The
MBA program in Supply Chain Management
at NC State University is unique among business
schools. With the support of the Supply Chain
Resource Consortium, an industry/university
partnership, the program brings the industry into
the classroom, involving students, faculty and supply
chain professionals in finding solutions to the
real industry problems. This project-based approach
to education reflects the new model for business
schools described by Peter Drucker.
For
more information...
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Peter
Drucker...
"Management is a practice, like medicine;
and the model should have been the medical school,
where the bulk of the teaching, especially the most
important teaching of the M.D. in his or her residency,
is performed by practitioners. Unlike medicine,
where you can bring sick patients into the classroom,
business education does not allow you to bring an
organization into the classroom. You can, however,
bring experience in through your faculty and students.
Business educators should be out as practitioners
where the problems and results are."
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7/21/04
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Conflict
of Interest –
A Hot Topic!
by Rob Handfield |
With
the increased focus on ethical behavior, more and
more companies are examining their conflict of interest
policies, especially as they relate to procurement.
When an individual is hired by a company as an employee,
officer, or member of the board of directors they
enter into a fiduciary relationship with the company.
A fiduciary relationship is defined as a relationship
that exists when one party agrees to perform assigned
tasks for the benefit of another. This relationship
is founded on trust and confidence. Once engaged
in a fiduciary relationship, the parties are governed
by fiduciary duties. Fiduciary duties require individuals
to place the interest of the company above their
own personal interests, fully disclose potential
conflicts of interest, and abstain from activities
that may pose a conflict of interest (1).
In order to address the issue of fiduciary relationships,
most companies include the topic of conflict of
interest in its corporate code of ethics. These
policies are customarily a part of the company’s
overall ethics policy. The definition of conflict
of interest varies slightly from company to company
depending on the industry or industries the company
operates in. A general definition for conflict of
interest is the involvement in any activity that
would create discord between an employee’s
personal interests and the interests of their employer
(2). It is also important that employees, directors
and members of the board of directors avoid any
activity that may be perceived as a conflict of
interest even if a conflict of interest does not
technically exist.
Potential conflicts of interest
Conflicts of interest can occur in many different
areas of the business and can vary depending on
the type of industry in which the company participates.
The most common cases of conflict of interest occur
when engaging in procurement decisions, consulting
activities, and the use of company resources and
services. There are numerous instances in which
the potential for conflicts of interest exist. Several
situations that pose potential conflicts of interest
are listed below.
| • |
Giving/Receiving
gifts- The giving and receiving of gifts
has the possibility to be perceived as a conflict
of interest. It is important that individuals
who receive gifts that are outside of the boundaries
set forth by the company to decline the gift.
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| • |
Family/Personal
Relationships- The issue of family and personal
relationships typically arises as a potential
conflict of interest in procurement activities.
Questions are typically raised when a corporate
buyer selects a family member as a supplier
of a good or service for the corporations. |
| • |
Investments-
If an employee is a buyer for a corporation
and is also an investor in a company who is
a supplier for goods and services to that same
corporation a potential conflict of interest
arises. While this may not produce a direct
conflict of interest, it is important that employees
avoid any situations that may have the appearance
of a conflict. |
| • |
Use
of company resources- In general, it is
inappropriate to use company materials, equipment,
or services for any non-business related activities.
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The activities listed above are a selection of the
primary situations where conflicts of interest typically
occur. Each company must evaluate the environment
in which they operate in order to determine industry
specific situations that may arise.
Reporting procedures
In a recent study completed by MBA students in Fall
2003, the team discovered that companies are using
a variety of means to police unethical behavior using
reporting procedures. The companies we interviewed
typically used three methods for reporting potential
conflicts of interest:
| • |
Self-reporting:
This is the preferred reporting method for all
of the companies interviewed. This process relies
on employees to report any potential conflicts
of interest that they may face. This is typically
a verbal notification system between an employee
and his supervisor. Only one company that we
spoke with had a written form that employees
fill out when they perceive a potential conflict
of interest. One company interviewed required
employees to update their conflict of interest
situation once per month. This provided them
with up to date, reliable information from each
of their employees. |
| • |
Ethics
hotline: The use of an ethics hotline was
common practice among the companies that we
spoke with. These hotlines allow employees to
anonymously report when they observe fellow
employees or management engaging in unethical
behavior. These hotlines encompass all unethical
behavior, not just potential conflicts of interest.
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| • |
Internet/email:
One company we interviewed had developed an
anonymous reporting system vie email or internet
submission. Employees have the ability to report
conflicts of interest or any other unethical
behavior to an email account, which allows the
reporter to be anonymous. Reporting can also
be performed via the ethics website. |
Whatever the method, companies should periodically
re-visit their conflict of interest policies, and
update the means used to track adherence to these
policies.
Sincerely,
Rob Handfield
References:
(1) Baumer and Poindexter. Legal Environment of Business
in the Information Age. McGraw-Hill. 2004.
(2) “Principles and Standards of Ethical Supply
Management.” Institute of Supply Management.
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