Buyer beware! Ethical challenges in corporate procurement
Buyer beware! Since Roman times, buyers have been warned that they need to take care not to be taken advantage of in the marketplace. But in business-to-business sales, at least, a new study from RSM suggests that it might be the sellers who should watch their step.
The survey of 182 sales professionals (sellers) and 524 procurement professionals (buyers) mainly in Europe with some in Africa, North America and South America, found that unethical behaviour is widespread in procurement, but sellers consider the problems to be more widespread. Over the past two years, for example:
- 72 per cent of sellers versus 35 per cent of buyers say they experienced delayed contractual payments (at least once)
- 68 per cent of sellers versus 43 per cent of buyers say that personal relations or personalities of sellers affected the choice of supplier (at least once)
- 53 per cent of sellers versus 39 per cent of buyers say they saw buyers share more or better information with some suppliers during a tender process (at least once)
According to the researchers, the survey breaks new ground in understanding the ethical climate of procurement. “There have been various studies in the past, but they have not given any real insights into the prevalence of not-so-ethical behaviour,” said Finn Wynstra, professor of purchasing and supply management with RSM’s department of Technology and Operations Management.
sellers
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experienced delayed contractual payments
sellers
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personal relations or personalities of sellers affected the choice of supplier
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buyers share more or better information with some suppliers during a tender process
“It’s important that employees dealing with procurement feel safe to discuss the ethical dilemmas they face not only with their colleagues but also with their managers.”
Fanny Chen, PhD candidate, RSM
Suppliers see more bad behaviour
Respondents were asked to rate a list of more than 20 practices and note whether or not they had seen them committed in the past two years. These 20 practices were drawn from established codes of conduct and previous research, which might suggest that these practices are clearly understood as unethical. But researchers found that some buyers believe they are not necessarily wrong. “We can see clearly that for most of these practices, there’s some ambiguity as to whether they are considered ethical or not,” says Fanny Chen, a PhD candidate at RSM who developed the survey as part of her doctoral research project on ethics and integrity in procurement. Titled Ethical behaviours in buyer-supplier relations, it is co-sponsored by the Dutch Purchasing Management Association (NEVI).
For instance, even though it’s forbidden in most codes of conduct to give a contract to a supplier with whom a buyer has a personal connection, most buyers would say it was permissible if it made money for the company. Similarly, more than half of buyers admitted choosing a supplier because their manager preferred them, a practice most organisations forbid if there is no objective reason provided. This goes for situations inside and outside of tender processes.
The survey also found that sellers are more likely than buyers to see the listed practices as wrong. For instance, 62 per cent of buyers think it’s unethical to knowingly share inaccurate demand volumes during negotiations, compared to 79 per cent of sellers who think it’s wrong. Similarly, 48 per cent of buyers think it’s wrong to use a supplier’s confidential proprietary information to the buying organisation’s advantage, compared to 63 per cent of sellers. As for requesting suppliers to share more commercial information than the buyer is willing to provide for itself, 42 per cent of buyers think this is unethical, compared to 55 per cent of sellers.
To ensure that both buyers and sellers had provided candid responses – a particularly important concern in a study on ethical behaviour – the researchers incorporated a recently developed statistical technique in the survey, the extended crosswise model, which is designed to prevent potentially evasive answers.
“Even if you move companies, you want to be known as a person who does ethical business because it follows you throughout your career.”
Tjarda Becker-de Heer, director category procurement direct materials, FrieslandCampina
Eventually it could harm the business
Assuming these findings are valid – and the model suggests they are – what else should companies be doing to make sure that their procurement departments are living up to their written standards?
Implement clear rules and ensure transparency, for one thing, the researchers say. “If the culture within an organisation is insufficiently transparent, then managers can still exercise pressure on employees,” explains Jan van Dalen, associate professor of statistics in the department of Technology and Operations Management.
Discussions are important as well. “Most practices are context-dependent, and codes of conduct are very abstract most of the time,” Chen says. People need to feel free to discuss ethical dilemmas as they arise. “It’s important that employees dealing with procurement feel safe to discuss the ethical dilemmas they face not only with their colleagues but also with their managers,” Chen adds.
One procurement executive who speaks often with the RSM team, Tjarda Becker-de Heer, director of category procurement of direct materials for FrieslandCampina, agrees that ethics need to be an ongoing focus for procurement. “If we don’t do that, it will harm the reputation of the company, it will harm the co-operation with suppliers, and eventually, it will just harm the business,” she says.
The company, a Dutch multinational dairy co-operative based in Amersfoort, sold more than €11 billion of dairy products worldwide last year. It does several things to keep its employees on the straight and narrow, including:
- Regular talks about ethical practices both within procurement and across the company.
- Quarterly discussions of ethical dilemmas. It is useful not just to think about the issues, but also to accustom people to discussing them. “By doing that, you create a culture where people can just openly speak about it and feel safe to talk about it,” says Tjarda Becker-de Heer.
- A procedure that allows employees to discuss an ethical problem confidentially, without worrying about reprisals from their manager or co-workers.
In her 11 years at the company, Becker-de Heer has emphasised the importance of maintaining high ethical standards, both for the company and for the individual buyer. “Even if you switch companies, you want to be known as a person who does ethical business because it follows you throughout your career,” she says.
A nuanced compromise?
However, Becker-de Heer concedes charting an ethical course can be tricky when one set of rules comes into conflict with another. What sometimes seems at first like a violation of ethics might be a nuanced compromise. In some countries, for example, not letting the supplier pay for a dinner would be considered impolite. “If you haven’t visited those countries, it’s sometimes hard to visualise, but you’re insulting people, and of course that’s also not something you want to do,” she says.
But not everything is grey. Becker-de Heer notes that situations do arise when a procurement professional must stand their ground. “Whenever you get challenged by your other internal stakeholders, it’s hard because people can have very good reasons why they want to work with a supplier,” she says. “Personally, I always speak up and say, ‘hey, you have your role in the company, I have mine, and one of my roles is to make sure that we don’t harm our relationships with suppliers now and in the future.’”
