Note. From Casey, 2019. Licensed for reuse under the Unsplash License.
- Understand what ethics are and how they apply to procurement.
- Compare the risks to individuals and organizations of unethical behaviour.
- Analyze different types of unethical behaviour in purchasing.
- Evaluate how to promote ethical behaviour in the workforce.
- Establish corporate social responsibility and sustainable procurement practices.
What do you know about ethics in procurement?
Ethics, according to Merriam-Webster (2015), are about the fairness, justness, rightness, or wrongness of an action. They are the set of moral principles, or values, that guide our behaviour. Ethical behaviour plays a significant role in procurement because procurement influences and controls significant financial resources by awarding purchase contracts. This may result in unscrupulous sellers trying to gain an unfair advantage with buyers by offering kickbacks or other financial incentives.
One of the challenges surrounding ethics is that no international agreement exists about what constitutes ethical behaviour on a global scale. For example, according to the Greek Reporter, the Greek Parliament declared that the traditional method of passing bribes in small envelopes may not be unlawful because they are a way of expressing gratitude for favours (Onti, 2013, para. 1). However, passing bribes in small envelopes could result in a jail sentence in many countries.
Types of Unethical Behavior in Purchasing
Organizations can manage ethical behavior in their workplaces by creating an ethics management program and using corporate governance to train their employees on their expected behaviour. These organizations cannot condone unethical behaviour; however, different forms of unethical behaviour still exist due to the constantly growing demand for low-cost products, competition, availability of counterfeit products etc. Here are a few examples of the types of unethical buying that exist in procurement.
This situation arises when buyers or purchasing departments purchase goods or services for personal rather than organizational needs. Examples include purchasing gym memberships or using dry cleaning services for employees, potentially creating conflicts of interest. The rules in this area may differ in certain companies, but most have a zero-tolerance approach to this practice. Financial Conflicts of Interest Awarding business based on personal financial gain is an ethical violation. This, in effect, means that business is awarded to suppliers not on merit, but on for the financial gain of the buyer. Examples include taking direct bribes and awarding business to companies based solely on their ownership by close family members. Many companies’ employees write an annual statement declaring that neither they nor their family members have financial interests in entities that do business with the company or clearly declare any such relationships that exist.
Accepting Supplier Favors
This category involves the acceptance of gifts and favours from suppliers. Examples include dinners, golf outings, free travel, tickets to sporting events, and even cash. A major problem with supplier favours is that their objective is to get buyers to make a purchase decision based on factors other than the merits of the supplier’s performance. It is important for procurement professionals to understand the specific rules and regulations in place regarding supplier favours.
This is a broad category of behaviours that are designed to trick or deceive suppliers, often with lies or misinformation. The following are examples of sharp practices:
• Soliciting bids from unqualified suppliers to drive prices lower.
• Exaggerating purchase volumes to receive a lower cost per unit, then ordering lower volumes.
• Expecting suppliers to perform services but not compensating them for doing so.
• Taking advantage of suppliers in financial distress.
This behaviour gives preferential treatment to suppliers who are also customers of the buying company. Reciprocity could also be present when buyers maintain that they will not do business with suppliers unless they purchase the buyers’ products in return.
Watch this video to see what one company defines as unethical behaviour and their best practices to prevent unethical behaviour.
MCMCTV. (2017, November 9). Procurement code of ethics [Video]. YouTube. https://youtu.be/24Gi70W5HjA
Supporting Ethical Behavior or Practices in Purchasing
Organizations have a variety of ways to promote ethical behaviour and practices. If the organization is quite large, its goal is to develop a corporate code of ethics to guide each department and all employees must see the ethics program being driven by management. The codes of ethics and codes of conduct are dictated by the organization’s culture and all employees must be aware of and act in full accordance with policies and procedures.
Means of Supporting Ethical Behavior in Purchasing
Top management must work to establish a culture that reinforces ethical behaviour and does not tolerate ethical lapses. Executive management must also lead by example and not look the other way or, worst of all, act unethically themselves. When employees do act unethically, management should respond appropriately. This can include taking direct and immediate disciplinary action against such employees.
Companies should also develop written corporate and supplier codes of conduct that clearly describe how buyers and suppliers are expected to act ethically. These codes should be distributed to internal participants and to suppliers. They are distributed to suppliers because suppliers are also expected to abide by the codes of conduct laid out in such documents. Overall, organizations are encouraged to develop and enforce policies that support ethical principles and standards.
The following are additional examples of how companies can support ethical behaviour among their procurement employees:
- Organizations have corporate compliance programs and training that are mandatory for employees.
- Buying organizations may choose to rotate procurement personnel to avoid buyers becoming too comfortable with specific groups of suppliers.
- A beneficial way to promote ethical behaviour is to designate a corporate ombudsman, who investigates and attempts to resolve complaints, problems, and concerns.
Professional Principles and Standards of Ethical Conduct
The various supply chain professional organizations in Canada and around the world have developed their own Code of Ethics for professionals in the Supply Chain field. Please visit the links below to review various codes of ethics for the following professional organizations:
- Supply Chain Canada Code of Ethics for Professionals in the field of Supply Chain Management [opens a PDF file]
- Ontario Public Buyers Association Code of Ethics [opens a PDF file]
- Institute for Supply Management Ethics Book [opens a PDF file]
- Association for Supply Chain Management (ASCM) Code of Ethics [opens a PDF file]
Policies developed and followed by companies must be well understood and enforceable. The ethics policies, in particular, should be shared with employees, including those outside the supply department, and suppliers. Additionally, training must be ongoing and comprehensive. The codes of conduct must clearly state the repercussions for unethical behaviour and should be closely linked with company actions. This might be accomplished by linking unethical behaviour to, for example, disciplinary action that ranges from reprimands to termination where that is necessary.
Watch this video to see concerns related to sustainable sourcing.
Henkel. (2021, Mar. 29). 100% responsible sourcing at Henkel [Video]. YouTube. https://youtu.be/krzCa0synL8
Social responsibility and business ethics are usually regarded as the same concepts. However, social responsibility is one aspect of business ethics. The social responsibility awareness began with the increased public consciousness about the role of businesses and their ethical practices in society. These are the actions of firms that contribute to social welfare, which are classified as Corporate Social Responsibility (CSR). Big corporations make CSR an important element of their strategic management plan and a legitimate business function with the role of corporate social performance, socially responsible investing, and global corporate citizenship (McWilliams, 2015).
The ultimate goal of public procurement is serving the public’s needs, so it’s good news that governments have been leaders in the field of sustainable procurement, which emphasizes goods and services that minimize environmental impacts while also taking into account social considerations, such as eradicating poverty, reducing hazardous wastes, and protecting human rights (Kjöllerström, 2008). The Public Procurement as a Tool for Promoting More Sustainable Consumption and Production Patterns [opens a PDF file] report, published by the United Nations, is an excellent introduction to the topic of sustainable procurement in the public sector.
Although sustainable procurement is primarily associated with public procurement, private organizations have made significant strides in this area as well. Motivations for going green in the private sector vary, but one recurring theme is that customers and employees see sustainable companies as more prestigious, and so are proud to be associated with them (Network for Business Sustainability, 2013). Indeed, many companies are finding that recruiting top-notch employees depends on cultivating a reputation as an organization focused on sustainability. This is particularly true for millennials, who “want to work for companies that project values that align with their own,” with environmental sustainability “gaining ground as a key value for the younger generation” (Dubois, 2011, para. 2). This was one major motivation behind the ongoing transformation of Ford’s Dearborn, Michigan headquarters, a massive DBOOM project which you can read about in the Ford Motor Company: Dearborn Research and Engineering Campus Central Energy Plant report from the US Department of Energy.
Ethical behaviour is important in all aspects of procurement. It is important to achieve fairness and equity in all aspects of business dealings, especially between buyers and sellers. Business entities can ill afford negative publicity in the media for unethical behaviours likely hurting future revenues and profits. Procurement professionals must thoroughly understand codes of ethics pertaining to their specific businesses and ensure that this information effectively flows down throughout and is also communicated to the supplier network. Procurement professionals must also contribute to social welfare and ensure they are investing in socially responsible suppliers and promote global corporate citizenship. Sustainable procurement must also be practiced to minimize environmental impacts while also taking social considerations into account.
- Why does ethical behaviour play a major role in procurement?
- What are the different types of unethical behaviours in purchasing and explain what they mean?
- What are the ways to support ethical behaviour in purchasing?
- What are the Standards of Conduct and Professional Principles in the Supply Chain Canada’s Code of Ethics?
- What is Social Responsibility and how can it be applied to procurement?
- What is Sustainable Procurement and what are the benefits of companies procuring sustainably?
Check your understanding of this chapter’s material by completing this quiz.
Dubois, S. (2011, June 2). How going green can be a boon to corporate recruiters. Fortune. http://fortune.com/2011/06/02/how-going-green-can-be-a-boon-to-corporate-recruiters/.
Institute for Supply Management. (2020). Principles and standards of ethical supply management conduct with guidelines. ISM World. https://www.ismworld.org/globalassets/pub/docs/210_ethics_book.pdf
Kjöllerström, M. (2008, August). Public procurement as a tool for promoting more sustainable consumption and production patterns. Sustainable Development Innovation Briefs, (5). https://sustainabledevelopment.un.org/content/documents/no5.pdf.
LINCS in Supply Chain Management Consortium. (2017, March). Supply management and procurement certification track. Version: v2.26. https://www.skillscommons.org/bitstream/handle/taaccct/14294/LINCS%20Supply%20Management%20and%20Procurement%20Content.pdf?sequence=1&isAllowed=y.
McWilliams, A. (2015). Corporate social responsibility. Strategic Management, 12:1–4. https://doi.org/10.1002/9781118785317.weom120001
Network for Business Sustainability. (2013, June 28). Three reasons job seekers prefer sustainable companies. GreenBiz. https://www.greenbiz.com/article/three-reasons-job-seekers-prefer-sustainable-companies.
Ontario Public Buyers Association. (n.d.) OPBA: A statement of ethics for public purchasers. https://www.opba.ca/chapters/nigp-opba/documents/codeofethics04.pdf
Onti, N. M. (2013, April 15). Greece legalizes envelope bribes. Greek Reporter.
Russell, J., Pferdehirt, W., & Nelson, J. (2018). Technical project management in living and geometric order. University of Wisconsin-Madison.
Supply Chain Canada. (n.d.). Supply chain Canada code of ethics for professionals in the field of Supply Chain Management. https://www.supplychaincanada.com/media/files/code-of-ethics.pdf
This chapter contains material adapted from Supply Management and Procurement Certification Track. LINCS in Supply Chain Management Consortium. March 2017. Version: v2.26. www.LINCSeducation.org.
This section contains material adapted from Technical Project Management in Living and Geometric Order, 3rd ed. by Russell, et. al., and is used under a CC BY 4.0 international license.