When did the rust in trust start to build up?
A recent Edelman Trust Barometer (www.edelman.com) reports that less than half of the people they surveyed, aged 25 to 64, trust business to do what is right. The cumulative and compounding number of corporate transgressions contributed to the rust in trust culminating in the 2008 financial debacle. We can no longer rely on what business leaders say, instead, we need to see how their organization acts. The “video needs to match the audio”. Per Edelman’s report, trust-building attributes such as operational excellence have taken a back seat to engagement, integrity, products and services, and purpose.
Trust is the engine of business. Deontological theory expects us to “do good.” We trust each other to act in ways which achieve the greatest amount of good because people benefit from the most good. Trust is the currency of a business professional. Fiduciary trust goes beyond a moral or ethical obligation where a breach of fiduciary trust may result in legal proceedings between parties.
Internationally Canada’s public sector can do better. According to the Corruption Perceptions Index, Canada consistently lags behind many western countries. Corruption offsets much of the good which can be done in developing economies.
Trust is affected by capitalism, science, and technology, borrowing from Yuval Harari. Value is based on their ability to meet community expectations.
Should business ethics be an imperative?
Studies have shown that companies which perform well against their competitors often have a strong sense of commitment to values and ethics. As stated in Good Company, typically the best performing companies outperform the overall stock market. Over several years, companies within the same industry which adopted many of the trust-building attributes outperformed their competition.
Social capital refers to relationships in business and extends to the information you access, the ideas which you advocate, and your business acumen. Relationships are built on trust.
Organizational leadership affects personal conduct
Studies by Kouzes and Posner reiterate the importance of trust. They found honesty is a key virtue which leaders utilize to inspire others to follow. Followers will do so where they can trust the leader. Responsible leaders set the ethical expectations of staff and communicate through ethical messaging and conduct.
In the case of Timberland, CEO Jeff Swartz was made aware of the sourcing of hides for leather from the Amazon rainforest. Swartz expeditiously worked with Green Peace to release a policy requiring its suppliers to not purchase cattle which were raised in newly deforested areas of the Amazon. This policy had a significant affect on leather, beef, and other products sourced in Brazil. Any cost implications were completely secondary to doing the right thing to ensure brand protection and retain the trust of its customers.
Are codes of conduct really effective?
Codes of conduct are a guide at best. They set acceptable parameters within which decisions should be made by individuals. The SCMA Code of Ethics reinforces the professional behaviour and conduct which a supply chain professional should exhibit in practice. The Code serves as guidance for its members and reflects on the profession as a whole. While it may not prevent all acts of indiscretion, it provides an appropriate level of response where the behaviour or conduct of an individual may detract from the integrity of the profession.
The electronics industry has its Electronics Industry Citizenship Coalition Code of Conduct. Many of the larger electronic brands are signatories to the code. While the intent of the EICC code is good, it has not prevented the questionable practices of sourcing raw materials such as coltan from the Democratic Republic of Congo. We could surmise that cost pressures necessitate securing the materials first and applying the code second.
The Canadian government participates on various OECD committees. In 2008 the OECD Guidelines for Multinational Enterprises states, “observance of the Guidelines by enterprises is voluntary and not legally enforceable.” It asks that MNCs meet the softer expectations of society while promoting commercial interests. In other words, the OECD trusts the companies to do the right thing.
The slippery slope to professional misconduct
Harvard professor Max Bazerman’s research led to an acknowledgement that once the ethical line has been crossed, an institutionalization of corruption can occur in which unethical acts become a part of daily activities and people often have a vested interest in remaining quiet.
Unequivocally the research showed that incremental steps of unethical behaviour largely went unnoticed. This may cause individuals to escalate these activities, unintentionally with no malice to defraud, until it must be dealt with.
In 2008, a former Imperial Tobacco employee admitted to the decade-long scheme to ship tax-free cigarettes into the US where they would be smuggled back into Canada for sale. In 2018, Canadian retailers admitted to price fixing on the price of food staples such as bread. The penalties do not seem to be effective. We can’t seem to trust them to do the right thing.
The cost of ethical failure
In 2013 SNC Lavalin paid a significant price for its unethical conduct. The World Bank barred SNC and 100 of its subsidiaries from bidding on any of the Bank’s development projects for the next ten-years! This was an outcome of SNC bribing foreign officials. The slippery slope indeed!
In the Canadian Federal budget of 2018, deferred prosecution agreements (DPAs) were introduced. Many corporations have lobbied for DPA legislation as they say the penalties for illegal practices have been unfair. If the DPAs become part of the bargaining process for corporate misdeeds, the DPA becomes a proxy for a “get-out-of-jail-almost-free card.” The effect of a DPA is to reduce the penalties which were levied and let a guilty corporation have its mea culpa conditionally – where, if in future they agree to behave in line with the laws of Canada, they can conduct business as usual. The day after the DPA was announced SNC Lavalin’s stock rose in value.
DPAs are used in other countries. Therefore, having DPAs in Canada evens the playing field is the argument. This author’s opinion is that a DPA lessens the deterrence factor and invites a continuance of bending the rules. The principle of the ethic of care is to do what is right; the principle of ethic of justice is to only do what is legally required.
Promoting ethical conduct
In-house training sessions should reinforce the executive commitment to ethical conduct. Many organizations hold regular safety training sessions to promote safe work place practices. Much the same should be done with corporate ethics and values. Harassment, in its many forms, needs to be eradicated.
Where transgressions occur within an organization, action reviews should be taken to evaluate the cause and effect of such instances. Appropriate actions to mitigate the consequences and prevent further instances needs to taken. Hiding or dismissing inappropriate actions leads to inevitable reoccurrences.
Messages for procurement professionals
Bid-rigging and price fixing practices are alive and well in Canada. The fines levied by the Competition Bureau seem to do little to deter unacceptable corporate behaviour. The crooks become more creative; or may accept the fines as a cost of doing business.
Supply chain professionals play a role in mitigating and preventing bid rigging and other forms of illegal trade practices. It requires an increased level of due diligence to ensure market pricing is conducted in a fair and competitive process. An over reliance on competitive bids to set market prices, without looking for the signs of collusion, contributes to the problem.
Trust in the market should be earned and not assumed. Fortunately, most suppliers are good corporate citizens. The good should be rewarded for their conduct; and the bad should be fully responsible for their misconduct. I trust you’ll do the right thing!