It is a week to the Christmas; giving and receiving gifts are part of christmas celebration. The same activities has become common on the business world as well. Is that considered as a bribe? Let’s discuss about this. As a practical matter, particularly, purchasing people can’t meet with foreign visitors without being given an occasional small gift. As a controller, although I do not see suppliers often, I can understand; it is difficult to refuse, and often would be an affront to the supplier based on local custom. In such a case, purchasing people should make sure it’s of minimal value, and reciprocate. Unlike Americans, many cultures around the world like to give and get small token gifts and these are not bribes! In fact, an occasional token gift can enhance the business relationship.

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Lack of knowledge of the international supplier’s culture has long been a weakness of International buyers, who too often are seen as too direct and impersonal and in a hurry to conclude an agreement. Though clearly not the intended result, this often offends the sensitivities of foreign business people.

 

Christmas gift giving, once common in the United States, is down considerably in recent years. Not only have tough economic times tended to make people reduce these types of expenditures, but professional associations have discouraged the practice as well. Often, management will exhibit a double standard—offering gifts to their own customers, while looking with a questioning eye at anything received by their buyers. Unfortunately, this is not unusual; management needs to reconcile these inconsistent behaviors!

It is debatable whether business gifts are illegal or unethical. If gifts can be tax-deductible (as they are), they’re legal. Presumably they influence or affect new business—and, if this is so, it should be unethical to give and accept them. Some feel the practice should be made both illegal and non-tax deductible, believing that this would eliminate the gift problem. Yet people who give gifts have every right to spend their money as they see fit. Most assert that their purpose is to show goodwill and appreciation for business received.

From the purchasing manager’s viewpoint, the chief harm they do in making these gifts is to create suspicion (and jealousy)—to the detriment to the buyer’s company. Suspicion, then, is really the heart of the problem, and, if the Purchasing Manager’s ethical image is to be improved, suspicion should be eliminated.

Legally, any payment, gift, favor, or gratuity received by the agent, without the knowledge and consent of the principal, belongs to the principal. This is the rule under the general law of agency. Therefore one approach is to turn all gifts received by the purchasing representative over to the company. This may cause the supplier to reconsider the practice of giving gifts.

Lucky is the purchasing person whose management states an outright policy against giving and receiving gifts, for it’s no longer an issue. If this is not the case, the buyer’s best interest is to adopt this as policy, regardless. Note that buyers for the U.S. Government are forbidden from receiving anything of value from the contractor. However, as previously noted, the purchasing person will find there will be international practices that run contrary to domestic ethical norms—and these differences may need to be acknowledged and accommodated.

 

Lunches and Entertainment

There is nothing inherently wrong with a business lunch and occasional modest entertainment when purchasing people visits a supplier. Sometimes a business lunch can be most productive as a way to smooth relationships and get better acquainted. Only the abuse of such courtesies should be questioned. Excesses, such as time away from work, and a too cozy relationship with favored suppliers are obviously objectionable.

What may be a legitimate business lunch for the buyer and seller may not be viewed as such by the competitor, who assumes the supplier (seller) is influencing the purchasing people (buyer). The competitor may see this luncheon as the reason for losing the order to the incumbent supplier. Some companies avoid such incidents by having rules against lunches at suppliers’ expense and substituting invitations to dine with the buyer in the company plant; when an outside lunch is necessary, the buyer picks up the check. In fact, one of the surest ways to help the buyer keep his position with suppliers is to provide an expense allowance. This allows the buyer to reciprocate where luncheons and the like are deemed appropriate.

Another approach gaining favor is to simply not combine business and social activities. There is no rule that business discussions must be conducted at lunch or with entertainment. And usually the business is better conducted in the shop or wherever the item being purchased is made. The less opportunity there is for abuse, the less likely there will be abuse.

 

The Ethical Double Standard

A meatpacking company sent out a friendly letter to its supplier list, asking for cooperation with its no-gift policy. Two weeks later, a sales letter was sent to the same list of suppliers to advertise its products as suitable gifts to give customers. It sounds funny isn’ it?

There is something hypocritical about this common way of thinking, which is explained by some as “business logic”.

 

Another company’s lunch policy was made to look ridiculous when the buyers heard that a supplier’s president annually took their own chief executive on a boat trip to Florida. Can the president of a company, its vice president, or its chief purchasing officer be entertained freely when the buyer is reprimanded or fired for accepting the same courtesies?

It is difficult for any Purchasing Managers to convince the purchasing staffs that they should accept no luncheons or gifts when their own sales department makes a regular practice of handing out gifts and has an authorized budget to cover the expense. Here is an indication that the company does not want those who spend its money to be approachable but, at the same time, considers it good business to foster its own relationships with its customers’ buying people. 

It has been said that you can’t make a rule that will cover every situation; it takes careful weighing of specifics and circumstances. If your company gives away tokens or gifts for the company’s buyers (customers), how do you account for such expense? Let’s discuss this topic on my next post.