Some may say in jest that organizations are reminiscent of a three-ring circus acts. Well, within those three rings it is the procurement professionals who are the ethical tightrope walkers.
Right now, there are individuals in every corporation who are treading the ethical fine-line because of expediency, undue pressure or perhaps because they don't know any better. Fear of potential ramifications to career and reputation can, ironically, keep many from questioning clearly inappropriate behavior from someone they perceive to have more power than they do within the organizational environs.
Why is it so difficult for businesses to consistently maintain high ethical standards? As an independent observer, many would sit on the throne of judgment and consider themselves imbued with a much higher moral standard and wax poetic about the failings of others.
But life isn't black and white. In fact, right is rarely diametrically opposed to wrong. It is sometimes easier to “turn a blind eye” as opposed to following Hamlet's path and suffer “the slings and arrows of outrageous fortune”. Many situations are cloaked with uncertainty, incomplete information, multiple points of view, contradictory responsibilities and pressure, external or self-imposed.
Procurement is a hot bed of ethical challenges and too often procurement professionals are left feeling that there is no net to catch them when they take the ethically correct stance. Choices made by those in procurement can affect the entire corporation. The processes within purchasing ensure that fair and objective decisions are made. Yet other areas of the enterprise may have another agenda. Yet if procurement waivers on its ethical foundation, it traverses the tightrope without a balance bar, and discovering in the process that there is no net to catch them below.
The ethics of an organization are determined by the actions of the top leadership on down. Ethics are not bottom-up in the enterprise. Leadership and the corporation as a whole must value ethics. If the bending of the rules results in accolades as a result of increased short term revenue, or other perceived benefit, then many in the business will rightly believe that ethics don't matter, performance does. In other words, the end justifies the means.
That is of course until the issue hits the front page of the newspaper and then the organizational navel-gazing commences.
Procurement professionals need to embrace a standard that is above reproach, even when they believe that the rest of the organization is acting like the ethics circus clowns. In some cases it may mean that a job or position needs to be risked. It is important to remember that the perception of reputation is the reality. As Lady Macbeth discovered the taint can't be washed away when it is perceived that one's “hands are dirty”. If a job is lost because of an ethical stance, at least neither your reputation is lost, nor are your career options in the procurement field.
Although a myriad of ethical issues await procurement on a daily basis, there are three key ones which provide the basis for many a sleepless night because of the inane pressure to “get with the program” or “turn a blind eye”. These are reciprocal business awards, conflicts of interest and maverick spending.
IN THE FIRST RING… RECIPROCAL BUSINESS
Mention reciprocal business to most procurement professionals and an audible groan can be heard. At its simplest, reciprocal business is any arrangement under which a seller of one product or service buys another product or service from one of his or her customers. It is a basic quid pro quo. However, as many in purchasing can attest, there is often more “quid” than “quo”.
With ever-increasing rapidity and perhaps as a result of the mounting competitiveness in the marketplace, the procurement process is seen as just another opportunity to advance a sale. The “best” decision for the organization, and by default the shareholders, is often over-ridden because of the rallying cry for more revenue. There is often little analysis performed, as assumptions are made that more revenue and an intricately linked customer-supplier relationship, by its very nature, must be good for the corporation.
If the procurement team raises questions, even with all the facts in hand, that this potential reciprocal reward is flawed and does not conform to the standard of mutually beneficial, they are most often shut down, and seen as fear mongering. They are seen as not “understanding” the total corporate picture – just “old wives” making up another tale.
But here's the rub — it is the sales organization and those that support reciprocal business, without a full analysis that don't understand the total picture. If the comparator is revenue, then the award will be faulty. Revenue in a client relationship cannot be compared to the cost of a supplier. Profits, instead of revenue, enable the “apples-to-apples” assessment, but this is often the quickest way to raise the ire of the sales organization, because it could stop their elephant stomp cold.
If business is awarded based on questionable measures, then the corporation is exposed to significant ethical and legal concerns, which can irrevocably damage its credibility in the marketplace.
In an ideal world, there would never be cross-contamination between customer and supplier wherein each company would compete on its own merits and be awarded business because of a superior offering. Unfortunately, Utopia is only a concept and hardly a reality. So the question becomes can reciprocal business be done ethically and to benefit the bottom-line of the business?
The answer is a qualified yes, because it requires a significant amount of work and collaboration between sales and procurement.
Sales should not be involved in the initial process of a “buy”. Weighting of the responses, the request for quote/proposal, should be done with no consideration as to whether the supplier is a current customer or potential customer. Once a shortlist has been determined, then the deliberation between sales and procurement can begin. The main consideration should be profit vs. cost, because this is where the heart of shareholder value lies. If the profit and cost equation show a benefit to proceed with an award to a client then such an award is justifiable.
However, some customers believe that by the very fact that they hold this exalted position, they should automatically be given the business. Many procurement professionals have dealt with the undue pressure of sales and senior level leadership attempting to influence the buying decision. As well, some organizations take the view that procurement is just an extension of the sales team – that the purchasing process should be used to strong-arm suppliers into becoming customers. Accepting that premise provides a one-way ticket down the slippery slope of ethical reproach and regret.
