Ethics - Issues of Influence

I will repeat myself from a previous blog, in that it is the Supply Management Professional's responsibility to educate their company's management and staff about the various aspects of Purchasing ethics as defined by the Institute for Supply Management (ISM). That being said, this is probably the most misunderstood and complex issue that will need to be dealt with on an on-going basis. What is influence? Webster defines it in three ways:

1. The act or power of producing an effect without apparent exertion of force or direct exercise of command.
2. Corrupt interference with authority for personal gain.
3. The power or capacity of causing an effect in indirect or intangible ways.

As you can see this indicates that anyone that acts in a manner to change or alter the course of decisions or those who have the power to effect changes in the decision-making process. How are decisions made within your company? Are decisions made by an individual, an individual’s actions, a manager's decision, through committees, following or not following policies, administratively, or some other forum? There are those inside and outside the company that have the opportunity, desire, and/or the power to influence decisions. There are two ways to influence decisions:

1. Corporate, division, department, and employee policies and procedures.
2. Gifts, gratuities, and entertainment.

The first is easier to put in place, train, and require compliance as long as there are penalties in place for non-compliance. The hardest part of establishing policies is getting consensus from the various levels. However, once the policy is established, training becomes a requirement and continued due diligence is necessary because management and staff constantly change. Depending on your company, staff turn-over ranges from 5% to 30% on average. The higher the turn-over rate the more time will be required for training. Do not expect compliance based on staff members reading and signing an ethics statement. There are a couple of reasons.

1. They may sign the document without reading, they may skim over it, or they may not understand what they have read. In any of those examples they sign because it is a requirement of employment.
2. They interpret what they have read based on their own value system and/or past experience.

A dedicated training session allows you to gauge understanding and future compliance. This is the perfect time to clarify any gray areas in the minds of the staff. It is also the time to emphasize the importance of not only following the letter of the policy/guidelines but, also the spirit in which they were written. During an Internet search I found plenty on the "Golden Rule." With further searching this turned out to be the letter of the principles. What I found that makes me say this, is the "Platinum Rule." This became the spirit of the principles in my mind. The "spirit" in other words is beyond that which is stated verbally or in writing.
ISM states that a company should have a written policy that defines what ethical behavior encompasses and that it should be communicated to the staff. Included in ISM's statement is the frequency of accepting (if allowed), solicitation of, and acceptance of personal benefits. Let us look at the three components in ISM's guideline.

1. Gifts: Can be anything given upon first meeting, as part of negotiations, a thank you, or other occurrence. It includes marketing materials, food, merchandise, etc. It is given voluntarily without compensation.
2. Gratuities: Are basically the same as a gift except it is usually given beyond an obligation or service provided.
3. Entertainment: Is something that provides enjoyment or a diversion from normal activities. These include invitations to parties, sporting events, performances, etc.

Let us look at gifts first. It should be a company’s basic policy, that no gifts are accepted, including promotional items. That being said, I have had many students over the years challenge me on what harm does accepting a pen, a coffee mug, a calendar, etc. cause. At some future date, it fulfills its purpose in the sense that when a project starts and the identification of suppliers is necessary, the first one's mentioned are often those that have provided marketing merchandise. It is not a conscience decision to call that name up when asked - who should we include in the negotiations? This occurs on the sub-conscience level because you use the mug everyday or you look at the calendar everyday. Its there and it will surface without anyone realizing it.
The next issue is food and meals. There are two parts to this one:

1. Food brought in for staff: Often times companies will allow food to be brought in periodically (i.e. holidays, etc.). Often it is brought in by the same company. In healthcare, whether in a hospital setting or a doctor’s office, it is looked on as an expectation to the point that if food is not provided staff will not show up for a meeting or an appointment will not be given.
2. Meals (i.e lunch, dinner, etc.): It is often said that there are not enough hours in a day to meet with sales representatives and the only time I have is lunch. Even with a company policy that states that documentation (agenda/minutes) is needed and the frequency with a supplier is minimal - this is never a good idea. Supply Management Professionals are probably the busiest staff in a company and it is my belief that meals are a time away from the office to recharge. It is not a continuation of work.

Finally, food that becomes a habit becomes an expectation. Doctor’s offices actually promote supplier lunches as a benefit when looking for new hires. This is one influence that you can control and it should not be allowed in any fashion.

Entertainment: I was once told that the SC State Ethics Commission stated, if a supplier provides tickets to all of their clients, then it is not an issue of influence. It may not be. However, the perception by other is that it will influence your decisions sometime in the future. This perception is escalated if a bid is not performed or the contract renewal goes unchallenged, etc. If only that supplier provides tickets but no other suppliers in the same industry does, then that will be considered an influence by the other companies. In addition, someone who sees you at the event may not know that the supplier gives the tickets to everyone.

One other issue stated by ISM, is "Avoid accepting monies, loans, credits, preferential discounts." This can be both for the employer and personally. One, NEVER accept anything that would personally benefit you, your family, or friends. It will come back to haunt you. The same goes for business. One, it will impact decisions and it may even be against the anti-trust laws.
ISM states that extreme caution should be used when deciding to accept a gratuity. You should ask yourself the following questions:

1. Is it legal to accept the offer?
2. Is it in the best interest of your employer?
3. Will it influence your decision?
4. Will accepting the gratuity appear to be unethical?

Let us assume that Purchasing is not allowed to accept gratuities but your company's salesman have a promotional items and an entertainment budget, what perception is the company sending out? I believe the perception of other is that it is not okay for others to influence our purchasing department but it is okay for us to influence your staff.

This is a very complex subject that companies often address with less than strict or even well-defined guidelines. Even ISM only offers suggestions. However, I have found that in relation to this issue of influence, I prefer the black and white approach. This means, I accept NO gifts including promotional merchandise, I do not accept food, including lunch and holidays, and I do not accept any form of entertainment. If I do not accept it, I do not have to explain it to anyone, including my management.

Ethics - Conflicts of Interest

As Supply Chain Professionals, it is our responsibility to ensure that there is no personal, business, or other activity that will influence the decision-making process. Our responsibility is not only for the decisions that we make in the performance of our job. It is also our responsibility to ensure that others involved in the decision-making process within the organization are making those decisions without conflicts of interest. How do we ensure that conflicts do not become an issue?

To answer that question, the Supply Chain Professional must understand what creates a "conflict of interest." First, it is important while performing the various job functions, that the decisions being made are in the best interest of the employer and not in the best interest of the staff member making the decision. It is not possible to make a decision that benefits both the employer and the staff member, mainly due to the perception of others that the staff member's judgment was influenced because of their benefit or benefits gained by their decision.

What creates a conflict? Any decision that affects the Supply Chain Professional personally, their family, friends, a business that they receive compensation from, or other types of activities that could provide a benefit. A benefit does not need to be monetary gains. A gain can be increased influence, position, power, etc. or it can be perceived as influencing the decision, thus resulting in a conflict.

Second, if the company does not have a policy addressing conflict of interest the Supply Management department should create and have a policy. This policy should be included in the corporate section of the company policy manual instead of in the Supply Management's policy and procedure manual. The main reason is that the corporate section normally requires CEO or a senior manager's signature prior to placement in the manual and distribution to other managers and staff. Having this level of approval increases the validity and enforceability of the policy. The policy should be all inclusive and apply to all levels of staff and not just the Supply Chain Professional and their department's staff.

Third, includes some form of mandatory inter-departmental education. The form of education could be at the next manager's staff meeting, could be computer training and testing, or even one-on-one training. If the staff members involved in the decision-making process are not managers then computer training might offer the best solution. The goal is to have everyone that could be involved in decision-making have documented training about the conflict of interest policy.

Fourth, is the validation that no conflict exists. Initially, during the roll-out of the policy every manager and staff member should sign a statement that no conflict exists with the job that they are currently performing. For instance, a manager should not be making decisions related to the use a specific company if they or a family member has ownership. The other part of this is to ensure that when teams are created to make decisions on products, services, or equipment that none of the team members will have a conflict. This can be done either verbally and documented in the minutes or in written format. I would recommend that the verification should always be performed in writing and that it becomes a part of the teams documentation. A standard form can be utilized for this documentation. Written documentation allows for the replacement of anyone who has a conflict prior to any discussion or influence and the documentation will eliminate any future questions that a conflict might have existed.

Lastly, the Supply Chain Professional should be involved in all teams making decisions about the products, services, or equipment that are to be utilized by the company. A quick look at products, services, and equipment may be necessary because there are times that Supply Chain Professionals are not involved in the decision-making process. Some of these include projects for research, or travel, or staff insurance policies, etc. Whether the Supply Chain Professional is involved or not, this "Conflict of Interest" policy should apply.

There are many instances that we see decisions being made and a conflict exists. For example:

1. Promotion of a staff member to manage a department that would utilized specific companies of which they own one of the competing companies. In this example the staff member was promoted with the understanding that the company is either closed or sold. The staff member sold the company. However, their manager either did not verify the sale or the sale was not validated as eliminating the conflict. In this example the staff member sold the company to a immediate family member. Conflict still exists.

2. Spartanburg, South Carolina School District Seven signed a contract to allow their golf team to utilize a local country club. As it turns out the superintendent and several of the Board Members were a member of this country club.

3. A Purchasing agent creates a consortium of specific products that they are responsible for purchasing for the organization.

4. A manager has invested throught the company's 401k in stocks of various companies. If the company offers and allows their staff to manage their portfolio instead of having an outside company manage the plan for all staff, a conflict of interest could arise sometime in the future.

There are many more examples of how conflicts influence decision-making. The Supply Chain Professional should always be aware of this when any decisions need to be made on behalf of the company. It is imperative that the party with a conflict remove themselves from the process or the company's policy should be in place to allow documentation and removal of conflicts.