How Would You Handle a Marketing Head Misusing His Position for Personal Gain?

The following case study has been making rounds in WA groups of HR. I have copied it here. Scroll down to read my analysis. For replies to your case studies, feel free to [contact me](https://drive.google.com/file/d/0BwFZpLigNaA5TnVXck53a1RycU0/view?usp=sharing).

Thanks,
Dinesh Divekar

Brief of the Case

Mr. Sundaram is working as the Marketing Head in one of the reputed FMCG companies in Mumbai. He joined the company in March 2015.

Being the Marketing Head, he is awarding many contracts to different vendors for various jobs. He has discontinued the old vendors and engaged new vendors.

Recently, the company received an anonymous mail stating that Mr. Sundaram has given a big contract to one of his relatives. It was also mentioned that Mr. Sundaram is one of the directors of that company.

The company's Audit Team checked the details of the contracts awarded by Sundaram.

The Audit Team found that Sundaram had given a big contract to his own company where his wife is a Director. Sundaram is also a Director. He awarded the contract at an inflated rate, which is 3-4 times higher than the market rate.

Thus, the company has paid an excess amount of Rs. 35.5 lakhs to Sundaram's company. Sundaram misused his position to award the contract to his company.

Management Objective

1. To recover the excess amount paid to Sundaram's company.
2. To terminate the services of Sundaram immediately.

In view of the above, as an HR Head,

1. How would you recover Rs. 35.5 lakhs from Sundaram? Except for his salary, there are no dues payable to him.
2. Would you terminate the services of Sundaram?
3. What preventive measures should we take to prevent such incidents in our organization?

All members are requested to kindly give your views on the above queries.

Dear friends, I have gone through the case study. The replies to the questions are as below:

1. How would you recover Rs.35.5 Lacs from Sundaram? Except his salary, there are no dues payable to him.

Reply: - *It would be difficult to recover the excess payment made to the vendors. Before awarding the contract, the company must have issued the Purchase Order (PO). This is a legal document and valid under the provisions of the Indian Contracts Act, 1872. Therefore, payment must be made to the contractors for the services rendered by them and that too as per the conditions of PO. Otherwise, it would be a breach of contract from the company's side.*

2. Would you terminate the services of Sundaram?

Reply: - *Termination of services of Mr. Sundaram is possible provided the company has obtained an agreement from him on Conflict of Interest. Again, the verbatim of the contract also matters. However, the company may terminate the services of Mr. Sundaram for selecting the contractors whose charges far exceeded those of the previous contractors.*

3. What preventive measures should we take to prevent such incidences in our organization?

Reply: - *Problems of this kind arise when the Contract Department is ineffectual. Most of the time when a contractor is brought on board, there is a proper selection process. Do they have a proper selection procedure? Generally, a declaration from the contractor on conditions of conflict of interest is included in the contract. If these conditions had been included in the contract, it was possible for the company to sue the contractor for the suppression of material information and ask for the refund of the amount paid to them.*

*Secondly, what about an increase in the input cost for awarding the contracts at a higher price? Who was measuring that and how was it measured? How did it escape the attention of the higher authorities? The case study explains the importance of the inclusion of KPIs based on costs. Mr. Sundaram was the Marketing Head of an FMCG company. By awarding the contracts with a higher price, his distribution cost must have gone up. Did HR include a KPI titled "Per cent of Distribution Cost against Total Sales Revenue" in Mr. Sundaram's KRA sheet? Had it been so, Mr. Sundaram would not have dared to change the contractors.*

*Thirdly, acquiring a contract is easy, but what about meeting the deliverables? On what KPIs was the performance of the contract measured, and were these KPIs included in the contract itself? Was the performance scorecard designed? Was it included in the contract?*

*Fourthly, problems of this kind arise when persons are given prominence over the process. In many companies, the master contract is designed by hiring an external legal consultant. This master contract is one of conflict of interest as well as on non-disclosure of the information. Nobody has the authority to change the verbatim of this contract. The Marketing Head can design only the functional contract. When the new Marketing Head was appointed, why was he not apprised of what his authority is and where it ends?*

Lessons learned: -

1. *Taking a lesson from this, HR can create a policy on a whistleblower. When the Marketing Head promoted nepotism, why did nobody come forward to point out his anti-organizational activities? Why did nobody tell HR, even surreptitiously? Why did it take the audit department to observe the malpractices of the Marketing Head, and that too after the damage was done?*

2. *The case study brings to the fore the superficiality of HR jargon like teamwork, leadership, competency mapping, and so on. HR lives in their own imaginary world. HR can address the brass tacks and take preventive measures by designing the right KPIs.*

Final note: - I conduct the training program on [Contract Drafting, Management and Negotiations](https://docs.google.com/document/d/1wfwViQbtdjndEgLFyTFldJDa5dRXCQwU1AmOwqaVv7o/edit#bookmark=id.v14jc6729noh). I also provide consulting services on establishing a comprehensive [Performance Management System (PMS)](https://www.citehr.com/511936-performance-appraisal-looking-job.html#post2190995). The case study is a result of the lack of proper KRAs for the Marketing Department in general and the Marketing Head in particular. If you wish to avoid a case study-like situation in your company, then contact me for the training on contract management or consulting on PMS.

Thanks,

Dinesh Divekar