How the Bribery Act can spur better SRM

State of Flux

Contrary to what some may believe the UK's new Bribert Act strengthens the case for more collaborative supplier relationship management practices.

Bribery has long been an issue of concern to procurement and supply chain professionals. One of the ways they have traditionally responded to the risks associated with it is by instituting strict rules on the acceptance of gifts, hospitality and other supplier “inducements”. Some organisations have taken this to an extreme and imposed blanket bans, so that employees are not allowed to accept even a pencil with the supplier’s logo on it (on the basis that small tokens may be followed by larger gifts or cash payments). 

It would not be altogether surprising, therefore, if the imminent introduction of the Bribery Act 2010 in the UK caused organisations to tighten up these and other rules still further. While such action may be justified in some cases, in itself this will not be an adequate response to the new legislation. Moreover, if the net effect is to make employees more suspicious about suppliers and put greater distance between customer and supplier (which is how gifts and entertainment policies have often been regarded), then there is a real danger that trust could be eroded.

The challenge for procurement leaders who are scaling up their supplier relationship management (SRM) initiatives is how to build and deepen relationships with suppliers on the one hand, while managing and mitigating risks such as bribery on the other. The good news is that the two are not mutually exclusive. Far from it – a best-practice approach to the Bribery Act actually requires greater engagement with suppliers, not less.

What is the Bribery Act?

The Bribery Act 2010 is scheduled to come into force in the UK in April next year and specifies four offences: paying and receiving bribes, bribing foreign officials, and the failure of commercial organisations to prevent bribery.  This “corporate offence” represents a significant shift away from current bribery laws and will place new and potentially substantial pressures on procurement and supply chain functions, in particular, to ensure that their organisations do not fall foul of the legislation. 

The new corporate offence will apply to commercial organisations that have a business presence in the UK, regardless of where the bribe comes from or the geographical location where anti-bribery procedures are controlled. Such an offence will be committed where:

• a person associated with a relevant commercial organisation (including a company’s suppliers when acting as agents or otherwise on its behalf) commits an act of bribery; and
• the commercial organisation cannot show that it had adequate procedures in place to prevent bribery.

There are several essential points to note about this offence.  First, a company can contravene the legislation because one of its suppliers gives or receives a bribe even when that company was entirely unaware of the supplier’s behaviour.  Second, the company’s sole defence to such a charge is that it had “adequate procedures” in place to prevent bribery.  Third, the penalties for offences under the legislation could be severe: a maximum jail term of 7-10 years for an individual convicted of bribery and an unlimited fine for an offending company.

The key question is what constitutes “adequate procedures” to prevent bribery? Ultimately, that will be for the Courts to decide, but their interpretation of the legislation will be heavily influenced by the Government’s published guidance on the Act. This is currently in draft form pending the outcome of a public consultation.

As it stands, the guidance takes a principle-based approach to help businesses determine what procedures are right for them.  It proposes six general management principles that apply across all sectors and all types of businesses:

1. Each company must undertake an assessment of the bribery risks that it faces.
2. Top-level management should be at the forefront of fostering a culture of integrity where bribery is unacceptable within the company.
3. Proper due diligence is required for companies to carry out an informed risk assessment.
4. Policies and procedures need to be clear, practical and accessible to the entire workforce and they must be enforceable.
5. Policies and procedures must be effectively implemented and embedded throughout the company.
6. Monitoring and review mechanisms are required in order to ensure compliance with policies and procedures and to identify any issues as they arise.

The implications for procurement

The draft guidance clearly emphasises that merely having procedures in place will not constitute compliance with the legislation. For procurement and supply chain functions, this necessitates a focus on positive and sustained measures to ensure adherence internally and by suppliers to the “adequate procedures” test.  One approach to achieving such an outcome is to incorporate these measures as part of an effective SRM programme.  

A recent research report by State of Flux¹ argues that good SRM with an organisation’s most strategic suppliers involves a high level of collaborative working and information sharing, including in the area of joint risk management. It also enjoys strong and active support from senior executives and managers. So an approach that includes information sharing on bribery risks, visibility of supplier bids and projects in progress, and collaborative working towards avoiding those risks – enabled by appropriate governance frameworks and IT systems – aligns nicely with the draft guidance and the obligations contained in the Act.

For other tiers of suppliers – those at the preferred or approved level, for instance – where a full-blown SRM approach is not appropriate, companies will need to ensure that compliance with the Act is included as part of effective supplier performance management and contract management activities. For example, companies should include in their supply contracts the right to audit their suppliers for compliance with bribery avoidance procedures and then make use of such rights – something that all too often does not happen at present.

Of course, the best procurement organisations don’t need the Bribery Act to force them to take these and other steps, they are doing them already. The message for others is to view this issue – and the legal threats it poses – as an opportunity to strengthen the way they manage their supplier relationships. This means proactively engaging suppliers, rather than keeping them at arm’s length and relying on tick-box compliance exercises.

As the saying goes: keep your friends close and your enemies closer. In this case, the enemy is bribery.
 

¹ Value Creating SRM: Delivering Superior Results Through Stronger Relationships (State of Flux, September 2010). For a copy of the full report, please contact our enquiries team. Enquiries