Category Archives: Sales governance

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

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

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

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

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

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

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

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

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

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

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

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

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

Depending on context, the answers could change.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. establishes standards for employee disciplinary actions or termination.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3. To protect the customer’s best interests

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

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

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

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

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

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

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

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

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

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

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

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

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