser. As mentioned earlier, the International Federation of Purchasing and Supply Management (IFPSM) has a code of ethics for all member associations and their members. All codes based in the requirement that seller and buyer deal ethically with one another to ensure a sound basis for business dealings.

 

Thus, courtesy, honestly, and fairness are stressed Buyers are urged to behave in the highest professional manner. Normally, this includes a long list of behaviors: See suppliers without delay; be truthful in all statements; cover all elements of procurement to ensure complete