Category Archives: Sales governance

Risk Committees: An Antidote for Fraud

I have a writing problem that’s giving me fits. I’m knee-deep into fraud – that is, describing how to prevent it. Unfortunately, the subject doesn’t involve using fun, energetic words like transformative change and market domination.

Instead, I must become jazzed about ideas that are antithetical in our caffeinated, exponential growth-obsessed business culture: constancy and stability. I must double down on the Zen we supposedly derive from mom-and-apple pie values like honesty, transparency, and trustworthiness. What – no market disruption? I’d rather watch reruns of regular-season baseball games.

Please don’t take this as whining. I’m game for a new expository challenge. Fraud prevention . . . let’s see . . . I know! What’s the ROI of thwarting a nascent scam before it obliterates a company, its leaders, or both? What’s the value of slaying a scandal before it causes customers injury, death, or financial ruin? Now this gets me going! I can write about corporate managers and auditors as champions, armed with sharp ears and ready eyes. Finely-tuned algorithms able to detect the subtlest transactional anomalies. Deceit – headed off at the pass! Energy, baby!

Lead gen, content creation, and predictive analytics might nudge the revenue needle northward, but they won’t save a company from cataclysmic self-destruction. That’s a primary purpose of fraud prevention. There are cases to prove it. Oh, have I got your attention now?

Expect wretched outcomes when these are present in a company:

1. Ethical hypocrisy: senior managers model poor ethical behavior; e.g. The “Code of Conduct” or “Values Statement” – if they exist – are regularly violated or ignored by staff

2. Lame internal governance, oversight, and audit controls: revenue-generation processes that are disconnected from other departments; prevalent attitude that ‘what happens in Sales, stays in Sales’

3. Weak channels for staff to report unethical or illegal activity: no documentation provided to sales force regarding how to report problems; no formal process for mediation

4. Penalties for whistleblowing: sales personnel describe being harassed or intimidated after reporting issues to supervisors, or being castigated as ‘not a team player’

5. Dissonant strategic and tactical goals: corporate strategy champions growing long-term value of customers, while tactical goals are centered on achieving high monthly revenue targets

6. Sales incentives and compensation substantially skewed toward revenue attainment: low base salary, and commissions based exclusively on percentage of sales

7. Sales culture that glorifies achieving objectives unrelated to customer success: prominent recognition for quantity of new customer accounts opened, or number of appointments held

8. Unrealistic or supremely difficult sales performance goals, accompanied by stringent penalties for non-achievement: termination of employment for underachieving “stretch” targets

9. Arrogance: believing “fraud could never happen here . . .”; accepting the delusion that the company hires only “honest” sales candidates and managers

10. Lackadaisical or perfunctory mediation and redress for customer complaints: unabated customer difficulties with selling tactics and allegations of product misrepresentations

Preventing systemic bad behavior begins with the company’s board, whose members must recognize that executing strategy inevitably carries the possibility of doing harm to customers, employees, suppliers, and shareholders. “. . . the full board is ultimately responsible for taking ownership of risk oversight and making sure strategic risks to the business are regularly discussed,” writes Maureen Bujno, Managing Director for Deloitte’s Center for Board Effectiveness.

Soul-searching questions for boards to answer:

1. How might the activities of this company cause harm to its stakeholders?

2. Could our executive and sales pay plans / incentives create conditions that compromise or damage trust or safety for customers, employees, vendors, or contractors?

3. How confident are we that the senior management of this company will become aware of unethical or illegal activity when it occurs?

4. Does this company have adequate mechanisms to communicate and enforce its legal and ethical standards?

5. Has this company taken sufficient steps to reduce the possibility that its stakeholders will be harmed?

When it comes to preventing fraud and ethical abuses, boards should avoid becoming enmeshed in tactical details and operating minutia. One prominent exception: board members must be open to holding direct conversations with employees who want to report fraud. The risks to a company are simply too great for board members not to know when risky behavior or activity takes place. And as the Wells Fargo case has demonstrated, there is no certainty that the established channels for reporting problems will work, or that employees will feel safe using them.

Board-sanctioned risk committees as an elixir. Day-to-day operating risks can be addressed by a cross-departmental risk committee. Openness and transparency are useful antidotes for fraud risk, and companies can develop these capabilities in-house through a team dedicated to monitoring, identifying, and reporting conditions that might be unethical and illegal. The good news: establishing a risk committee doesn’t demand staffing it with specialized talent. And now the bad: risk committees succeed only when boards care about risk prevention, and management responses to the issues the committee exposes are both timely and adequately considered.

Some recommendations for getting started:

Step 1: If the name Risk Committee doesn’t sound catchy, or fails to entice people to join, give the committee a different name.

Step 2: Decide how to recruit and appoint members. Sales and Marketing must be represented, but make sure other departments are, too.

Step 3: Select a capable leader – or ensure that one can be chosen.

Step 4: Write a committee charter to establish the purpose, objectives, goals, and authority. For example, “The purpose of the Committee is to provide oversight to ensure that marketing and sales strategies, tactics, policies, and procedures do not conflict with laws and regulations, and that they comply with the ethical guidelines of the company. The committee is entrusted with identifying and communicating all matters of concern to senior management, and when necessary, to members of the corporate board.”

Step 5: Establish the scope of what the committee will be able to do, examine, review, and report, along with expectations and guidelines for preserving confidentiality.

Step 6: Determine how often the committee will meet, the role and obligations for committee members, and the duration they will be asked to serve.

Step 7: Create a template for how the Committee’s findings will be communicated. At a minimum, that includes how to document or record incidents, determining who should be told, describing how they should be told, and guidelines for assessing and reporting the magnitude of the threat.

Step 8: Plan a kick-off event, and make sure senior managers are involved.

Step 9: Document the Committee’s activities and the actions taken in response to situations it has identified and shared with senior management.

What signals should Risk Committee members listen for? What conditions should trigger concern? For starters, any artifacts of the ten fraud-risk elements I described. In addition, whenever opacity, process silos, limited access to customer-facing personnel, reluctance to answer questions or provide information about customer complaints or regulatory compliance occur, risk indicator lights glow red. These situations should be considered for committee oversight.

Boards must recognize that companies face new risks when executives assume fraud and abuse problems can’t be controlled, when they claim that mitigation is too expensive, or when they dismiss oversight as a distraction for the business.

Foiled business scams rarely make it into news feeds. The activities that lead to their demise hardly seem remarkable. Often, an employee – or employees – shares information with a manager or board member who cares enough to act. Then, established prevention mechanisms kick in, and perform as designed. Routine – as it should be. No matter the size, industry, or leadership, an organization is never immune from causing harm through unethical behavior, misguided strategy, and sketchy tactics. Risk committees perform a vital role that no company can afford to overlook: oversight that reduces the probability a company will cause financial and physical harm through systemic bad behavior.

When I Say “Cheat,” You Say “How Much?” Why Salespeople Are Easy to Exploit

“Your judgment gets clouded out in the field when you are pressured to sell, sell, sell.”

Wells Fargo, 2016? Actually, no. Dial back about twenty-two years – to 1994. This came from Prudential Insurance sales rep John Vetter, about a scam that began in the 1980’s. A scam that victimized nearly eleven million Prudential customers.

Customers suffer when pressure is baked into the sales culture. Carol and Keith Nicholson were loyal Prudential Insurance customers at the time Keith was diagnosed with Leukemia. “Carol had been known to say that she trusted her Prudential agent like she trusted her pastor. He was going to play a vital role in smoothing a very uncertain future. Therefore, when her agent suggested that she and her husband take out a new life insurance policy on Keith at no additional cost, the couple agreed, no questions asked. They just signed the forms, believing they had brought even more certainty to the unpredictable future,” according to a business school discussion about the case prepared by Hunn, Shenkir, and Walker of the University of Virginia’s McIntire School of Commerce.

The Nicholson’s were wrong. When Keith died, Carol discovered that the $103,000 Prudential life insurance policy they traded in was worth only $22,000. “The Nicholson’s agent had taken advantage of the couple’s trust by borrowing against their old policy in order to get them to purchase a new and more expensive policy.” [Hunn, Shenkir, and Walker]

By 1998, Prudential estimated its liability in the US from related class action lawsuits at $2 billion. States with large populations of retirees were especially hit hard, and investigations into the company’s practices ensued. “Prudential trained its agents to mislead, misrepresent and defraud policyholders,” according to a 1997 internal report from the Florida attorney general’s office.

Pressure, incentives, training, pressure. Repeat. That’s how eleven million Prudential customers got scammed. The same way Wells Fargo opened two million credit card accounts without customer consent. The same way Valeant/Philidor tricked health benefits providers into overpaying millions of dollars for prescription drugs. And the same way Dun & Bradstreet Credibility Corporation used alarming, but groundless, sales pitches to frighten small business owners into subscribing to their service.

You’d think after a while, the actors in these corporate debacles – boards, executives, shareholders, and employees – would figure things out, making such sordid patterns fizzle into obscurity.

But no. Today’s CXO’s, engorged on bonuses from share price appreciation, and financially fattened from meeting short-term revenue and profit targets, often gut internal governance to keep their gravy trains rolling. They emasculate audit enforcement and crush dissension. It’s all in a day’s work. Practical advice for the first-time job seeker: bolt from any hiring manager who says, “We run an aggressive sales organization here.”

It’s revolting to see sales strategies and tactics used for malevolent objectives, and to learn the consequences that victims endure. Executives can salivate over clever strategies for sales enablement, but anyone who fails to consider the possibility of harm to employees and customers needs to remove his or her head from the sand.

Not every revenue scandal involves the sales force. Enron’s meltdown first flourished in the CFO’s office, implemented through creative manipulation of debits and credits. VW’s emissions-cheating scheme was prosecuted through its engineering department. Turing Pharmaceuticals controversial price gouging was the brainchild of its profit-obsessed CEO, Martin Shkreli.

But all too frequently, you’ll find the sales organization close to the heart of an ethical storm. The linchpin in the mechanism for repeatable, scalable deceit. The reason, in five easily-tweetable words: Salespeople are easy to exploit.

1. The sales team holds a unique position of trust with a company’s customers. And all scams rely on the ability to exploit trust.

2. Salespeople provide a convenient smokescreen for unethical managers. Too tempting to ignore. At Wells Fargo, the sales force took the fall for not upholding corporate values, when in fact, they were executing them.

3. Commission- and incentive-based pay plans enable management to control behavior like a puppeteer manipulating a marionette. Such plans predominate in sales organizations, and many salespeople depend on their income-at-risk to make ends meet. That makes them particularly vulnerable to making ethical compromises.

4. Organizations traditionally control salespeople as individuals, despite the popular rhetoric about playing as a team. It’s embedded in the culture. Companies champion sales individuality: individual contributors, individual quotas, “What’s-in-it-for-me? (WIFM),” and personal motivation. Through internal sales contests, companies often play salespeople against each other, limiting their individual and collective power to resist management abuse.

5. Many times, salespeople don’t understand their personal risk situations. In deterministic you-will-make-your-number sales cultures, salespeople – particularly those new to the role – fail to confront the uncertainties they face. Instead, lacking background and experience, they acquiesce to management’s performance demands, no matter how unrealistic.

6. Thanks to automation, many sales roles have become de-skilled. And will become more so. That makes salespeople easy to replace, and easy to threaten.

Think of sales as the revenue-risk shock absorber for a company. Industries can become more competitive. Market demand can wax and wane. State-of-the-art products can unexpectedly decline, or become “disrupted.” Senior executives can constantly tinker with planning and strategy, and achieve rock-star fame through TED talks about their “lessons learned.” But one thing remains durable, as surely as the sun rises and sets: revenue expectations for salespeople never recede or decline. Do companies exploit that by endlessly funneling risk onto its sales force? I think so.

Salespeople who have worked even a short time are inured to working harder to maintain their standard of living. Companies like Wells Fargo and others have learned exactly how easy it is to manipulate their salespeople to achieve that prosaic goal.

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

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

If you didn’t know, why?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Do Corporate Values Matter?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Disclaimers: A Slick Way to Kind of Tell the Truth

In 2013, Pakistan’s Tribune newspaper reported that a Pakistani family can spend the equivalent of $9,600 to provide a marriage dowry for a daughter – a fortune in a country where the average annual per capita income is $1,200. Sons, on the other hand, occupy the catbird seat. For them, no dowry payments, just an expectation that they care for parents into old age. “We always knew we wanted a boy! . . .”

“In Pakistan, India, and China, son preference is perpetuated by both men and women,” said Dr. Anita Raj, director at the Center on Gender Equity and a health professor at the Division of Global Public Health, Department of Medicine at the University of California, in San Diego, quoted in a report from the International Business Times. “Data from the region [indicates] that about one in four women would prefer to have more sons than daughters.”

In places where the birth of a female child creates outcomes far more dire than what color to paint the nursery, the verb prefer shrouds the draconian choices parents face. And it obscures how vulnerable they are to commercial exploitation. Wherever you find desperate consumers, you find purveyors of snake oil, gleefully willing to take their money – and more.

One vendor, Indian yoga guru Baba Ramdev, developed a nutritional supplement he named Divya Putrajeevak. Putrajeevak, a Sanskrit word meaning “son’s life,” provides a distinct marketing advantage – no need to guess why. You can buy it on Amazon. “A unique herbal product, Putrajeevak seed is beneficial for female reproductive health. Dosage: Make a fine powder of both Putrajeevak seed (Beek), take an hour before breakfast & dinner,” Amazon’s product description helpfully informs us.

But just below it, the first review hints at a dark story. “This product is for health of female reproductive organs. Nothing more. Some people confuse it as for conceiving boy child but it’s due to the naming in Sanskrit,” this customer writes, adding, “This is a reputed herb in Ayurveda. Use as directed. I have used it personally. But please refrain from using after conception. This herb is for before conception.” I scroll to the next review: “This is 100% quackery. Please don’t buy any of the items Baba Ramdev is selling! He doesn’t have any scientific basis to make all these claims.”

The claims this writer refers to were made in India, where the pitch to sell ‘Divya Putrajeevak Seed’ unrepentantly includes the promise of conceiving male offspring. According to an article in, “The medicine also created a uproar in Rajya Sabha [India’s Council of States] . . . after Indian Member of Parliment KC Tyagi flashed a packet labelled ‘Putrajeewak Beej’ (son-bearing seeds).” Ugh. First of all . . . please don’t call this product medicine!

To save space, I’ll dispense with a biological explanation for how gender gets determined in humans. You can read about it here. Suffice to say, I couldn’t find any credible research offering proof that eating, drinking, or smoking Divya Putrajeevak seed means diddly squat toward producing the all-important boy-bearing XY chromosome.

Right here, you might be thinking, “Sounds like this product needs a disclaimer.” You are right. Following this brouhaha in India, a spokesperson for the company that sells Divya Putrajeevak seed announced that the product packaging will disclaim exactly what the product name implies.

“It is for women, and has no relation with sex determination.”

Problem- solved! Now, in South Asia, destitute consumers and others at the brink of financial disaster can buy “son-bearing seeds,” but without the misapprehension that the product will help them conceive a male child. Please let me know if this doesn’t make sense.

Here in the US of A, we have plenty of our own mishegoss. For example, in 2015, law firms spent $128 million on 365,000 ads like this: “This is a legal alert for the users of Xarelto. Lawyers are reviewing claims that the blood-thinning drug can cause severe bleeding or hemorrhaging, stroke or even death. You may have a case . . .”

If you use Xarelto, could this ad make you a tad skittish? In a survey conducted by the US Chamber Institute for Legal Reform, “25% of patients said they would stop taking their medication immediately if they saw an advertisement regarding litigation over the drug,” Lisa A. Rickard wrote in an August, 2016 Washington Post article, How Lawyers Scare People Out of Taking Meds.

According to Rickard, the chamber organization’s president, “Ads like these often include extensive descriptions of serious adverse reactions with little context about how common these side effects are. They routinely mimic public-service announcements, claiming to be a ‘medical alert’ or an ‘FDA warning.’ Most don’t disclose that the ad is for lawyers until the final few seconds. One researcher sampled these promotions and found that only 39% warned viewers to consult a doctor before stopping a drug (emphasis, mine). Many that did ran that advisory in very small print.”

“Lawyers argue that these ads are an important part of the work they do fighting for people injured by faulty drugs or devices . . . lawsuits offer victims opportunities for justice,” Rickard wrote. But without regulations, these alarmist ads create their own “public health risk” – the term Albert Einstein College of Medicine cardiologist Evan Levine used to describe the problem. I’m with him.

Since 1962, The US Food and Drug Administration has had “complete oversight over prescription drug advertisements,” Rickard wrote. “Similar regulations could be developed for legal ads . . . lawyer medical ads should remind viewers to consult their doctors before they stop taking their medications. Another option: The ads could include some kind of disclaimer noting that only a small percentage of people may have had an adverse reaction to a specific drug. All claims should be backed by science, and not exaggerate risks.”

When I read that passage, I did a double-take, because I assumed that such sensible disclaimers were already mandatory. Nein! So, don’t buy the popular bombast that politicians regularly hurl about “cutting regulation and rolling back bureaucratic red tape.” To me, this example demonstrates that without Government Nannies, humans would be nearly extinct.

Companies use disclaimers to avoid allegations of mendacity, or when regulators force them to. Disclaimers are disavowals, a simple shorthand for communicating, “We flamboyantly distort facts so you will see things the way we want you to see them. In case that causes a problem, here’s a half-hearted smattering of contradictory information.”

Some disclaimers are so common that we barely pay attention. “Your mileage might vary . . .” . . . “Certain restrictions apply . . .” “Enlarged to show detail.” Others are ironically funny. In a January, 2015, Wall Street Journal article, Advertising Hyperbole Is Best Found in the Disclaimer, Shirley Wang wrote, “On the big trucks featuring three giant cups of [Dannon’s] Oikos brand Greek Yogurt in Times Square recently, there was a message repeated in several places: ‘not representative of product.’ IKEA stresses on several-foot-high signs that hang from the rafters of some stores that the mammoth picture of its beef hot dog is ‘not actual size.’ And online ads for Dermitage, a skin product that touts ‘less wrinkles in only minutes,’ have shown half the face of a woman with smooth skin and the other half with serious wrinkles, noting that it was ‘simulated imagery.’ No, they don’t think you are an idiot.”

“How weight-loss companies fake those before-and-after photos. Pictures are airbrushed, borrowed and stolen,” the UK’s Daily Mail reported. No kidding! Another prime opportunity for a well-crafted disclaimer. The one that the diet regimen Paleo Plan uses, “never disregard professional medical advice or delay in seeking it because of something you have read on this website,” could not be more encompassing. Good to know.

In September, 2014, the US Federal Trade Commission (FTC) took up the honesty cause through Operation Full Disclosure , a program designed to prevent companies from misleading consumers. The project began with the FTC contacting 60 companies, including 20 of the 100 largest US advertisers. Among the distortions that the agency wanted to thwart:

• ads that quoted the price of a product or service, but did not adequately disclose the conditions for obtaining that price

• ads that failed to disclose automatic billing

• ads that claimed a product capability or that an accessory was included, but did not adequately disclose the prerequisite to own or buy an additional product or service

• ads that claimed a uniqueness or superior feature for a product in a certain category, but did not adequately disclose how narrowly the advertiser defined the category

• ads that promoted a “risk-free” or “worry free” trial period, but did not adequately disclose that consumers would need to pay for initial and/or return shipping

• ads that made absolute or otherwise broad statements and had inadequate disclosures explaining exceptions or limitations

• ads for weight-loss solutions featuring testimonials claiming outlier results that did not adequately disclose the weight loss that consumers generally could expect to achieve

• ads that did not adequately disclose issues related to the safety or legality of a product or service

• ads that included a demonstration that was materially altered, but did not adequately disclose the alteration

and finally,

• ads that made false claims that the advertisers attempted to cure with contradictory disclosures, which are not sufficient to prevent ads from being deceptive

That factual distortions exist in marketing should surprise no one. But the transgressions the FTC has targeted are particularly corrosive – even dangerous. “The FTC’s longstanding guidance to companies is that disclosures in their ads should be close to the claims to which they relate – not hidden or buried in unrelated details – and they should appear in a font that is easy to read and in a shade that stands out against the background. Disclosures for television ads should be on the screen long enough to be noticed, read, and understood, and other elements in the ads should not obscure or distract from the disclosures.” It’s hard to argue that the FTC’s recommendations are bad.

The FTC has also developed guidelines for digital media: “If a disclosure is needed to prevent an online ad claim from being deceptive or unfair, it must be clear and conspicuous. Under the new guidance, this means advertisers should ensure that the disclosure is clear and conspicuous on all devices and platforms that consumers may use to view the ad. The new guidance also explains that if an advertisement without a disclosure would be deceptive or unfair, or would otherwise violate a Commission rule, and the disclosure cannot be made clearly and conspicuously on a device or platform, then that device or platform should not be used.”

Disclaimers have a useful purpose, but they seem an awkward way to backpedal toward the truth. A tacit admission of deception. “Please be aware that what you likely heard me say is not necessarily accurate or correct.” Companies want to be thought of as “truthful and honest.” They see profound purpose in “educating customers.” Sales managers pride themselves on having reps who are “trusted advisors.” Disclaimers, in effect, tell customers that what they have been told, shown, or made to believe isn’t exactly as it seems.

As Wall Street Journal columnist Holman W. Jenkins described it in a recent column about Donald Trump, (Trump Runs Against Both Parties, August 10, 2016), “When you tell the public untruths, in Mr. Trump’s understanding of business, that’s marketing.”

Disclaimers, to the rescue!

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