Do the right thing

When business is bad, pressure can increase on salespeople to bend the rules to bring in needed revenue. To avoid ruined reputations, distributors must decide how to deal with ethical business situations.

by Richard Vurva

Sales managers don’t often applaud salespeople for walking away from business. But Joan Hoppock of General Industrial Tool & Supply in Sun Valley, Calif., knew her salesman did the right thing when he told her he wouldn’t be calling on a particular account any longer. The reason? The customer told the salesman that if he wanted his business, he had to supply him with Los Angeles Lakers tickets.

That’s not to say it’s never appropriate to give gifts to a client. But a customer who demands kickbacks isn’t the kind of person you want in a long-term business relationship.

Rather than continue to do business with someone who values personal gifts over quality products and services, the salesman quit calling on the customer. Since it wasn’t a major customer, the decision was easy. But Hoppock believes her salesman would have done the same thing regardless of the size of the account.

“It’s easy to have values when they’re easy to follow,” she says. “But they’re not values until you can follow them even when it’s hard to do so.”

Hoppock often talks to salespeople about making ethical business decisions. She knows that her company’s success requires relationships built on trust. A breach of ethics can seriously damage a company’s reputation.

“If I don’t have the kind of trust in my salespeople that they’re going to do the right thing, then I don’t have the right salesperson,” Hoppock says.

Management sets the tone
A National Business Ethics Survey conducted by the Ethics Resource Center and KPMG Peat Marwick in 2000 showed that one-third of the 1,500 workers surveyed said they observed their bosses lying to employees, customers, vendors and the public. They also witnessed their bosses abusing employees, stealing from the company or breaking the law.

Dr. Jay Smith of the University of Alabama at Birmingham’s industrial distribution program says it’s important for management to define the company’s values and ethics. A written code of ethics or statement of company values can avoid problems and misunderstandings among employees.

He cautions, however, that there are no easy answers to many ethical questions.

“Write down as much as you can to prevent misunderstandings, but realize that you can never anticipate every situation that might arise. It eventually comes down to trust,” Smith says.

If employees see managers making questionable choices, they’ll stretch the rules themselves. He adds that company owners and top management must set the tone.

For example, suppose a major customer asks you to supply them with a product that your company is not authorized to sell. You go to the product manufacturer and work out an agreement to sell the product to that one customer. Would you then offer the same product to other customers?

Chuck Gray, chief executive officer of Machinery & Factory Industrial Supply in Racine, Wis., says he would honor his commitment to the manufacturer, even if it meant turning down business.

“I set the moral tone for the company,” he says. “If I allowed things to go on such as selling a product to anybody who wanted to buy it even if I agreed with the manufacturer not to do so, it’s eroding the moral value I tried to instill. That’s going to create problems for yourself down the road.”

Manufacturers don’t always appreciate the position that Gray and distributors like him take. Grateful for the business, they look the other way and accept additional orders that rightly should have gone to another authorized distributor.

“Business is so competitive; a lot of companies are scrapping for whatever crumbs they can grab. If they have to bend the rules, they’ll bend them,” says Pete Cowgill, president of H&C Tool Supply in Rochester, N.Y. “Often, their attitude is, don’t tell me what I don’t want to know.”

Taking a head-in-the-sand approach erodes the trust between manufacturers and distributors, Cowgill says. What can hurt a business relationship even more is when someone makes a choice to deliberately deceive a business partner.

One of the most disturbing practices Cowgill has seen recently involves reverse auctions, where companies invite suppliers to make online bids. At some accounts where H&C Tool Supply entered bids, Cowgill suspected that the customer entered false bids in order to drive down the price. Suppliers who participated in the auction in good faith were unaware that the customer manipulated the process.

“There’s no policing mechanism in this situation. We think there needs to be someone to step in and write a code of ethics,” he says.

Hoppock recently discovered a vendor selling products direct to one of General Industrial Tool & Supply’s customers. When she confronted the vendor, he said it wasn’t the company’s normal policy to go direct, but admitted doing so with this customer.

“If there’s a circumstance where the customer needs to go direct to the manufacturer for some reason, the manufacturer should stand their ground and say, ‘We sell through distribution.’  If the customer insists on buying direct, it’s the manufacturer’s responsibility to involve the distributor by compensating them somehow,” Hoppock says.

Suggesting that it’s not your policy to act in a certain way but going against that policy anyway is like saying you’re not in the habit of cheating on your spouse, but you’ll make an exception just this once.

"Our core suppliers are more important to me than any single customer because they can earn me more money than any single customer. I would hope that suppliers would look at us the same way,” Hoppock says.

This article originally appeared in the July/August 2003 issue of Progressive Distributor. Copyright 2003.

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