Ethics in Procurement. It’s Absolutely Essential!

When Susan Avery asked me to participate in a recent My Purchasing Center webcast on Ethics in Procurement, my first reaction was “What do I know about the topic that would be useful discussing with the audience?” But as I thought more about it, I realized that this is a topic that is essential to all of us as supply management professionals and something that I have very strong feelings about. I wanted to share with you some of the things we covered in the webcast.

All one has to do is pick up the newspaper and you will see, almost on a daily basis, a number of stories detailing bad ethics and poor moral judgment. Beyond the failings of Enron, BP and the sub prime mortgage debacle, of which we are continually reminded, I picked up an internet article recently that listed the top 100 corporate crime stories of 2011 and listed only a few of them. The ethical failings ranged from FDA sanctions, poor product quality and OSHA violations, to bribery, FCPA prosecutions and false advertising and product claims. And the surprising thing is that the violators are mostly very well known, large and successful companies. So, this is a topic near and dear to all types of organizations, in the US and around the world.

I thought that this definition from Wikipedia captured the essence of what business ethics is all about. And I particularly liked the references to self-interests, profits and actions affecting others.

“Business Ethics” can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions of individuals or firms affect others.

While doing some research on this topic, I found an interesting article in the HBR (Ethical Breakdowns: Why Good People Often Let Bad Things Happen. Harvard Business Review, Max Bazerman and Ann Tenbrunsel , April 2011) that dealt with the underlying causes of ethics failures.

• ill Conceived Goals. We all need to think carefully about how we set goals, as they absolutely do drive behaviors. If your procurement group rewards only those who achieve a certain level of savings goals without balance across other key objectives, you may create some bad behaviors on your team and push teamwork, and fair treatment of suppliers to the back burner. I can think of an instance where a very senior executive needed to get a system in place by a certain date or lose virtually their entire bonus for the year. As a consequence, the executive and team pushed ahead without the required due diligence. While they all celebrated the accomplishment, over the next 2 years they dealt with the problem with a bad plan, bad supplier and failed effort to bring up the system properly that touched many of our customers.
• Motivated Blindness. How many times do we see people turn a blind eye, when the unethical actions benefit us? It is only the highly ethical and courageous person who will push back and this is where a strong company culture of ethics and integrity will ensure you make the right business decisions.
• Indirect Blindness. We often soften our assessment of unethical behavior when it’s carried out by third parties. We all need to take ownership of the implications when we outsource or work with third parties.
• The Slippery Slope mutes our awareness when unethical behavior develops gradually over time. Be alert for even trivial infractions and investigate them immediately
• Overvaluing Outcomes may lead us to give a pass to unethical behavior. Examine good outcomes to ensure they’re not driven by unethical tactics.

ISM developed Principles and Standards of Ethical Supply Management Conduct and I believe that they should be top of mind for all supply management professionals. They address a number of critical areas that include integrity in decisions and actions, conflicts of interest, confidentiality and proprietary information and reciprocity, among others. You can access the complete set of Principles and Standards at http://www.ism.ws/tools/content.cfm?ItemNumber=4740

I always believed that we could benefit by sharing our procurement goals, supplier code of conduct and standards for behavior with our suppliers. That way it was perfectly clear what we expected from them and what acceptable behavior looked like. The profession has come a long way from the hard nosed, zero sum form of negotiations that can damage the relationship with suppliers and keep them from considering you a customer of choice and sharing their best ideas and access. Something I always talked about with our suppliers was fair price (for you), fair profit (for them). If you are working with the best suppliers who are continually learning and improving, this works and can form the basis of a long and productive relationship.

A big part of ethics rests on culture and visible behaviors. Let me finish with a couple of thoughts that make this work, in my view, at the best companies in the world.
• Focus on the social norms. Leaders need to model behaviors that make it clear that unethical behavior is outside the norm and will not be tolerated, within the company or from suppliers/partners.
• Results and the corresponding behaviors used to achieve those results are both important. Make strong ethics a part of what you interview for and key promotional criteria.
• Unequal treatment is the gateway to rationalizing misconduct. Walk the Talk as leaders as discrepancies only give employees a reason to act inappropriately in their own self-interests.
• No Yes Men allowed. Surround yourself with people with the courage to question if actions truly fit into the ethical culture and fabric of the company. It is so easy to go astray without this input.

While we may often think that high ethical standards are a given, it is an area that needs to be continually managed and monitored. I would be very interested in hearing your thoughts on this topic.

Speak Your Mind

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