The ideal relationship between you and your vendors is one in which each is able to serve the other’s interests for a long-term relationship. However, the pressure to win or maintain contracts can lead to ethical minefields that can trap your business if not properly managed. A small business needs proper procedures in place to ensure vendor relationships are determined and managed based on business needs, rather than other factors.


When you're negotiating with a vendor, make sure that both sides understand what the other is looking for, particularly if the relationship is intended to be a long-term one. A fair and ethical contract expands the chances of a stable and productive relationship that benefits both parties. However, ethical concerns can manifest themselves in both positive and negative ways in negotiations. For example, when a contract is up for renewal and a rival vendor promises to provide the same product or service at a lower cost, you may think it ethical to offer your current long-term supplier the opportunity to match if the offerings are equivalent and you've been satisfied with the relationship. However, if the product or service offered by the new vendor is clearly better, you may instead have an ethical obligation to your business to take the better deal regardless of your established relationship.

Improper Relationships

One of the most prominent ethical issues in vendor relationships occurs when you or someone on your staff has a familiar or personal relationship with the vendor. All personal relationships with vendors should be disclosed, and nobody on your staff should engage in vendor relations if they have such a personal relationship on the other side of the negotiation. No employee of your business should be permitted to offer products for sale to the business, and any investment in vendor companies must be disclosed as well.

Improper Gifts

Hopefully it goes without saying that accepting cash bribes from vendors in exchange for preferential treatment is unacceptable ethical behavior. However, a business also needs to have rules in place about the acceptance of gifts. While token marketing materials like a coffee mug or logoed pen may be acceptable, any gift with commercial value can lead to the appearance of improprieties. Another tricky situation involves social interactions, like attending lunch or dinner with a vendor, or lavish events sponsored by a vendor. Forging a close working relationship can be beneficial to both parties, but if the vendor pays for the meals it can represent a conflict of interest.

Vendor Conditions

You may not control how your vendors conduct their business, but their actions may nevertheless come back to reflect poorly on your company if they do not act in an ethically responsible way. If you’re a retailer, for example, you need to be very sure that none of your vendors produce their clothing by using child labor or involuntary workers, or maintain their workforce in unacceptable conditions. Your vendor agreement should clearly spell out what practices would be grounds for an immediate termination of the contract; this lets you protect yourself against being linked to a vendor's ethical shortcomings.