The strategies adopted by professional purchasers should not change radically as a result of recent scandals in corporate governance.  However, these events may serve as a wake-up call to purchasers who may not have exercised sufficient diligence in the sourcing process in respect of researching supply markets, understanding risks and assessing the financial viability of suppliers.

Here are some areas of likely impact:

1.  Ethics & Values
These are issues that should be monitored during the whole pre-contract cycle.  Procurement professionals will need to be alert for indicators of a potential supplier exhibiting features of a week moral and/or ethical culture.

2.  Financial Literacy
Procurement professionals should be able to inerpret balance sheets as well as profit & loss reports.  We cannot rely upon other professionals who may not fully understand how their advice may be interpreted.

3.  Risk Managmenet
Contract management should be vigorous in focusing upon how suppliers plan to recover from a failure an dmitigate any losses incurred by their customers.  Poor risk managment practices are an early indicator of potential supplier collapse.

4.  Escrow Clauses
The strength of the buyer's negotiation position to place key intellectual property in Escrow has increased in the light of corporate collapses such as HIH, Enron and World-Com.  Negotiators worldwide should seek automatic access if a supplier becomes financially distressed.

5.  Termination Clauses
Contract Clauses around termination and breach should be rewritten to strengthen the buyer's position.  For example, an adverse court decision may be sufficient cause to trigger termination.

6.  Auditor Independence
Some commentators believe that exteranl auditors can no longer be relied upon to be an objective and independent source of information.  The organisation's own internal audit and risk managment functions may provide a better level of competence in respect of a suppliers or customers financial viability.

7.  Regulation of Auditors
Accounting standards will become more rigid and less flexible for creative accountants to manipulate the financial results and reported worth on an organization.  The accounging firm and all staff assigned to the audit should be required to sign conflict of interst statements that must form part of the published audited accounts.  Auditing of financial statements could even be removed from the private sector and be performed by a public service function (like an Auditor General) with the cost of audit being included in the company registration fees.

8.  Disclosure & Trust
All the above issues point to a high level of potential mistrust.  The likely consequence of this is that both parties comission more thorough due diligence programmes to evaluate the risks and opportunities in a potential relationship.  Disclosure may help build trust and encourage both parties to enter into joint supply chain cost reduction programmes.  The use of multi-disciplinary audit or risk management teams from each organization may identify cost saving and value creationn opportunities.  Such initiatives may well yiedl returns on investment will in excess of market norms.

9.  Loss of Trust
Organizationns adopting this approach may grow (after the due diligence process has occured) while companies which do not allow transparency may develop purely arms length relationships which may not be as effective, undermining their competitive position.