YOUR SUPPLY CHAIN IS AS STRONG AS THE WEAKEST LINK

“What’s in it for me (WIIFM)?” Generally, this question is the modus operandi for most decision-making processes in life. Mostly, making a

decision which is based on this mentality does not cross any moral or ethical boundaries that guide society. However, what happens when the

‘WIIFM’ mentality does cross the boundaries of ethics?

Daily, we are confronted by news reports which continually unveil corrupt activities. Of late, there have been email leaks alluding to clandestine

transactions, that implicates government officials in self-enrichment schemes, as well as inadequate management of taxpayers’ money. More

recently, there have been millions lost to the economy through liberal reporting of assets, corporate giants supporting suspicious business

transactions and conspiracy between the public and private sectors in furtherance of personal agendas. For too long, there has been a perception

that corruption is a victimless crime. However, corruption robs our youth of opportunities and impacts the lives of the most vulnerable in our society.

There are those corrupt activities which make the headlines; however, there are far more which continue with impunity and will remain under the

radar of scrutiny.

One of the most significant barriers to targeting and eradicating corruption is that many do not recognise what it is. It is not a ‘cloak and dagger’

interaction that takes place in a dark alley, but open communication between two willing participants, usually instigated by a person of means. For

too many, corruption has become part and parcel of doing business today in South Africa. Essentially, corruption is accepting or giving a gift or

money, doing a favour to secure or maintain business or turning a blind eye to corrupt activities.

Most larger, more established, organisations have processes in place to mitigate corruption. They understand the extra-territorial reach of

international regulators, the reputational damage, as well as the legal fees associated with an investigation into corrupt activities. In general, such

organisations provide their employees and third-party representatives with training, as they recognise the social, legal and reputational impact of an

investigation into corrupt activities or being found guilty thereof. In many instances, those working for larger, more established organisations have

witnessed the consequences of a corrupt colleague being dismissed upon being found guilty of such misconduct. However, these organisations

rarely take into account the dire impact that an unscrupulous supplier may have on their organisation.

Generally, SMEs do not have the resources to implement processes to detect corruption. Worse still, corrupt activities are interpreted as an overall

cost of doing business. What SMEs must take into account is that any misrepresentation of their credentials or financial circumstances, payments or

favours in furtherance of obtaining or retaining business, participating in anti-competitive business activities, or ignoring such practices, is deemed as

corruption

Creating a Path for Change

As in any change process, the first step towards tackling corruption is awareness. In creating such awareness, a full understanding of all risks and

subsequent consequences of corruption to all parties needs to be clearly laid out. Unfortunately, many SMEs believe that the consequences of

corruption are reserved for the larger, more established organisations. However, in reality, they apply to all organisations, irrespective of size.

Let’s face it, communicating the impact of international regulators such as the US Department of Justice or the UK’s Serious Fraud Office will

probably not resonate with most SMEs, as they generally conduct business within the confines of the South Africa financial

system. Therefore, it is imperative that awareness surrounding the consequences of corruption is communicated on a national platform targeting all

types and sizes of organisations. Vitally, South African business has to remove the ‘WIIFM’ mentality of doing business.

Evaluate the cost of ‘WIIFM’

Although South Africa has a robust legislative framework in place to fight corruption, there are rarely consequences that adequately address it.

However, the most significant challenge to organisations is their ability to identify corruption in the day-to-day running of their business not only

from an internal view, but a supply chain perspective too.

An example of this is Jeremy, who owns a small business, distributing and installing solar street lamps. His local Ward Councilor has advised

him that the Council is interested in purchasing street lamps through his organisation. However, the Ward Councilor needs his support in the

next local election to direct this business through to Jeremy. This may seem like a general conversation; however, it is clear incitement of

furtherance. Unfortunately, Jeremy views this as a fair exchange to secure sustainable new business.

Without knowing what constitutes corruption, Jeremy is oblivious to the consequences of such an offer. From Jeremy’s perspective and that

of many other SMEs, the future impact of corruption does not resonate during the early phase development stage of their business. Similarly,

telling Jeremy that such a transaction based on collusion may have a dire impact on his reputation and ability to conduct business further down

the line does not resonate, as his focus is on growing his business today.

It is imperative that Jeremy and other such SMEs have a full understanding of what constitutes corruption and the consequences thereof,

such as blacklisting or, worse still, prosecution. The message has to be clear that corruption will not be tolerated, no matter the scale or the

circumstances surrounding WIIFM. The reality is, as soon as Jeremy agrees to the conditions to secure work from the Council, he will be

colluding with the Ward Councilor. Therefore, Jeremy would always be beholden to him. Once Jeremy and other such SMEs are aware of what

constitutes corruption, as well as the potential consequences it has, there will be a desire to replace the ‘WIIFM’ approach with a ‘clean busi ness is good business one’.

Manage ‘WIIFM’

One identified risk area of corruption for organisations is third-party representatives acting on their behalf. In many cases, a third-party is

an SME supplier either working independently on behalf of the larger, more established, organisation or as part of a joint venture agreement.

It is imperative that organisations conduct due diligence on all third-party representatives, as the UK Anti-Bribery Act extends to not having

processes in place to prevent corruption. Therefore, for a larger, more established organisation to protect itself, third-party representatives

must be educated on the expectations an organisation has, with clear guidelines on how business should be conducted and the consequences

thereof.

Upon corruption being identified, generally, the first port of call is reporting it to the police, who are mandated with investigating the allegations,

evaluating the findings and putting the evidence forward to prosecutors. However, being able to take corruption to the next reporting level is not

always a ‘cut and dry’ situation. An example of this is :

ABC Traders is an organisation that is three years old; it has two shareholders. The organisation has done relatively well since its

establishment and has secured stable long-term Service Level Agreements. However, the shareholders have a massive disagreement and

decide to part ways. Shareholder one opts to continue to run ABC Traders independently and has negotiated an exit payout for shareholder

two. Shareholder two accepts the exit payment then immediately establishes another organisation named ABC Holdings

Shareholder two subsequently approaches all ABC Traders customers to advise them that the banking details of ABC Traders

have changed. Shareholder two then provides the banking details of ABC Holdings, notifying them that all future payments to ABC

Traders must be paid into the updated account provided.

Within a couple of weeks, shareholder one realises what shareholder two has done. In the mind of shareholder two, no crime was

committed; he was merely conducting business as usual. Upon this case being reported to authorities, the activities of shareholder

two were shrugged off and put down to “Business is business, this is not a crime.”

So what is the impact of this on the larger, more established organisation who paid ABC Holdings instead of ABC Traders, taking into

account that the signatory to the Service Level Agreement is ABC Traders? Importantly, they have no service level agreement with ABC

Holdings, therefore, have no guarantees in terms of downstream suppliers being paid. There would be no quality assurance guarantees for

work completed by ABC Traders as they were not paid for the work done. Furthermore, there is no guarantee or evidence that the necessary

PAYE, VAT or Tax payable will be presentable to SARS.

This scenario highlights the potential consequences a larger, more established organisation may face through the actions of a supplier. This is

especially so, if the larger, more established organisation falls under the jurisdiction of international regulators. It is essential, that organisations

take cognizance of the risks associated with corrupt suppliers and ensure that SMEs like Jeremy, ABC Traders and ABC Holdings are aware of

the impact of the ripple effect that their actions may have on the organisations they service.

Communicating Clean Business

Once larger, more established organisations approve a supplier on their supply chain, they need to take the necessary steps to educate them

on good governance. Each needs to be aware of the benefits and necessity of conducting clean, ethical business. Essentially, the ‘WIIFM’

mentality must be eliminated. To change this ‘WIIFM’ mentality, communication must be ongoing, reciprocal and lead by example. It must be

supported by a trusted reporting mechanisms put firmly in place to encourage a shift from the ‘WIIFM’ mindset

Many organisations approach corruption, which includes anti-competitive risk management, through a tick-box exercise. This generally consists of suppliers attending an induction course, whereby they complete a test and sign an acknowledgment of their commitment to conduct clean business. Although this method of managing corrupt activity may be enough to comply with the law, it in no way encourages SMEs to change their ‘WIIFM’ mentality and harness a culture of good ethics within their organisation. Often such tick-box exercises are a means for a supplier to move forward with an impending contract or agreement; in other words, a license to trade. An ongoing efficient Change Management process, more than any other, is necessary to move the questionable ‘WIIFM’ mentality into a ‘clean business is good business one’. The process must be a transparent one; it must include ‘checks and balances’ which will ultimately reinforce an organisation’s commitment to having a compliant ethical supply chain.