Is Supplier Management Key to Addressing Recent Ethical Lapses? (Part 1)

The recent allegations that the SEC and FBI have leveled against two former IBM and McKinsey executives have really made me think about the role that supplier management might have in addressing potential ethical lapses with suppliers and whether it's even possible to protect against this sort of behavior. After giving this topic some initial investigation and thought, I've come away believing that there are some ways we can extend the supplier management -- or supplier information management -- paradigm to include key individual stakeholders at suppliers servicing our accounts as well as a supplier's overall executive team. While this won't be easy -- and we'll need to extend current technology capabilities to do so -- it is commercially and economically feasible today, provided we can get our suppliers to play ball when it comes to greater information disclosure. In this series, I'll explain both why supplier management needs to move in this direction and how we can achieve greater personnel transparency in our supplier relationships.

Let's begin by examining the type of information that would be useful to track on a named-employee basis with suppliers. For manufacturing suppliers we're probably only interested in the executive team and it's already possible, using a variety of off-the-shelf tools and content sources, to monitor such things as changes in management, criminal proceedings, liens/claims, suits/judgments and other publicly available information. Depending on circumstance, it might also make sense to request financial disclosures to make sure that executives at the supplier aren't profiting from illegal insider trading activity based on order volumes or other insider information they might be privy to.

For services companies, however, we need to expand the universe of areas to probe when it comes to supplier team members. It goes without saying in this case that monitoring the public and financial information of key executives is a pre-requisite to reducing risk, the level of depth we consider -- obviously related to the extent of information that the supplier has available -- on the organization, as well as how strategic the supplier is to us overall. But we must also go beyond the executive team at services providers, considering the employees of these providers that are directly servicing our accounts (e.g., partners at a consulting firm, Account Executives at an outsourcing provider).

A Spend Matters' reader and IBM customer recently commented that the firm's recent scandal "totally eliminated our confidence in the ability of IBM to keep any secrets about my company confidential. The day of the scandal I was brought into a BoD meetings and told in no uncertain terms that IBM employees were to be restricted as to access to our facilities and Intellectual Property. As of today, IBM is no longer a trusted partner, but relegated to the role of just another IT vendor. We will no longer invite IBM representatives and executives into our strategy meetings or even give them access to any business planning documents."

Of course getting suppliers to monitor their executives and account-facing team members won't be easy. But certain services providers such as accounting firms already track financial information and holdings of their employees. Asking for an additional level of disclosure here and in other cases should not place too much of a burden on the supplier. But for other services providers that may not have a similar compliance function, perhaps this will be a wake-up call to create one. Such a function would act as a clearinghouse from a risk-sharing standpoint, enabling customers a single contact to gather information on a regular basis. Or, perhaps, a new intermediary will spring up that captures this information, aggregates it and then shares particular risk alerts based on it.

Stay tuned for Part 2 of this analysis when we examine potential technologies that we could use -- some mainstream, some not -- to enable an increased level of supplier/employee transparency and risk reduction.

Jason Busch

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