Category Archives: Business Development Ethics

Testimony from a Lesser-known Consumer Scam

Last week, Wells Fargo CEO John Stumpf faced members of Congress about his company’s fraudulent sales practices. His lengthy testimony in front of the Senate Banking Committee last Thursday was particularly difficult, not only for Stumpf, but for the committee members, too.

When the hearing ended, I was in the lobby at the US Capitol. The Senate committee chair approached me, explaining that there was another inquiry to conduct that day, but all the senators and staff were ready to leave. He was clearly flustered. “It’s the hearing about the Plotzbank scam,” he said, expecting that I’d be familiar. Of course, I was.

“Could you help us by running this inquiry?” the chairman asked me. “We need to hurry back to our home districts to tell our constituents how tough we were on Stumpf,” he said, adding, “there’s an election coming up in November.” I needed no reminder. I glanced across the lobby, and noticed Plotzbank’s CEO, James J. Shmivelblatz, waiting nearby.

I saw this as an opportunity to avoid the throngs of workers heading back into Virginia. Washington’s Metro system was experiencing more service outages, and I had no plans for that evening, anyway. “Sure,” I said. “I’m happy to help out.” I introduced myself to Shmivelblatz, found a seat in the hearing room, and adjusted my mic to avoid any sound distortion. Shmivelblatz followed me in.

The following is an exclusive transcript of Shmivelblatz’s testimony at the Plotzbank hearing. Any similarity to Wells Fargo is coincidental.

Rudin: I have read the allegations concerning Plotzbank, and like many Americans, I am appalled – absolutely appalled – at the terrible fraud your company has committed. My purpose in running this inquiry is to provide answers to the American people, and to help all of us learn how this travesty occurred. More importantly, I want to help us take steps to ensure it never happens again. You have said you are accountable, but your actions suggest otherwise. You committed widespread customer abuses, and canned 5,300 of your staff. But you, and all your senior managers, have not suffered even a reprimand. My first question is, specifically, what do you think you are accountable for?

Shmivelblatz: Thank you for the question. First, I want to say how terrible I feel right now . . .

Rudin: Yes, yes, I know. You have apologized repeatedly, but what I am asking is . . .

Shmivelblatz: What do you mean apologized? Just now, I banged my head on the door frame walking into the hearing room.

Rudin: That’s unfortunate. But Mr. Shmivelblatz, I must keep to my allotted time, so I’ll move this along. We’ve heard a lot recently about the culture at Plotzbank, and its role in creating and sustaining fraud over many years. Mr. Shmivelblatz, what does the widespread fraud at Plotzbank say about your company’s culture, and why didn’t you do anything to stop it?

Shmivelblatz: Regarding our culture . . . you know, we’re really, really rich people here. We’ve made hundreds of millions of dollars. Many hundreds. Me, and all my direct reports. Lots of money. And we’re smart, too, because we’re on track to make millions more. That’s how great our culture is.

Rudin: Well, that answers both parts of my question. Turning to your Vision and Values Statement – the one that was in place while Plotzbank was busy scamming its customers. It says, “We are the trustiest company ever trusted in the bank and trust business. All of our employees are trustworthy. You can trust us with anything and everything. No competitor is trustier.” Did you approve these statements?

Shmivelblatz: . . . The board . . . The board will . . .

Rudin: I’ll take that as a yes. . . . Mr. Shmivelblatz, how will you – you personally – restore a clear, unambiguous meaning for trust?

Shmivelblatz: That question has entered my mind countless times since I learned about how our low-level employees flouted Plotzbank’s impeccable values. And I have given it deep thought. I don’t deny Plotzbank has made mistakes. I’ve made mistakes. Right now, I can assure you that as an organization, we will never, ever misspell the word trust.

Rudin: Mr. Shmivelblatz, what’s difficult to understand is your claim that you weren’t aware of the deceit taking place between your sales staff and your customers. Especially because your VP of Sales, Connie Shmeckley, was known internally as the Nanotechnologist for her meticulous attention to minute operational details, such as your operating statistics and sales compensation plans. At any time during the past eight years, did Ms. Shmeckley inform you about what she was doing?

Shmivelblatz: I don’t recall . . .

Rudin: As CEO, didn’t you meet with Ms. Shmeckley? Wouldn’t you have discussed operations and performance metrics?

Shmivelblatz: I’m sorry. I can’t recall anything specifically. But I do remember that before every staff meeting, we watched the kitchen scene from the movie, Jerry McGuire.

Rudin: The kitchen scene . . . the one where they shout, “show me the money!”?

Shmivelblatz: That one. Yes. Ms. Shmeckley and I are big fans of Tom Cruise and Cuba Gooding Jr.

Rudin: That’s nice . . . Mr. Shmivelblatz, do you know the amount an entry-level sales employee earns at Plotzbank?

Shmivelblatz: They earn a base salary, plus . . . plus . . . we offer regular contests and fun incentives for our sales staff. They just thrive on pressure! Thrive!

Rudin: You didn’t answer the question, but we’re getting to the end of our time. Let’s talk briefly about metrics. Plotzbank has been accused of high-pressure sales tactics. I haven’t seen any evidence that you care about customer satisfaction. You don’t measure it. You don’t track it. What do you measure?

Shmivelblatz: I disagree. First of all, we measure customer passion and engagement, and our analytics people tell me that we deserve to be proud. For example, we call one of our measurements Decibels, which tracks how loudly our customers talk when they call for support. High decibels means high customer passion, and we do very, very well. Another measurement, Engagement, tracks how many times a customer calls Plotzbank to chat with our friendly and helpful staff. Forty-eight percent of our customers call us over 100 times every week, and here we lead the industry. Bar none.

Rudin: Do you think you might be drawing false conclusions?

Shmivelblatz: There is no doubt that we have some . . .

Rudin: I’ll take that as a yes. Moving along – let’s talk about how Plotzbank exploited its sales force. Tell me about your sales incentives and commissions.

Shmivelblatz: Sure. Our most enduring – and I think our most endearing – contest, the one that we proudly mention in our annual report, is called Eight Rhymes with Fate. It sets demanding stretch goals, and the winners get to keep their jobs. The most flexible are nominated for membership into our Stretchers Club, and I’ve never heard any complaints. But I want to make one thing very clear: at Plotzbank, we believe strongly that there’s no I in Stretch Goals. And there’s no I in Clean Out Your Desk.

Rudin: You’ve used stretch a few times in your answer. Can’t you have goals, minus stretchiness? And at Plotzbank, how stretchy are your stretch goals?

Shmivelblatz: Stretch goals are one of Ms. Shmeckly’s many fine innovations. But you’re asking me details I don’t know. Ms. Shmeckly always said, ‘what happens in sales stays in sales.’ Who am I to argue?

Rudin: I see . . . So what happens to your staff who don’t achieve their goals?

Shmivelblatz: Thank you for the question. We’re very proud of our industry-best track record! Plotzbank fires more than twice as many sales staff as our closest competitor.

Rudin: Have you ever been fired?

Shmivelblatz: No, not yet. Why?

Rudin: In the remaining time, I’d like to know what you would say to one of your sales staff who might have been fired for not making your stretch sales goals.

Shmivelblatz: I’d say, Let them eat cake.

Rudin: Let them eat cake? Really?

Shmivelblatz: Yes! And then I’d give them a slice of real cake. Since news of this scandal went public, I instructed our staff to make things right, no matter what.

Rudin: And what about your customers – the ones you defrauded – what would you say to them?

Shmivelblatz: The same thing. Then, I’d give them a slice of cake, too! Except theirs would have our venerable red and gold logo in frosting, right on the top. As I have said, we will make things right for everyone, and no expense will be spared!

Rudin: Thank you, Mr. Shmivelblatz. I have no further questions.

At the end of the hearing, the courtly, silver-haired Shmivelblatz smiled politely, and thanked me for my questions. Putting his arm on my shoulder, he said, “It’s been a great conversation. By the way, I heard you say your Metro isn’t working. My limo driver is parked out front. Is there anywhere you’d like to be taken for a ride?”

Cross-selling Is Not Evil!

You can’t read or hear anything about Wells Fargo without cross-selling popping up.

“At Wells Fargo, apparently, the solution in recent years was aggressive ‘cross selling’ of its existing customers – that is, urging them to open credit card accounts to go with their checking accounts, and so on, in order to generate more fees,” The Washington Post said in a September 22d editorial, Accountability at Wells Fargo.

OK. Now, tell us what Wells Fargo did wrong.

That’s a longer sentence. Here it is: “At Wells Fargo, apparently, the solution in recent years was to reward senior management with enormous bonuses tied to stock price appreciation regardless of the strategic and ethical risks, allowing them to set excessively high performance targets for low-paid sales staff, align pay incentives with sales goals unrelated to customer satisfaction, crush internal dissent, and emasculate internal audit controls.” Yep – That pretty much sums it up!

But that’s complicated, and it doesn’t sell newspapers, or bring eyeballs to a webpage. So cross-selling stays in lead sentences and headlines, carrying disdain that will now be hard to shake. If I were unfamiliar with business development, I might mistakenly think of cross-selling as a deviant or manipulative behavior, like getting the prospect to say ‘yes’ three times, or the reviled assumptive close.

That’s unfair. Disclosure: I’m a cross-seller, and have been for many years. Cross-selling is “the action or practice of selling an additional product or service to a customer,” according to Wikipedia. As a software salesperson, I cross-sold hardware, software, services and third-party products. As an account executive with an auto-ID manufacturer, I cross-sold products from different divisions in my company. And I cross-sold services that my VAR’s (Value-added Resellers) provide. No one was harmed. Laws were not broken. In fact, my customers loved the convenience, and the revenue was credited to my quota. My W-2 and 401K became flush with dinero. Life is good!

Cross-selling offers substantial benefits for vendors, especially for large, diversified companies with multiple-divisions calling on the same buyers or decision makers. With cross-selling, they can reduce overhead and redundant systems. Buyers gain efficiencies, too. With cross-selling, they can work with account teams that have a “big-picture” view, and don’t need to schedule multiple meetings with reps from uncoordinated business units within the same company. What makes Wells Fargo’s actions reprehensible wasn’t that they engaged in cross-selling, it was how they did it.

Expect more cross-selling, not less. When customers implement projects and systems, they buy many interdependent technologies and services. Some vendors provide end-to-end solutions, but their complexities mean that few salespeople can possess all the required knowledge. They must collaborate internally and externally, and for that reason, cross-selling makes sense. So does paying salespeople for engaging in it – when customers benefit. That’s touchy, so I’ll widen the strike-zone: as long as customers are not harmed.

The right question to ask is not, “how do we restrict cross-selling,” or even “how do we prevent cross-selling from hurting customers?” It’s “how do we identify and mitigate situations when management has the opportunity to gain substantial compensation, but might unfairly harm employees and customers in order to obtain it?” Put another way, “when management has access to a cash cookie jar, how do we prevent them from screwing everyone over when they’re stuffing their hands into it?” Boards – are you listening?

One of the rules regulators are now considering is a “requirement for the biggest firms to claw back bonuses from employees engaged in misconduct that results in significant financial or reputational harm or any fraud. Those proposed rules would require banks to take back pay for wrongdoing for at least seven years after the executive receives the payment,” Yuka Hauashi and Christina Rexrode wrote in The Wall Street Journal on September 20th (Hearing to Amplify Ruckus Over Pay). It’s a good rule that makes sense not only for financial services, but for any industry.

A failsafe regulation would be peachy, but I’ll settle for reducing the risk that no more John Stumpfs (Wells Fargo’s CEO) will be allowed at the controls of a major company. As Holman W. Jenkins Jr. wrote in his column, Wells Fargo’s Incentives Go Awry, “All companies operate on incentives and systems that are not perfect. Comcast means for its ‘retention specialists’ to win back irate customers, not bully them in ways that end up on YouTube. Yet it happens.”

Consumers won’t be protected through more scrutiny over cross-selling, or from curtailing it, but we can make things better by getting rid of some damaging practices:

1. Committing to lopsided bonus structures that enrich individuals, not the company.

2. Providing low wages for wages for salespeople, and making subsistence income contingent on achieving “stretch” goals, or on meeting performance metrics that are extraordinarily difficult.

3. Heaping sophomoric praise on salespeople for “busting quotas” and “crushing their numbers,” without considering whether they have been ethical.

4. Assuming that salespeople “thrive” on pressure, as one popular blogger wrote. That’s a myth. Plenty of salespeople face pressure, but when there isn’t an upside for them, it’s hard to describe that as “thriving.” More accurately, salespeople with pay at risk (commission) have – or should have – a congruent tolerance for uncertainty.

5. Assuming that good salespeople will always find a way to make goal – no matter the odds. The sentence is mostly correct – just change good to clever.

6. Letting what happens in sales stay in sales. Companies must begin to have ongoing governance over their sales processes, or suffer the consequences when poop hits the fan.

Concern over cross-selling is misdirected. If you’re looking for the real culprit in Wells Fargo’s case, you will find it in the emergence of a trend: executive pay tied to stock price appreciation. “Changes like these are directly responsible for CEO’s seeing a 15-fold increase in comp in the last 40 years,” said Bobby Parmar, professor at the University of Virginia’s Darden Graduate School of Business Administration.

Parmar says that boards rationalize for fulfilling an obligation to grow and protect shareholder value. But he says this is based on flawed assumptions. “Shareholders don’t own the corporation. Public companies own themselves. Shareholders own a contract called a share. There is no legal reason to put shareholder interests above anyone else. It’s a choice, but not mandated. There is no legal duty to maximize profit. As long as executives aren’t violating the law, the courts won’t interfere with their decision making . . . Across hundreds of studies, there is no evidence that companies that maximize shareholder value are more profitable.”

That’s not what I was taught in B-school, and I have little doubt that many vociferously disagree. But Parmar is right. It’s the relentless goal of growing revenue and the myopic pursuit of share price appreciation that ultimately creates substantial stakeholder wreckage.

A huge relief to cross-sellers. Now, you can come out from your hiding places. Be proud of what you do, and who you are!

Anatomy of a Scam: Wells Fargo’s Treachery Can Happen Anywhere

If you knew your customers were being deceived, why didn’t you stop it?

If you didn’t know, why?

As Wells Fargo CEO John Stumpf knows, it’s a bad day at the office when any answer you give is wrong. His company got slapped with a $185 million fine from the US government, and is now the subject of a Federal fraud inquiry. As of this writing, Wells Fargo has neither admitted nor denied the allegations.

But Stumpf’s responses to Senator Elizabeth Warren’s questions during a congressional hearing today didn’t go well. In an exchange that will be studied in B-school leadership and ethics courses for many years, Senator Warren eviscerated him. “It’s gutless leadership,” she said. “You should resign.” Stumpf had no response.

“How probable is it that you would have a firm-wide, multi-year scheme involving thousands and thousands of people that senior leaders weren’t aware of,” Jordan Thomas, a former Justice Department trial lawyer, asked last week. Answer: not very. As financial journalist Roger Lowenstein quipped, “[5,300] people don’t just wake up in the morning with the same bad idea.”

Stumpf said he “feels accountable” for the fraud that Wells Fargo allegedly committed, but added that employees didn’t honor the bank’s values. Mr. Stumpf, I have a suggestion: The best response is “I am accountable. Period.” Not, “I am kind of accountable, but here’s how my underlings screwed up . . .” A leadership coach would charge a large fee for that advice. I offer it for free.

It’s hard to know what’s more odious – Stumpf’s mealy “feels accountable” lamentation, the deceit that Wells Fargo committed underneath its imperious-sounding Vision and Values Statement, or the fact that 5,300 Wells Fargo staff lost their jobs for engaging in practices that overwhelmingly enriched its senior executives. Who, by the way, are all still employed.

Regardless, it’s disgusting to see Stumpf’s smiling face on the Vision and Values web page, next to his mendacious quote, “Everything we do is built on trust. It doesn’t happen with one transaction, in one day on the job or in one quarter. It’s earned relationship by relationship.” Odd that his picture doesn’t show him wearing a loud plaid sport jacket, open collar shirt, and a cheap gold necklace.

Wells Fargo’s Vision and Values Statement includes a section on ethics:

“Honesty, trust, and integrity are essential for meeting the highest standards of corporate governance. They’re not just the responsibility of our senior leaders and our board of directors. We’re all responsible. Our ethics are the sum of all the decisions each of us makes every day. If you want to find out how strong a company’s ethics are, don’t listen to what its people say. Watch what they do.”

We now know this paragraph is just well-crafted marketing horse poop. While Wells Fargo proudly displayed it to the world, its senior managers put employees under their boots, pressuring them to sell, sell, sell! We’re just starting to learn how they did that, and it ain’t pretty.

Under its Vision and Values, the company lists six priorities. Numero Uno: Putting Customers First:

“We put our customers at the center of everything we do and give them such outstanding service and guidance that they’ll give us more of their business, honor us with repeat purchases, and rave about us to their family, friends, and business associates. We want to be the first provider our customers think of when they need their next financial product.”

Immediately below the Customers-first priority lurks the second priority, Growing revenue. The smoking gun that destroyed the first:

“Wells Fargo is a growth company that believes the key to the bottom line is the top line. “We see opportunities to continue increasing revenue across all of our businesses and serve more of our customers’ financial needs. For example, we want more of our retail bank customers to consider us for their brokerage and retirement needs. And we want to continue expanding the number of customers who have a mortgage or credit card with us. We also want to be the bank of choice for our business, commercial, and global customers.”

No joke. Forget soft-sounding platitudes like consider and be the bank of choice. Wells Fargo means every word about their strategic intentions. “Cross selling and aggressive sales tactics are core to company’s business model . . . Sales goals were huge,” according to Wall Street Journal reporter Emily Glazer, who has covered this story. Whereas most banks average three accounts per customer, Wells Fargo established a sales target of eight. Why? “Eight rhymes with great.” A catchy jingle that Wells Fargo included in their 2010 annual report, which Senator Warren used to lambaste a speechless Stumpf.

This is a sales scam that happened at a bank – not a banking scandal. A scam that could happen anywhere. All you need are the right ingredients: 1) manic focus on growing revenue 2) substantial bonuses tied to stock price, 3) misaligned sales incentives, and 4) weak internal governance. Voila! A putrid, fecund environment for a sales scam. It doesn’t matter whether you’re hawking financial services, precision electronics, IT outsourcing, or anything else.

Show me salespeople repeatedly engaging in bad sales practices, and I’ll show you a manager responsible for it. For investigators, the spotlight shines on Stumpf and Carrie Tolstedt, the bank’s former head of retail operations, who announced her resignation in July. Ms. Tolstedt, 56 years old, plans to retire this December. In her role as head of retail operations she had responsibility for Wells Fargo’s business with 40 million retail banking customers, and “led the bank’s efforts to cross-sell products to individual customers. Sales goals connected with cross-selling also fell under Ms. Tolstedt’s remit. More than three dozen current and former Wells Fargo employees told The Wall Street Journal that those goals defined the retail bank’s culture and led many staff to engage in practices that are now under question,” according to a September 20 Wall Street Journal article, Wells Fargo Official in Eye of Storm. Ms. Tolstedt’s compensation in 2015 was $9.05 million, according to the bank’s 2015 proxy statement. When she retires from the company, “she will collect a pay package valued at $112.9 million.” Enough to pay for a decent lawyer.

Known internally as ‘the watchmaker’ for her attention to detail, Tolstedt earned high praise from Stumpf, who called her “a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled, and inclusive leadership.” I understand why. Until early 2015, Wells Fargo posted 18 consecutive quarters of year-over-year profit growth. But given the bank’s current ignominy, Stumpf’s laudatory words for might be a bitter pill for those who were summarily fired for “underperformance.” As Senator Warren pointed out, a teller who steals a handful of $20 bills from the cash drawer would go to prison. In her view, Wells Fargo Executives perpetrated a more heinous crime, and have so far escaped prosecution.

A trick for driving revenue: manipulation and deceit. A revenue scam such as Wells Fargo’s always involves exploitation of trust. There are typically two categories of victims: sales staff and customers.

Exploiting staff. A district sales manager once told me, “I look for salespeople who have a mortgage, a stay-at-home wife, a baby, and another on the way.” Translation: “I need people I can control like a marionette puppet.” Wells Fargo pulled the motivation strings with a vengeance. “[Wells Fargo management] are putting pressure on employees, and it’s sad. People need their jobs,” said Mita Bhowmick, a former Wells Fargo teller in Pennsylvania, who took early retirement in 2014.

In the coming weeks, we’ll hear painful testimony from many current and former employees. People with limited job mobility. Single mothers and fathers struggling to pay rent and household bills. Adults supporting an elderly parent. Those living in communities where few job alternatives exist. They will share stories about onerous quotas, “stretch goals,” and living under the constant threat of demotion and firing. They are the among the people that Wells Fargo ruthlessly took advantage of to achieve their aggressive performance metrics.

“The bankers churned the accounts. They didn’t produce profits. They did it because of a misaligned incentive system. The [sales staff] made a minimum wage and could only make more if they duped customers,” Ed Mierzwinski of the US Public Interest Research Group said in an NPR interview with Jane Clayson (Scandal, Sham Accounts at Wells Fargo).

With sales commissions, you get what you pay for, and more. “Wells Fargo built an incentive-compensation program that made it possible for its employees to pursue underhanded sales practices, and it appears that the bank did not monitor the program carefully,” said Richard Cordray of the US Consumer Financial Protection Bureau.

Exploiting customers. Putting customers – especially the naïve or vulnerable – under the influence of a salesperson with devious intentions creates a sickening business relationship, and constitutes a serious abrogation of trust. Regulators have accused Wells Fargo of collecting millions of dollars in fees from customers for accounts they never authorized, a practice alleged to have started as early as 2011. “This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals . . . consumers, in turn, were sometimes harmed because the bank charged them for insufficient funds or overdraft fees because the money was not in their original accounts,” the Consumer Financial Protection Bureau said in a statement.

According to a former Wells Fargo employee, “The customers were told in phone calls that Wells Fargo planned to send them a new credit card as a ‘thank you’ for their business. If a customer didn’t want the card, he was told to cut the card when it arrived in the mail.”

Damaged credit scores, inability to qualify for loans, missed opportunities for a college education, unfulfilled dreams. None of these devastating customer outcomes mattered to Wells Fargo executives, as long as the company’s stock price was on a positive trajectory.

Finally, in addition to the other conditions, a successful sales scam requires another crucial cultural element: fear. Above all, management must crush dissent and opposition. There are proven ways. “If somebody said, ‘This doesn’t make sense. Where are you getting these sales goals?’ then [the response] was, ‘No, you can do it’ or ‘You’re negative’ or ‘Oh, you’re not a team player,’” said Ruth Landaverde, a former Wells Fargo credit manager.

There’s a difference between telling people you’re responsible, and acting responsibly.

During today’s congressional hearing, Senator Warren netted CEO Stumpf’s action – or inaction – in the wake of his company’s scam. Stumpf

1. has not resigned from his position as CEO,
2. has not returned “one nickel” of bonus or stock gains he received while the scam was taking place (Sen. Warren calculated his personal gain to be $200 million),
3. has not fired a single senior manager or C-Level executive.

So much for “feeling accountable.” Meanwhile, Stumpf has already impugned the bank’s staff for not upholding Wells Fargo’s values, and under his watch, 5,300 employees were fired for “inappropriate sales practices.”

If there was ever a time for a board to can a CEO, claw back his bonus money, and tell him never to return, now would be it. I hope Wells Fargo’s board does the right thing. But that’s doubtful. The board knew about the cross-selling problems as early as 2013. Some people believe the board should have recognized the risks that that the bank’s pay and bonus plans would bring.

Just as important, I hope the governance reforms that ensue from this case will permeate into industries outside banking. The “perfect storm” for a scam can corrupt any business.

Author’s note: I first wrote about Wells Fargo’s sales tactics in May, 2015, for an article, Teach Your Sales Force Well: Learning from Pay-for-performance. The article contains a link to a 2013 LA Times article by Scott Reckard, Wells Fargo’s Pressure Cooker Sales Culture Comes at a Cost.

In November 2015, I inducted Wells Fargo into my Sales Ethics Hall of Shame. The company has lived up to this dubious honor.

Do Corporate Values Matter?

Visit the website of a great company, and you’re certain to find a values speil.

UnderArmour dedicates an entire web page to explain its Mission and Values. Whole Foods describes its Core Values, offering a subtitle, What’s truly important to us as an organization, to drive home the point. IBM outlines Our Values in a nearly-tweetable 153 characters: “Dedication to every client’s success; Innovation that matters, for our company and for the world; Trust and personal responsibility in all relationships.” Brevity you’d expect from a company that sells productivity solutions.

But value statements alone don’t make companies wholesome. Right now, UnderArmour is piggybacking off the brand appeal of the Rio Olympics, without shelling out a penny for sponsorship. A term has been coined for this, with an appropriate tint of bellicosity: ambush marketing. “Technically speaking, that’s not against the law . . .” a radio commentator said yesterday.

The disclaimer, technically speaking, should trip a circuit in the company’s Department of Competitive Ethics – assuming one exists. Danger Will Robinson! Fortunately, UnderArmour has a superb excuse: its admirable Core Values are silent about the morality of siphoning revenue from the investments of others – a tactic that’s existed since the birth of sponsorships.

Whole Foods strayed from one of its core values, healthy eating. “We sell a bunch of junk,” said CEO John Mackey in a 2009 interview, adding that the company had “veered off-course” by selling junk food and products that are unhealthy for consumers, according to a case study from the University of New Mexico.

IBM, too, has been muddied by ethics issues. And this April 20, 2012 post from exIBMandenjoyingit represents how the most aspirational corporate values can have the rug ripped right out from underneath:

IBM is thoroughly corrupted inside and my former colleagues are playing the game. As US employees we accepted the internal corruption ourselves. We saw organizations providing bogus sales numbers yet we look the other way because we too may have been paid on those numbers.

The IBM help desk in India participates in the corruption by closing older tickets and informing their internal customer to open a new ticket so that their time to resolution is not badly affected. This fish stinks through and though from decades of internal brain washing reducing employees [sic] integrity a little bit at a time.

Glad to be gone but I wonder if my soul is intact.

For these companies, public values statements did not inoculate them from ethical problems. If anything, they manufactured embarrassing hypocrisies. Despite producing stern values proclamations, unethical [stuff] happens at these companies and many others, seemingly unabated. Do corporate Core Values Matter? Or, are companies better off not defining them?

One researcher has examined these questions. Edward J. Conlon, faculty director of the Notre Dame Deloitte Center for Ethical Leadership within the Mendoza College of Business at the University of Notre Dame, studied corporate values by surveying at random the stated values of 150 multinational corporations.

The top ten values Conlon and his colleagues discovered, along with the number of surveyed companies that included the word or phrase:

1. Integrity (111)
2. Concern for customers (62)
3. Respect for all (58)
4. Teamwork (49)
5. Respect for employees (45)
6. Innovation (37)
7. Ownership of actions (31)
8. Excellence (30)
9. Safety (24)
10. Quality (23)

Curious that integrity was so dominant. I wonder what, if anything, companies do to establish and perpetuate that value.

In a follow-on exploratory survey of alumni from Notre Dame’s MBA program, “70% of respondents reported that their employer had a formal values statement, although 27% couldn’t recall any of the values it actually contained. Still, all of the respondents to the survey believed that the company had clear values. And for those reporting a value statement, most felt there was a strong correspondence between the statement and what was truly important to the firm’s managers and owners.

“The survey also included an experiment on the impact of values statements on employee judgments, assessing the extent to which a stated company value affected judgment when that value could be served by favoring some options over others. Overall, the simple inclusion of a value in a value statement didn’t affect decisions respondents made in the experiment. But when a value was frequently discussed with one’s boss, or when it was included in formal performance evaluations, it tended to have a greater effect. Discussions with peers and subordinates, or more casual discussions of values, didn’t have the same impact,” according to a Notre Dame column, Do Corporate Values Make a Difference? (emphasis, mine.)

Values are not a checkbox. “Corporate values and Guidelines for Ethical Conduct? – sure! We’ve got them. Let’s move on to the next topic . . .” Many executives feel safer by having these documents in the inventory of corporate communications and marketing collateral. But too often, they collect dust. What’s key is how they are used, as the Notre Dame follow-on survey uncovered. That goes well beyond including it in marketing fluff for wowing prospective customers and employees.

“When you lead an organization – big or small – you are inevitably going to cross decisions where it’s not obvious what the right thing to do is,” said Tom Linebarger, Chairman and CEO of Cummins. “In other words, there are consequences on both sides. When those things come up, you have to apply good judgment and ethical frameworks to think through the thing.”

His advice: “not to use a financial framework first, and use my ethics to rationalize my decision later . . . instead, think about what you should do and then figure out what the financial consequences are, and then figure out how to mitigate those. The post-rationalization is a slippery slope.”

Linebarger should teach a course on marketing and sales ethics, because he has aptly described the conundrum biz-dev professionals face every day: make goal, but in accordance with corporate values. And you thought Marketing and Sales were mis-aligned? Look higher, my son!

In The Vision and Values of Wells Fargo , five primary values are given “that are based on our vision and provide the foundation for everything we do:”

• People as a competitive advantage
• Ethics
• What’s right for customers
• Diversity and inclusion
• Leadership

Odd that Wells Fargo cited ethics – but didn’t indicate whether they meant ones that are good, or bad. In fact, the value mentioned just below ethics, What’s right for customers, is open for debate. In November, 2015, The Wall Street Journal published an article, At Wells Fargo, How Far Did Bank’s Sales Culture Go? Regulators examine whether San Francisco-based lender pushed employees too hard to meet quotas. Here, in the interest of transparency, what’s right for customers should carry an asterisk, followed by the explanation, “provided we meet our audacious revenue targets.”

“Some of the worst transgressions start out by a very simple decision to maybe choose the more expedient way or the more financially attractive way with some post-rationalization for the next one and the next one, and before you know it, you’re down in a place thinking ‘how did I ever get here?’ and wishing you weren’t there,” Linebarger said.

He’s right. Perhaps the greatest benefit of having a statement of Corporate Values is that it lets people know when they’ve deviated from what’s ideal, and possibly how far they’ve gone.

Want a Customer-Focused Culture? Begin with Guidelines for Ethical Conduct

Politicians love to judge ethics – that is, everyone else’s. If their hypocritical self-righteousness somehow produced water, Lake Mead would once again be full, and thousands of golf courses and car washes would open in California. I think I’ll look into this before the election in November, while I’m guaranteed a cornucopia of raw material.

My family routinely reminds me that I, too, am in no position to finger wag about someone else’s ethical standards. I don’t argue with them, not that I haven’t tried. Ethical ambiguity flourishes everywhere, affording infinite ways to distinguish pretty much right from kind of wrong. I guess I’m just lucky to have made so many correct ethical decisions over the years. Winking Emoticon, #humblebragging.

Isn’t it ironic that the same people who gripe about other people’s ethics often strenuously advocate rolling back regulation, and eliminating “bureaucratic red tape”? Do they really think it’s best to abdicate our society’s best interests to . . . well, there are so many checkered people whose names fit in this spot. So, no thanks – I’ll snuggle with the nannies at FINRA, OSHA, the FDA, the FCC, the CDC, and the FTC. They help me sleep better at night.

If you think Big Government has piled legal red tape too high, I urge you to peruse Article 2 of the Uniform Commercial Code (UCC), which governs sales of goods. Without the UCC, companies would be stuck navigating the laws of every state, along with the District of Columbia and Puerto Rico, just to sell a simple container of shower curtain rings, and ship it domestically.

A copy of the UCC stays in my car, submerged in a beefy volume that includes cases, titled Business Law, by Smith and Roberson. I figure the book will come in handy in case I have to change a tire, and need a sturdy wheel chock. Several cases follow a pattern: Party A deliberately and flagrantly screwed over Party B, causing grievous harm . . . Others are fuzzier on culpability, providing fodder for lively debate over whether laws were broken, despite unfortunate outcomes. “Satisfaction as an express condition.” A discussion topic that fascinates me, and underscores why Chief Customer Officers need law degrees to accompany their marketing creds. You’ve probably guessed that I don’t attract large crowds at parties.

Make no mistake: when it comes to business conduct, laws govern a miniscule sliver of possible situations. While I heartily agree that some regulations are misplaced (does it make sense for the government to shut down lemonade and cookie stands run by ambitious grade-school entrepreneurs?), I don’t think of American business as over-regulated. Not by a long shot. In fact, most day-to-day business activity occurs in spaces painted in appealing shades of Legal Gray. A joyous region where men and women of all races, religions, and ethnicities frolic unencumbered, making and selling things as they see fit. Go us! Freedom from regulation – and not a law man or law woman in sight! . . . said the Marketing Director for the dietary supplements company.

Think of commercial laws and regulations as a paper umbrella, about the size of the one a bartender uses to adorn your Singapore Sling. If you want to keep dry in the rain, you’d ask for something more substantial to preserve your coiffeur, and keep your Armani suit dry. In capitalist economies, we depend on ethics – the moral principles that govern a person’s or group’s behavior – to fill a comparable role.

Fortunately, anyone from a spunky summer intern in flip-flops to a wizened CEO in wingtips can trigger ethical circumspection by asking, “what is the right thing to do?” But providing answers can be anything but straightforward.

For example, how would a member of your biz-dev team respond if . . .

• when bidding on a large project, she had access to proprietary technical or pricing information about a major competitor?

• a prospective client proceeded to buy your product even though your rep knew it wouldn’t perform well?

• he had the ability to reduce prices for a long-time customer who consistently pays list price?

Depending on context, the answers could change.

In the first scenario, what would your rep do if she got the information passively through a mistakenly forwarded email? Or, what would she do if a prospective buyer offered to clandestinely share a competitor’s comprehensive proposal? If the rep found that unethical, would she refuse the offer if winning the deal meant earning a large commission or an important recognition, such as Achiever’s Club? And what would happen if she were below quota, and losing the deal meant losing her job?

In the second scenario, how would customer knowledge influence the rep’s action? For example, if the buyer were aware of the deficiency, would the rep accept the order? What if the buyer were aware, but underestimated the consequences?

And in the third scenario, what if a previous Account Executive no longer assigned to the account had made a vague comment to the customer to “pass along savings” whenever they became available? Would the rep feel obligated to honor his colleague’s statement?

In individual situations of ethical ambiguity, management must answer two questions:

1. How would your reps likely act or respond?
2. How does the company want them to respond?

This analysis assumes that management has made protection of customers’ best interests as much centerpiece of its culture as “driving revenue” or “optimizing profit,” two pursuits that trample best outcomes for customers. It also assumes that companies prefer that their employees act both legally and ethically.

For the first question, the sales commission and incentive plan provides important, though incomplete, insight. Usually, an unsettling gap exists between the two answers, and the greater the gap, the greater the risk for employees, employers and customers. Many executives can’t answer the first question, and can’t agree on the second – creating risks that make bungee jumping with a frayed cord seem safe by comparison.

Communication that documents and prescribes Guidelines for Ethical Conduct (GEC) not only affirms a company’s commitment to honesty, transparency, and fairness in dealing with customers, it forces management to think about what those values mean, and how they intend to demonstrate those values – not just say them. A company’s GEC won’t necessarily define the right sales decision, but it should spell out characteristics of ones that are wrong.

The International Code of Ethics for Sales and Marketing Executives International (SMEI) includes a pledge to “personally maintain the highest standards of ethical and professional conduct in all my business relationships with customers, suppliers, colleagues, competitors, governmental agencies, and the public,” to “protect, support, and promote the principles of consumer choice, competition, and innovation enterprise, consistent with relevant legislative public policy standards,” and to “not knowingly participate in actions, agreements, or marketing policies or practices which may be detrimental to customers, competitors, or established community social or economic policies or standards.”

The Direct Marketing Association’s Guidelines for Ethical Business Practice dives deeper, covering a lot in 51 pages, including,

Honesty and Clarity of Offer – “All offers should be clear, honest, and complete so that the consumer may know the exact nature of what is being offered, the price, the terms of payment (including all extra charges) and the commitment involved in the placing of an order.”

Decency – “Solicitations should not be sent to consumers who have indicated to the marketer that they consider those solicitations to be vulgar, immoral, profane, pornographic, or offensive in any way and who do not want to receive them.”

The Direct Selling Association stipulates boundaries in its Code of Ethics :

“Our Code of Ethics requires independent salespeople affiliated with DSA member companies to adhere to the Code’s guidelines and ensure a high level of professionalism, customer service and business ethics when interacting with consumers.

• Independent salespeople must respect a consumer’s wishes to discontinue a product demonstration or a sales interaction

• Independent salespeople must market income representations and product descriptions consistent with company directives and ethics training

• Independent salespeople must provide a receipt from the member company that permits the consumer to withdraw from a purchase order within a minimum of three days from the date of the purchase transaction and receive a full refund of the purchase price”

[Note: In November, 2015, Herbalife, a DSA Member, settled a $15 million class-action lawsuit brought by a former salesman which “alleged that Herbalife is a pyramid scheme in which the company’s independent distributors earn more money recruiting new sales people than they do selling its products, an allegation Herbalife has repeatedly and vigorously denied, according to]

These excerpts are not just pragmatic – they outline essential conduct for a customer-focused culture. In addition to providing guidelines to the biz-dev team for how to resolve ambiguity and possible conflicts of interest, a GEC

1. provides the operational foundation for internal sales governance. If there are no defined boundaries, there can be no governance.

2. serves as vital counter-weight to pressures for achieving short-term sales goals.

3. establishes standards for employee disciplinary actions or termination.

4. communicates to customers and employees a commitment to practicing and enforcing high ethical standards.

5. Aligns corporate values and purpose with those of employees.

When I talk with senior sales executives about instituting GEC, I often encounter skepticism. Here are some examples:

1. “The best sales reps already have a strong sense of personal ethics.” But not every top rep made his or her quota honestly or ethically.

2. “Our mission statement covers ethical behavior.” Most don’t scratch the surface, and ethical standards are tangential to mission statements, anyway. Aflac’s, “To combine aggressive strategic marketing with quality products and services at competitive prices to provide the best insurance value for consumers,” won’t help a sales rep figure out how to evaluate a questionable approach.

3. “Those types of things could never happen here.” They can. And they do.

4. “We screen for honesty in the job interview.” Really? – How?

5. “Salespeople are ‘just wired’ to behave certain ways.” Guidelines won’t prevent anything. Possibly true. But in court, demonstrating that your company maintains GEC can be a more helpful defense than saying “we have never provided guidelines to our employees.”

6. “If senior executives model ethical behavior, reps will follow their behavior.” If you believe that, I have some land to sell you in Florida.

“An’ I’m never gonna care ‘bout my bad reputation. Oh no, not me, oh no, not me,” Joan Jett belted out in her song, Bad Reputation.

But I believe most people do care. It’s just that pressure to achieve short-term results makes the process of distinguishing right from wrong a bit . . . impure. Same for winning a presidential election, or a party nomination, for that matter. When the heat is on – or even when it’s not – a Guideline for Ethical Conduct will prepare your team to make better choices.

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