Category Archives: Revenue Risk Management

A Future Without Secrets? Why We Need Ethical Data Governance

Wednesday, 25 October 2017 17:46
Written by
0 Comments

 

Do You Want to Know a Secret? 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

From here, I’ll focus on manageable issues:

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

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

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

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

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

Access to consumer information confers an obligation on an organization to

1. be transparent about ownership,

2. control how the data is used,

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

4. ensure that consumers will not be harmed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Companies That Abuse Consumer Privacy Might Feel Their Fury – Again

Hate, Bad Product Placement, and Brand Risk

Thursday, 28 September 2017 18:24
Written by
0 Comments

The author and his dogs on The Lawn at the University of Virginia. The Rotunda appears in the background.

 

What keeps marketing executives up at night? A duo of sticky problems:

  1. how to create unique product designs that consumers easily recognize, and
  2. how to ensure consumers prefer their product, and not ones that appear similar.

By solving these two challenges, marketers earn a beautiful gem: brand equity. Enjoy it. Cherish it. But remember – in an instant, that gem can turn ugly.

On August 11, 2017, white supremacists organized a rally called Unite the Right, and marched in Charlottesville. The group of about 100 men and women walked past the University of Virginia’s iconic Rotunda, and then down a pacific area on the UVa grounds known affectionately as The Lawn.

Chanting racist and anti-Semitic slogans, the supremacists carried torches that were readily identifiable based on their distinctive features: Tiki-brand torches, manufactured by a Wisconsin-based company called Lamplight. The racist symbolism of the torches and their connection to the Ku Klux Klan was not a coincidence. The purpose was to communicate an odious message, and to intimidate anyone watching.

It’s unlikely that product planners at Lamplight ever developed a use case for this malevolent activity. How could they? An abiding assumption for most marketers – myself included – is that our prospective customers have benign intent for using our products or services. When deciding how many torches to manufacture and where to distribute them, Lamplight probably considers banal matters like economic conditions, leisure trends, and weather patterns – not the number of hate rallies to be held, or how many marchers will participate.

For Lamplight, the prominent role their torches played in the Charlottesville tragedy are what author Nassim Taleb calls Black Swan events – situations that are extremely difficult to predict. The proverbial blind-side tackle. The catastrophe that came out of nowhere. No company should ever be self-satisfied that such things could never happen. Prior to August 11th, few people heard of Lamplight, or its parent company, W. C. Bradley. After that, both became known globally, for all the wrong reasons.

Shortly after the Unite the Right rally video went viral, the company issued the following statement:

“TIKI Brand is not associated in any way with the events that took place in Charlottesville and are deeply saddened and disappointed. We do not support their message or the use of our products in this way. Our products are designed to enhance backyard gatherings and to help family and friends connect with each other at home in their yard.”

Marketers and salespeople worship at the revenue altar, and here’s a company that states unequivocally that some revenue is filthy, and they’d rather not have it to augment the “top line.” Kudos to them not only for their morals, but for making them public.

Tiki torches weren’t the only easy-to-identify brand dragged into the supremacist vortex:

New Balance shoes was recognized by a writer for the neo-Nazi website Daily Stormer as “the official shoe of white people.”

The Detroit Redwings hockey team had their logo corrupted by the Unite the Right marchers, who modified it only slightly. On August 12, @onelectionday posted a Tweet that would make any marketer break out in a cold sweat:

“Wait a minute…@DetroitRedWings have you sanctioned the use of your logo here or is a copyright infringement suit pending?”

Perry Polo shirts. “The alt-right’s Proud Boys love Fred Perry polo shirts. The feeling is not mutual,” wrote Kyle Swenson in The Washington Post on July 10. Proud Boys describes itself as a “western-chauvinist men’s club” and the distinct Fred Perry [shirt] design helps them “sport a common uniform: black polo shirts trimmed in yellow stripes.”

In the aftermath, all three companies moved quickly with public statements:

“New Balance does not tolerate bigotry or hatred in any form…New Balance is a values-driven organization and culture that believes in humanity, integrity, community and mutual respect for people around the world.”

“The Red Wings believe that hockey is for Everyone and we celebrate the diversity of our fan base and our nation . . . We are exploring every possible legal action as it pertains to the misuse of our logo in this disturbing demonstration.”

“No, [Perry Polo shirts doesn’t] support the ideals or the group that you speak of . . . It is counter to our beliefs and the people we work with.”

Bad product placement is not a trivial issue. Ubiquitous video cameras and social media have upped the risks for companies. It’s hard to say how long it will take these brands to lose their linkages to heinous events, as others have suffered:

  • White Ford Bronco and OJ Simpson
  • Tic Tacs and the Donald Trump – Access Hollywood video
  • Skittles and Donald Trump Jr.’s statement about Syrian refugees
  • Skittles and the murder of Trayvon Martin in 2012

On June 17, 1994, over 95 million people watched livestream coverage of the OJ Simpson chase, but nobody at Ford cheered about the free product placement. Ford stopped selling the Bronco in 1996, though it plans to reintroduce the model in 2020. No doubt, one of the top-of-mind questions at Ford is how many years it will take for the OJ-Bronco connection to dissolve. 2020 probably seemed safe for re-introduction, because in 1996, the core buying demographic for the 2020 either wasn’t yet born, or couldn’t comprehend the news reports. Still, I wonder if white will be among the color choices.

What’s the impact on brands and revenue when products are tied to hate and political controversies? Not good – at least, initially. “When a brand gets involved in political issues, whether accidentally or on purpose, it’s bound to have an impact on how consumers talk about it on social media,” according to a December 12, 2016 AdWeek article, How New Balance, Pepsi and Kellogg’s Were Impacted by Trump Controversies. “Three brands that made headlines due to the election of Donald Trump—New Balance, Pepsi and Kellogg’s—had to deal with negative sentiment on social media as a result.” A research company, Taykey, explored how each incident impacted the brands on social media.

New Balance. In November 2016, consumers protested New Balance when the company’s VP of Public Affairs, Matt LeBretton, spoke about President-elect Trump’s position on the Trans-Pacific Partnership Agreement, telling The Wall Street Journal that “things are going to move in the right direction.” Some New Balance customers took umbrage to that endorsement, and protested by posting videos of burning New Balance Shoes. As a result, “brand sentiment declined by 75%,” according to Taykay. “Social conversation volume for New Balance rose by 100% (their biggest conversation-generating event of the year). This conversation was negative, though, and brand sentiment declined by 75 percent.”

Pepsi. Following the US presidential election in 2016, Pepsi CEO Indra Nooyi said some of her employees were “in mourning” about Trump’s election. Trump loyalists were not pleased with that comment. They announced a boycott of Pepsi products, and launched fake news stories alleging that Nooyi told Trump supporters to “take their business elsewhere.”

“Again, social media conversation volume for Pepsi spiked, but the negative conversation drove social brand sentiment down by 93%, as positive sentiment for Pepsi dropped from 72% to 4.5%, according to Taykey . . . However, since the incident, positive sentiment for the brand has been on the rise.”

Kellogg’s. Compared with Pepsi, Kellogg’s has faced more durable backlash after terminating its advertising on Breitbart, a website popular with white supremacists. Following that action, Breitbart launched a #DumpKelloggs campaign, and encouraged Trump supporters to boycott Kellogg’s products. “The boycott caused Kellogg’s social media sentiment to fall dramatically, with a 75 percent nosedive, according to Taykey. Through Dec. 5, that sentiment had stayed mostly negative.”

Brand managers cannot easily mitigate the risks that their products could become entangled in public controversies. But they can be prepared for what to do when it happens:

  1. Immediately issue a public statement to separates the company, its products, and its brand from the controversy.
  2. Make the statement clear and unequivocal. Do not leave room for other interpretations.
  3. Stick to the brand knitting. Don’t attempt to exploit the controversy to drive sales, or to create related advertising messages. These only serve to solidify negative connections in consumers’ minds.

Tiki torches, New Balance shoes, and Perry Polo shirts were not the only brands to get sullied on August 11th. The University of Virginia did, too. The school’s logo features a simple white outline of its Rotunda surrounded by orange. With its viewpoint from The Lawn, the logo is integral to the UVa brand, and instantly recognizable to UVa alumni. For me, the logo carries meaning beyond the physical building that Thomas Jefferson designed, and is now recognized as a UNESCO World Heritage site. That enslaved people constructed the building brick-by-brick and board-by-board makes the August events in Charlottesville even more poignant today.

For the time being, I can’t un-see the white supremacist marchers, or stop hearing their hateful chants as they walked past the Rotunda. And I can’t ignore their worldview that we should return to the institutions and society that subjugated human beings, and openly advocated the existence of a “superior race.”

At least in Virginia, many of us have convinced ourselves that Jefferson – who himself enslaved over 220 people – would be reviled at the Unite the Right marchers, and what they stand for. “It is safer to have the whole people respectably enlightened than a few in a high state of science and the many in ignorance,” Jefferson said. For generations, that idea has been woven into UVa’s brand. On August 11th 2017, I suspect Jefferson was twirling in his grave.

Do Salespeople Lie More Than Other Professionals?

Tuesday, 29 August 2017 17:03
Written by
0 Comments

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Friday, 28 July 2017 23:28
Written by
0 Comments

“If advances in technology during the industrial revolution swung the balance of power toward the corporation, those of the digital revolution have swung it back toward the customer,” Matt Watkinson wrote in his book, The Ten Principles Behind Great Customer Experiences.

The precarious balance of commercial power, always teetering and tottering! The effects can be easy to observe, but they are hard to measure. A situation that allows generalizations, so I’ll pile on with one of my own: over the past 20 years, ubiquitous information has helped customers amass formidable strength. Strength that enables them to bubble up negative vendor reviews in a single mouse click. Strength that yields lower prices. Strength that reduces or eliminates buying mistakes. Slay the oppressors! Woe to the malevolent enterprises that price gouge and rob sacred purchasing dollars! For consumers, the evolution compares to moving from defending ourselves by throwing stones to having crossbows with curare-tipped arrowheads in our quivers. Pundits reinforce this viewpoint, crafting catchy phrases that have become emblems of our time: “57% of the purchase decision is complete before a customer even calls a supplier!” and “The salesperson is dead!” The pendulum has swung, and consumers have grabbed the rope! Huzzah! Take that, unsavory sellers!

Companies like Alphabet (parent company of Google), Amazon, Microsoft, and Facebook are giddy over this narrative, because it diverts attention from what they do with the massive data troves they are constructing, terabyte by terabyte. While everyone crows about how the consumer information arsenal has advanced to poison arrowheads, vendor weaponry has stealthily gone nuclear.

“Right now in the U.S. it’s essentially the case that when [consumers] post information online, you give up control of it. So there are terms of service that regulate the sites you use, like on Facebook and Twitter and Pinterest — though those can change — but even within those, you’re essentially handing control of your data over to the companies. And they can kind of do what they want with it, within reason. You don’t have the legal right to request that data be deleted, to change it, to refuse to allow companies to use it. Some companies may give you that right, but you don’t have a natural, legal right to control your personal data. So if a company decides they want to sell it or market it or release it or change your privacy settings, they can do that,” said Jennifer Golbeck in TechTalk, July 1, 2014.

The companies that Golbeck mentions perform their data hoarding and analysis in subterfuge. And when it comes to revealing intentions for its use, these and other data behemoths are anything but transparent. It’s “difficult to predict how information you reveal now could be used five or ten years out, in the sense of new inferences that could be discovered. Researchers may find that a piece of information ‘A’ combined with a piece of information ‘B’ can lead to the prediction of something particularly sensitive — also in the sense of how this particularly sensitive information could be used. These are literally impossible to predict, because researchers every month come up with new ideas for using data. So we literally do not know how this will play out in the future,” explained privacy economist Alessandro Acquisti in a TED Talk, Why Privacy Matters.

Like it or not, your online experiences are controlled by algorithms feeding off your copious digital exhaust. That affects what you know, what you will know, and more ominously, how you live. Most consumers underestimate how much companies know about them, but today, sellers possess enough knowledge to infer customer desires, and to surreptitiously influence their actions.

But the government protects our privacy, right? If you believe that, I have some primo swampland in Florida to sell you. According to the website, Practical Law, by Thomson Reuters:

“In the US, there is no single, comprehensive federal (national) law regulating the collection and use of personal data . . . Instead, the US has a patchwork system of federal and state laws and regulations that can sometimes overlap, dovetail and contradict one another. In addition, there are many guidelines, developed by governmental agencies and industry groups that do not have the force of law, but are part of self-regulatory guidelines and frameworks that are considered “best practices”. These self-regulatory frameworks have accountability and enforcement components that are increasingly being used as a tool for enforcement by regulators.

There are already a panoply of federal privacy-related laws that regulate the collection and use of personal data. Some apply to particular categories of information, such as financial or health information, or electronic communications. Others apply to activities that use personal information, such as telemarketing and commercial e-mail. In addition, there are broad consumer protection laws that are not privacy laws per se, but have been used to prohibit unfair or deceptive practices involving the disclosure of, and security procedures for protecting, personal information.”

If you’re feeling inhibited about baring your most intimate digital details to strangers online, there’s a remedy: move offline. Or, to California. The state “leads the way in the privacy arena, having enacted multiple privacy laws, some of which have far-reaching effects at a national level,” according to Practical Law.

That is, until 2017, when Congress and the Trump administration got their mitts on our privacy. Trump made Americans exposed again by approving a bill that weakens consumer privacy protections. “The House of Representatives has gone along with the Senate and voted 215-205 to overturn a yet-to-take-effect regulation that would have required Internet service providers — like Comcast, Verizon and Charter — to get consumers’ permission before selling their data . . . Congress’ approval is a loss for privacy advocates, who fought for the regulation, passed in October of last year by the then-Democratic majority on the Federal Communications Commission,” wrote NPR’s Brian Naylor in an article, Congress Overturns Internet Privacy Regulation. 

A “future without secrets?” The confluence of facial recognition and ubiquitous computing has shoved power pendulum away from customers and back to . . .  other entities. No one knows exactly where digital stuff goes, how long it’s stored, or who has access to it. In the commercial arena, power is now consolidated in an oligarchy of companies. That creates more concern, because in everyday transactions, a smattering of lightweight consumer information resources are going up against prodigious power brought by heavy corporate investments in data science. I know where I’m placing my bets.

All this makes the breathless hype about customer dominance and vendor weakness in the digital age seem silly. Sure, online product reviews and “transparent” pricing give buyers more lethal curare. But data warehouses chock full of individual profiles tied to predictive analytics give vendors ICBM’s.

“Data are to this century what oil was to the last one: a driver of growth and change,” according to an article in The Economist, Fuel of the Future, May 6, 2017. Market research firm IDC predicts that by 2025, data created and copied will reach 180 zettabytes (or 180,000,000,000,000,000,000,000 bytes). “To ingest it all, firms are speedily building data refineries. In 2016 Amazon, Alphabet and Microsoft together racked up nearly $32 billion in capital expenditure and capital leases, up by 22% from the previous year, according to the Wall Street Journal.”

When we have public will for online privacy, we’ll get legislation to protect it. Don’t count on either one. Data-enabled online commerce is all about speed and convenience. “Personalization” is all about ego, and millennials are fueling the demand. Are privacy and driving benefits from big data compatible goals?

Probably not, because consumers show little appetite for compromise. They want Great Customer Experiences, even if it means exposing their private lives to anyone and everyone, and conferring ownership of their intimate details to others I will not name – not by choice, but because I don’t have the information.

Thanks in part to those who grew up online (aka Digital Natives) and others – like myself – who perfunctorily check “I accept” on legal disclosures, disclaimers, and terms of service, vendors are happy to swing on the power pendulum, as long as it remains on their side. In the meantime, those interested in privacy will have to depend on industry self-regulation. The mechanism for that is data governance, which will be the subject of my next article.

Data “empowers the powerful,” wrote Yale anthropologist James Scott. He’s not referring to Joe the Plumber, or Joe’s customers, for that matter. It’s the emerging group of massive data collectors and amalgamators – Alphabet, Amazon, Microsoft, and Facebook . . . and, lately the Federal government, which last month, demanded states provide the names, addresses, birthdates, political party (if recorded), last four digits of the voter’s Social Security Number, and which elections the voter has participated in since 2006, for every registered voter in the country. That’s a big pot of data! The ostensible purpose: to “fully analyze vulnerabilities and issues related to voter registration and voting,” said Kris Kobach, Vice Chair of the White House commission to investigate voter fraud. Yeah, right.

As consumers, we can marvel all we want over the supposed potency our curare-tipped information arrows provide. But right now, the organizations that possess and use the world’s digital information have vastly more power. Power that’s expanding almost as fast as the amount of data we’re giving up – and they’re absorbing.

Is Maximizing Shareholder Value Poisonous?

Thursday, 20 July 2017 17:37
Written by
0 Comments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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