L3.1 Explain aspects of corporate governance impacting the proc. or supply chain function

Question 1

Corporate governance
+ 5 elements

Answer 1

The mechanisms, procedures and processes that are used to CONTROL and direct an org.

Elements
1. policies & procedures
2. management, stakeholder and board accountability
3. performance mgmt
4. stakeholder protection
5. values & ethics

Question 2

Define conflict of interest (COI)
+ 4 questions to ask to identify potential COI
+ 2 ways that COI may present themselves

Answer 2

!! A conflict of interest describes a situation where someone within an org. has OPPOSING LOYALTIES and MULTIPLE INTERESTS…
- …which could influence the person’s decisions in favour of their own gain/giving preferential treatment
= where an individual is unable to remain impartial due to a personal, professional or public interest

1. Will I gain financially in addition to my salary?
2. Do I have any personal relationships with colleagues or suppliers?
3. Am I doing an identical role for a competitor?
4. Should I disclose any of my concerns?
   - If proc professional answers ‘yes’ to any of the first 3 Qs, then Q4 should also be answered as ‘yes’
   - any potential COI should be disclosed at earliest possible opportunity -> to ensure no unethical behaviour occurs & org’s CODE OF ETHICS is not breached

!! COI may present themselves in 2 ways.
1. An ACTUAL COI occurs when a proc. professional has to make a decision that MAY AFFECT THEM PERSONALLY.
2. A PERCEIVED COI occurs when a proc. professional has PRIVATE INTERESTS that could affect a decision-making process.

Question 3

6 examples of COI (see study guide for possible outcomes)

Answer 3

1. a buyer having a CLOSE FRIEND/FAMILY MEMBER as a proc. manager
2. a buyer having a RELATIONSHIP with a subordinate/supplier
3. a buyer awarding a CONTRACT to a family member
4. creating a RIVAL ORG. to the one in which a person is employed
5. accepting payment from suppliers in exchange for INFORMATION
6. accepting corporate hospitality/GIFT in return for awarding a contract

Question 4

The 4D model to address potential conflicts of interest

Answer 4

1. DISCLOSE
   - Disclose the potential conflict of interest to the org.
   - This is the FIRST STEP and although it does not remedy the problem, it is an important step in maintaining ethical behaviour.
2. DISTANCE
   - If a manager has suggested that the individual who has
   disclosed a potential conflict of interest DOES NOT HAVE DIRECT INPUT with the contract, the individual should distance themselves from the associated deal.
3. DELEGATE
   - If the proc. professional CANNOT DISTANCE themselves from the deal, then they should delegate any tasks to a COLLEAGUE who has no conflicts of interest with the supplier.
4. DISASSOCIATE
   - If the contract is critical to the organisation and the conflict of interest is CERTAIN, the procurement professional should
   disassociate themselves from the deal to ensure COMPLETE OBJECTIVITY in the contract process.

Question 5

Define policy vs procedure
+ 4 things that policies may be based on

Answer 5

!! A POLICY is a document outlining how a BUSINESS will conduct itself.
!! A PROCEDURE is the way the POLICY will be carried out.

Policies may be based on:
1. organisational objectives
2. legislation
3. regulation
4. standards

• policies don’t need to be lengthy/complicated documents; just a couple sentences stating the facts, aims and intentions will suffice
• nowadays policies are likely STORED ELECTRONICALLY, through a shared directory or org’s intranet, so that individuals may refer to them easily

From top to bottom
1. Legislation, regulations, standards, objectives
2. Policies {based on the above}
3. Procedures
4. WORKING METHODS {ie. SOPs} are the way that procedures are carried out

Question 6

10 purposes of policies and procedures

Answer 6

1. Ensure conformance
   - to the regulations and standards detailed within P&P
2. Ensure compliance
3. Protect from coercion, bribery or fraud
   - by educating proc. professionals what is acceptable and what is not
4. Organisational protection
5. Continuity of supply
   - P&P in place to ensure buyers have a back-up supplier/ contingency plan should an unplanned situation occur
6. Promote efficiency
   - by outlining the best methods to conduct their objectives
7. Promote ethical behaviour
   - & protects org’s reputation from being associated with unsuitable suppliers
8. Provide references
   - of the correct protocol for an activity
9. Assist audit processes
10. Aid with legal cases
    - if a breach occurs, P&P may be referred to in court to prove what info was in place and available for proc. professionals

Question 7

Organisational accountability and reporting for proc. roles and functions
1. What is organisational accountability?
+ 5 diff. competency levels for individuals

Answer 7

!! Org. accountability is about all members of the business WORKING TOGETHER TO ACHIEVE THE OBJECTIVES.
- …that have been defined through the policies and procedures

Competency levels
1. tactical
2. operational
3. managerial
4. professional
5. advanced professional

Question 8

Organisational accountability and reporting for proc. roles and functions
2. Reporting within procurement
» what 7 things does procurement accountability relate to?
» 3 other forms of reporting within procurement

Answer 8

Procurement accountability relates to
- conforming to the CIPS CODE OF CONDUCT
- compliance with any ethical policies
- conducting supplier appraisals fairly and transparently
- awarding contracts to the most suitable and cost-effective supplier
- managing SPEND to keep within budget constraints
- ensuring specifications are representative of the need
- addressing or reporting on potential areas of concern

1. Reporting concerns or poor practice
2. Reporting budget variances
   - Variances = Actual spend - Budget
   - reporting EXPENSES is important to allow remedial action to be taken at earliest opportunity {if budget exceeded}
3. Other reporting matters
   eg. supplier delivery info, product quality info, % of defects, new suppliers, contracts up for review, cost reductions, price increases

Question 9

5 main elements in a Code of ethics in procurement and supply & what the code covers

Answer 9

1. Values
   - defines an org’s values, morals and beliefs
   - the code explains that the org. works fairly, impartially and transparently to prove honesty, respect and integrity
2. Principles
   - explains how an org. intends to meet its values
   - eg. CSR policy, sustainability policies, customer satisfaction, meeting standards (ISO), continuous improvement
3. Personal responsibility
   - outlines each individual’s responsibility for making sure the code is upheld by themselves and colleagues
4. Compliance
   - ie. ISO 9001/14001, in-house policies
5. Reporting
   - sets out the process through which an individual can report a concern
   eg. open-door policy for ppl to speak in confidence about concerns, anonymous reporting option if employees have concerns about WHISTLE BLOWING
   (=when an ind. reports activity/info which they believe to be illegal, unethical or not in accordance with org’s P&P)

Question 10

6 benefits of having a Code of ethics for procurement professionals

!! Ethics is about doing the right things, the right way.

*if unacceptable ethical conduct is discovered, tender process could be cancelled and restarted, quotations destroyed or contracts annulled
eg. Case study: contract scrapped and entire bidding process restarted for state highway project in Maryland, USA b/c the Transportation Secretary had a PERSONAL INTEREST in awarding the contract in an expedited process to a particular consortium he previously worked for

Following a code of ethics will guide through proc. challenges such as…
1. Human rights issues
2. Bribery and coercion, incl. conflicts of interest
3. Fair trade
4. Environmental issues

Answer 10

1. FRAMEWORK
   - can aid cohesiveness within proc. function; all team members should be working towards SAME GOAL in SAME WAY according to the code
2. REPUTATION
   - a proc. function that works aligned to a code presents itself as having strong values, and works hard to achieve its objectives fairly and honestly
3. PROTECTION
   - protects org. and proc. dept should an ethical breach occur
   - financially, may also LOWER INSURANCE RATES for org. as practical protection against fraud and embezzlement
4. FOCUS
   - shows that proc. function is focused on good practice
5. INVOLVEMENT
   - all interested parties at all levels should be consulted when drafting a code -> to ensure the code has FULL SUPPORT of everyone in proc. function and beyond
6. DIVERSITY
   - a code promotes understanding of diversity - by considering the cultures, beliefs and practices of all individuals within - to ensure all employees appreciate and can work around behaviours they may encounter

Question 11

CIPS Code of Ethics: 4 key principles (see study guide for elaboration)
- a voluntary code designed for org.s and procurement teams, rather than individual CIPS members

Answer 11

1. Understanding and commitment
2. Ethical practice
3. Professionalism
4. Accountability

Question 12

8 core conventions of the ILO (International Labour Organisation)
+ ILO TRIPARTITE structure allows which 3 involved parties to have an equal voice within the org.?

*proc. professionals should consider ^ when EVALUATING SUPPLIERS to make INFORMED DECISIONS on which suppliers are behaving acceptably and avoid those that promote unethical behaviour

Answer 12

• a regulatory body to try to protect against EXPLOITATION in the workplace; tripartite UN agency
• 3 parties: EMPLOYEES, EMPLOYERS, GOVERNMENTS

1. Freedom of association and protection of the right to organise
   - the right to self-govern the workforce by taking into account individuals’ needs along with their feedback, eg. voicing opinions through UNIONS
   » Case study: 2018 demonstration led by the Trades Union Congress (TUC) in London demanded better pay (higher minimum wage) and job security for workers & greater funding for public services
2. Right to organise and collective bargaining
   - right of employees to join a union
3. Forced labour
   - obliges members to PREVENT forced labour within org.s
4. Abolition of forced labour
   - requires members to actively work to ENSURE forced labour is ABOLISHED
5. Minimum age (18)
   - aims to stop children/minors being employed before legally allowed to be
6. Worst forms of child labour (use of children under 15)
   - member states to put processes in place to stop slavery, prostitution, drug trafficking
   » Case study: child labour in Ghana <- joint campaign was run to raise awareness and eliminate it
   » interferes with schooling, increased injury rate, little to no bargaining power (easy to exploit)
7. Equal remuneration
   - promotes the right of all employees doing similar job to receive same pay
8. Discrimination (employment and organisation)
   - protects individuals and org.s from unfair treatment linked to ethnicity, gender, religion, political opinion, social origin

Question 13

The CIPS Code of Conduct

*all CIPS members expected to follow

Answer 13

!! The CIPS Code of Conduct PROMOTES ETHICAL PROCESSES within proc. and supply. through…

1. Enhance and protect the standing of the profession
2. Maintain the highest standard of INTEGRITY in all business relationships
3. Promote the ERADICATION of unethical business practice
4. Enhance the proficiency and stature of the profession
5. Ensure full COMPLIANCE with laws and regulations