April 21, 2016
Conflict of Interest: A Growing Supply Chain Challenge
While incidents of bribery remain the most common form of supply chain corruption, employees holding conflicting business interests is an ongoing challenge. This is particularly true in China where a growing consumer class is tempted by new investment opportunities. Consumer brands and retailers, operating sourcing offices in Asia, are at risk. It is not uncommon for merchandisers, or even senior managers, to have a financial stake in a local supplier into which they illicitly channel purchase orders. By the same token, quality assurance managers may hold interests in third party inspection companies leveraging company expertise, or even inspectors reporting to them, to grow their own, separate business.
Not only do conflicts of interest compromise an organization’s integrity but, left unchecked, they breed a demoralizing culture of corruption. Productivity declines, staff turnover increases and otherwise ethical employees become persuaded by corruption or leave the company.
The means by which employees disguise conflicts of interest may also be sophisticated. Employees may not flagrantly breach codes of conduct by holding illicit business interests under their own names but, instead, via members of their immediate family or even ‘uncles’, which has a broader definition in China.
It is important then that companies adopt a preventative approach to the challenge. While rigorous investigations should remain a cornerstone of any anti-corruption program, it is critical that companies adopt a holistic approach. Incorporating a successful, preventative program should keep good employees out of trouble and give those more inclined towards unethical behavior pause for thought and even redress.
First and foremost employees should be required to declare any potential conflicts of interest when they join the organization, annually thereafter, via a company Code of Ethics, and, as circumstances dictate, when any potential conflicts of interests arise through their own interests or those of friends and family. Crucially, companies should also establish confidential reporting channels in case conflict of interest is suspected. It is important that employees are educated on what conflict of interest entails and fully understand its scope. The purpose of these training sessions are threefold; to introduce or elevate awareness, clarify a company’s expectations, and provide tools and resources to employees should they encounter unethical situations.
Utilized correctly this preventative approach is effective. Omega was contracted to investigate an anonymous report of conflict of interest in China. An employee of the client’s Quality Assurance division was alleged to be a shareholder in a third party inspections business. Omega conducted an investigation which yielded sufficient evidence that the employee was persuaded to confirm the allegation. It is worth noting the employee had recently completed the client’s integrity training and so had the opportunity to disclose the interest. Had he done so he would have been asked to divest himself of the interest.
Managing an anti-corruption program across multiple offices, in culturally distinct markets, can be daunting. Omega has vast experience dealing with supply chain integrity risks. For more information on how Omega can help your business, please contact us.