We’ve seen more wrongdoing in organizations in the past 10 years...greater media attention, more accountability from varied stakeholders, changing legislation holding the organizations accountable for individual wrongdoing (FSGO). 

If we consider the implications of commercial bribery and trends in enforcement in China, and other high profile prosecutions of multinationals recently, I think a clear message is being sent from Chinese Government, overseas companies who believe to know the Chinese protocols well, might be conducting processes and controls which are breaching the Chinese law, and the consequences can go far beyond than serious financial penalties and claw-back of unlawful gains, it’s on aglobal scale. 

“ I always think it is funny how things like the GSK scandal has gained so much attention in China. When everyone thinks of ethics and scandals, they usually associate them with the big ones that gain publicity, where in fact it is an ingrained part of the entire process, for everyone.”

Let’s take a look at one real life procurement ethics lapse: 
Jason is a procurement officer for packaging materials at Smith Foods Corp for 2 years.Smith Foods announces its ambition to obtain “huge” savings within “short” time via reverse auction, Jason is responsible for the project and is requested to realize 20% cost saving. 

Jason spends about 3 months preparing for the reverse auction, during which he involved internal customers in supplier visiting and audit. Finally Jason has agreed with hisinternal customers that price is the only remaining issue and expect to find the “best” answer from reverse auction. Nevertheless, during preparation phase,Jason also notices that his Quality Control Manager Lisa has certain preference to one of the suppliers, PackWorld, even if she agrees to use reverse auction to select the final supplier. 

Before reverse auction, Jason states explicitly to 5 remaining qualified suppliers that the lowest price provider will be eventually selected as the supplier. Before that, Jason also shares it with his internal customers and receives their commitment.The reverse auction takes place smoothly, and as expected, the lowest price is only 80% of the price Smith Foods buy at currently. This lowest bid is from a company called United Paper. 

Jason is very happy with the result and is about to announce United Paper as the selected supplier, however, he is called by Lisa, the next Monday. Lisa tells Jason very directly that she does not agree to take United Paper, instead she recommends PackWorld,even if PackWorld is the number 2 in the bidding in term of price. And if Jason is going to decide United Paper, he needs to take all responsibility on any quality issue in the future. At the meanwhile, Lisa also tells Jason that she has communicated with other functional managers and they do not have any objection to her recommendation and believe it is fine considering PackWorld is only 2% more expensive than United Paper. 

What would you do if you are Jason in the story? 
•    Would youconsider it necessary to offend Lisa and other colleagues considering her 10 years experiences with Smith Foods? 
•   Would you want to take liability in case of any quality or other issues in the future? 
•   And who would you talk to in the circumstance? 
•   How are you going to inform your suppliers (selected and not-selected) about reverse auction result? 

And what would you expect your employee to do if you are among the General Management of the Smith Foods Corp? 
•   What is the ethics issue in this case? And who is/are responsible for them? 
•   What are the consequences if selecting PackWorld instead of United Paper? 
•   Do you think Jason will talk to you in this circumstance? 

This is one of the real life procurement scenarios which are taking place every day in every organization, so what would you do? In a discussion posted on LinkedIn earlier, we have got a few interesting comments. 

“ I believe poor ethics is a corporate cultural issue - there is an ongoing public display of this here in Australia in relation to a large MNC. Once the ethical culture is applied and repercussions for non-conformance demonstrated, the ethical frameworks really gain strength. There is a strong track record of the high cost of not applying ethics in procurement. Thanks for raising this important and enduring topic.” – Ethics is a global issue, here in China and everywhere.

“ In your example, based on the information, Lisa may well have a point. The second placed bidder may be 2% higher in price, but if they are an existing supplier that difference may well be made up from better quality resulting in less returns etc. But the ethical problem for Jason is that he has already communicated that the lowest priced provider will win. To a certain extent he has to accept some blame as he obviously didn't have a real consensus from his internal customers at the outset. In the end he is the one to live or die by his decision and should be accountable for it. And if he couldn't/shouldn't have been making these decisions in the first place, then why was he put in that position? As far as offending people, why should it cause offence? If Jason is satisfied by his decisions he should be able to justify them, and if that were to put Lisa's nose out of joint, then that's her problem.”

 “ 1. Quality always comes firstly.   2. Check and compare quality data of Pack World and United Paper, and make a quality report for their products (samples). Quality datashould include data from product performance test (done by yourself) and third-party lab test.   3. 2% price difference is nothing compared with payment term, payment time, after-sales service, lead time, MOQ and other key points in a business contract. Try to make a list or report showing advantages and disadvantages of business contract or agreement from these two suppliers.    4. Call a meeting of anonymous voting after all voters receive and check quality report, business report and other info about these two suppliers. Let’s a project team make selection of supplier; two heads are better than one.   5. It should be cautious to use same or similar package material from two suppliers at the same time, which may result in unexpected chaos or mistake in production or warehousing.” - Posted by a Purchasing Project Manager.

And I found the comment by Trevor Black, FCIPS MCMI very interesting.  
“I believe your posting reflects the fragmented and commercially inept approach to procurement that is endemic within procurement at the moment. Firstly ethics is not costly but you will pay a high price without it. Just take a look at the back peddling and blame that is going on at the moment by those organizations that have been caught out as a consequence of inadequate supply chain management. Your example of “someone” suggesting that 20% savings are possible if you undertake a reverse auction is typical of those who are not engaged withthe market but have this amazing ability to pluck figures from fresh air. In addition the believe that the solution is to engage in a reverse auction, reminds me that those behind this naïve approach to procurement are either politicians or accountants. The solution is to engage with a commercial strategy that will reap longer term benefits and to avoid the “quick fix-low cost” approach. If not possible move to a more enlightened employer! If the organization doesn’t have ethics built into it’s corporate governance policy you are just wasting your time as procurement without support just becomes isolated.”

Procurement is a most sensitive function for ethical abuse or violations, and it takes a lot of efforts for management level to build the right culture, right governance to lead the right people to do the right thing. I tend to agree with what Trevor has said as it relates to Smith Foods Corp in the example resorting to a “quick fix-low cost" solution. Although I just take the story as an example to illustrate my point, I think it is part of the make up of many companies today where accountants are making decisions, rather than those who should know better. 

Many are looking for short term gain instead of a long term strategy to reduce costs in an orderly way, but if you are going to lay blame as he has done, you may as well also include the investors/shareholders in that, who are trying to wring out every dollar of profit that they can, as quickly as they can.(When was the last time you heard a shareholder say they will accept a lower dividend if it means a better return in a few years time?) I also agree with Trevor that ethics should be apart of corporate governance. But while I like to think I am an ethical person,I think we also need to be realistic about all this. There are many who may argue that in China for example, a successful company just hasn't been caught yet. All these companies are getting caught for doing something wrong but in many cases these practices are what it takes to get business done, and if you don't succumb, then you can't play. And if you can't play, your shareholders sell your shares, and invest with someone who can. So what then? And China is only the example. Anywhere where money is king (Wall Street??) unethical decisions are being made every day regardless of what a plaque on the office wall may say about acompany's integrity.

To end up where we started. “ Ethics is a very interesting and important topic I think. Unfortunately, it is one I believe you will never get consistency of approach, and part of that is simply because different people operate under different rules or have different understanding of what is acceptable and what is not. "