Developing a Code of Ethical Behaviour

Developing a Code of Ethical Behaviour

Developing a Code of Ethical Behaviour for

Supply Management Professionals

A Guidance Document

Paper 5

Developing a Code of Ethical Behaviour for

Supply Management Professionals

A Guidance Document for Member Associations of the International Federation of Purchasing and

Supply Management (IFPSM)

Prepared for the Board of Directors of IFPSM

August 2007

Developing a Code of Ethical Behaviour for

Supply Management Professionals

A Guidance Document

Developing a Code of Ethical Behaviour for

Supply Management Professionals

A Guidance Document

TABLE OF CONTENTS

SectionPage

Preface1

Introduction

IFPSM Mission2

Scope of Field of Practice3

The Role of the Supply Management Professional4

Context5

Why a Code of Ethical Behaviour for Supply Management

Professionals6

A Conceptual Approach7

Benefits to Having a Code of Ethical Behaviour8

Key Elements of a Code of Ethical Behaviour10

Implementation Challenges12

Conclusion13

Appendix A

Example of a Code of Ethical Behaviour for an Association of

Supply Management Professionals14

August 2007

Developing a Code of Ethical Behaviour for

Supply Management Professionals

A Guidance Document

Preface

This document aims to set out guidance for the development of a Code of Ethical Behaviour and Professionalism (“Code of Ethics”) by professional associations in the field of supply management. Such a Code is intended to support individual members of IFPSM member associations in effectively carrying out their roles as supply management professionals.

It is the hope of IFPSM that this document will encourage associations that do not have a Code of Ethics to adopt one, and provide constructive assistance in doing so. It should also serve as a useful benchmarking tool for organizations that already have a Code.

Introduction

IFPSM Mission

The mission of the International Federation of Purchasing and Supply Management (IFPSM) is to facilitate the development and distribution of knowledge that elevates and advances the supply management profession, thus favorably impacting the standard of living of citizens worldwide through improved business practices.

Codes of Ethical Behaviour (Code of Ethics) are one such key tool in enhancing the role and scope of the profession.

Central to IFPSM values is the conviction that ethical behaviour lies at the heart of the profession of supply management, and that professional members of IFPSM member associations must adhere to the highest standards of ethical behaviour.

Introduction (contd.)

Scope of Field of Practice

The Code of Ethics addressed in this document would apply to supply management professionals equally in the private or public sector. It would also be relevant to professionals throughout the supply chain, including those who work in purchasing, strategic sourcing, supply management, materials management, transportation and logistics.

Some member bodies of IFPSM or employersof supply management professionals may have requirements and guidance that differ from this Code due to particular regulations or cultural norms. Supply chain management professionals should be aware of those differences and comply with the more stringent requirements unless prohibited by law.

Introduction (contd.)

The Role of the Supply Management Professional

It is the mandate of supply management professionals to effectively manage flows of goods, services and knowledge, along with relationships within and among organizations, to realize greater economic value. This involves obtaining value for money, stewardship of assets, and contributing to the achievement of enterprise strategic objectives. A Code of Ethics is a critical component in supporting supply management professionals in achieving their mandate.

A supply management professional should be able to:

  • Recognize potential ethical problems within the organizations they work for and the suppliers that they do business with.
  • Apply a framework process for resolving conflicts consistent with a Code of Ethics.
  • Justify the rationale for making particular decisions in light of a Code of Ethics.
  • Identify and communicate the expectations of shareholders as well as the costs and benefits of meeting those expectations.
  • Monitor their own compliance with a Code of Ethics as well as those who report to them.

Context

Ethical conduct lies at the core of all business. We do business with suppliers who we trust, and we get business from customers who trust us. It is at the root of generating confidence in both individuals and enterprises. Ethics is therefore a driver of business growth that demands attention from all in the marketplace.

Today in the wake of high-profile incidents of governance breaches, corporate scandals and abuse of the public interest, organizations ranging from business to government to non-profit agencies are demonstrating a heightened concern with establishing and enforcing standards of ethical behaviour.

Every organization, whether it recognizes it or not, has a standard of conduct. Through the actions its people take on a daily basis, every enterprise communicates its values, attitudes and beliefs. Increasingly, organizations are realizing the importance of communicating their principles for decision-making and acceptable norms of behaviour through a published Code of Ethics.

Why a Code of Ethics for Supply ManagementProfessionals

Ethical behaviour is a key pillar of professionalism, as is the commitment of supply management professionals to look beyond profit maximization to the impact that their procurement and supply chain decisions have on employees, the economy, society and the environment.It is the responsibility of those who define themselves as professionals to act in the public interest. Therefore, a supply management professional’s duty is not exclusively to meet the needs of an employer or client, but to meet or exceed the standards of ethical conduct defined by his or her profession.

Integrity is among the top-ranked qualities sought in supply management professionals.Adherence to values by all those in the supply chain is fundamental to building the credibility of our professionals and the organizations they represent and, ultimately,to the development of stable and prosperous economies around the world. It is essential that these common values be promoted in a relevant and meaningful manner by all professional associations in the field of supply management. Indeed, ethical values unite us as a profession.

High ethical standards are increasingly viewed as a competitive advantage.

A robust and well-designed Code of Ethics equips the members of IFPSM member associations to demonstrate leadershipby introducing systems into their organizationsto encourage proper conduct. A Code also serves to strengthen understanding of, and respect for, the vital role played by supply management professionals in national and international trade.

A Conceptual Approach

The preferred basis for developing a Code of Ethics is a principles-based approach rather than a rules-based approach.Rules are rigid; principles are not. A principles-based Code takes a broad and strategic approach to guiding and supporting supply chain practices. Guiding principles combined with professional values should inform the decisions and actions of the members of IFPSM member associations.

Professionals can apply principles to situations not dictated by rules or procedures. It is impossible to define every situation that may give rise to threats to fundamental principles and to prescribe mitigating action, especially considering the range of work assignments the members of IFPSM member associations may be engaged in across the globe. A conceptual framework that requires a supply management professional to identify, evaluate and address threats, rather than merely comply with a specific set of rules, would best serve the public interest.

Further, the principle-based approach allows for the empowering of a culture of innovation, initiative and improvement. It promotes an adaptable and entrepreneurial character on the part of supply management professionals in a business environment marked by complexity, risk and specialized application.

Benefits to Having a Code of Ethical Behaviour

There are a number of important reasons why an Association of Professionals should have a Code of Ethics.

  • Top talent will tend to join professions perceived to possess high integrity.
  • Employers are more likely to hire supply professionals who must adhere to a Code, and are subject to enforcement procedures.
  • Provides guidance to members in avoiding ethical breaches that violate legal and regulatory standards, which may result in sanctions by the public courts.
  • Supports members in establishing standards in their organizations that meet stakeholder expectations:
  • Suppliers expect fair treatment from those they do business with.
  • Consumers prefer to buy from organizations that demonstrate corporate social responsibility.
  • Shareholders use Codes of Ethics as a tool to evaluate investment opportunities.
  • Employee recruitment, retention and morale are higher in values-based organizations.

Benefits to Having a Code of Ethical Behaviour (contd.)

  • Positions the association as taking a leadership role in setting professional standards.
  • Builds trust and confidence in members and raises the profile of the profession.

Key Elements in a Code of Ethical Behaviour

A typical Code of Ethics should include as a minimum the following components:

Section 1 – Introduction

  • A statement of member responsibility and expected conduct along with the Rules, Regulations and Constitution of the Association to which Association members must adhere to.
  • A statement of explanation about the basis on which the Code is founded – for example, Values or Principles or both.

Section 2 – Values/Principles on Which the Code is Based

  • An opening statement indicating that members are required to comply with fundamental values/principles:
  • An example of an opening statement - Members will operate and conduct their actions and decisions based on the following Values/Principles……
  • A list of the Values/Principles along with an explanation of each.
  • Honesty
  • Integrity
  • Objectivity
  • Professional Behaviour
  • Professional Competence and Due Care
  • Responsible Management
  • Confidentiality
  • Serving the Public Interest
  • Conformity to the Laws of the Jurisdiction.
  • An example of an explanation of “Integrity” - a supply management professional should be straightforward and honest in all professional and business relationships.

Key Elements in a Code of Ethical Behaviour (contd.)

Section 3 – What is Considered to be Acceptable Ethical Behaviour

  • A series of statements describing what is considered to be acceptable ethical behaviour for a supply management professional.
  • An example ofa typical statement - To buy without prejudice adhering to the principles of value for money and sound stewardship.

Section 4 – Rules of Conduct

  • A set of rules to address basic issues that are likely to occur on a regular basis.The rules are intended to provide guidance to members.
  • Issues around which rules might be developed:
  • Declaration of Interest
  • Confidentiality
  • Accuracy of Information
  • Fairness
  • Openness
  • Transparency
  • Gifts
  • Hospitality
  • Discrimination
  • Harassment
  • Environmental Issues

Section 5 – An Outline Professional Conduct Process and Procedures of the Association

  • Complaints Process
  • Discipline Process
  • Possible Sanctions
  • Appeal Process

Implementation Challenges

There are several challenges to effective implementation of,and compliance with,a Code of Ethics. These include:

  • Existing attitudes and behaviours of employees and those they conduct business with.
  • Threats that arise from self-interest, familiarity of a close relationship, real or perceived intimidation or reluctance to back away from a previously advocated position.
  • Difficulty communicating values and standards.
  • Possible conflicts with an employer’s other corporate objectives such as short-term profit maximization.
  • Resources and time required of the professional association to develop, implement and enforce the Code

Safeguards that reduce these risks can include a range of measures created by the professional association. Foremost among them are educational, training and experience requirements for entry into the profession, as well as continuing professional development. At the same time, monitoring and disciplinary procedures, and a well-publicized complaint system. have a critical role to play in deterring unethical behaviour.

Conclusion

Professional supply management associations have a responsibility to continuously elevate the practice of supply management and promote its contribution to the economies of their countries. A Code of Ethics that expresses standards of behaviour and professionalism is essential to the ability of the membersof an association to manage risks in their environment, demonstrate greater accountability, and, increasingly,drive business success.

Appendix A

Example of a Code of Ethics for an Association of Supply Management Professionals

1. INTRODUCTION

It is a condition of membership in the Association that members shall abide by the Constitution and the Rules and By-Laws of the Association in which they are members. This Code of Professional Ethics is binding upon all members.

2. VALUES AND NORMS OF ETHICAL BEHAVIOUR

A) Values

Members will operate and conduct their decisions and actions based on the following values:

(i) Honesty/Integrity

Maintaining an unimpeachable standard of integrity in all their business relationships both inside and outside the organizations in which they are employed;

(ii)Professionalism

Fostering the highest standards of professional competence amongst those for whom they are responsible;

(iii)Responsible Management

Optimizing the use of resources for which they are responsible so as to provide the maximum benefit to their employers;

(iv)Serving the Public Interest

Not using their authority of office for personal benefit, rejecting and denouncing any business practice that is deemed to be improper;

(v)Conformity to the Laws in Terms of:

a) The laws of the country in which they practice;

b) The Rules, Regulations and Policies of the Association of which they are a member;

c) Contractual obligations;

Appendix A (contd.)

Example of a Code of Ethics for an Association of Supply Management Professionals

2. VALUES AND NORMS OF ETHICAL BEHAVIOUR (contd.)

B) Norms of Ethical Behaviour

Members will operate and conduct their decisions and actions based on the following norms of ethical behaviour.

(i)To consider first, the interest of one’s organization in all transactions and to carry out its established policies.

(ii)To be receptive to competent counsel from one’s colleagues and be guided by such counsel without impairing the responsibility of one’s office.

(iii)To purchase without prejudice, seeking to obtain the maximum value for each dollar of expenditure.

(iv)To strive for increased knowledge of the materials and processes of the enterprise, and to establish practical procedures for the performance of one’s responsibilities.

(v)To participate in professional development programs so that one’s field of practice knowledge and performance are enhanced.

(vi)To subscribe to and work for honesty in procurement and to denounce all forms of improper business practice.

(vii)To accord a prompt and courteous reception to all who call on a legitimate business mission.

(viii)To abide by and to encourage others to practice the Code of Professional Ethics of the Association.

Appendix A (contd.)

Example of a Code of Ethics for an Association of Supply Management Professionals

2. VALUES AND NORMS OF ETHICAL BEHAVIOUR (contd.)

(ix)To counsel and assist fellow supply chain professionals in the performance of their duties.

(x)To co-operate with all organizations and individuals engaged in activities that enhance the development and standing of supply chain management.

3. RULES OF CONDUCT

In applying rules of conduct, members should follow guidance set out below:

(a) Declaration of Interest.

Any personal interest which may impinge or might reasonably be deemed by others to impinge on a member’s impartiality in any matter relevant to his or her duties should be immediately declared to his or her employer.

(b) Confidentiality and Accuracy of Information.

The confidentiality of information received in the course of duty must be respected and should not be used for personal gain; information given in the course of duty should be true and fair and not designed to mislead.

(c) Fair Competition.

While considering the advantages to the member’s employer of maintaining a continuing relationship with a supplier, any arrangement which might prevent the effective operation of fair competition should be avoided.

Appendix A (contd.)

Example of a Code of Ethics for an Association of Supply Management Professionals

3. RULES OF CONDUCT (contd.)

(d) Business Gifts and Hospitality.

To preserve the image and integrity of the member, the employer and the profession, business gifts other than items of small intrinsic value should not be accepted. Reasonable hospitality is an accepted courtesy of a business relationship. The frequency and nature of gifts or hospitality accepted should not be allowed whereby the recipient might be or might be deemed by others to be influenced in making a business decision as a consequence of accepting such hospitality or gifts.

(e)Discrimination and Harassment.

No member shall knowingly participate in acts of discrimination or harassment towards any person that he or she has business relations with.

(f)Environmental Issues.

Members shall recognize their responsibility to environmental issues consistent with their corporate goals or mission.

(g)Interpretation.

When in doubt on the interpretation of these rules of conduct, members should refer to the Ethics Committee of the Professional Association.

Appendix A (contd.)

Example of a Code of Ethics for an Association of Supply Management Professionals

4.ENFORCEMENT PROCEDURES

The following procedures shall apply unless otherwise governed by legislation. Cases of members reported to have breached the Ethical Code shall be referred to the Association for review by their Ethics Committee.

(a) Complaint Process

(i). Allegations of a breach to the Code of Professional Ethics shall be made in writing by the witness to the Association

(ii)Upon receipt of the complaint, the Association will send an acknowledgement of receipt to the witness and will advise the accused in writing that he or she is under investigation, and the nature of the complaint.

(b) Investigation

(i). The Ethics Committee will conduct an investigation, which will include the opportunity for the accused to present his or her own version of the facts.

(ii)The Ethics Committee will, within a reasonable period of time, present its report to the President of the Association. The report will include the nature of the complaint and the decision as to the dismissal of the complaint, or the sanction to be applied.

(iii)The President will then send the decision to the accused, who has thirty days to appeal.

(iv) If the accused decides to make a request of appeal, then the request must be in writing to the President.

Appendix A (contd.)

Example of a Code of Ethics for an Association of Supply Management Professionals

4. ENFORCEMENT PROCEDURES (contd.)

(v)The President will convene an Appeal Committee meeting with the witnesses, the accused and all other persons who could have new information about the case.

(vi)The Appeal Committee will make its decision within 30 days of the receipt of the request of appeal. The decision of the Appeal Committee is final and without appeal.

(c) Sanctions

(i)Where a case is proven, a member may, depending on the circumstances and the gravity of the charge, be reprimanded, suspended from membership or expelled and removed from the list of members. Details of cases in which members are found in breach of the Code may be published in such a manner as the Association shall deem appropriate.

(ii)Enforcement shall be in accordance with the requirements of the Association.

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