Ethics Violations: Truth & Consequences
Mary Lu Harding, C.P.M., CPIM, CIRM
Mary Lu Harding, C.P.M., CPIM, CIRM, Harding & Associates, Bristol, VT 05443, 802/453-5379.
79th Annual International Conference Proceedings - 1994 - Atlanta, GA
Three situations involving ethical (and legal) violations are examined with regard to the underlying issues and how they might be handled and preferably prevented. The first two situations look at the role of corporate environment, the role of relative organizational power, the role of evidence and the nature of gender-specific issues. The third situation looks at indirect management of lateral functions and the role of teams in supplier management. The purpose for studying these cases is to increase awareness of the potential for problems, increase understanding of issues which some individuals may never encounter directly and learn how to create an environment which provides the safest and most productive workplace.
Ethical issues are difficult to examine by the very nature of the questions they raise. People have different (and often strongly held) beliefs about what is right and what is wrong. Issues of right and wrong touch core beliefs about our identity and how the world should work. A challenge to them is often met with resistance and emotion.
Yet understanding grows by exposure. We learn from experience, and it is far less painful to learn about ethics violations and their consequences through indirect experience than through direct involvement. The price of ignorance (for both individuals and organizations) is to remain a potential target through failure to take safety measures, failure to offer aid to someone struggling with such an issue because we neither recognize nor understand it, and failure to address environmental issues. This can often make the difference between successful prevention and damage control.
These cases are offered as a means of examining and understanding ethical issues. All three cases actually occurred as described. The people telling their stories have given permission to use their experiences for education provided that their identity is concealed. Therefore, identifying details have been altered. Names of individuals, companies and commodities have all been changed, and any resemblance to persons living or dead is purely coincidental.
CASE A - JANE DOE
Jane is a buyer in her early 30's who has just transferred into a division of a large manufacturing company. Within months of her arrival, one of the commodities which she manages becomes very difficult to get and threatens to go on allocation. She is struggling to get enough of it to meet production needs. Most of her supply comes from Acme Corporation, a supplier with whom her company has a relationship of long standing. The Acme salesman offers to give her a tour of their plant which makes this commodity located in an adjacent state. She readily accepts, believing that understanding the shortage issue from direct exposure and becoming acquainted with the plant's staff will help her get the commodity more easily in the future. Arrangements are finalized. The salesman agrees to meet her at her office in the early morning and drive her to the plant and back, anticipating return by early evening.
After they had been on the road for several hours, the salesman's conversation becomes pointedly personal. Jane tries to change the subject, but he keeps returning to personal issues. A short time later, the salesman says that he has lost direction and is not sure where they are. The surroundings are rural highway. He stops at a motel to ask directions and asks her if she wants to come in - followed by an outright proposition. Jane refuses and insists on staying in the car. Shortly, they continue on their way. He says that they will be several hours late arriving at the plant, and intimates that he can represent their circumstances in a way that will be very damaging to her. What he wants for his silence is cooperation from her on several issues pending between their two companies. During the plant tour, she notices several strange looks from plant staff members. On the return trip he intimates that he can use these circumstances at any time in the future to affect her reputation. His relationships with people in her company are of long standing - much longer than hers. How should Jane deal with this situation?
There is nothing in writing and no physical evidence. What happened during those hours of unaccounted time is one person's word against another's. The Corporate Environment, Jane's company has only men in management positions. She describes the management at her plant as an "old boy's network" to whom the Acme salesman is much more deeply connected than she is. She has a deep concern about reporting this incident to her company. To whom? What will be the likely reaction? Will she be believed or dismissed? Will she become the subject of office gossip simply by reporting the incident? She perceives that women have difficulty advancing anyway; will something like this end her chances for advancement? Will her company (and Acme Corporation) be so embarrassed that they simply want to get rid of the problem quickly? Will she pay a bigger price by reporting it than by keeping silent?
A person who faces a difficult ethical issue will assess the psychological environment in which they work to see if it is safe to tell anyone about what is happening. There is already a psychological wound from the incident itself and it takes a lot of courage to risk another wound by coming forward with the information. How open are peers and management? How much do they really care about employees? Are they likely to take action or to duck the issue? The victim's perception of the degree of safety or hostility often makes the difference in his or her decision. It is vitally important that managers be aware of the environment within their companies. If someone has information or a problem that is sensitive and risky, is there a safe place they can go to get help? How much are managers willing to deal with sticky issues, to listen to their employees and protect them? All too often, because these issues are difficult, managers act as if they would like nothing better than to get rid of them. This attitude is communicated, and it may keep employees away - to the detriment of the company.
Jane considered her options carefully and decided that there was a greater likelihood of damage to her if she came forward than if she kept silent. She perceived her corporate environment to be hostile, and she was concerned about retaliation from Acme. She chose not to report the incident to her company. To protect herself, she made sure that she was never alone with that salesman again. She asked to change commodities, and within a year she chose to leave the company.
CASE B - JOHN SMITH
John buys advanced electronic components for a high-tech manufacturer. Over the last year he has seen a demand pattern for some of his items that appears to make no sense, i.e. requisitions for substantial quantities when there is already enough on hand to cover requirements, etc. One day he receives a call from the vice-president of sales of one of his suppliers asking for an order. The vice-president says that they really need an order now to manage their plant load, and could he look and see if they can take some material early. After checking the inventory status, John tells him that they are already over-inventoried on that item and that he cannot give him any further business for several months. An hour later, he is handed a requisition for those items with a note specifying that supplier. The Inventory Control Manager is very unhappy about it, but he has been ordered by his manager to write the requisition and specify that the material come from that supplier only. John begins to suspect that the strange order pattern he has been seeing is deliberate and that the Materials Manager two levels above him has a suspicious relationship with several suppliers. He begins to watch carefully, document the order pattern and document specific incidents like this one. The more he researches the issue, the more certain he becomes that the Materials Manager is in an illegal relationship with suppliers.
However, the Materials Manager begins to suspect that John is monitoring his activities. He knows that John is probably not amenable to joining his scheme and therefore represents a threat to him. He begins to send John on special missions that are outside his area of responsibility. John is uncomfortable with these tasks and has the sense that he is in a "Catch 22" situation. If he succeeds, the Materials Manager has more political leverage in areas where that could be used adversely; if he fails, the Materials Manager has reason to give him lower and lower performance reviews as a way to "contain" his career. When he returns from one of these missions, he finds that his desk has been moved to a position next to a main hallway (where he has no privacy at all). His manager, obviously uncomfortable, explains that the Materials Manager insisted on the re-layout. How should John deal with this situation?
Legal Evidence, Suspicion is not evidence. A difficulty for many people who find themselves in positions similar to John's is that they can see what is happening, sometimes very clearly, long before they are in a position to prove it. It is hazardous to accuse another person of wrong doing (and in this case, criminal behavior) without proof that will stand up under scrutiny. If there is no wrong doing, an innocent person may be harmed. Even if the accusations are true (but cannot be proven), the person accused may counter with a charge of slander or libel. If the accusations do not hold up, the credibility and reputation of the accuser may be ruined. Be very careful about making any accusations unless they can be proven.
Relative Power, A second issue in John's case is how to deal with relative power. The Materials Manager is two levels above John in the corporate hierarchy. This creates a power imbalance that gives him control over John's career and advancement options. Unfortunately, power is often abused, and the most certain way to avoid harm is to move away from the center of the power. In some cases, there may be alternatives within the company such as Employee Assistance Programs to which one can turn for help. Even with assistance, power is difficult to combat, and the concerns with legal evidence and proof still apply.
John became convinced that he would have no future with that company under the existing circumstances, and he was beginning to be concerned about his safety. He obtained a job with another company and resigned. In his exit interview, he told the personnel representative about his suspicions and gave her the data he had collected so far. He learned later that personnel checked out his credibility (which was high) and decided to investigate the matter. After a lengthy and professional investigation, they found plenty of evidence to bear out John's suspicions. They terminated the Materials Manager (and several other people who were also involved), but decided not to press criminal charges because they wanted to avoid the adverse publicity which would probably ensue.
CASE C - JACK JONES
Jack is a buyer who works with engineering on the release of new products into manufacturing. A major new product is about to be released, and the forecasted sales volume is high. He knows that the representatives of most suppliers spend much of their time servicing engineers. He is specifically concerned about one supplier salesperson and one engineer. Hallway chatter tells that this engineer has been out on the salesperson's boat fishing, has received tickets to major sporting events, and has asked for and received many "freebies" from the company's product line. Jack discusses the acceptance of freebies with the engineer who immediately becomes defensive and argumentative.
The company has only a poorly-worded policy in place about acceptance of tangible goods of minimum value, and it specifically exempts "entertainment" because its own sales force uses entertainment extensively as a sales tool. The engineer protests that the freebies are for design experiments not for personal use, and Jack cannot disprove that. He makes no headway with the engineer, and sure enough, when the specs are released for the new product, this supplier is specified as a sole source for a key part.
As soon as the product is released to manufacturing, the price increases from $19.00 to $50.00. Jack obtains comparison information about alternative parts with identical electronic characteristics and finds competitive prices in the $5.00 - $7.00 range. He petitions engineering to qualify alternative parts, but the engineer refuses, saying that this is the only one that will suffice. At this point, the engineer's credibility is on the line, and he is not about to expose his decision by qualifying alternatives. Efforts to qualify alternative parts go nowhere. What are Jack's options in this situation?
Entertainment and gratuities company policies covering the acceptability of gratuities vary widely, and while purchasing people are mindful of them, many other departments are not. Entertainment is especially troublesome since it creates obligation and favor without leaving physical evidence, and the value is more difficult to pinpoint. Many people who have no problem accepting benefits from a supplier are also quick to become insulted and argumentative when it is suggested that they might be influenced by them. Some companies now offer cross-functional training in business ethics and influence. Cross-functional conversations that include sales as well as purchasing and user groups can be especially useful.
Selling to the End User, The fundamentals of basic sales training teach salespeople to sell to the end user. The rationale is clear: the end user is more interested in features than price. This is the person who has the problem that this product can solve. Many end users (such as engineers) are not trained in commercial dealings. Their training is technical. Once they are convinced that this is the only good alternative, they will run interference with internal entities interested in price (such as purchasing and finance). The result for the salesperson is an easier sale at a higher price. It is seldom possible to effectively prohibit this practice. Both salespeople and end users have a vested interest in continuing it. However, effective facilitation of the conversations can be managed by purchasing when team-based supplier selection is used. If source selection is made by a team headed by purchasing and including at least engineering, manufacturing and quality, bias is much more difficult to create and easier to expose. Sourcing decisions must make sense to all members of the team. They can demand that a member who has a strong opinion about one supplier justify it on a business basis.
Jack was not able to get alternate sources approved. He did manage to negotiate price reductions in succeeding years, and eventually the price was reduced to about $30.00 each. He calculated that his company was paying over $600,000./year in inflated pricing for this part. Watching this practice continue and not be able to stop it was demoralizing. After a while, Jack lost much of his desire to work toward cost-effective arrangements with suppliers. He ceased to care as much. Part of his spirit gave up.
Corporate environment: In each of these cases, the psychological environment within the company had significant influence on the outcome. A tone that stresses respect for each person, care and concern for customers and concern for each other provides an atmosphere of safety within which someone who encounters a difficult situation can risk asking for help without fear of retaliation or of being ignored. This tone is conveyed in small decisions as well as large ones.
A clear message about ethical business dealings and about respect for each person, communicated from the top of the organization and backed up by the consistent behavior of top managers who practice what they preach is one of the strongest deterrents to unethical behavior in the lower levels of the organization.
Isolation provides the cover within which unethical activities can continue. Specific incidents tend to occur at times and places where there are no witnesses. Beyond the specific events, a perpetrator will work to isolate his target psychologically so that their silence is permanently guaranteed into the future.
The Acme salesman attempted to isolate Jane by threatening her with future blackmail. John's Materials Manager attempted to isolate him politically by conveying subtle messages that he was out of favor in the company, and anyone close to him might run the same risk. The salesperson worked with Jack's engineer in the privacy of an office or out on his boat, and they thwarted any attempt to widen the circle of influence on sourcing decisions. When the corporate environment is also isolating, the effect is multiplied. A person exposed to the situation will be isolated by the perpetrator and again by the corporate atmosphere. As a result, they may feel totally alone with the situation, which can be very painful.
Creation of a safe and productive business environment requires deliberate attention. It rarely occurs by accident. Awareness and understanding are first steps. Jane, John and Jack have chosen to make their experience public in order to contribute to widening awareness of some of these issues.
Structural and environmental safety nets can be created within corporations so that occurrences of the nature described in this paper are much more difficult to create. Structural safety nets include team based decision-making and simple, clear processes within which it is difficult to hide. Environmental safety nets include clear messages about appropriate behavior emanating from top management and backed up by actions, clear business goals and measurements, and a place for people to go when they are confronted with a serious issue and get help in a confidential manner (such as a good employee assistance program).
ACTIONS YOU CAN TAKE
Actions You Can Take: If you are interested in assessing your organization's vulnerability to unethical behavior or increasing awareness of the issues, the following activities may be helpful:
- Share the cases presented here in discussion groups and ask fellow
employees what they would do. Listen to the conversation.
- Watch the messages, both spoken and unspoken, about behavioral standards
within your company and have your group articulate the company's
position on ethical issues.
- Find out if your company has an employee assistance program or any other confidential support system and how easy it is to access. Share that information.