Pros of managing conflicts of interest in procurement

By Charles Nyika | 5h ago

A CONFLICT of interest in procurement arises when supply chain professionals have multiple personal interests that can easily lead them to think and act in ways that are or might be deemed unethical in other circles.

A conflict of interest will also arise when a procurement professional’s personal interests, business affiliations or personal relationships has got a negative impact on their impartiality or might be perceived by a reasonable person as potentially prejudicing their impartiality.

This typically involves situations where procurement professionals personally benefit, directly or indirectly, compromising their objectivity, fairness or the fulfilment of their duties as professionals.

It normally involves a profit-making transaction that might undermine a procurement professional’s implicit duty of loyalty to the business. Procurement decisions that are, therefore, based on relationships rather than economics can easily make the procurement playing field uneven.

Proper procurement decisions must be based on facts and guided by value for money rather than being swayed by personal relationships or known cross-cutting loyalties influenced by self-interest.

The impact of bias might not be readily noticeable, but it has the potential to run deep over time.

Conflicts of interest can create a perception of a lack of fairness or impartiality. Procurement decisions must be seen to be fair and impartial, providing value for money. Supply chain professionals will be deemed compromised whenever their personal interests or obligations conflict with the responsibilities of their jobs or positions.

In such circumstances their independence, objectivity or impartiality can be called into question. Procurement professionals’ economic or personal affiliations may equally distort their judgment or permit conveyance of privileged information at the expense of the business.

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This will call into question the integrity of the procurement process flows, undermining the trust and confidence of supply chain stakeholders. Today, we live in an age of unparalleled access to information.

The ubiquity generated by the internet and social media handles has created platforms for members of the public to scrutinise procurement transactions. The potential of omnipresent digital scrutiny is very high and will force organisations to always maintain their integrity and ethical business standards.

Conflicts of interest cases are grabbing attention in the news, with salacious headlines of wrongdoing.

Conflicts of interest in procurement often represent the first stage of corruption. Such conflicts can truly be early warning signs or smoke signals for larger corruption related scandals.

Procurement professionals can become compromised because of personal interests that are at odds with organisational objectives.

The most known forms of conflicts of interest are nepotism, diversion of business opportunities, accepting personal favours from third parties and having close relationships with competitors.

Accepting gifts, hospitality, or other favours from suppliers could be seen as bribes to influence decision making. These conflicts often result in personal gains for one party and potential loss for another.

Supply chain professionals can easily become biased or can accord preferential treatment to a supplier because of small things like old boys’ network, free holiday gifts, or they may be influenced to make an unfair procurement decision because of the potential to gain power, prestige or financial benefit.

Procurement professionals will be expected to maintain the ethical compass of the organisations together with their own moral compass. They must never lose their objectivity by breaching their duty of loyalty for the sake of personal gain.

Procurement professionals frequently encounter some of the most interpersonally demanding situations. They often face delicate personal relationships and cross-cutting loyalties.

They encounter moral dilemmas that can affect their sound judgment. In an interconnected global landscape, it is nearly impossible to totally avoid conflict of interests in business.

There are certain close relationships between procurement personnel and certain suppliers that can blur the line between good business and uncouth behaviour.

Conflicts of interest can create two simultaneous interests that could potentially conflict with each other in decision-making processes.

It is common knowledge that businesses are built on relationships, but such relationships should not be seen to cloud rational judgement whenever making procurement decisions at whatever level.

Such kind of conflicts should not involve any actual or potential pecuniary advantage that would inure to an individual at the expense of the organisation.

Supply chain professionals are therefore required to demonstrate unparalleled duty of care by making sure that their procurement decisions are not clouded in their judgement of what is good and what is bad.

Individual procurement personnel will always believe that, as moral persons, they are immune to subverted judgments that will possibly skew for their individual or their family’s advantage — yet they do.

At a personal level, there is always the belief that gifts will not sway them — yet in practical terms, they can be influenced to make certain judgments that may favour specific individuals given that reciprocity influences the thought processes of people.

Supply chain professionals may be of the firm belief that they will judge every bidder fairly — yet in some cases they may not. There is often a tendency to overly trust people, who share their same thought processes, and these could be friends or relatives.

The perception of conflict of interests can be as damaging as the reality.

Even small gifts are known to elicit a sense of reciprocal obligation from procurement professionals even where they think they will fight against self-reinforcing erosion toward favouritism, cronyism and corruption.

Personal loyalties do subtly influence frames of judgment that can bend decisions in ways unnoticed at a personal level.

Even if these conflicts do not happen, managing perceptions is as important as managing actual conflicts of interest. The appearance of a conflict of interest can be just as damaging as an actual conflict.

When it comes to conflicts of interest, appearance is as important as reality. An apparent or potential conflict of interest can be just as damaging as a real one.

There is need to avoid any activity that may be perceived as a conflict in the eyes of the public even if a conflict of interest does not technically exist.

It is often said that a poorly-managed “perceived” conflict of interest can be just as damaging as a poorly-managed “actual” conflict of interest.

Poor practice, or the perception of poor practice, in the management of conflicts of interest will negatively affect the trust and confidence in a procurement transaction.

The main objective of managing conflicts of interest is to ensure that procurement decisions are made — and are seen to be made — on proper grounds, for legitimate reasons and without any bias.

It is, therefore, important that everything done is transparent and open so that anything that is done under the sun is not hidden or deemed to be underhand.

It is generally accepted that perceiving a conflict of interest does not necessarily make it a conflict of interest. The true test of verifying whether a matter is just a potentially perceived conflict of interest, or an actual conflict of interest, is disclosure.

Disclosure of a potential conflict of interest does not make it an actual conflict but may help eliminate the perception. It is important to note that individuals cannot make the determination as to whether it is a conflict or not, given that they cannot have an independent or objective point of view.

Under such circumstances, there may be no harm in asking, but there could be a great deal of harm to an individual, the organisation, or both, by not asking. Supply chain professionals must be informed of the dangers of failing to disclose conflicts, or of failure to act with integrity in the face of a potential conflict.

It is important to prevent supply chain professionals from the predictable psychological and moral temptations that oftentimes occur when an individual’s self-interest, close affiliations, or entanglement with reciprocity behaviour subtly affect sound judgments.

Procurement professionals are not angels. Conflict of interest policies should be designed and administered with this in mind. It has been observed over the years that conflicts of interest rarely announce themselves with any drama.

They slowly emerge quietly as business relationships develop over time, sometimes disguised as side hustles. If such side hustles are left unmanaged over time, they will erode the trust and integrity that holds the supply chain together.

While other conflicts of interest are often associated with major scandals accompanied by newspaper headlines, most of them often arise in mundane, everyday little incidents that slip through the cracks unnoticed.

It is, therefore, very important to spell out in no uncertain terms what should be done when someone crosses the white line. Conflict of interest rules and regulations will certainly protect the legitimacy of procurement processes in the eyes of the bidding community.

Such policies and procedures can, therefore, decrease cronyism in the awarding of contracts and minimise cycles of corrupt practice among procurement professionals seeking differential treatment based on personal interests.

In organisations where trust run deep, potential conflicts of interest go unspoken. Supply chain leaders must create a conducive environment that encourages affected individuals to come forward without fear of unfair review procedures, compromised confidentiality or fear of retaliation.

There is need for organisations to establish whistleblowing mechanisms that provide secure and anonymous channels to facilitate staff members to report ethical concerns. But it is also important to specify the potential consequences of non-disclosure.

It is important to clearly spell out consequences for non-declaration.

Procurement leaders must establish procedures that encourage disclosure, promote candour and maximise transparency.

It will serve as a powerful deterrent. A conflict-of-interest policy ensures the establishment of clear guidelines where nothing is left to interpretation. It will take the guesswork and randomness out of the process where there are guidelines for employees to self-disclose potential conflicts of interest.

It will leave nothing to surprises. Procurement professionals must be encouraged to liberally disclose all potential conflicts to enable the organisation to maximise its visibility into this critical area of risk management.

The overriding principle is that, as fiduciaries, procurement professionals must remain loyal to the interests of the business and exercise their powers having regard only to its best interests.

The promotion of ethical behaviour, disclosure, and transparency will enable business organisations to uphold the principles of fairness, integrity and accountability in procurement, leading to successful supply chain outcomes.

Nyika is a supply chain practitioner based in Harare. For your views and comments, he can be contacted at [email protected]