By Russell Ethridge
Today’s Machining World Archives October 2006 Volume 02 Issue 10
I’ve got a great purchasing department. There are specialists in commodities, equipment, engineered products, and even someone who buys all our office and building supplies for our three locations. Recently, one of the department members was bragging about the new set of golf clubs she won at a vendor’s golf outing, and it got me thinking about the potential for kickbacks or extravagant gifts and how that could create problems, both internally and with some of our customers. We probably should have had some sort of policy years ago, but I’ve never seen a problem, at least so far. What should I be thinking about?
First, I wouldn’t limit my concern to the buying side. You can have bigger problems on the sales side, particularly if you run afoul of a customer’s purchasing policies. If you’re selling to the government, there are gift giving activities that can not only disqualify you from bidding for work but can land you in the “big house.” If you’re selling overseas, “gifts” to foreign officials can violate the Foreign Corrupt Practices Act and the laws of your host country. There are tax issues as well, such as the deductibility of gifts or the declaration of them as income. The IRS doesn’t fool around.
In addition to looking at the legal issues such as taxes and bribery laws, you should examine your customers’ policies. Many companies place a dollar limit on meals and restrict employees from accepting anything more than a key chain or coffee cup with the vendor’s logo. A customer’s employee who overlooks these policies can be ﬁ red and get you off the vendor list. In an age where almost every action has the potential to be exposed, the era of the buyer’s trunk quietly getting loaded with booze and food at the holidays is waning. Obviously, a simple solution beyond reproach is to ban gift giving and gift getting. This however leaves a grey area, such as who pays for lunch or whether to accept an offer to use the vendor’s box seats for the playoffs. It also denies the reality that business acquaintances occasionally develop into real friendships, where gift giving and other favors are normal parts of friendship.
Once you are satisfied that you are not violating the laws or someone else’s policy, consider whether the gift does anything to further the business relationship in a concrete way. Attending a vendor-sponsored outing such as a baseball game or a round of golf (where there is time to build a relationship) probably won’t raise any eyebrows, even if there is little business discussed. Flying a customer to your Florida production facility in February for a plant visit may help you close a deal, even if there is some beach time or a round of golf built in.
On the other hand, a new set of sticks for the buyer is going to look like a bribe or a kickback for that recently awarded purchase order. In the case of your buyer, she “won” those golf clubs at an outing, so presumably there was nothing linking her good fortune to a particular transaction.
Other than the legal concerns beyond the scope of this reply, there is no bright line test. Bright line rules however, such as a dollar amount cap consistent with tax laws (the turkey or ham at the holidays) and a rule on event attendance, which considers who goes and what events are appropriate, make it easier for your sales and purchasing teams to gracefully accept what is permitted and decline what is not. Such rules also provide consistency, which is your company’s own ethical compass.