I just recently had lunch with one of my business partners. He’s a sales executive for a major IT company. He was telling me that in his sales positions for the various companies he’s worked for, his customers (I’m not talking about purchasing mind you, I’m talking about the internal customer who is generating the demand) would regularly call him and casually invite perks.
The conversations would go something like this (I’m using the name Mike – not his real name): “You know Mike, my department gave you $3 million in spends last year. There’s a 1 hour course I want to take in Honolulu, can you set me up for that? Also, I want to take my family, and I want have about 3 days before and 3 days after the course to adjust for jet lag. Can you do that for me?”
And you know what? He would! He’d fly their entire family over to Hawaii for the week, all expenses paid. He didn’t just do this kind of thing once, it was a regular sort of deal with all of his biggest customers.
Another big customer of his would always want to hit the town and run up celebrity like bills at the most expensive restaurants that money could buy. He was game.
You see, you and I know that purchasing department personnel go through rigorous code of conduct training to avoid not only conflict of interest, but even the false perception of conflict of interest. That means purchasing professionals typically can’t accept any gift unless it’s both less than $25 AND has the supplier’s logo on it.
However, if you venture into your own company’s sales department, you will find that they are being trained and funded to engage in these exact same activities that they are telling purchasing not to do– to wine and dine the customer to develop continued allegiance and, therefore, continued revenue. They WANT the customer to develop a conflict of interest.
Every single company talks out of both sides of their mouth in this manner. One pitch is for the purchasing department, and the other pitch is for the sales department. It’s a fascinating dichotomy, and it invites all sorts of questions about ethics.
So who squeaks under the radar in all of this? Your internal customer. The big focus is on purchasing, and making sure purchasing isn’t engaging in such activities. But who’s policing the customer? Do you know if your customer is accepting such gifts? It might be against company policy, but it’s not against the law. And the supplier is more than happy to do it. That’s what their customer budgets are for. They’re expected to spend it.
I personally have witness countless purchasing professionals get fired due to a conflict of interest. One got fired because he accepted tickets to a golf tournament and went with the supplier. He was one of the best, but it wasn’t tolerated. Another got fired because he had his landscaping supplier start doing his property too. All eyes are on purchasing, but who’s watching the customer?
Suppliers know the game. They keep this stuff quiet. A dog never bites the hand that feeds it, and everything that suppliers are taught centers around pleasing the customer. Nowhere in their training does it say to please purchasing.
So be aware. The question is, have you set expectations with your suppliers? Have you told them, in writing, that they may not give gifts of greater than $25 to any employee of your firm, and than any such gifts must have their logo on them? Better yet, have you put this into your contracts, so that failure to perform becomes a breach of contract , and therefore a performance issue?
There’s more to this than just conflict of interest. We all know how customers try to force particular suppliers on purchasing. Now you have to dissect and understand the business drivers. If there is competition and the customer doesn’t want it, then you need to dig deeper. Left unchecked, this can end up causing your TCO proposition to lose value, because something other than TCO may be used as a supplier selection criteria by your customers.
Pay attention, and don’t fool yourself into thinking this only happens in countries where corrupt business practices rule. It happens here and it’s probably happening in your company. Take preventative measures and don’t wait until something happens – because you’ll probably never figure it out anyways. Everyone involved keeps it quiet.
Set expectations with suppliers and the internal customer and be accountable for the results. As corporate stewards for how the company’s money is spent, this is your obligation to the board of directors and the shareholders of the company.