Category Archives: Business Development Ethics

Should Inmates Run the Biz-Dev Asylum? The Case for Stronger Sales Governance

Friday, 01 July 2016 16:35
Written by
0 Comments

“I don’t care how you make your number, as long as you make it,” my district sales manager told me many years ago. Nobody accomplished a Big Hairy Audacious Goal while stressing over boundaries. I know how the West was won.

But my manager should have cared. Achieving a revenue target entangles many different behaviors. Some are laudable, like agility, tenacity, assertiveness, customer focus, and good personal hygiene. But others can be manipulative, unethical, or illegal. When conditions are ripe, bad behaviors spawn and fester. Occasionally, they are exposed, like a colony of voracious termites found under a fallen tree trunk that just rolled from its dark, earthy foundation. In June, 2016, Volkswagen agreed to pay $14.7 billion to settle claims resulting from its sales deceit. A mondo penalty for not caring how a number is made.

Volkswagen’s dishonesty was propagated through modern software technology, using flowcharts, decision boxes, algorithms, code, and computer chips. But other techniques for juicing the top line have existed since the invention of accounting records. As Karen Berman and Joe Knight wrote in their book, Financial Intelligence, “Revenue recognition is a common arena for financial fraud . . . the most common source of accounting fraud has been and probably always will be in that top line: Sales.” Channel stuffing and bill-and-hold. These crafty techniques have vaulted thousands of sales reps and managers into bonus-land. You won’t learn about them on Etsy.

I can’t fault my boss for being laissez faire. His attitude reflected that of his boss, his boss’s boss, and every boss all the way to the C-Suite, where information technology converts biz-dev complexity into integers. A process that cleanly extracts ethical messiness and other biz-dev slop, leaving executives room to “focus on the numbers.” Message to sales force: as long as revenue meets expectation, what happens in Sales can stay in Sales. “If I told you all that went down It would burn off both your ears.” No thanks. I’ll stick to analyzing my spreadsheets.

Corporate boards, beware. “The responsibility of the board to prevent scandals is more important than the responsibility to clean up the mess once it has emerged. Here most boards are still at the starting gate,” wrote Kirk O. Hanson in a 2014 article, Five Ethical Responsibilities of Corporate Boards.

It’s a global problem. In June, 2016, IndianExpress reported that “poor customer service practices of [Indian] banks have come under fire from the Reserve Bank of India (RBI). Despite the banking regulator putting in place Codes of Conduct and Charter of Customer Rights, the RBI has found that banks observed the code ‘more in breach than in practice,’ raising the possibility of a regulatory intervention.”

“We have taken cognizance of the fact that there has been mis-selling in third party products. We are going to take it very seriously. The banks should review how it is being done and be very careful that 75-year-old people should not be sold wrong products simply because salesmen require bonuses or compensation. It is something that we will undertake careful review of and if necessary take action wherever warranted,” said RBI Governor Raghuram Rajan in June, 2016. He could not have expressed this ugly reality in a more genteel way.

His statement points to an even darker story. Too often, companies don’t bother to govern the internal machinery that drives their revenue, leaving it up to the inmates to run the asylum. “You made goal this quarter. Keep doing what you’re doing.” Sales and selling has traditionally been a black box to the rest of a corporation, and many senior executives prefer to remain unknowing about what happens within the guts of its raucous machinery, and what goes on outside, where prospects are “engaged” deals are “closed.”

Ethical principles frequently clash with demands for quota attainment, and in the absence of governance, it’s not always clear or predictable which actions and outcomes will prevail. One thing is certain: when others don’t examine the black box’s innards, the likelihood of harming employees, customers, suppliers and shareholders increases substantially. As Mr. Rajan knows, bad sales ethics break customer trust, poison a company’s brand, undermine shareholder value, and corrode economies. Sounds like a governance problem to me.

What is governance? Corporate governance provides “the structure for determining organizational objectives and monitoring performance to ensure that objectives are attained,” according to the Organization for Economic Cooperation and Development’s 1999 publication, OECD Principles for Corporate Governance. “The OECD emphasized that ‘there is no single model of good corporate governance,’ but it noted that in many countries corporate governance is vested in a supervisory board that is responsible for protecting the rights of shareholders and other stakeholders (employees, customers, creditors, and so on). The board, in turn, works with a senior management team to implement governance principles that ensure the effectiveness of organizational processes,” wrote Peter Weill and Jeanne Ross in their book, IT Governance. Their ideas apply equally to governing sales.

A 2008 CapGemini Survey shared that “all sales executives stated that Sales Governance will become more important in the future. In addition, 86% of the Sales Executives anticipate their group management to put more focus on questions related to Sales Governance the coming three years.” The study covered 42 companies in Norway, Sweden, and Finland, and defines sales governance as “the method used by management to drive the sales organization towards effectiveness and high performance and to promote a desired sales behavior.” The study’s authors represent sales performance in context – specifically, in relation to influence from competitors, customers, organizational culture, corporate strategy. So far, so good.

The study explains that “Sales Management is the core element of the Sales Governance Framework. It entails both a strategic and an operational level. At the strategic level of Sales Management, the sales strategy is aligned with the corporate strategy and short¬-term and long¬-term business objectives are defined. At the operational level, the activity plan is implemented and managed as required. Cross-functional co¬operation is a pre-requisite for achieving internal strategy alignment and operational efficiency. . . Sales Governance enables best practice identification and implementation, and ensures an adequate sales behavior.”

Given CapGemini’s inclusion of a method used by management in its definition of governance, there’s little surprise that “Sales Executives saw driving sales productivity and reducing non¬-value adding time” among the major benefits achieved from undertaking the program. Unfortunately, promoting adequate sales behavior (whatever that means) and driving sales productivity do nothing to protect companies and their customers from unethical and illegal activity, or its consequences. In fact, they might exacerbate the problems. When juxtaposed to the OECD’s governance standard of protecting the rights of shareholders, employees, customers, and creditors, I call CapGemini Governance-lite.

Although CapGemini addresses one important component of corporate risk, sales readiness, its governance model falls pathetically short for deeper risks. Using this model, the unethical practices in 2015 of GM, VW, Takata, Peanut Corporation of America, Wells Fargo, Medtronic, and many others would not have been thwarted. Sales organizations can be highly productive and efficient while institutionalizing seamy practices. “The dashboards look peachy! Keep doing what you’re doing . . .”

The case for board-level involvement in sales governance. Today, selling abuses make international headlines, and the case for board involvement in sales governance could not be stronger. “Boards must think about risk and strategy,” said Erica Salmon Byrne, Executive Vice President, Governance and Compliance of the Ethisphere Institute, in a webinar titled, Enabling Ethical Leadership: Equipping Your Board to Govern Companies with Integrity.

Ethisphere, which conducts an honoree program for the World’s Most Ethical Companies (WMECs), reported that 90% of its 2016 corporate honorees offer employees its board or a board committee as a conduit for reporting misconduct or raising concerns. “Boards are increasingly interested in measuring and cultivating an ethical corporate culture; 86% of WMECs update the Board on such efforts . . . Not only do WMECs more frequently evaluate their [Ethics and Compliance] programs (61% of honorees conduct annual reviews vs. 27% of non-honorees who annually review), but honorees tend to evaluate their program very broadly,” Ethisphere said in its 2015 report.

The duty of board-level sales governance. The line between board oversight for sales governance and management’s responsibilities can be thin and fuzzy. Board-level sales governance addresses strategic risks extending beyond salesforce productivity and efficiency. Primarily,

1. To ensure sales goals are balanced, and support corporate strategy

2. To ensure business development policies and practices are consistently legal, ethical and fair

3. To protect the customer’s best interests

4. To ensure effective mechanisms exist for identifying and reporting activities or events that threaten the above

Hanson’s Five Ethical Responsibilities of Corporate Boards provides useful guidelines for what boards must know or examine. He wrote:

1. Knowing the health of the company’s ethical culture. Most boards or their audit committees hear pro forma reports on ethics violations and lists of calls to their hotlines. Few know anything about the culture in which these violations arise. Do these behaviors reflect widespread acceptance of improper behavior — or a few bad apples?

2. Evaluating the ethics of the business strategy. Business models and strategies are being junked and reformulated everywhere in our modern economy. New sources of revenue are being sought; radical transformations of manufacturing and delivery systems are being implemented. Sadly, some boards are swept along by management proposals to change the nature of the business without asking critical ethics questions about the strategies.

Most boards have learned to ask whether the company is ready to monitor a China-based supply chain to insure worker safety. But few boards have discussed the ethics of tax inversions, big data mining strategies, or staffing strategies which make family life difficult.

3. Monitoring the real ethics risks in the organization. Every organization manages financial risks, and boards pay close attention to the level of that risk. Few senior managements and even fewer boards evaluate the ethical risk of entering new markets, extending the supply chain to new regions, or putting extreme performance pressure on a sales force that is prone to shortcuts . . . Boards are charged with oversight over the adequacy of this ethics risk assessment.

4. Monitoring the ethical behavior of the leadership team. No decisions are more complex than hiring and firing top executives. It is tough enough to find a prospect who has the skills needed to execute the company’s strategy for the next five years.

5. Verifying that the elements of the ethics and compliance system are strong. The Federal Sentencing Guidelines list seven to 10 elements of an ‘adequate’ ethics and compliance management system.

For sales governance, Boards should have access to, and regularly review the following:

• Sales Code of Conduct
• Corporate compliance and ethics policies
• Ethics training program or curriculum
• Misconduct reporting system
• The investigation process

In addition, boards should ensure that employees who report misconduct understand their legal rights, and have appropriate protection. Few people will want to report misconduct when companies exert draconian penalties on those who have voiced concerns.

“Make your number any way you can!” Right now, millions of sales reps operate under this heavy, boundary-free instruction. How will they behave? Which strategies and tactics will they use on their prospects and customers? What outcomes will occur? Corporate boards should care, and get involved.

The Dark Side of Online Lead Generation

Monday, 16 May 2016 15:13
Written by
0 Comments

Comedian Jerry Seinfeld made banality funny, but marketers exploit it for darker purposes.

Consider a Tweet I made recently: “I’m walking to Whole Foods after work to buy a 6 of local-brew #IPA. Suggestions?”

Without realizing it, I saturated this 81-character message with personal details, and shared it to the world:

1. I am over 21.
2. I live in an urban area.
3. I am employed.
4. I have discretionary income.
5. I drink beer.
6. I drink at places other than bars and restaurants.
7. I know people who have similar interests.
8. I seek the opinions of others online.
9. I am not brand-loyal when it comes to beer.
10. I am able to carry at least six pounds.

“There are eight unique data points per Tweet,” said Adrienne LaFrance, Staff Writer for The Atlantic. Here, I found ten, and my Tweet had capacity for 59 more characters. Lucky that I didn’t use them. Who knows what else I could have revealed.

Based on my innocuous Tweet, marketers can deduce that the car I drive isn’t a Hummer or a Cadillac Escalade. They can bet that I have a college degree. But that’s beside the point. They already know. Remind me again who has the information power, because it’s not me.

Every second, about 6,000 Tweets pulse through Twitter. Marketers mine this noisy digital exhaust to extract fuel to power their ravenous revenue machinery. Automated algorithms work 24/7 assembling details about individual human beings. By combining online and offline information about people, companies called list brokers create large files of personal artifacts. This information gets passed through a serpentine value chain, where it’s divided, changed, enhanced, and re-combined with more data. What gets harvested can be described as digital gold: richly-detailed profiles of consumers. List brokers package them into tidy, organized, fungible groupings called lead lists, vital for business development. Rube Goldberg would be proud.

But Goldberg’s whimsical imagination mimicked the physical world, where noisy events happen in plain sight. Lead generation processes depend on subterfuge. Prospect curation machinery works cleanly and silently, away from the public eye. Consumers are unaware about who (or what) collects their information, or who gets to use it. Reason #412 that I don’t wear a Fitbit, play online “brain games,” or use gene testing services. None of these businesses are required to comply with patient-privacy laws in the 1996 Health Insurance Portability and Accountability Act (HIPAA).

Many expectant or postpartum parents would be surprised to learn that their personal identities have been meticulously collected, and electronically shipped to and fro. Their names, and a whole lot more, are regularly sold to businesses, including eager telemarketers and digital agencies. For example, Dataman Group can sell you a New Baby List, which includes pre-natal families. Among the fields are contact information, home ownership data, dwelling unit type, estimated household income, number of months until birth, and whether the birth is (or will be), the mother’s first.

Dataman’s website makes a flamboyant appeal to its prospective customers:

Almost 1 out of every 2 births today is a first birth, creating enormous marketing opportunities.

Most first-birth families are also two-career families; working moms and dads with large, disposable incomes and no brand loyalties where child care products are concerned.

As a market, these growing families outspend childless couples 2 to 1 and are prime candidates for not only a full range of baby products, but also day care, home entertainment, photography, insurance, recreation, and catalog offers. Information on any product that your company offers that can offer these young families a better way of life will be welcomed.

No other life cycle list offers the accuracy, cost-efficiency or selections of OUR new parents mailing lists or prenatal list. You can even select Pre-Natal households by trimester….or New Babies by actual month-of-birth.

At the end of this sales pitch appears a curious request, one that hints at nefarious use: “Note: Sample mail piece and/or telemarketing script required on all orders with Children information. We support responsible marketing!”

Here is where things turn rough. With a selection tweak or two, marketers can bubble up motivated buyers – say, mothers in the third trimester, or people living more than one mile from a playground. So far, so good. But with additional tweaks, marketers can find greater buying urgency by exposing a related demographic: vulnerable buyers. Some more tweaks to reach buying motivation’s top rung: The Desperate. A lucrative target with tantalizingly short sales cycles, little comparison shopping activity, and low customer information power. All it takes to get the cash machine spinning is an appealing product, a little imagination, and the right search criteria.

How about targeting single moms below a certain income level, living in the 22 states that have declined Medicaid Expansion? That information would be attractive to rental appliance and furniture outlets, credit card companies, and loan providers. A warping of the ideal, “give customers what they want.”

This is the way revenue generation works in the digital age. A single New Baby lead list supports everything from aspirational selling to predatory marketing. Innovative baby backpacks to take small children on fun adventures,  or payday loans for food and rent payments when cash runs out. Which way you go depends on what you’re selling, and how you sort and select the prospects.

Information that list brokers use sometimes comes from landing pages designed to surreptitiously collect personal information, which then gets sold to others. When I entered the phrase, need money for food, into a search window, I received advertising links that assumed ancillary concerns: “Bad credit personal loan,” “500 to 20000 personal loan,” “sell your house fast,” and “are you eligible for aid?” These are emblematic of the marketing predations that occur, often in plain sight. The last ad, linking to a website ending in dot-com, clearly wanted to find out more about me. I did not click on it.

When I re-entered the same search phrase one hour later, the aid-eligibility ad had vanished, presumably because Google recognized the ruse, and removed it. In fact, in 2014, “Google removed 524 million advertisements and banned more than 214,000 advertisers from its search results. But predatory companies are still finding loopholes,” LaFrance wrote in an article, How Google Plays Whac-a-Mole with Shady Advertisers. Squashing 524 million ads per year equates to around 1,000 ads per minute. That’s a lot of Whac-a-mole.

I conducted this search as a simple experiment for this article. But what if my query was genuine, and my situation perilous? What if I proceeded to fill out the form? Who would have my information? What would I unleash? Sadly, there are few laws protecting prospects. Congress hasn’t passed a consumer privacy law since 2009. This, despite huge increases in social media use, advances in data science, and wide adoption of marketing automation. At least my beer purchase was discretionary. Vulnerable prospects face privacy hazards that are more poignant.

“This process for collecting customer data exploits a loophole in consumer protection laws. Companies can buy lists of people who have asked about diabetes, Alzheimer’s, or Parkinson’s disease. They can learn about victims of assault and people diagnosed with HIV,” said Aaron Rieke, Project Director at Upturn. Rieke was a panelist on NPR’s Tech Tuesday program, When Companies Use Your Online Searches Against You (November 10, 2015). “How did they get my name?” Amazement that happens all too frequently online.

It’s not just from hijacking customer trust, and stealthily scraping information from online forms. In 2013, 43% of free health apps sold users’ personal data, according to a study by the Privacy Rights Clearinghouse. “Fewer than half of mobile apps that collected health and fitness information provided a privacy policy in which they spelled out how user data could be shared, and 43% of free apps tested by the group shared personal information with advertisers,” The Wall Street Journal reported in April, 2015.

“The extent of consumer profiling today means that data brokers often know as much – or even more – about us than our family and friends, including our online and in-store purchases, our political and religious affiliations, our income and socioeconomic status, and more,” said FTC Chairwoman Edith Ramirez. “It’s time to bring transparency and accountability to bear on this industry on behalf of consumers, many of whom are unaware that data brokers even exist.”

“Technology gives us power but cannot guide us as to how to use that power. The market gives us choices but leaves us uninstructed as to how to make those choices,” Lord Jonathan Sacks wrote in his book, Not in God’s Name: Confronting Religious Violence.

Those conundrums occur every day in marketing. “We’re doing this because we can,” clients tell me when discussing their marketing strategies and tactics. I urge them to include an additional hurdle. “Ask yourselves, ‘what is the right thing to do?’

Note: this article was published on CustomerThink. To read the original column, please click here.

Big Governance Will Thwart the Next Corporate Ethics Disaster

Monday, 16 May 2016 15:09
Written by
0 Comments

Imagine you are at an airport bar waiting for a long-delayed connecting flight. A villain sidles up to you and offers to buy your next drink. How would you react?

I don’t mean a fictional villain like Norman Bates, Hannibal Lecter, or Nurse Ratched. I mean a real-life corporate scoundrel, dressed for success, jetting his way to Somewhere Important. A Shigehisa Takada, Martin Winterkorn, Ray DeGiorgio, or Michael Pearson.

If identifying white collar villains sends you reaching for the nearest facial recognition app, that’s the point. Unlike popular villains from movies and literature, corporate villains are pretty ordinary. No weird tics, quirks, or evil laughs. Mainly, they’re paunchy and middle-aged. Quintessential bureaucrats, who blend discretely with the polished wood and carpet at the United Club. I can visualize any of these men standing at a conference room lectern, droning about revenue projections, while confidently twirling a laser pointer in a haphazard circle around some inscrutable pie chart. “Questions? No? Well, then – let’s call it a wrap. I’m late for my next meeting.”

Ordinariness partly explains how companies lose their ethical way. Business-as-usual provides a vital smokescreen for unethical shenanigans. The many VW functionaries whose efforts unleashed 11 million CO2-belching vehicles onto the planet’s roadways unwittingly performed this travesty while enduring countless dull operations meetings, prosaic management requests, and bland internal emails. In essence, crafted code words and Euphemisms kept the devious sales machinery humming. Someone should compile a dictionary for 2016. I’ll supply the first entry: “defeat device.”

Still, I’m an optimist. I believe commercial enterprises generally begin life without corruption baked into the strategic plan. So how does corporate deceit begin and become systemic? What makes some organizations fecund for scandals, while others consistently maintain the ethical high road? There are three conditions, but they are not always apparent: High motivation to attain a financial reward, opportunities to cheat, and an individual’s ability rationalize his or her deceit. Elements that Donald Cressey labeled The Fraud Triangle (see Other People’s Money: a Study in the Social Psychology of Embezzlement.)

The first two conditions are near-ubiquitous in the workplace, and I don’t know any human over the age of two incapable of rationalizing a lie. Yet, most employees don’t deliberately drag their companies into scandals. What else? I thought hard about this conundrum, and realized the need to conjure additional reasons. It didn’t take long to find two suspects: unicorns and lack of governance.

Unicorns. In a December, 2015 article, The Creed of Speed, The Economist describes the pressures that Unicorns – startups on steroids – create. “Unicorns can win billion-dollar valuations within a year or two of coming into being. In a few years, they can erode the profits of industries that took many decades to build. Like dorks in awe of the cool kids, the rest of America’s business establishment chastises itself for being too slow.” Yikes! The revenue rug ripped out from under your feet not over years or months, but over crazy-short time frames. As we have learned, “Get creative about driving revenue!” now carries sinister meaning. Around the world right now, Takada automotive airbags, sold with known defects, continue to explode, killing and maiming vehicle occupants.

“If you ask the boss of any big American company what is changing his business, odds are he’ll say speed. Firms are born and die faster, it is widely claimed. Ideas move around the world more quickly. Supply chains bristle to the instant commands of big-data feeds. Customers’ grumbles on Facebook are met with real-time tweaks to products. Some firms are so fast that they can travel into the future: Amazon plans to do ‘anticipatory’ shipping before orders are placed,” according to The Economist. “We are putting a premium on speed,” GE CEO Jeff Immelt wrote in his letter to shareholders. IBM CEO Ginny Rometty, echoed his sentiment. “People ask, ‘Is there a silver bullet?’ The silver bullet, you might say is speed, this idea of speed.”

Revenue flows to the nimble and quick. Slow movers are losers. No doubt that deposed VW CEO Martin Winterkorn would adamantly agree – if anyone sought his opinion. Facing rapid upheaval in the automotive market, Winterkorn and his management team discovered an opportunity to juice sales that was too fantastic to ignore. Instead of investing hundreds of millions of Euros in diesel engine development over a long lead time, they could spend a pittance to modify some closeted software, and sell today’s production sehr schnell. Duh! The ROI numbers in Wolfsburg must have soared off the charts faster than a departing Lufthansa jetliner. At the time, the multi-billion dollar costs of government penalties, class-action lawsuits, and widespread customer backlash didn’t make it onto spreadsheets. Oops. “Cheating? No. It’s Event-Induced-Sensor-Reconfiguration. That’s longish, so for marketing purposes, we’re calling it Clean Diesel.”

Lack of governance. When inmates run the asylum, [stuff] happens. Shortly after news of the scandal broke in 2015, Volkswagen CFO Hans Dieter Poetsch told reporters “We are not talking about a one-off mistake, but a whole chain of mistakes that was not interrupted at any point along the line.” Interim Chief Executive Matthias Mueller gave a different spin, saying the investigation had revealed that “information was not shared, it stayed within a small circle of people who were engineers.” Those damn engineers. What do they know about designing systems with integrity? But I like Poetsch’s version, which I’ll rephrase: “No one in authority said, ‘That’s wrong. We will not do that. Period.’” The absence of anyone at VW to stand tough and pull the plug on cheating cost billions of dollars, thousands of jobs, and continues sicken and kill people suffering from respiratory disease. That’s a price no society can afford to pay. And Poetsch’s statement applies not just to VW, but to every high-profile ethics debacle.

Enter, Big Governance. Ethics cases demonstrate that rogue employee behavior presents significant risks for companies. Conduct risk, “the risk that arises as a result of how businesses and employees conduct themselves, particularly in relation to their clients and competitors,” now ranks #2 of the Top 10 largest fears for operational risk practitioners at financial services firms, according to Risk.net, an industry website. That’s ahead of terrorism (#9), IT failure (#8), and regulation (#3). Wow.

When scandals surface, people often ask, “why didn’t anyone speak up?” That’s part of the issue. In many cases, people did speak up. Loudly. But their concerns were crushed. The better question to ask is “why didn’t the company have mechanisms to expose and prevent the problem?” That matter deeply concerns corporate boards across many industries. Governance provides the mechanisms to mitigate ethical risk, by specifying management responsibilities, auditing and oversight, reporting, decision rights and accountability.

Governance doesn’t have to be big, but its rewards almost always are. The purpose of governance is to encourage ethical behavior. Some say that smacks of weak parenting. In today’s get-it-done business environment, encourage seems tepid. But here, it’s the right word. Ensure and guarantee don’t belong. We’re talking about people, not algorithms.

“In most instances, reputational damage is triggered by some other business or operational risks, including risks relating to the quality or safety of the company’s products or services, or illegal, unethical or questionable corporate conduct of which the public was not aware. How boards respond to these risks is critical, particularly with the increased scrutiny being placed on boards by regulators, shareholders and the media,” according to the website of Akin Gump, a law firm.

With governance, boards are the right place to start, but they face knotty challenges. Effective governance must harmonize opposing business demands: ethics, enterprise strategy, business performance goals, regulatory compliance, and the governance mechanisms themselves. That takes time, thick skin, and compromise. Things that are uncommon in the C-Suite – in combination or individually. Governance inevitably requires trade-offs.

Governance oversees decisions consequential to revenue. Decisions that affect a company’s customers, brand or market integrity, competitors, and legal situation. Effective governance requires understanding which objectives oppose one another – e.g. time-to-market versus regulatory compliance, profit margin versus product or service quality, short-term revenue versus long-term customer loyalty – and then to determine how to resolve them. These issues won’t be reconciled overnight. But absent governance, reconciliation gets shoved aside, and the risk of making catastrophic choices skyrockets. Without governance, deviant choices enter the decision space, and roam freely. Except they’re not called deviant, just choices. And sometimes, not even that.

World’s Most Ethical Companies® (WMEC’s). The Ethisphere Institute has developed a rating system to identify and honor companies that excel in: “(1) promoting ethical business standards and practices internally, (2) enabling managers and employees to make good choices, and (3) shaping future industry standards by introducing tomorrow’s best practices today . . . The information collected is not intended to cover all aspects of corporate governance, risk, sustainability, social responsibility, compliance or ethics, but rather it is a comprehensive sampling of definitive criteria of core competencies,” the Ethisphere Institute website states.

Ethisphere’s scoring system considers five factors, and assigns a weight:

Ethics and compliance program 35%
Corporate Citizenship and Responsibility 20%
Culture of Ethics 20%
Governance 15%
Leadership, Innovation, and Reputation 10%

Recently, Ethisphere discovered striking similarities in the ethics practices of the WMEC’s. High percentages of honorees used the following resources:

Code of conduct 95%
Compliance and Ethics Policies 95%
Misconduct reporting system 92%
Communication program 90%
Training curriculum or program 88%
Investigation process 88%
Organizational culture of ethics 82%
Risk assessment process 82%

Most telling, 61% of the WMEC honorees conduct annual reviews of these practices, versus 27% of non-honorees.

Clearly, not every company finds it worthwhile to invest in governance. Objections include:

1. Governance sounds too much like Government.
Rebuttal: none. This is a fair point.

2. Revenue killjoys remind them of the bratty kid who constantly tattled in elementary school.
Rebuttal: For sure. But every tattletale has, at least once, kept a prank from spinning hellishly out of control.

3. Governance can’t be achieved as a one-and-done – it’s ongoing.
Rebuttal: If you adhere to a management-by-magazine approach, this won’t be your thing.

4. There’s no “value add” for customers.
Rebuttal: Ask a VW owner if he or she agrees. “Without that expected fuel efficiency, VW owners of “clean diesel” vehicles will incur lost resale value as high as $5,000 per vehicle. Adding up all the cars affected, that puts the potential loss in the neighborhood of $55 billion.”

Dave Cote, Chairman and CEO of Honeywell, a 2013 WMEC Honoree, said there are three questions he never wants any Honeywell employee to have to face when discussing Honeywell with their family and friends: “Is it true?,” “Did you know?,” and “Have you ever done that?”

Those questions might be the ideal conversational opening for the average-looking person who offered to buy you a drink at the United Club. “Well . . . it’s a long story. But I’ve got time. My flight doesn’t leave for another nine hours . . .”

Swanluv’s Customer Letdown Underscores Why Companies Must Begin with a Good Premise – And an Honest Promise

Monday, 16 May 2016 14:58
Written by
0 Comments

The Business Model Canvas, or BMC, helps entrepreneurs take those first wobbly, bug-eyed steps toward being a company. It helps them get past giddiness over EBE – Earnings Before Expenses – and to think pragmatically. That means learning to sell profitably and to grow revenue – skills that are almost never innate.

The company that developed the BMC, Strategyzer, describes it as “a strategic management and entrepreneurial tool. It allows you to describe, design, challenge, invent, and pivot your business model.” The BMC has nine components, represented in an organized array of stacked boxes of different dimensions: Key partners, Key activities, Key resources, Value proposition, Customer relationships, Channels, Customer segments, Cost structure, and Revenue streams. Don’t yawn. This is solid, nuts-and-bolts MBA stuff.

The BMC has worked well for me, and I like using it for young and sassy clients. Startups can be fraught with frenetic ideation, and this nifty schema keeps everyone on the same page – or canvas. And when the caffeine is abundant, energy is high, and conversations are flowing like the Spring flood, just using the name, Business Model Canvas, brings gravitas and focus into the meeting room. That alone makes this tool extraordinarily valuable. The BMC allows plan-tweaking and reshaping, while its reassuring structure reminds entrepreneurs that every great idea must be coordinated elsewhere on the canvas.

In the BMC, there’s a place for everything, and everything in its place. Well, almost. Wonderful as it is, the BMC has a hideous weakness: it can’t stop a horrible premise. Simply adding a tenth box to accommodate Premise would ameliorate the Achilles heel on an otherwise capable model. A recent controversy involving a Seattle-based startup, SwanLuv, poignantly reminds us why an ethical, well-intentioned premise matters before jumping full-bore into launching a company.

In December, 2015, SwanLuv promised aspiring newlyweds the opportunity to have a dream wedding. The value proposition, as entrepreneurs like to say, was that SwanLuv would fund up to $10,000 toward the nuptial celebration – a hefty chunk of G’s toward the $31,213 average cost of a wedding. Giving people what they want seems a reasonable litmus test for a nascent business idea. And Want, they did. The capital W is not a typo.

The fine print? “If your union crumbles, at six months or 25 years, you must pay [SwanLuv] back — with interest,” according to a December, 2015 article in The Washington Post, This Startup Bets $10,000 that Your Marriage Will End Badly. In essence, the business model required “someone’s breakup would fund someone else’s future nuptials.” And SwanLuv had up to 25 years to claw back the money! How’s that for a start-up premise? As Scott Avy, Founder and CEO of SwanLuv described it, “we’re a casino for marriage.” Possibly the most honest elevator statement I’ve ever seen. But I question whether Avy could stomach looking in a mirror as he honed it to five words.

SwanLuv’s concept spread across social media like wildfire, and Avy rode the publicity wave. On talk shows, he crowed about receiving “hundreds of emails telling me how meaningful this is.” Then, not even 60 days after The Washington Post article published, SwanLuv’s offer imploded. On Monday, February 15, 2016, SwanLuv announced that “actually, no – it would not pay for a single ceremony. Instead, it would let friends and relatives pay for it, providing a crowdfunding platform similar to GoFundMe,” The Post reported in a follow-on article (A Website Offered to Pay for Weddings. Then It Came Time to Write the Check).

In a 2016 version of Qu’ils mangent de la brioche (Let them eat cake!), Avy explained away SwanLuv’s policy change as “adjusting our funding pattern.” In a statement, he wrote, “Due to overwhelming demand (nearly $2 billion at $10,000 per couple) and unanticipated legal regulations/restrictions in the lending space, rather than pull out, we came up with a tool we believe still helps couples with their wedding financing.” This entrepreneur could certainly benefit from a webinar on compassion.

Not surprisingly, SwanLuv’s Facebook page, which had accumulated more than 20,000 Likes since December, 2015, reflected wrath from those who had entrusted the company with their dreams. Many comments are painful to read:

“They should be ashamed of giving couples hope and dashing them to pieces. Hope this company goes down the tubes.”

And,

“I only have 4 months left until the wedding and we can’t afford ANYTHING.”

Here, I humbly disagree with Oscar Wilde, who said, “the only thing worse than being talked about is not being talked about.” In this situation, I’d much rather not be talked about.

One SwanLuv victim, Precious Pruner, posted a tearful 7:30 video on YouTube. “I was hoping to use some of the money to pay for my mother and three little brothers to fly to Michigan for my wedding,” reads one of the notes under her video. Her post has received a paltry 438 views (as of March 8, 2016), but watching this video should be mandatory for every startup team. It should be required in the curriculum for every college entrepreneurship program, and in every startup incubator. The message: a bad business premise can create tragedy. So, entrepreneurs: Put away your spreadsheets, flowcharts, cash-flow projections, and marketing automation plans for a moment. Stop, and listen to a real-life person describing what a misguided business premise, once executed, means to her. Something to think about before skipping over Premise, and diving into Value Proposition. It doesn’t matter which planning tool you use.

Jeff Reid, Founding Director of the Georgetown University Entrepreneurship Initiative, sees SwanLuv’s failure as tactical problem. He says that SwanLuv could have launched with good intentions, and that it collapsed before it could deliver on the promises. “There’s a line you don’t want to cross,” he said, “in terms of over-promising.”

He misses the point. Over-promising is not the issue. Swanluv’s warped business premise is. Before the planning boxes are populated with great ideas, before a crisp value prop has been created, and especially, before prospective customers are engaged, entrepreneurs need to ask – and answer – “is the premise for this venture ethical and well-intentioned?”

“The percentage you’re paying is too high-priced/
While you’re living beyond all your means/
And the man in the suit has just bought a new car/
From the profit he’s made on your dreams”

– lyrics to the iconic song by Traffic, Low Spark of High-Heeled Boys, produced 45 years ago in 1971. The more things change, the more they remain the same. Except today, “the man” probably doesn’t wear a suit, and could be a woman.

Had SwanLuv’s founders, mentors, and financial backers considered the pain inflicted by their “casino for marriage” premise, the company might not have taken flight.

Announcing the 2015 Sales Ethics Hall of Shame

Monday, 09 November 2015 14:54
Written by
0 Comments

“Money doesn’t talk, it swears.” – Bob Dylan

When I need a burst of energy, I don’t reach for an espresso or Red Bull. I pick up a revenue plan. Any plan will do. Wanna dance? I know the Cash Flow Hustle!

Targets! Sales process! Profit margins! Lead generation! Capture rate! Conversion rate! Market share! When saying these words, watch for errant spittle flying off the tongue. It can’t be helped.

Ethical Governance deserves a special place in every revenue plan, but this dowdy topic doesn’t fit with the excitement. Many companies simply shove ethics into a metaphorical closet and then down the stairs. “Let Legal handle that.” Muffled banging, a distinct thud, and then the thrill of watching the revenue curve soar to the heavens, unencumbered, according to plan. “Guilt? We don’t use that word around here, Buddy.”

The party ends after an inopportune disclosure from an employee, or a journalist’s investigative report. Business poop hitting a whirling fan. What gets propelled through the other side sullies everything in its path. The myopic pursuit of the almighty dollar seldom ends up pretty.

That describes the 16 companies inducted into the 2015 Sales Ethics Hall of Shame. When I first made these awards in 2013, the inductees had to meet three standards:

1. The primary purpose of the enterprise couldn’t be selling an illegal product or service, like crystal meth or human trafficking.

2. More than one employee had to be involved in unethical activity. Scams involving a single, rogue employee did not qualify.

3. Any chicanery had to be repeatable and scalable—in other words, embedded in the company’s business process.

These standards apply to 2015’s award recipients as well, and all 16 inductees cleared each threshold, with room to spare.

Turing Pharmaceuticals: Hiking prices on Aunt Betty’s lifesaving medication by 5,500%.

This year, Turing’s CEO, Martin Shkreli made news by increasing the price of Turing’s Daraprim to $750 per tablet from the original price of $13.50. A change that instantly drove annual treatment costs for some patients into the six figures. “What is it that they are doing differently that has led to this dramatic increase?” Dr. Judith Aberg, the chief of the division of infectious diseases at the Icahn School of Medicine at Mount Sinai, asked rhetorically. She said the price increase meant hospitals might have to use “alternative therapies that may not have the same efficacy.” Translation: the price increase will kill some patients – literally.

Valeant Pharmaceuticals International / Philidor Rx Services LLC: Bad ethics infect a supply chain.

Valeant, and its retail partner Philidor had a cozy working relationship – too cozy for some. Valeant manufactures drugs, and Philidor distributes them, with Valeant as a sole-source provider. “Valeant’s critics say the flap shows some pharmaceutical companies have established or controlled pharmacies expressly to dispense their drugs and ensure reimbursement by insurers – sometimes through aggressive tactics that evade insurers’ efforts to control costs,” The Wall Street Journal reported on November 1, 2015.

Recently, “a short [stock] seller has accused [Valeant] of using Philidor in an accounting scheme, and former Philidor employees say Valeant staffers worked directly in the pharmacy’s offices, sometimes using fake names,” according to another Wall Street Journal article (Tough Sales Tactics Used at Philidor, October 29, 2015). None of this would be possible without good old infrastructure and documented business procedures for staff to follow. A Philidor training manual advised dropping a drug’s cost in $500 increments “until paid and then increase by $100 to get as close as possible to the max amount allowed by the insurance company,” the Journal reported.

Valeant’s revenue scheme with Philidor came to ignominious end on Friday, October 30th, when the three largest US pharmacy-benefit managers – CVS Health Corp, Express Scripts Holding Company, and United Health Group Inc.’s OptumRx – announced they were terminating all purchases from Philidor effective immediately. Valeant followed suit the next day, saying it was “ending all ties with Philidor.”

American Honda Finance Corporation: When Marketing loves minorities, but for all the wrong reasons.

In July, the US Department of Justice filed a complaint against American Honda Finance Corporation, alleging that the company’s dealers had overcharged minority customers, causing them to pay higher interest rates than white borrowers. Honda’s auto finance division agreed to pay a $24 million settlement to minority buyers, and to restructure the division.

Honda does not make direct loans to consumers. Instead, it authorizes dealers to mark up its loan rates up to 2.25%. But “regulators found rate discrimination within those mark-ups,” Assistant Attorney General Vanita Gupta said in an interview. The Justice Department and the Consumer Financial Protection Bureau began their investigation in 2013, and found that minority borrowers were paying $150 to $250 more than white borrowers. “The hope really is that Honda’s leadership is going to trigger the rest of industry to constrain dealer mark-ups and discriminatory pricing,” said Gupta.

Volkswagen: “Clean Diesel” – marketing lipstick on an ethical pig.

When VW’s management decided to embed software for circumventing environmental regulations into the brains of its engines, it mass produced lying on an unprecedented scale. Eleven million vehicles are driving around with deceitful code, and now, we’ve just learned, not all of them are Volkswagens. The flagship brand Porsche just entered the scandal.

The case will be studied for years in business classes around the world as an example of a catastrophic junction of ethics and finance. $18 billion in potential fines. Billions of dollars pending in class-action lawsuits. 20% decline in VW’s stock price when news of the cheating scandal broke. Hospital and social costs estimated at $450 million. 30 Volkswagen managers directly implicated in the scandal. Massive worker cutbacks.

“I personally am deeply sorry that we have broken the trust of our customers and the public,” Volkswagen’s former CEO, Martin Winterkorn, said after the news of the scandal broke. His contrition appears to be lipstick on a pay-plan pig. Winterkorn’s pension from his former employer will be around $32 million.

General Motors: When fixing a fatal product flaw cuts into profit margins.

“They let the public down. They didn’t tell the truth in the best way that they should have — to the regulators, to the public — about this serious safety issue that risked life and limb,” said US Attorney Preet Bharara. The product flaw – ignition switches that unintentionally slip from the “run” position, cutting power to the engine – has been implicated in at least 169 deaths. GM has spent more than $5.3 billion “on a problem authorities say could have been handled for less than a dollar per car. Those expenses include fines, compensation for victims and the recall of millions of vehicles,” according to the Oneida Daily Dispatch.

There was evidence that GM knew about the faulty engineering for over ten years, but chose to conceal the defect from the government and the public. “We understand that lives were impacted. That is something that we understand and we take forward and will have with us every day,” GM’s CEO, Mary Barra said. But her circumspection won’t take place in prison. As part of the deal with government prosecutors, no GM employees will go to jail.

“If a person kills someone because he decided to drive drunk, he will go to jail,” said Laura Christian, the mother of a woman who died in her 2005 Cobalt. Yet GM employees “are able to hide behind a corporation because our laws are insufficient. It must change.”

Takata: Stuffing ten pounds of product defects into a five pound airbag.

Defective Takata airbags have been attributed to at least 139 injuries across all automakers. Two people have died from faulty Takata airbags in Honda vehicles, Takata’s largest customer. Approximately 34 million vehicles of all makes have installed Takata airbags that are potentially defective. Takata’s airbag inflators can explode, causing shrapnel to shoot into auto cabins.

On November 3rd, US regulators assessed Takata a $70 million fine, and ordered the company to stop using ammonium nitrite-based propellants in their products. In 2014, The New York Times published a report “suggesting that Takata knew about the airbag issues in 2004, conducting secret tests off work hours to verify the problem. The results confirmed major issues with the inflators, and engineers quickly began researching a solution. But instead of notifying federal safety regulators and moving forward with fixes, Takata executives ordered its engineers to destroy the data and dispose of the physical evidence. This occurred a full four years before Takata publicly acknowledged the problem,” Car and Driver reported on October 26, 2015 (Massive Takata Airbag Recall: Everything You Need to Know, Including Full List of Affected Vehicles).

“’We deeply regret the circumstances that led to this,’ said Takata Chief Executive Shigehisa Takada, adding that the company is ‘committed to being part of the solution,’” The Wall Street JournalReported on November 4th (Honda Adds to Mounting Woes at Takata). On November 3rd, the same day that US regulators announced the $70 million fine, Honda said it “will no longer use Takata Corporation front driver or passenger air-bag inflaters in new vehicles under development,” alleging Takata misrepresented or manipulated test data.

Coca Cola: Using “scientific research” to “inform” the debate about obesity.

In the last 20 years, consumption of full-calorie sodas in the US has declined 25%. Coca Cola wanted to stem the tide with “science.” “Most of the focus in the popular media and in the scientific press is, ‘Oh they’re eating too much, eating too much, eating too much’ — blaming fast food, blaming sugary drinks and so on,” said the vice president of the Global Energy Balance Network, Steven N. Blair, adding, “and there’s really virtually no compelling evidence that that, in fact, is the cause.” Coca Cola provides Blair’s organization financial and logistical support.

Health experts objected to Blair’s assertions, saying they are “misleading and part of an effort by Coke to deflect criticism about the role sugary drinks have played in the spread of obesity and Type 2 diabetes. They contend that the company is using the new group to convince the public that physical activity can offset a bad diet despite evidence that exercise has only minimal impact on weight compared with what people consume,” according to an article in The New York Times (Coca Cola Funds Scientists Who Shift Blame for Obesity away from Bad Diets).

Coca Cola heard the health community’s response loud and clear. In a Wall Street Journal editorial published August 19 titled, We’ll Do Better, Coca Cola CEO Muhtar Kent wrote,

“I am disappointed that some actions we have taken to fund scientific research and health and well-being programs have served only to create more confusion and mistrust. I know our company can do a better job engaging both the public-health and scientific communities—and we will. By supporting research and nonprofit organizations, we seek to foster more science-based knowledge to better inform the debate about how best to deal with the obesity epidemic. We have never attempted to hide that. However, in the future we will act with even more transparency as we refocus our investments and our efforts on well-being.”

Axact Corporation : College degrees provide wealth . . . to the faux institutions that issue them.

Online access to education has provided opportunities to millions of people to earn college degrees. It also provides opportunities for unscrupulous scam artists who operate from behind of smokescreen of proxy Internet services and weak international regulations, particularly in Pakistan, the home country of Axact Corporation.

“At Axact’s headquarters, former employees say, telephone sales agents work in shifts around the clock. Sometimes they cater to customers who clearly understand that they are buying a shady instant degree for money. But often the agents manipulate those seeking a real education, pushing them to enroll for coursework that never materializes, or assuring them that their life experiences are enough to earn them a diploma. To boost profits, the sales agents often follow up with elaborate ruses, including impersonating American government officials, to persuade customers to buy expensive certifications or authentication documents. Revenues, estimated by former employees and fraud experts at several million dollars per month, are cycled through a network of offshore companies,” according to an article in The New York Times (Fake Diplomas, Real Cash: Pakistani Company Axact Reaps Millions).

In late May, Axact’s CEO, Shoaib Ahmed Shaikh, and four others were arrested in Pakistan, and charged with fraud, forgery and illegal electronic money transfers, money laundering, and violating Pakistan’s electronic crimes act.

Peanut Corporation of America (PCA): Neither mold, nor cockroaches, nor salmonella will delay this company’s deliveries. 

Peanut Corporation’s products were involved in a two-year salmonella outbreak from 2007 to 2009. In 2015, Stewart Parnell, former CEO of PCA, was sentenced to 28 years, the most severe punishment ever meted to an executive of a food company for a safety issue. The Center for Disease Control estimates around 700 PCA-related cases were reported, including nine deaths in 46 states. Possibly thousands of people were harmed.

Parnell wasn’t guilty of lax oversight and poor quality control. This scandal resulted from the fact that his company knowingly shipping tainted food. After discovering that a shipment might get delayed because of lab results that indicated the presence of salmonella, Parnell wrote, “s***, just ship it,” according to The Wall Street Journal. Parnell was also accused of falsifying lab reports.

“I cannot afford to loose [sic] another customer,” he wrote in a statement that should not be confused with customer-centricity.

M.C. Dean and Hilton Hotels. You can get a wireless connection – but not before you give up your credit card number.

“Consumers are tired of being taken advantage of by hotels and convention centers that block their personal WiFi connections,” said Travis LeBlanc, chief of the FCC’s Enforcement Bureau. “This disturbing practice must come to an end. It is patently unlawful for any company to maliciously block FCC-approved WiFi connections.” The FCC began investigating M. C. Dean in 2014 after it received complaints that the company was blocking wireless Internet access for guests at the Baltimore Convention Center, where the company is the sole Internet provider. M. C. Dean admitted to obstructing hotspots using auto-block mode on its WiFi system, engadget.com reported on November 4th. “The company was charged with violating the FCC’s Communications Act by maliciously interfering with or causing interference to lawful WiFi Hotspots.” The FCC has fined company $718,000.

Hilton has been fined $25,000 for failing to cooperate with an FCC investigation into similar efforts to block WiFi access at its properties.

Wells Fargo: What happens when a company insists on its sales force making quota, but doesn’t care how they do it.

This summer, The Los Angeles City Attorney, Mike Feuer, sued Wells Fargo on behalf of the city. The suit states, “. . . Wells Fargo’s business model imposed unrealistic sales quotas that, among other things, have driven employees to engage in unlawful activity including opening fee-generating customer accounts and adding unwanted secondary accounts to primary accounts without permission. These practices allegedly have led to significant hardship and financial loss to consumers, including having money withdrawn from customer’s authorized accounts to pay for fees assessed by Wells Fargo on unauthorized accounts and derogatory notes on credit reports when unauthorized fees went unpaid, causing some customers to purchase identity theft protection.” The complaint further alleges that Wells Fargo failed to properly inform customers of misuse of their personal information and failed to refund unauthorized fees,” according to a press release from Feuer’s office.

A judge dismissed the lawsuit, but the City has appealed. In September, the City of Oakland, California, filed a related suit against Wells Fargo, accusing the company of “steering minorities into high-cost mortgage loans that allegedly led to foreclosures, abandoned properties and neighborhood blight,” according to Reuters.

“African-American borrowers in Oakland were 2.4 times more likely to receive a predatory loan than comparable white borrowers. Hispanic borrowers were 2.5 times more likely to receive a predatory loan. Loans in minority neighborhoods were 4.75 times more likely to end in foreclosure. The disproportionate number of foreclosures among minorities would not have happened if [Wells Fargo] applied uniform lending practices,” the lawsuit said.

Access Funding: Why let mental impairment jeopardize a profitable deal? 

To critics, “Access Funding is part of an industry that profits off the poor and disabled. And Baltimore has become a prime target. It’s here that one teen — diagnosed with ‘mild mental retardation,’ court records show — sold her [structured settlement] payments [to Access] through 2030 in four deals and is now homeless. It’s here that companies blanket certain neighborhoods in advertisements, searching for a potentially lucrative type of inhabitant, according to the Washington Post (How Companies Make Millions of Lead-poisoned, Poor Blacks, August 25, 2015).

Access Funding and other companies have found gaps in the legal protections offered to victims of lead poisoning, allowing them to buy structured settlements for pennies on the dollar. “Over the past two decades, state legislatures and the U.S. Congress have passed measures to protect vulnerable people selling structured settlements. In 2000, Maryland inked the Structured Settlement Protection Act, which enumerated a series of requirements. First, a seller must seek the counsel of an independent professional adviser. Then the proposed deal must go before a county judge, who decides whether that agreement reflects the seller’s best interests,” according to the Post article.

“There are weaknesses and ways people can circumvent it,” said Eric Vaughn, Executive Director of the National Structured Settlements Trade Association. “And these companies are getting around the intents of the law. . . . And when that happens, people get hammered.”

Medtronic: M-E-D-I-C-A-R-E: another way to spell revenue.

A former Medtronic sales rep, Jason Nickell of Austin, Texas, alleged in a whistleblower lawsuit that the company promoted off-label use of a neurostimulation device. He made as much as $600,000 per year selling it. The suit states, “Medtronic sales staff was directed to promote the off-label procedure by selling the neuromodulation device at steep discounts to pain management doctors and by promising those physicians that they could ‘make upward of $10,000 profit on each patient, while adding only minutes to the procedure,’” according to an article in the Star Tribune (Medtronic to pay $2.8 million to Settle Off-label Promotion Charges, February 7, 2015). Nickell quit his job “over concerns about the way that Medtronic devices were being promoted for an investigational procedure known as subcutaneous stimulation, Sub-Q or subcutaneous peripheral nerve field stimulation,” according to the suit.

Under the terms of Medtronic’s agreement with the US government, the company will pay $2.8 million in fines, in exchange for dismissal of criminal charges, and no obligation to admit liability. “Medtronic is committed to following appropriate marketing and reimbursement practices at all times, and for many years has had in place a comprehensive and robust employee compliance program,” the company said in the statement.

The US government interpreted the company’s actions differently. “Medtronic’s scheme,” as the government described it, turned many doctors “from dispassionate medical professionals … into retail salesmen pushing ‘snake oil’ because of large profits.”

Office Depot: A price commitment that’s worth less than the paper it’s printed on.

In January, the law firm Philips and Cohen reported that “more than 1,000 cities, counties, school districts and other government entities in California – including Los Angeles and Santa Clara County – will share in a $68.5 million settlement paid by Office Depot for allegedly overcharging them for office supplies. The case was initiated by a former Office Depot employee, David Sherwin, in a whistleblower lawsuit.

“Participants in the contract are guaranteed to receive Office Depot’s best available prices for government purchasers, according to Sherwin’s complaint. But Office Depot allegedly gave Los Angeles, Santa Clara and the other California entities that are part of the settlement a lower discount rate than other government entities were given,” according to Philips and Cohen. The case alleged that “Office Depot failed to give most of its California government customers the lowest price it was offering any government customer as required under its contracts.” Other pricing misconduct also was alleged.

“David Sherwin’s insider knowledge and his determination to do the right thing were the most important factors in bringing Office Depot’s alleged misconduct to light,” said Stephen Hasegawa, a San Francisco attorney who represented Sherwin. “He worked tirelessly on his own and with his lawyers for several years to try to prove Office Depot had overcharged its government customers.”

Formosa Plastics: When quality control measurements don’t conform to industry standards, make them up.

On April 4th, Formosa Plastics agreed to pay $22.5 million “to settle its liability in a whistleblower lawsuit involving PVC pipe manufactured by a former subsidiary, JM Eagle, under the terms of a settlement agreement approved by a federal judge. The settlement by Formosa Plastics doesn’t cover JM Eagle’s liability. The lawsuit alleges that JM Eagle ‘falsely represented to its customers . . . that the PVC pipe products sold to them conformed to applicable industry standards when in fact the products were made using inferior materials, processing, and tooling that resulted in their having substandard tensile strength, as measured by various tests,’” according to PRNewsire (Formosa Plastics Agrees to Pay $22.5 million to Settle Its Liability in Whistleblower Case That Former Subsidiary JM Eagle Lost at Trial) 

It’s impossible to read about these appalling ethical choices without recognizing disturbing patterns. All were heartless and deliberate. Most created human calamity, including death, personal injury, job and financial losses. All exploited information power. All depended on legal loopholes, regulatory gaps, or lax enforcement. All caused incalculable financial losses. All resulted from persistent chains of unethical choices – not from a single bad decision. Most infected more than one company.

These patterns can be broken when Ethical Sales Governance gets wedged into every company’s revenue plan. I propose putting it in between Sales Process and Lead Generation, so it won’t be missed. Jazz up the title by calling it Optimized Ethical Sales Governance – that way, people will read it. Then, pack the section full of content, including Corporate Responsibility, a Code of Business Conduct, Ethics Monitoring and Assessment, Reporting Violations, Compliance, and Ongoing Ethics Training and Development.

My reasons for making these recommendations are entirely self-serving: I want fewer candidates to cull when I make my choices for 2016.

© Contrary Domino 2013-2016.
Website development by Crisp Point.