Corruption

19 December 2005




This same subject has appeared in another trade magazine and I think it may be useful to underline the problem. Some years ago, a tanner somewhere in Europe decided to close shop, sell the premises and just retire. As the tannery had no production problems it had its normal stock of raw hides as well as a normal production reserve of chemicals. The hides were quickly sold 'in the market' at market values and chemical suppliers were asked to take the unopened sealed drums and bags with chemicals back and credit the company. None of the chemical companies objected and all took the chemicals back but then came the great surprise. The chemicals were, on average, reimbursed for slightly more than half of their original price. The invoice value and the credit note values did not match. At first the tanner thought there was a mistake, then thought he was getting less due to a second-hand value, but when he discussed the matter with the suppliers, a totally new scenario came to light. Chemical companies compete to supply their products to tanneries. Normally a formula is developed to produce leather with certain characteristics through trials in a collaboration between the tannery and the chemical supplier of choice. Once the formula is established and the end product is stabilised, the tannery rarely changes supplier for that specific system so long as there are no technical problems. It is a given fact that management rarely orders chemicals since technical staff keep track of the availability of products. It often happens that in order to be absolutely sure that the person responsible for replenishing the chemical store calls the right supplier, the supplier promises a 'premium', which is usually distributed before the summer holidays and before Christmas. This goes to the tanning master or the person responsible for the chemical store. So, when you read this, envelopes are being prepared. The premium is, of course, calculated into the price of the product and, therefore, a chemical costs generally (much) more than it actually should cost. The difference may be as little as a couple of percentage points up to as much as double the cost, depending on how close an eye management keeps on the invoices. The phenomenon has always existed and as far back as the Semaine du Cuir, important clients were entertained by chemical suppliers for the duration of the fair with expensive dinners and night time company. Some chemical companies had a number of hostesses at their stand in the late afternoon where the client could make his choice of the day. Many people know that this practice exists but, surprisingly, nobody does anything about it. As the record goes, there are and have been no charges pressed. Some tannery owners consider the premium given to their staff as a perk which does not appear in the books and, hence, no tax and social benefits have to be paid. I wonder, however, if the tannery owners are aware of the actual amounts that are involved. I know for a fact that a husband and wife team were able to accumulate enough money to buy a house, which they would not have been able to afford from their wages. The result of these premiums is that the production cost of leather is higher than it should be or, if the cost is maintained, then the quality of the product will definitely suffer. Only some, very few, tanneries analyse the products they buy. Chemical companies don't like this state of affairs. They see it as a necessary evil. The premium cannot go through the books and each year it becomes more difficult and dangerous to generate unofficial money to distribute. But what to do? If chemical company A refuses to pay kick-backs there are always chemical companies B, C and D ready to increase their sales and take over a client. I am told that one big German chemical company has unilaterally abolished the premium system, but it is said they suffer lower sales in certain areas because of their decision. And the phenomenon is not limited to the chemical supply chain to tanneries. In order to sell raw materials to large tanneries where there is a purchase department, a raw hide and skin supplier may well be forced to include a certain percentage for the purchase manager. Each time he concludes a contract, he either has to increase the price of the hides or sacrifice part of his commission or profit. If he doesn't, the purchase manager can and will make his life difficult by reporting certain quality discrepancies to the top brass, whether they exist or not. Over salting is one of the practices that is an answer to the prayers of the dishonest. Eyes can be opened and eyes can be closed. In smaller tanneries where the boss buys and checks his own hides and skins this problem obviously doesn't exist. The chemical bribe is the easiest, the less risky and almost omnipresent, because even in small tanneries the boss can't be bothered each time a bag of salt has to be bought. In their turn the tanneries face a similar situation when they supply large shoe factories. Since this form of corruption plays a significant role in the price of the end product, I think the phenomenon should be dealt with one way or another. How? Well, first of all, people should be more honest but that is, of course, wishful thinking when it comes to easily available tax free cash. Chemical companies or their local distributors should be more conscious and report excesses to the management of a tannery who, in the end, are paying excess amounts for their supplies. A couple of years ago, Cotance launched a code of conduct, laudable, but I fear that the great initiative remained just a piece of paper with good intentions written on it but with very little actual impact. ICT has recently also developed a code of conduct and recommended (ahum) their members to adopt it. I haven't found in the code of conduct any mention of 'thy shall not steal from thy employer' or 'you should not bribe employees of your clients'! Sam Setter [email protected] picture courtesy blc leather technology



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