Category Archives: Business Development Ethics

A Future Without Secrets? Why We Need Ethical Data Governance

 

Do You Want to Know a Secret? 

When the Beatles released this song in 1963, the world was different. Less frantic, and in many ways, blissfully naïve.

Listen/ Do you want to know a secret/Do you promise not to tell?, whoa oh, oh

Let me whisper in your ear/ Say the words you long to hear/ I’m in love with you!

Fifty years of social progress has obviated the need for partners to wax poetic. In 2014, Good2Go, an iPhone application, was launched to help people bypass romance and jump to a lascivious endgame. Shortly afterward, Apple kicked Good2Go off its platform, citing application guidelines that prohibit objectionable or crude content. There were few protests, because it turns out, Good2Go wasn’t a hit with customers, either. Among the comments: “Even scarier than talking about sex,” and “worse than nothing.”

No secrets, and no promises not to tell. When it was originally released, Good2Go required users to provide the name of their partner du jour, time consent was given, and each person’s state of sobriety. The ostensible purpose for creating Good2Go was to help people document encounters before things got steamy, should there be allegations of impropriety later on.

But once the data was captured, what did the company intend to do with it? I don’t know, exactly. One thing’s for certain: it wasn’t just going to sit there, un-analyzed, or un-shared.

By pressing Submit, key data about the hookup breezed into the cloud. No strings attached, just like the liaison. Good2Go offered a curt privacy disclaimer: “We may not be able to control how your personal information is treated, transferred, or used.” Paul McCartney, step aside! There’s nothing like legal fine print to stoke the fires of passion.

If you’re a control freak about your personal information, some free advice: chuck your computer and iPhone immediately, and get off the grid. Wait about 20 years. After that, there will be no secrets. Personal privacy will be quaint anachronism, and everyone will be part of a scandal. One upside: nobody will care.

Whenever we give up personal details – whether online, over the phone, or on paper – the best we can hope for is that the custodians of our data will behave ethically, and take adequate measures to conceal our information from those who might abuse it. Recently, the Equifax data hack made it clear those are dangerous assumptions. The company’s massive databases contained millions of individual social security numbers, birth dates, driver’s license numbers and credit scores, but Equifax executives didn’t give a tinker’s damn whether consumers were protected.

The company squandered opportunities to prevent outsiders from hacking into this sensitive information, allowing 143 million private records to fall into nefarious hands. “The Equifax hacks are a case study in why we need better data breach laws . . . Equifax handled a disastrous hack poorly. But the core of their behavior isn’t unusual,” read a headline on Vox, an online media website.

Breaches happen more than most people know. Your right to be informed depends on where you live. “The clamor for a standardized data breach notification requirement has become almost as quotidian as a data breach itself. Companies no longer wonder whether they will ever have to notify consumers of a breach but rather when they will do so. Incident response planning, however, is currently complicated by the existence of 47 different state breach notification laws and those of additional jurisdictions such as D.C., New York City, Puerto Rico, Guam and the Virgin Islands. The variety is no doubt confusing and increases the compliance costs for companies,” according to another article, Examining the President’s Proposed National Data Breach Notification Standard Against Existing Legislation.

That article was written in 2015, when Obama was president, and before the government stopped caring about protecting consumers. With Trump in office, don’t hold your breath waiting for this initiative. In the meantime, if you want to navigate the thicket of data breach notification laws state-by-state, click here. Please remind me who has information power: Consumers – or the companies that use their data? I keep forgetting.

Sometimes, a company has good reasons to delay disclosure about a data breach. For example, a forensic investigation might require secrecy. Or, a company might need to learn the full extent of a breach before sharing information with customers. But proving malfeasance can be difficult. Equifax hasn’t disclosed exactly why it waited weeks to inform customers about the breach, but during that time, its senior executives sold millions of dollars of Equifax stock. A company spokesperson told The Washington Post that at the time, the company’s executives had no knowledge of the breach.

“No knowledge” . . . of 143 million stolen records . . . That sounds far-fetched to me, too. The hacking and the timing of the stock sale brought Equifax CEO Richard F. Smith in front of Elizabeth Warren for a Senate hearing. He had some ‘splaining to do, and he didn’t project well in front of the cameras. In characteristic fashion, Senator Warren emasculated him the same way she did Wells Fargo CEO John Stumpf. In a company press release from September 7, after the breach was publicly disclosed, Smith said, “We pride ourselves on being a leader in managing and protecting data, and we are conducting a thorough review of our overall security operations.” I believe the second part of that sentence, but I’m calling BS on the first.

Personal privacy faces unprecedented threats. In the digital era, almost everything we do leaves a trail of recorded transactions and events that is harvested and maintained. After it’s released into the cloud, it’s hard to know who – or what – controls it. As a result, we have far less control over our data privacy than we did 30 years ago, when smaller amounts of our data were housed in cumbersome silos. But the silos came down, along with the cost of storing data. Most significantly, companies have developed sophisticated tools and algorithms to systematically exploit it. As a result, corporations and government agencies have steadily gained hegemony over our data and our privacy. Today, they control five powerful variables that profoundly affect our privacy: capture, use, retention, protection, and ownership of consumer data.

Capture: Though we might not be aware, we routinely give up a mother lode of personal details every second through our mobile phones, wearable sensors, and the IoT (Internet of Things). Even more digital exhaust gets captured and recorded through devices like Amazon’s Alexa and Google Home, which are at their core, eavesdropping devices. But for now, I’ve stopped fussing because doing so compares to peeing into the wind. Nobody wants to give up the latest digital gadgetry, and or to suffer the indignities of not having “personalized experiences.” I concede that the data capture pig has permanently left his pen. He has grown too strong to restrain, too fat to ever fit back through the gate.

From here, I’ll focus on manageable issues:

Use: Companies can – and should – be held accountable for how they use personal information. “Compliance with federal and state laws” does not absolve them from providing responsible governance and strong consumer protection.

Retention: How long should companies keep personal data? Do customers have a right to be forgotten, as the General Data Protection Regulation (GDPR) laws in Europe (pending May, 2018) will enable? What should companies disclose to consumers? And is it ethical for companies to charge customers for deleting personal information? These not-hypothetical questions were at the center of the Ashley Madison hacking case, in which the company assessed its customers a fee for expunging their personal data. Rather than deleting the data as promised, Ashley Madison simply changed the record status to “inactive,” and moved the files to a backend server. Those records were stolen in the hack, along with the active ones.

Protection: As data has increased in value, it has become a more attractive target for theft. The threats are significant and omnipresent. But regulation and corporate risk mitigation measures such as cyber-security haven’t kept pace. The nine largest consumer data hacks leading up to Equifax in 2017 illustrate the outcomes when companies are lackadaisical about data security. The direct costs are substantial, the indirect costs incalculable.

Ownership: The question of data ownership is central to preserving consumer privacy. But sometimes, provenance and ownership are difficult to track. Further, Terms of Service statements aren’t explicit, and once consumers have created data, they rarely control it. And since data can be copied, sold, and repackaged, and re-sold, custodianship and responsibilities for protecting consumer data becomes a murky issue. Yet, privacy preservation in the digital age demands clarity over this basic matter.

The road ahead. “The increased amount of and use of data calls into questions pressing issues of fairness, responsibility and accountability, and whether existing legislation is fit to safeguard against harm to an individual or group’s privacy, welfare or physical safety,” according to the Open Data Institute’s September 13, 2017 report, Ethical Data Handling. Public safety should not be taken for granted, and the benevolence of government never assumed. As I wrote in an article, The Dark Side of Online Lead Generation, companies routinely use data to exploit the most vulnerable consumers – who can also be the most profitable. 

Access to consumer information confers an obligation on an organization to

1. be transparent about ownership,

2. control how the data is used,

3. ensure the data is protected from unintended use, and

4. ensure that consumers will not be harmed.

This is a monumental order. Why would any company voluntarily sign up? Because it’s the ethical, customer-centric thing to do. But there are self-serving advantages, too: First, without adopting constraints, businesses will undermine their revenue generation efforts. Ethical data governance enables trust. Second, companies that demonstrate strong data governance will achieve competitive advantages over ones that are sloppy and uncaring.

To create good privacy outcomes for customers, executives must answer five data-governance questions:

  1. Does our use of the data reflect consumer preferences?
  2. Is our intended use for this data ethical?
  3. Is our intended use fair and respectful to our customers and prospects?
  4. Have our customers been provided any control over how their data is collected, stored, and used?
  5. Is our organization appropriately transparent about our intentions, policies, and safeguards?

The as-is state, circa October, 2017. A passage extracted from a privacy statement that just landed on my desk serves as a shiny emblem for how far we need to go with data governance:

“To protect your personal information from unauthorized access and use, we use security measures that comply with federal and state laws. These measures include computer safeguards and secured files and buildings. We limit access to your information to those who need it to do their job.”

These strictures, if you want to call them that, offer no solace to the wary.

When a company captures or requests information from customers, they should reveal,

  1. what data is being collected
  2. the entity or company that owns the data
  3. who has access to that data
  4. specifics regarding how the data will be used
  5. existing internal measures that protect confidentiality
  6. whether the data will be shared with third parties, which ones, and for what purpose(s)
  7. the length of time that data will be retained
  8. customer rights for data erasure and/or amendment
  9. where to go within the organization for redress of consumer issues regarding data
  10. the federal, state, and local laws that govern the company’s use of that data

“Business data is everything. Protect it well,” reads a full-page ad for Carbonite, a data security company. In previous articles, I have complained about companies trivializing C-Level roles (do companies really need Chief Listening Officers?). But the tocsin that just sounded from the Equifax hack tells us that it’s past time to give Data Governance a chair in the C-Suite. (Note: the GDPR laws mandate certain companies assign a Data Protection Officer or DPO.) Should a new position be created, CDGO, Chief Data Governance Officer? I’ll make the case in a future article.

A regulated market? “A regulated national information market could allow personal information to be bought and sold, conferring on the seller the right to determine how much information is divulged,” Kenneth Laudon of New York University wrote in a 1996 article titled Markets and Privacy. He was ahead of his time. “More recently, the World Economic Forum proposed the concept of a data bank account. A person’s data, it suggested should ‘reside in an account where it would be controlled, managed, exchanged and accounted for.’ The idea seems elegant, but neither a market nor data accounts have materialized yet,” according to The Economist (Fuel of the Future, May 6, 2017).

Ethical data governance: the way forward. A white paper, Guiding Principles for the Ethical Use of Data   by Jennifer Glasgow and Sheila Colclasure, offers a clear case for corporate data governance: “As in any relationship, business or otherwise, trust needs to be earned, sustained and nurtured over time. To succeed in the long run brands, have to first be accountable. Therefore, a common understanding of what it means to act ethically with consumer data is required. Without a common set of rules or proper governance, it’s unrealistic to assume brands across a vast marketplace can meet this expectation and maintain the trust of the consumers they serve over time.”

Sounds like common sense. Why then, do so many companies choose a riskier, ethically-shaky path? Greed? Naivete? Stupidity? Lack of will? It’s hard to say, exactly.

Listen/ Do you want to know a secret/ Do you promise not to tell?

Ethical data governance will help companies fulfill this critically important consumer expectation.

Author’s note: To read the previous articles in this series about data privacy and risk, please click the links below:

In the Digital Revolution, Customers Have Nothing to Lose But Their Privacy 

Companies That Abuse Consumer Privacy Might Feel Their Fury – Again

Do Salespeople Lie More Than Other Professionals?

 

Compared to other professions, are salespeople disproportionately prone to lying? To reveal the answer, I searched online for most dishonest professions, and was rewarded with several surveys. One study conducted in 2014 listed the top 10 least honest (the number following indicates the percentage of survey respondents who believed the profession trustworthy):

Lobbyists – 6%
Members of Congress – 8%
Car salespeople – 9%
State office holders – 14%
Advertising practitioners – 14%
TV reporters – 20%
Lawyers – 20%
Newspaper reporters – 21%
Business executives – 22%
Local office holders – 23%

Go us! Of the top 10 most dishonest professions, biz-developers hold only three slots – lobbyists, car salespeople, and advertising practitioners. Still, as marketing/sales professionals, we’re over-the-top touchy about our honesty image.

Earlier this month, a writer on LinkedIn asked whether it’s acceptable for salespeople to lie. He felt that lying seems the new normal in selling, and he invited others to weigh in. Some opinions were as malleable as a steel girder:

  • “My answer is short and simple – no.”
  • “A person is either honest or a liar. The Truth is not conditional. Half-truths are lies.”
  • “Never acceptable. Persuasion is a positively reinforced message through fact and data driven decisions.”
  • “just don’t do it.”

These thoughts outline an archetype: the impeccably honest salesperson who never lies, never distorts, and never withholds facts and information. Unfortunately, that archetype represents an impossibly high bar. Try any of them out on a newbie rep. Chances are, he or she will flunk day one on the job. Same for days two and three – assuming they get that far. And experienced reps will just roll their eyes. “Get a grip, pal!”

“Just don’t do it.” If only things were that simple. For hundreds of years, the meaning of honesty has been debated by legal scholars, judged in courts, and mulled by philosophers. Honesty is difficult to define. One reason we often pad the word with adjectives: pure honesty, partial honesty, brutal honesty, radical honesty, morally honest, and mostly honest. The same for truth and lies. Few would argue that white lies aren’t acceptable, or that honest facts aren’t used for fabricating illusion.

One person’s bald-faced lie is someone else’s minor distortion. Should things be any different in selling? Is there something magical or different about sales that invites draconian edicts like these? Emphatically, no. Lying appears the “new normal” in selling because by these standards, lying is . . . pretty normal. And it’s hardly new.

The advocates of “no lying” need to abandon their idealized interpretations of truth purity because they are divorced from selling reality. A major reason is that the default rhetoric of marketing and sales tends toward certainty – especially for describing outcomes and results. We favor concrete terms like definitely, will, guaranteed, and proven. No rep wins the boss’s approval by adopting mealier – but more honest – terms like probably, possibly, could, and might. I challenge anyone to find a Chief Sales Officer willing to trade off persuasive power for a sworn commitment to tell the truth, the whole truth, and nothing but the truth.

“Never acceptable.” If marketers followed pure honesty to the letter, the first thing on the chopping block would be storytelling. I have yet to read one sales story that hasn’t been factually creative, at best. The second thing to go would be “case studies,” since they are never as objective as the name implies.

Admonishing salespeople to “never lie,” only creates dissonance and goal conflict. Managers manufacture failure by insisting their reps behave “100% honestly,” while holding a hatchet over their necks as motivation to achieve goal. Inevitably, the rep must choose. And sadly, saying “I got fired for doing the right thing for my customer” doesn’t merit an invitation for a second job interview. Sales Culture Training 101: “No matter what, make quota.” Message, received.

That’s not the only problem. When “never lie” absolutism exists, ethical risks lurk nearby. Absolutism crushes debate and discussion. And when it comes to honesty and ethical behavior toward customers, nuanced conversations are sorely needed. The problem with these LinkedIn comments is that there’s no room for interpretation.

At its most atavistic, selling is persuasion. And persuasion requires distortion. Distortion of fact, distortion of meaning, distortion of reality and urgency. Over beer, we can hold a simpatico conversation to parse the differences between distortion and lies. We can exchange information about what we allow ourselves to do and say when representing our companies, and the honesty lines we refuse to cross. We can talk about the influence of David Hume and Diogenes. One thing is certain: neither our honesty interpretations nor our ethical boundaries will be identical.

According to these absolutists, distortion and lying are equivalent. My recommendation: don’t follow their advice. If you want your customer to take action – say, for example, to buy from you and not from your competitor – you must make sure they believe that it’s fully in their interest to do so, and that ordering now is a priority. You can’t do that without tweaking reality to promote your point of view.

For salespeople, balancing honesty and persuasion means walking a hair-thin line. Same for ego and empathy. All are needed for success, but they collide and clunk against one another. “It’s a miracle anyone can do this job,” Philip Broughton wrote in his book, The Art of the Sale. No joke.

I am not a proponent of lying as a sales tactic. I am not advocating deceit and misrepresentation as a business practice. And I am not saying that anything goes as long as it results in revenue. Far from it. I am saying that marketers and salespeople should strive for honesty and high ethical standards in their professional conduct. I am also saying that to be effective, salespeople need a rational basis for ethical consideration, and “never lie” undermines that goal. We need salespeople who are strong critical thinkers, not sycophantic believers.

A personal confession: I have made sales lies. Repeatedly. Here are three:

1. “I can’t offer you a lower price.” Lie. Prices are quite easy for vendors to massage, and rarely – if ever – is it impossible to offer a lower price, as “can’t” connotes. Customers know it. Everyone knows it.

What’s more truthful? How about, 1) “it’s not convenient for me reduce my price,” or 2) “if I allow you to buy at the lower price, my profit margins will erode, and our CFO will get angry with me,” or 3) “I get higher commission selling at list price, and I need the income this quarter.”

2. “Buying my company’s product is the best use of your resources right now.” Lie. I’ve never been 100% sure when using superlatives, yet I still use them. Besides, with this lie, I have rarely had full visibility into every project a company is considering anyway. So I’m not being fully honest when making the claim.

What’s more truthful? 1) “based on my analysis of the numbers you provided me, you should probably meet your expected financial return,” 2) “My competitor’s product does pretty much the same thing, so you can’t go wrong choosing either one of us,” 3) “I understand why you want to implement my proposal now, but based on what I have seen, you’d be much better off solving [name of project that my company doesn’t provide a product for].”

3. “Our machines have highest performance rating in the industry.” Lie, by omission. But still a lie. Is highest performance rating based on MTBF (mean time between failures)? Longevity of components? Quality of output? All of these? And where was the benchmarking performed? – In house? Through an objective third-party? And there’s that superlative problem again: highest.

What’s more truthful? 1) “We have the highest performance rating in one category.” 2) “We performed the benchmarking in-house.” 3) “Our in-house test results always look better than what you will achieve in the field.”

I harbor no remorse for committing any of these. But if you’re into “never lie,” try some of the more truthful statements with your customers, and let me know the results.

I want to head off a concern right now. You might already be thinking, “These are trivial lies. They are not the kind that get anyone into trouble.” Fair point. But then I’d urge you to identify what type of lies really get your dander up. Lies like telling customers, “We have offices in 28 states,” when those “offices” are actually indirect employees working virtually from their homes? Or, my favorite, “Our software has over 48 installs,” when two-thirds of them are dormant beta accounts that have made no commitment to purchase? Smile, wink. These statements are kinda, sorta true, and because of that, they stink around the edges. I don’t like them. Mostly, I get annoyed with the CMO’s explanation, which often begins, “Well, technically . . .”

Maybe we need a new taxonomy for marketing lies. Here’s what I propose:

Class I lies: run-of-the-mill marketing fluff, flamboyant writing, and expected braggadocio. The claims prospects are already jaded to. “Four out of five dentists recommend sugarless gum for their patients who chew gum.” Or “We’re the industry leader!” There’s really no foul for broadcasting any of this stuff. If any prospect bases a purchase decision solely on such claims, well, shame on them.

Class II lies: deeper, more egregious transgressions. Stuff that generates fines, lawsuits, and bitterly negative Yelp reviews. Example: “Our brain games help users achieve full potential in every aspect of life,” which got Lumosity fined by the FTC. The FTC asserted there was no scientific proof to substantiate that claim, along with others Lumosity made.

Class III lies: I call these BHAL’s (Big Hairy Audacious Lies), because of their potential to directly and significantly influence a customer’s buying decision. Lies that obscure the true cost of procurement or operations. Lies that patently overstate the capability of a product, or promise a result that can never be delivered. The Fyre Festival debacle resulted from a series of Class III lies.

If your business objective is to instill ethics and integrity in your biz-dev organization, don’t fret over Class I lies. Just keep your eye on them to make sure they don’t become more serious. Propagating Class II and Class III lies, on the other hand, substantially increase business and stakeholder risks, and they must be carefully managed. Here are some important practices:

  1. Recognize that honesty and truth are subject to interpretation, and there’s often ambiguity in selling situations.
  2. Model ethical, honest behavior from the top echelons of the company. Executives who are not vocal proponents, or who are not rigorous about their own honest conduct cannot expect any different from employees.
  3. Encourage internal discussions among staff about what they encounter in sales and marketing situations, and how they make choices.
  4. Offer guidelines to staff when rules don’t fit. Avoid vague requests like “don’t be too salesy,” or “don’t over-promise.” Instead, ask your staff to think about what’s ethical in selling, and to always consider, “what is the right thing to do?”
  5. Don’t penalize honesty by creating conflict. It happens more than companies realize. If Wells Fargo taught us anything, it’s that a salesperson should never have to decide between being honest with customers, or keeping his or her job.
  6. Provide clarity for what’s restricted by documenting them in writing, and reviewing them routinely with your staff. The Class III lies that significantly influence customer decisions, that directly contradict product specifications or contract terms, that inflate or falsify an employee’s credentials. The restrictions should also include what can – and cannot – be said about competitors, performance benchmarking data, pricing commitments, and other financial disclosures.

P. T. Barnum, one of the greatest salespeople who ever lived, was adamantly against fraudulent selling, but he recognized the subtle nuances about honesty and lying:

“An honest man who arrests public attention will be called a “humbug,”‘ but he is not a swindler or an impostor. If, however, after attracting crowds of customers by his unique displays, a man foolishly fails to give them a full equivalent for their money, they never patronize him a second time, but they very properly denounce him as a swindler, a cheat, an impostor; they do not, however, call him a ‘humbug.’ He fails, not because he advertises his wares in an [outrageous] manner, but because, after attracting crowds of patrons, he stupidly and wickedly cheats them.”

As Broughton observed, “There is evidently a line here somewhere between humbug and deception, between Barnumesque hype and outright lies, between reading your customers to give them what they need and exploiting their weakness to your own advantage.”

I hope the “never lie” proponents figure that out.

Companies That Abuse Privacy Might Feel Consumer Fury – Again

The company Ashley Madison offers an audacious capability: extramarital affairs.  “Ashley Madison is the most famous name in infidelity and married dating,” proclaimed the company’s marketing pitch in 2015. “Have an Affair today on Ashley Madison. Thousands of cheating wives and cheating husbands signup everyday [sic] looking for an affair . . . With Our affair guarantee package we guarantee you will find the perfect affair partner.”

A great value prop for those seeking such experiences – until July of that year, when hackers broke into the company’s data files.  The thieves coined a name for themselves, The Impact Team. A modest appellation, considering the extensive collateral damage their activities produced.

Mission accomplished. The Impact Team’s cyber-haul included 25 gigabytes of profiles describing the people who signed up for Ashley Madison’s services. Many records included email addresses ending with .gov and .mil (the domain extensions for the US government and Department of Defense, respectively), which stoked curiosity, to put it mildly. Had the hackers compromised the US nuclear launch codes, there would have been less panic in Washington.

But unlike most hackers, The Impact Team was motivated by more than extracting ransom. Impact Team ostensibly wanted to preserve morality, citing that the reason for the hacking was Ashley Madison’s facilitation of marital infidelity. Another website, EstablishedMen, was also targeted. Both are owed by parent company Avid Life Media (ALM), which rebranded as Rubylife in July, 2016. “Too bad for those men, they’re cheating dirtbags [sic] and deserve no such discretion,” the hackers wrote. The Impact Team threatened to expose the identities of Ashley Madison’s customers if ALM did not shut down the websites.

There was more. The hackers complained that although ALM charged users $19 to delete personal data from the Ashley Madison website, the company did not fulfill its promise – not fully, anyway. Instead, ALM simply relocated the “deleted” records to its backend servers. “Too bad for ALM, you promised secrecy but didn’t deliver,” the hackers said. Clearly, the hackers feel that philanderers deserve honest treatment from vendors.

Despite getting caught with their cyber-drawers down, “Avid Life Media defiantly ignored the warnings and kept both sites online [Ashley Madison and EstablishedMen] after the breach, promising customers that it had increased the security of its networks. That wouldn’t matter for the customers whose data had already been taken. Any increased security would be too little too late for them. Now [those customers] face the greatest fallout from the breach: public embarrassment, the wrath of angry partners who may have been victims of their cheating, possible blackmail and potential fraud from anyone who may now use the personal data and bank card information exposed in the data dump,” according to a story in Wired Magazine published shortly after the incident (Hackers Finally Post Stolen Ashley Madison Data, August 18, 2015).

The Ashley Madison hacking was not the first incident involving a vendor that failed to adequately protect customer information from hackers. There was TJX, parent company of retailer TJ Maxx in 2003 (94 million stolen records), Sony PSN in 2011 (77 million), Target Stores in 2013 (70 million), Home Depot in 2014 (56 million), and eBay in 2014 (145 million). In fact, of The Nine Biggest Data Breaches of All Time (Huffington Post, August 20, 2015), Ashley Madison doesn’t even make the list.

But if someone maintained a list titled Most Awful, Ashley Madison would rise to the top. Ashley Madison scared the bleep out of everyone because the incident compromised not only financial information, but lifestyle preferences – the kind an individual would not likely share with friends or family. Purloined credit card numbers can be deactivated, but evidence of promiscuity and related information, well, once liberated, those horses aren’t heading back to the barn.

Should companies care about protecting personal customer information? The question is not rhetorical. By being opaque with customers about what they were doing with their sensitive data, Ashley Madison apparently didn’t care enough. Some could say they didn’t care at all. And their cyber-barriers weren’t insurmountable for the dedicated hackers on The Impact Team. Post-Ashley Madison, people began to think about their information in the IT cloud, and the associated risks to personal privacy. “Click to submit!” – software developers have made sharing personal data all too easy.

People worried about where their private information goes, where it’s stored, and who might have access to it. They began to imagine voyeurs who might crave such information, and they wondered what criminals could do with it. Consumers realized they couldn’t entrust their privacy to firewalls, encryption, secure data storage, and other jargony techno-obfuscations that marketers routinely use to sweeten their “privacy assurances.” Poignantly, Ashley Madison meant that most consumers did not need any imagination to understand the outcomes when vendors are lackadaisical about data governance.

Customer worry becomes a marketing worry. If customers can’t trust that their privacy won’t be abused, they won’t trust the many mechanisms that happen in online commerce, notably, allowing their primary information and data exhaust  to be collected, stored, and analyzed. If – when – that happens, marketers will experience a setback in solving a perennial problem: Finding the likeliest buyers. Right now, marketers depend on both to fuel their ravenous lead-generation engines, and to close transactions. With every data hacking, regulators raise their hackles, and customers become ever warier. “Hell hath no fury like a woman scorned!” The same for customers when their trust and privacy are abused.

Fury – aka The Do Not Call Registry. In the ’80’s and ’90’s marketers got increasing blowback from agonized customers who felt their privacy had been violated, a development that directly contributed to the US Federal Trade Commission establishing the Do Not Call Registry in 2003. The registry’s intention was to curtail what became a reviled business practice: marketers using telephone contact to prospect for new business. Many telemarketing calls were made to residences, and numbers-driven marketers didn’t care about customer experience, often prescribing the calls to occur at dinner time, when prospects were more likely to be home.

Telemarketing began with the advent of the telephone, according to Wikipedia. It flourished in the 1970’s, when marketers got savvier about effective tactics, which were widely shared as “best practices.” That was the beginning of its demise.

The primary customer data needed was culled from lists of residential phone numbers, and ZIP Code directories, all available to the public. For marketers, the telemarketing sales channel became stupid-easy to switch on, and – this is crucial –  wicked-hard for customers to avoid. Before caller-id and call blocking, the only choice for a customer when a telemarketer called was to not answer the phone, and wonder whether they had just missed something important. Vendors became addicted to the low costs and revenue results. For senior executives, self-regulating one’s cash cow did not have wide appeal.

Yet, Do Not Call was a bellwether in the customer fight for privacy, and it caught on like wildfire. While today, it appears that Do Not Call doesn’t have sufficient penal claws to deter vendors from flouting its provisions (my home regularly receives numerous daily phone solicitations, despite being on the registry), its symbolic message is stunning.  Today, there are 217 million numbers on the list. Since its inception, that averages to 42,465 numbers added per day for 14 years. I consider that an “opt-in” success story that should make any CMO drool with envy, albeit for the wrong reasons. The message to marketers: “Do not intrude on my privacy. Do not abuse my personal information. Because if you do, you’ll lose your privilege. Sincerely, Your Customers.”

When it comes to privacy, marketers have no scruples. None. COPPA, The Children’s Online Privacy Protection Act was enacted to prohibit the collection and use of personal data from children under 13 years old. But there’s a problem: “More than 50 percent of Google Play apps targeted at children under 13 – we examined more than 5,000 of the most popular (many of which have been downloaded millions of times) – appear to be failing to protect data,” writes Serge Egelman, research director of the Usable Security & Privacy group at the International Computer Science Institute, in a Washington Post article, We tested apps for kids. Half failed to protect their data (August 7, 2017).  For example, when parents download an app from Google’s Designed for Families section in the Google Play store, they assume data about their child (or children) remains safe. Turns out, that’s a bad assumption.

Which kid-generated data is compromised? Device serial numbers (which are often associated with location data), email addresses, and other “personally identifiable information,” according to Egelman, who wrote that his company found such data had been transmitted to third-party advertisers, and that the nature of the data meant that those companies could engage in long-term tracking of these children.Fortunately, Egelman has developed a website for parents to check the “privacy behaviors of the apps” his company has automatically tested. Just when we thought it was safe to allow our children to stay inside and play on the computer . . .

Personal privacy: why ongoing consumer trust isn’t assured. “Today your data can be of four kinds: data you share with everyone, data you share with friends and coworkers, data you share with various companies (wittingly or not), and data you don’t share,” writes Pedro Domingos in his book, The Master Algorithm. As consumers, we’re betting that as companies like Facebook, Amazon, and others gain more data, their learning algorithms improve, returning more value to us. But Domingos says that the “problem is that Facebook is also free to do things with the data and the models that are not in your interest, and you have no way to stop it.”

“When we say we’ll protect your data, you must believe us! . . or not.” Today’s marketers extoll privacy in their customer messaging. After all, they smell money. “Onavo Protect for Android helps you take charge of how you use mobile data and protect your personal info. Get smart notifications when your apps use lots of data and secure your personal details,” the copy on Onavo’s website assures us. But Facebook, which spent $150 million to acquire Onavo four years ago, hasn’t been fully transparent what it does with the data. One thing is certain: Facebook didn’t plunk down $150 million because they fancied the name Onavo. “Facebook is able to glean detailed insights about what consumers are doing when they are not using the social network’s family of apps, which includes Facebook, Messenger, WhatsApp and Instagram,” according to an article in The Washington Post, Facebook’s Affinity for Copying Seen as Stifling Innovation (August 11, 2017) . How private is the data? Will Facebook use it for benign purposes? Will customers experience harm? I don’t know, and the answers aren’t provided in corporate fine print and written disclaimers.

In another example, this year Princess Cruises announced its Ocean Medallion bracelet that promises passengers a unique personalized travel experience:

“It’s cruise planner meets concierge — a guide that you can access everywhere — on touchscreens throughout the ship, your stateroom TV and your own mobile devices. Ocean Compass helps you navigate your ship and your cruise, like streamlining the boarding process, personalized shore excursions invitations, ordering your favorite drink and more . . . Upload your documentation and set your preferences ahead of time so you can swiftly walk on board and communicate everything your ship needs to know about you.”

And:

“Customize your personal Ocean Tagalong™ by body shape, color, pattern and marks (like tattoos) to best reflect your “alter ego”. This responsive digital companion follows you from initial registration to the end of your cruise (as well as rejoin you on future cruises). You’ll find it online within your profile, during interactive PlayOcean games like Tagalong Sprint, as well as through Ocean Portals found onboard Medallion Class ships. Tagalongs even evolve throughout the cruise, reflecting your unique personality and interactions, and will collect ‘charms’ that show off your achievements.”

To me, Ocean Medallion is a marketing name for sophisticated surveillance technology, and there’s “Ewwwwwwwwww!” by the bucket load throughout this cheery write up. Clearly, I’m not the type of customer Princess wants to reach, and I’m sure they’ve heard similar sentiments from others. They’re looking for a much different prospect. One who absolutely, positively cannot stand to separate from technology. Not even for a minute. I can distill Princess’s prose into a single sentence: “We know much about you even before you begin your vacation, and we track you from the time you come aboard, until the time you disembark.”

Where does Ocean Mediallion’s digital information go, who sees it, who uses it, and for what purposes? That’s not spelled out anywhere I looked on the company’s website, though I have little doubt that they have PhD data scientists who know. And it’s not reassuring that Carnival hasn’t updated their privacy policy since December 5, 2014, according to its privacy policy page. Just finding that out required a circuitous content journey. Good thing I liked the photos.

In today’s digital era, batches of delicate personal customer information are produced, captured, selected, sub-selected, curated, sorted, stored, compiled, combined, listed, cut, “value-added,” repackaged, warehoused, transmitted, sold, and shared, like rail cars of soybeans. Your data, e-shot, helter-skelter to the world! A massive logistics system operating in subterfuge, trafficking the data minutia of a human being’s existence, one individual at a time. Without industry self-enforcement, strong governance policies, and legal restrictions, tell me there’s not another Ashley Madison-type wreck about to happen, or already underway.

There’s an entrepreneurial opportunity here, in case anyone wants to step in. Pedro Domingos suggested one in how he envisions a new business model for privacy protection:

“The kind of company I’m envisaging would do several things in return for a subscription fee. It would anonymize your online interactions, routing them through its servers and aggregating them with its other users’. It would store all the data from your life in one place – down to hour 24/7 Google Glass video stream, if you ever get one. It would learn a complete model of you and your world and continually update it. And it would use the model on your behalf, always doing exactly what you would, to the best of the model’s ability. The company’s basic commitment to you is that your data and your model will never be used against your interests. Such a guarantee can never be foolproof – you yourself are not guaranteed to never do anything against your interests, after all. But the company’s life would depend on it as much as a bank’s depends on the guarantee that it won’t lose your money, so you should be able to trust it as much as you would trust your bank.”

I wonder whether a company can honestly commit to never acting against a customer’s interests, when those interests inevitably change. Still, I like his entrepreneurial vision.  In the meantime, Domingos asks, “Who should you share your data with? That’s perhaps the most important question of the twenty-first century.”

Author’s note: This article is the second in a series about consumer privacy. You can read the first article, In the Digital Revolution, Customers Have Nothing to Lose But Their Privacy by clicking here. In an upcoming article, I’ll outline important keys for corporate data governance.

Is Maximizing Shareholder Value Poisonous?

If you grab your favorite marketing book and boil away process diagrams, statistics, and literary fluff, just two words will remain: create value.  Easy-sounding advice, but for most executives, it’s wicked hard. An ideal place for opportunists to step in and promote simple answers and quick remedies.

Business leaders have an insatiable appetite for how-to’s on value creation. And they get a nonstop barrage of erudition from practitioners, self-anointed experts, and academics who cobble salads of trendy verbs, nouns, adjectives and industry jargon, producing inscrutable sentences to solve the insoluble. Maximize/Optimize/Leverage [fill in words]! Measure this! Control that! Be laser-focused on [name of thing]!

Some recommendations show great insight. But others are obvious admonitions and bland platitudes hawked as panaceas, hacks, and fixes for whatever strategic impediment wanders into a CXO’s crosshairs. Useful or not, many are shamelessly aimed at a goal few have dared to question: maximizing shareholder value.

Until now. People have started to recognize that maximizing shareholder value has a central role in harming other stakeholders. The problem is growing. In the name of maximizing shareholder value, crucial employee benefits are being slashed, workers and contractors are hired and churned at whim, and producers with sketchy labor and supply chain practices are awarded contracts – as long as they maintain the highest quality at the lowest cost. Who cares if the widget was made in a firetrap factory by laborers required to work 80-hour weeks, with no overtime pay differential?  Magnanimity and fairness, once emblems of corporate pride, have been expunged from C-Suite vocabulary. Hey, stock prices don’t increase without trade-offs!

Customers are suffering, too – mentally, physically, and financially. Faulty product designs cause injury or death, as we saw recently with GM and Takata. Companies weaken customer service, often under the guise of improving it. “As part of our commitment to our loyal customers, we are now automating . . .” Every customer support rep I’ve spoken to this year has dutifully reminded me that I can take care of my transaction or inquiry through a website. “I can step you through setting up a profile, if you like . . .” Part of the script, I suppose, but what a humiliation to be required to pull the rug out from under your own job, one conversation at a time!

With public trust in corporations waning, a new type of social-media superhero has emerged: the “disaster specialist,” to rush in post-debacle and patch things up with aggrieved customers. They bring “field-tested industry best practices.” Reassuring to know, if you’re prone to repeating widely-publicized mistakes. And when employee morale tanks, a different group of consultants waits at the door, promoting “surefire” ways to rekindle worker passion. Meanwhile, in the executive office, all’s well. Why worry, when your stock price streaks on a heavenly trajectory? There’s a hefty bag of bonus money waiting at the end of the rainbow.

This is a perverse system, in every sense of the word. In the name of maximizing shareholder value, companies routinely decimate their vital infrastructure and brand equity, then pay steeply to repair and rebuild. Some companies complete this circuit more than once. “The non-investor stakeholders? Let them eat cake!”

Maybe if we humanized those likeliest to get hurt, things could improve. For starters, we should stop calling investors, employees, customers, and vendors stakeholders, and instead refer to them as people. “It would be a funnier story if it weren’t for the tragic aspects of American capitalism in the 21st century,” wrote Matthew Stewart in a Wall Street Journal review of Duff McDonald’s book about Harvard Business School, titled The Golden Passport (Schools of Mismanagement: a Modern Business Education Provides Theories and Metrics But No Moral Center, April 22, 2017).

How did this happen? Stewart writes that in the 1980’s, Harvard Business School “suddenly embraced the notion that managers are just a shareholder’s idea of roadkill – and that it is positively bad for shareholders to possess anything resembling a moral conscience. If there is a villain painted in a single shade of black in Mr. McDonald’s version of history, it is Michael Jensen, the economist and Harvard Business School professor who supplied the intellectual rationalizations for the leveraged buyout boom, the CEO compensation boondoggle, and the rampant financialization of the economy. In Mr. McDonald’s tale, Mr. Jensen shows up ‘spewing out ridiculous blanket claims such as . . . “shareholders gain when golden parachutes are adopted.”’ Forty years ago, I drank the same Kool-Aid as an undergraduate business student.

For his part, Jensen was influenced by an op-ed article by Milton Friedman that appeared in The New York Times Magazine on September 13, 1970 (A Friedman Doctrine – The Social Responsibility of Business is to Increase Its Profits) that has become “the most read, misread, and referenced article ever written by a Nobel Laureate economist.” wrote James Heskett (Should Management be Primarily Responsible to Shareholders?, Harvard Business Review, May 9, 2017). “And It’s still being argued today. Friedman argued that the best way for managers to contribute to the social good was by maintaining a single-minded focus on profit, acting as agents for shareholders who put their capital at risk investing in their companies . . . Of greater importance than the issue posed in the article’s title was the proposition that followed: Because shareholders are owners of a corporation, professional managers and directors are their agents, primarily responsible for carrying out their wishes and creating value for them.”

According to Stewart, Harvard Business School produced “magic sticks that promised to answer every human need with a handy spreadsheet. In the more recent chapters of the history, the scariest parts are where the faculty take the spreadsheets off campus.” Among the locations Stewart is referring to is the customer-facing side of business. The retail sales floor. The Point-of-Sale terminal at Target, Home Depot, and Walmart. Online commerce. B2C, B2B and B2G. Neighborhoods monitored hundreds or thousands of miles away by wonky marketers and data scientists using predictive analytics dashboards.

Friedman’s and Jensen’s ideas have permeated into a “river of self-love that is America’s management-ideology complex,” as Stewart describes it. Every day, putrid bubbles of pomposity rise up from the sediment: United Airlines drags a paying passenger from one of its planes, initially defending its action. Wells Fargo systemically exploits its customers and employees so its president and senior managers can receive multi-million dollar bonuses tied to stock price. Theranos coerces its employees into silence to conceal the dangerous technology flaws in its widely-installed blood assay equipment. This is Mr. Friedman’s “single-minded focus on profit” at work. If he were alive today, Friedman would object to my characterization. “There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud,” he wrote. It took society nearly fifty years to fully recognize that Friedman’s view had great potential for harm. Today, many people simply ignore every word he wrote after profits. No doubt, some believe his sentence ends with that word.

In the 1990’s, the privately-held company I worked for was acquired by a firm traded on the NASDAQ, and a massive cultural shift overtook the sales organization almost immediately. Some salespeople who regularly provided great support for their customers became pariahs for not making goal. They were flushed, to use the indelicate vernacular of the profession, meaning they were fired. “Everything’s changed,” we were regularly reminded at our monthly sales pep talks. “Investment analysts are looking closely at our revenue performance, and it’s imperative that we hit our number every quarter.” Did our buyout and concomitant obsession with satisfying the analysts’ revenue expectations increase customer satisfaction? Did it motivate the company to invest more in customer support? Did it improve morale? It’s a fallacy to believe that on-target revenue production means employees and customers are happy, or that “top revenue producers” have delighted customers.

Should we replace maximizing shareholder value as management’s objective? If so, what goes in its place? The core issue is allegiance. “Harvard Business School Professors Joseph Bower and Lynn Paine propose that the primary allegiance of managers and their boards should be to the health of the corporation, not the maximization of shareholder value [emphasis, mine]. The rationale for this includes the arguments that managers can be held legally accountable while shareholders ‘have no legal duty to protect or serve the companies whose shares they own,’” writes James Heskett. And it’s immaterial whether investors have morals or personal integrity. Under maximize shareholder value, governance is not automatically granted a role in how companies are managed. In fact, governance can threaten shareholder value. In business, there’s no such thing as an immutable truthEven the notion of shareholders as owners of a company has been called into question.

The widespread practice of prioritizing shareholder value maximization seems odd, given the ambiguity over their role and rights in the development and implementation of corporate strategies and tactics. This becomes especially problematic when ensuring high returns to shareholders exacts heavy costs on others who are similarly vital for creating value.  For example, decisions that benefit shareholders, such as increasing short-term profitability through downsizing, can be catastrophic not only for customers and employees, but for the communities and the ecosystems of enterprises that depend on them to thrive. To make financial ratios more attractive, companies often reduce or eliminate essential long-term investments in research and development. In some cases, a company’s most valuable assets can be sold or leveraged to provide investors with immediate, substantial financial returns, while jeopardizing a company’s overall vitality. Few could argue that outcomes for customers, employees, and suppliers are fairly protected under this system.

If maximize shareholder value is so bad, why have so many companies embraced the idea? First, companies need investment capital to launch, grow, and fund new development. Those who put their money at risk deserve to be rewarded – and should be. Second, according to Heskett, “One reason the theory has predominated is that it is simple and straightforward. Shareholder value is easy to measure. Agency theory [the idea that a company’s managers and directors are responsible for carrying out the wishes of an organization’s owners and shareholders] simplifies the mission for managers; they need only serve one primary master [emphasis, mine].”

The problem is, converting to another corporate edict – one that is ostensibly healthier, more egalitarian, and more long-term focused – is complicated, as this passage from NCR Corporation’s annual report, excerpted from an article, Two points of view: The Point of Shareholder Wealth Maximization, illustrates:

“. . . board of directors no longer believe that shareholders is [sic] the only constituent to whom they are responsible”. (Wang, Jia and Dewhirst, H. Dudley, 1992). Explicitly, shareholder value maximization is not the only goal of the company, a company can’t do well without caring the interests of customers, suppliers, employees, or government environment . . . Stakeholders are constituencies who play an important role in the fortunes of the company. Their primary mission is to create value for stakeholders.”

That can work when the activities involved in value creation for all stakeholders are harmonious and aligned. But they are not. A point that Michael Jensen picks on:

“Stakeholder theory effectively leaves managers and directors unaccountable for their stewardship of the firm’s resources . . . plays into the hands of managers by allowing them to pursue their own interest at the expense of the firm’s financial claimants and society at large. It allows managers and directors to devote the firm’s resources to their own favorite causes – the environment, arts, cities, medical research – without being held accountable.”

I think his worry that managers will pursue disparate goals like aiding environmental causes or solving world hunger is overblown. Isn’t that the role of leadership – to keep everyone in the organization on the same page, so to speak? Here, Jensen backpedals, and provides a tiny concession:

“But . . . No company can create great value for its shareholders without stable growth of revenue, which comes from the relationship with customers, suppliers, bankers or government and so on.”

I agree with this last point. But I also recognize that with diminishing consumer trust, growing wealth inequality, and information power skewing back to corporations, Jensen and I are looking at business through the same rose-colored glasses.

Society cannot assume that by focusing on fulfilling the interests of shareholders we will produce consistently benign outcomes for others. We need something better than maximizing shareholder value as a managerial marching order. I’m just not sure exactly what it should be.

Doused Fyer: Does Our Obsession with Audacious Innovation Make Us Suckers for Scams?

 

What’s the difference between aggressive marketing and a sales scam?

The aftermath of the 2017 Fyer Festival  explores this question, and lawyers are debating the answer. Was the event a wayward business venture, or a get-rich-quick scheme? The festival’s originator, entrepreneur Billy McFarland, claims honest intentions, but blames faulty planning and bad circumstances for the festival’s demise.

Over-promise, then don’t deliver. Embedded within the debate lies a festering boil, epidemic in sales: the gap between a company’s marketing speil, and what customers get. With the Fyer Festival, though, it’s not a gap, but a chasm. Some question whether McFarland even had the wherewithal to deliver the flamboyant sales vision he created. Was he committed to keeping his promises? There are at least eight lawsuits pending against McFarland and his company, Fyer Media, and the courts will sort out the answers. The Fyer Festival has become “the focus of a criminal investigation, with federal authorities looking into possible mail, wire and securities fraud,” The New York Times reported on May 21st. This is not your run-of-the-mill business belly flop.

What was promised.  In 2016, McFarland promoted a mega-party scheduled for April, 2017 featuring music, celebrity chefs, gourmet food and luxury accommodations. Fyer Media showcased the venue as an island in the Bahamas called Fyre Cay – which doesn’t exist. One ticket package, the “Artist’s Palace,” was offered for $400,000, and provided four beds, eight VIP tickets and dinner with one festival performer.

To prospects, McFarland scrupulously maintained the festival’s high-end image. Rapper Ja Rule (whose real name is Jeffery Atkins) was touted as a celebrity business partner. Advertising listed musical acts by G.O.O.D Music, Major Lazer, and Migos. Fyer Media targeted millennials, and they sold about 8,000 tickets. To pump up revenue, the company also encouraged customers to pay $1,500 in advance for a digital Fyer Wristband to facilitate cashless transactions for “incidentals.” That added nearly $2 million to the top line.

But a few weeks before the event, as the Fyer hype engine was rocking at full throttle, a harrowing story was unfolding behind the scenes. According to a May 21 article in The New York Times,  In Wreckage of the Fyer Festival, Fury, Lawsuits, and an Inquiry,

“Expenses were swelling: Bed frames and beach chairs were rush-ordered; beach umbrellas had to be flown in, rather than shipped, because of late payments, according to three production staff members. Essential production tools, like walkie-talkies, never even arrived. Back at Fyre Media, the company credit cards were being declined for everyday office purchases.

Employees said they feared that their boss was using funds from their booking app to fund the festival. But Mr. McFarland reassured them in April when he said that Comcast Ventures, the investment arm of the cable and media giant, had agreed to invest up to $25 million in Fyer Media. In fact, Comcast had considered a deal, the company said, but passed ‘after conducting thorough due diligence.’ Mr. McFarland did not tell his employees.

As the festival date neared, the production crew’s wages, paid by wire or cash, arrived late, or short, and then stopped altogether, five members of the crew said.”

“As late as that Thursday evening [before the first weekend of the festival], Mr. McFarland and Ja Rule had continued to assure talent agents that all systems were go. But by Friday morning, both weekends of the festival had been cancelled. Within a few days, Mr. McFarland and the rest of his executive team had left the island, their site strewn with mattresses, empty Champagne bottles and other detritus.”

On April 1st, McFarland was still scrambling to find a location to accommodate the prospective partiers, scheduled to arrive on the 27th. McFarland finally secured a venue, Roker Point on Great Exuma Island. It was too little, too late. The festival was doomed.

What was delivered. Instead of luxurious digs and lavish buffets, arriving customers got tents, and cheese sandwiches on white bread. And lots of horseflies. Vendors lost money, too. Luca Sabatini claims his Miami-based company, Unreal Systems, lost about $10 million. Adding to the dismal ambience, a storm dumped heavy rain on the disappointed partygoers.

The Fyer Festival became a safety crisis. Many attendees could not leave readily. As they struggled to make arrangements, Fyer Media provided them this message on their website:

“Fyre Festival set out to provide a once-in-a-lifetime musical experience on the Islands of the Exumas. Due to circumstances out of our control, the physical infrastructure was not in place on time and we are unable to fulfill on that vision safely and enjoyably for our guests. At this time, we are working tirelessly to get flights scheduled and get everyone off of Great Exuma and home safely as quickly as we can. We ask that guests currently on-island do not make their own arrangements to get to the airport as we are coordinating those plans. We are working to place everyone on complimentary charters back to Miami today; this process has commenced and the safety and comfort of our guests is our top priority. The festival is being postponed until we can further assess if and when we are able to create the high-quality experience we envisioned. We ask for everyone’s patience and cooperation during this difficult time as we work as quickly and safely as we can to remedy this unforeseeable situation. We will continue to provide regular updates via email to our guests and via our official social media channels as they become available.”

The Fyer Festival provides an iconic recipe for a business fiasco: combine a shaky business model, lame assumptions, empty promises, opaque management, unpaid workers, stiffed vendors, jilted customers, and environmental wreckage. Blend and pour. Top off with a generous dollop of management arrogance. Serve.

Selling the vision is the easy part . . . Was McFarland dishonest in selling something he didn’t yet have? Before you answer, remember that selling things before they are available is not new or uncommon. Real estate agents sell resort property “under development,” and companies in many industries sell future services like maintenance plans, for which they may not have capabilities to provide. Lately, Tesla accepted deposits for its solar energy roof tile systems pending future installation. I’m not sure if anyone batted an eye.

What drives sales of not-yet-available products is the abiding hope that vendors will deliver what’s expected. That – and legal contracts. Contracts are created to protect sellers and buyers, and that helps facilitate transactions. But customers must never forget that when vendors write contracts, they prioritize and protect their own interests. Always. Check the fine print: customers generally bear whatever risks the vendors don’t want or can’t afford, and absorb the costs when they come home to roost. The truth about whether the Fyer Festival’s terms of sale offered adequate – or any – protection to its customers will unfold in the coming weeks.

McFarland’s “killer skill.” Customers of McFarland’s earlier entrepreneurial venture, Magnises, “complained that offers, like Beyonce tickets, never materialized, and that annual dues were charged to their credit cards months early . . . Still, he had a way of engendering trust.”

This irony galls me. But I shouldn’t be surprised. It’s rare to find anything written about strategy, tactics, and best practices that’s coupled to maintaining moral or ethical foundations. It’s all about money. We worship revenue production and profit performance. We laud “audacious risk takers” and developers of “the next great thing.”

We enthusiastically offer them advice and encouragement, but we don’t scrutinize their premise, motives, or intent. Senior managers fire functionaries for what they deem misbehavior or “not living up to the company’s ideals,” but they don’t banish their peers after they exploit customer trust. Had the US government not stepped in, Elizabeth Holmes, who admitted that the blood analysis company she founded, Theranos, is a fraud, would still be enriching herself while imperiling her customers. Now she has been forbidden from running another lab for . . . two entire years!

The same apathy allowed a company like SwanLuv to get launched. And the same apathy enabled Billy McFarland, a checkered serial entrepreneur, to execute a harebrained venture like the Fyer Festival, and sell 8,000 tickets. As long as there’s a pot of gold at the end of the entrepreneurial rainbow, who cares if people get hurt or die as the result of someone’s misguided aspirations?

“We’ve moved from an industrial economy to a consumer economy to a service economy to an information economy to what you might call a flagrant-exploitation economy – one in which branding and ‘storytelling’ have replaced advertising and possibly even reality. It’s not just that we’re being sold the sizzle more than the steak. It’s that we’re being sold the sizzle instead of and at the expense of the steak,” Carina Chocano wrote in a New York Times article, False Front.

“Cultivating authenticity” – the new watchword for marketers. “If everything lived up to its hype, the world would be burdened with far fewer bad movies, miracle vitamins and optimistic campaign promises,” Chocano says. “Wells Fargo employees spent five years creating millions of fake accounts for unsuspecting customers in order to charge them additional fees; the year before this practice was uncovered, a news release introduced the bank’s new brand campaign as one that would ‘eschew product promotion for storytelling.’ [President Trump] has agreed to pay millions in fraud settlements to thousands of students of his ‘university,’ with its $35,000 ‘Gold Elite’ program; his daughter, whom he has employed for much of her career, has published a book in which she writes about ‘cultivating authenticity’ and presents herself as an accomplished businesswoman. It’s a brand that she’s selling – the have-it-all sizzle of a self-actualized career woman and loving supermom in fashionable shoes. Who cares whether, somewhere behind it, there may be the equivalent of an undeveloped gravel pit and some unboxed disaster tents?”

Say it loud! I’m fake and I’m proud! Chocano believes that the scam economy might be entering its “baroque phase.” Even for the wary, it’s difficult to distinguish between real products and knockoffs, legitimate email from phishing, and honest companies from scammers. For the latest artifacts, check out Hoax Slayer or the US Federal Trade Commission website. Our culture and basic antipathy for commercial regulation has made the US fecund for “dissemblers, operators, and downright swindlers,” Duke University professor Edward Balleisen writes in his book, Fraud: An American History from Barnum to Madoff.   “Some of the psychological impulses that show up again and again in the history of business fraud reflect widespread aspirations or anxieties,” Balleisen says. In particular, “the passion for easily attained wealth.”

If you want an antidote, ask a preschooler. The Muppets, featured on the children’s TV show, Sesame Street, help young children develop skepticism, and might inoculate them to scammers. In one episode, a character named Lefty offers to sell Ernie one of his products. “I got something you need, and I can sell it to ya real cheap,” he says. Ernie gives Lefty five cents for a bottle of air, which he accepts. After pouring the air into Ernie’s furry hands, Lefty keeps the bottle, explaining that Ernie’s payment did not include the packaging. Other episodes show Lefty selling Ernie similarly worthless products, including an empty box and the number 8. Kids as young as three understand Ernie’s folly. In just 15 years, however, a child’s skepticism gets neutralized. Blame it on powerful sales messages, clever “content marketing,” or the constant drumbeat of honors bestowed to those who got rich quick. It’s a shame such memorable consumer lessons are only offered to the very young.

“The big generational shift since [the ‘70’s],” Chocano writes, “is from cynicism and avoidance to an admiration of the hustle and an enthusiasm for all the enthusiasm, which has dovetailed perfectly with the new laissez faire. The more Wild West the business environment, the more the hustler is elevated to folk hero or legend, much the same way that the robber barons once were.”

What distinguishes aggressive marketing from a con artist is intent. A revenue-driven marketer who lacks moral scruples meets the criteria for the archetypal con artist.  Companies should care about how they generate their revenue. So should the people who work for and support those companies. In the meantime, watch out for more Billy McFarland’s breathlessly hyping their digital snake oil online, and for more Fyer Festivals.

After the Festival debacle, Ja Rule, McFarland’s business partner, reportedly said in a Fyre Media Company meeting: “That’s not fraud, that’s not fraud . . . False advertising, maybe – not fraud.” Three denials in the same sentence – a scammer’s telltale tic. Lefty couldn’t have expressed it any better.