Corporations and the ethical three-ring circus
Some may jokingly say that the organizations are reminiscent of a three-ring circus. Well, within those three circles it’s the purchasing professionals who walk the ethical tightrope.
Right now, there are individuals in every corporation who are treading the ethical line out of convenience, undue pressure, or perhaps because they don’t know any better. Ironically, fear of potential career and reputational ramifications may prevent many from questioning the clearly inappropriate behavior of someone they perceive to have more power than they do within the organizational environment.
Why is it so difficult for companies to consistently maintain high ethical standards? As an independent observer, many would sit on the throne of judgment and find themselves held to a much higher moral standard and wax poetic about the failings of others.
But life is not black and white. In fact, good is rarely diametrically opposed to evil. Sometimes it is easier to “turn a blind eye” than to follow the path of Hamlet and suffer “the stones and arrows of outrageous fortune.” Many situations are involved in uncertainty, incomplete information, multiple points of view, conflicting responsibilities and pressures, external or self-imposed.
Recruitment is abuzz with ethical challenges, and too often recruiting professionals feel there is no net to catch them when they take the ethically correct stance. Choices made by those in acquisitions can affect the entire corporation. Processes within purchasing ensure that fair and objective decisions are made. However, other areas of the company may have another agenda. However, if the acquisition gives up its ethical foundation, you walk the tightrope without a balance beam, discovering in the process that there is no net to catch them underneath.
The ethics of an organization are determined by the actions of leadership from the top down. Ethics is not from the bottom up in the company. Leadership and the corporation as a whole must value ethics. If bending the rules results in keys as a result of a short-term revenue boost 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 makes the front page of the newspaper and then the organizational navel gazing begins.
Procurement professionals must hold themselves to an unimpeachable standard, even when they believe the rest of the organization is acting like the clowns in the ethical circus. In some cases, it may mean that a job or position must be risked. It is important to remember that perception of reputation is reality. As Lady Macbeth discovered, the stain cannot be washed away when “hands are perceived to be dirty”. If you lose a job due to an ethical stance, at least you don’t lose your reputation or career options in the field of procurement.
While a host of ethical issues await acquisition on a daily basis, there are three key issues that provide the basis for many sleepless nights due to the stupid pressure to “stick with the show” 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 you’ll hear an audible groan. In its simplest form, reciprocal business is any agreement whereby a seller of one product or service buys another product or service from one of its customers. It’s a basic quid pro quo. However, as many in shopping can attest, there is often more “quid” than “quo”.
With increasing speed, and perhaps as a result of increasing competition in the marketplace, the acquisition process is seen as just another opportunity to advance a sale. The “best” decision for the organization, and by default for shareholders, is often overturned due to the rallying cry for more revenue. Little analysis is often done, as it is assumed that more revenue and an intricately linked customer-supplier relationship, by their very nature, must be good for the corporation.
If the procurement team raises doubts, even with all the facts available, that this potential reciprocal reward is flawed and does not meet the win-win standard, it is most often shut down and seen as fear-mongering. They are seen as not “getting” the total corporate image, but as “old wives” making up another story.
But here’s the problem: It’s the sales organization and those who support reciprocal business, without a complete analysis that doesn’t understand the big picture. If the comparator is returned, the prize will be defective. The revenue in a customer relationship cannot be compared to the cost of a supplier. Profit, rather than revenue, allows for “apples to apples” evaluation, but this is often the quickest way to anger the sales organization, because it could stop their elephant tread.
If business is awarded based on questionable measures, the corporation exposes itself 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 the customer and the supplier, each company would compete on its own merits and win business because of a superior offer. Unfortunately, utopia is only a concept and hardly a reality. So the question is: can reciprocal business be done ethically and to the benefit of 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 purchasing.
Sales should not be involved in the initial process of a “purchase”. The weighting of the responses, the Request for Quotation/Proposal, should be done without considering whether the supplier is a current customer or a potential customer. Once a short list has been determined, the deliberation between sales and acquisitions can begin. The primary consideration should be profit vs. cost, because this is where the heart of shareholder value lies. If the cost benefit equation shows a benefit to proceed with an award to a customer, that award is justifiable.
However, some clients believe that the very fact of occupying this exalted position should automatically give them the business. Many procurement professionals have faced undue pressure from senior and sales managers trying to influence the buying decision. Additionally, some organizations view procurement as just an extension of the sales team, that the purchasing process should be used to compel suppliers to become customers. Accepting that premise provides a one-way ticket down the slippery slope of ethical reproach and regret.
IN THE SECOND RING – CONFLICTS OF INTEREST
The acquisition is rarely the final decision maker on any purchase. Recruitment will most likely be an influencer, negotiator, and generally ensures that a fair and objective process has been carried out. But most have encountered an illusionist on the review team, conjuring up the logic of why one vendor should be chosen over the others, often to the bewilderment of the rest of the group.
There are several questions that need to be asked to uncover the illusion. Have all vendors been vetted through the same process or have some been given preference because of who they know? When evaluating a potential provider of goods and/or services, is there a process in place to ensure potential conflicts within your evaluation team are known? Is there a requirement for vendor feasibility assessors to complete a full disclosure form and have the potential vendor do the same?
Full disclosure ensures that anything provided to stakeholders within the corporation, such as research trips or other “incentives”, as well as identification of any pre-existing relationships (business or personal) have potentially affected the impartiality of any member of the team. It doesn’t mean it has, but at least there is full scope information available to ensure that decisions are not tainted and inevitably defensible.
IN THE THIRD RING – MAVERICK EXPENDITURE
In every circus, and in every corporation, there are the proverbial cowboys. Regardless of the “rules” or the definite benefits to the organization that working with acquisitions will bring, these mavericks continually trample politics and ethics. When asked why they respond with haughty arrogance, that the purchasing team doesn’t know what’s best for their business.
These cowboys jump with examples from “I can negotiate a better deal” and “I know the best vendors to work with” to “procurement processes take too long,” each of which can be quickly discredited by the procurement team with facts and figures and come off as lame excuses. Even when this dishonest behavior results in major trouble, he is left to pull out the shovels and clean up the results of the cowboy act.
Corporations need to bring these cowboys to heel because the potential impacts are enormous. The problems derived from such behavior are ethically sterile. Even if one were to discount the fact that the corporation could gain a positive bottom-line impact by leveraging dollars spent dishonestly, these mavericks often conduct business with vendors with whom they have a “cozy” relationship, without proper due diligence from their competitiveness, its long-term viability and often without the basic protections of a contract. They have often strutted forward and shot from the lip, committing the organization through verbal agreement.
Seeing this act, procurement professionals often stand on the sidelines, waiting for the repercussions of this high-risk behavior, but more often than not the emcee looks at them, rolls his eyes, and says, “I don’t know.” Don’t worry, that’s just what happens.” how is he / she. I’ll talk to him/her.” And after a quick discussion and a virtual slap on the wrist, they’re back to continuing their evil deeds, shovel-ready purchases.
Recently, a fourth ring has come forward with ethical issues found in offshoring, but that’s for the next scene call.
Shareholders are ultimately the audience for the corporate three-ring circus. It is for them that the organization must perform to the best of its ability to ensure value creation and to ensure that nothing is done that might make a negative front-page headline.
It may be little comfort to procurement professionals, but it’s important to remember that the tightrope act is the one that always gets the standing ovation.