Tag Archives: sales_strategy

On My Honor as a Salesperson. A New Look at Why Sales Ethics Matter

Which risk poses the greatest threat to a company’s market value – Pandemics and natural disasters? Terrorism? Product defects? Patent infringement? Theft of intellectual property? Lack of moral boundaries?

If you answered anything but the last choice, think again. The decimation of market value at Tyco, Worldcom, and Enron – three of the most prominent ethical meltdowns of our time – illustrates what can occur when a company lacks ethical footing. According to Public Citizen’s Congress Watch, the cumulative decline in market capitalization resulting from fraud at these three companies was $136 billion.

The financial impact of Covid-19 on the global stock market may never be fully known. But one thing stands out: unlike most risks, companies have ultimate control over their moral conduct.

Many corporate scandals are hatched in the executive suite and metastasize into the organization. The sales operation is a fecund spot for seeding schemes because it is directly connected with the most watched measurement a company maintains and shares: revenue.

Sales is also the linchpin for the trust between a company and its customers. For example, the Wells Fargo consumer credit card scandal was the consequence of stock-price bonus incentives granted to then-CEO John Stumpf and a cadre of senior executives. To enrich themselves, they usurped customer trust and exploited employees by encumbering them with onerous performance quotas, and followed through by browbeating them into hitting targets that would be attractive to investment analysts. The rationale was that when thresholds were met, analysts would make buy recommendations for Wells Fargo stock, elevating its price. The scheme worked for a while before the business media uncovered the story. In the end, Stumpf was fired over the scandal and his bonuses clawed back or terminated.

Bad ethics can take root elsewhere in the hierarchy. When governance and audit controls are ineffective, they can easily spread, infecting employees, suppliers, channel partners, and customers. In 1998, ethical violations at Prudential Insurance Company’s sales organization became so pervasive that the company’s management eventually estimated its liability from the pending class-action lawsuit at $2 billion. Among the voluminous courtroom testimony from the case was this statement from a Prudential sales rep: “Your judgment gets clouded out in the field when you are pressured to sell, sell, sell.” More than two decades later, sales reps face the same difficulty.

How can harm from unethical behavior be prevented? First, accept that no company is immune from facing ethical dilemmas, and second, understand that there are no guarantees that ethical decisions will somehow prevail. This is especially true for companies proclaiming themselves “customer-focused” or “customer-centric.”

Companies must purposefully and actively reduce the opportunities for unethical behavior to enter an organization. Taking key steps such as developing and communicating a corporate code of conduct, modeling ethical behavior in the C-Suite, implementing strong governance and accountability, and making it safe for employees to speak up without fear of retaliation are vital. Importantly, companies must take prompt and decisive action when incidents are reported.

Still, when it comes to acknowledging the possibility of malfeasance in their organization, many senior executives are dismissive. I often hear, “that type of thing could never happen here,” quickly followed by “we don’t hire those kinds of people,” as if “those kinds of people” are easy to spot in the interview. In fact, in companies large and small in any industry, the potential for making unethical choices always exists. If the risks aren’t acknowledged, understood, and managed, stakeholder harm becomes not only probable, but certain.

One “sales-driven” company I worked for felt immune to ethical risks, and their hubris cost them more than $1 million from a scam that began with one rogue sales employee, “Travis Doe.” Travis was a reseller account manager. He was tall, charismatic, confident. He was good at golf. At sales meetings, Travis could always be found in the center of a group of colleagues, sharing a bawdy new joke, or regaling them with something useful he learned over his long career in computer sales.

Travis’s compensation plan earned him a comfortable six-figure income. But he figured out a way to augment that. Travis began his scheme with a transaction my employer made routine: he established a new reseller account. In this case, Travis gave this one a bogus name, bogus address, and bogus line-of-business. Bogus everything. He even anointed himself CEO – a move that came back to haunt him.

The cleverness of Travis’s scheme came from the fact that resellers received 40% discounts for all IT hardware. When customers and prospects sent requests for quotes or placed orders, Travis circumvented them to his bogus company. In this way, Travis pocketed a healthy margin on every order his bogus company processed. There’s more. In addition to that revenue stream, my employer also paid Travis commission on his “reseller’s” sales because, of course, the bogus company was in Travis’s portfolio.

It took an alert order administrator who spotted a part number anomaly to unravel Travis’s scheme. When she called the “reseller” to explain the problem, she was told, “Our president, Travis Doe, will call you back.” The order administrator reported Travis, and he was quietly fired about a week later.

Travis’s scheme created only losers. A characteristic common to all ethical breakdowns. If Travis’s immediate boss knew about his dishonesty, why didn’t he stop him? If he didn’t know, what excuse could he offer for being ignorant about a scam happening in his own office? You know it’s a bad day when any answer you provide isn’t a good one.

In their desire to move on, many executives at the company looked no further than blaming Travis. “You’re always going to have a ‘bad apple,’ or two,” senior managers somberly told me. A convenient rationalization, but very misleading. Other people, from the CEO down, were culpable. Sales Administration allowed account managers to establish reseller accounts without any oversight. Internal audit didn’t see a glaring opportunity for fraud in the order entry process. Contracts administration had no vetting rigor beyond “can you fog a mirror?” Flush with sales orders, the company blithely looked askance despite ongoing grumbling from staff that large dollar orders were routinely being processed through a “reseller” whose qualifications were murky, at best.

This incident happened before social media platforms became ubiquitous. The total direct cost from Travis’s scheme totaled more than $1 million. But that’s without adding the incalculable cost of broken morale and corroded trust. The company issued no press releases or public explanations. No trade journal carried the story. The cost of this scam got paved flatter than a pancake into company’s Income Statement.

Any discussion of ethics involves drawing boundaries. But drawing boundaries for sales ethics is much easier said than done:

“I’ll sell an early version of my software that isn’t fully tested, but I won’t sell anything that I know doesn’t work.”

“I won’t bring up the fact that I’m missing a key feature, but I won’t lie about its absence.”

“At the end of the quarter, I will commit resources I don’t control so I can win the sale, but I won’t promise my prospective customer anything I know cannot be delivered.”

“I won’t overcharge anyone, but I won’t sell at the lowest possible price, either.”

“I’ll look out for my client’s best interests but only if doing so doesn’t jeopardize my business.”

As author David Quammen writes in Wild Thoughts From Wild Places, “Not every crisp line represents a triumph of ethical clarity.” An individual’s ethical interpretations are rarely constant. Rather, they’re a combination of of a person’s current emotions, situation, values, experience, logic and personality. What makes a practice ethical or not can be difficult to define.

This is why evaluating what’s ethical, what’s the right thing to do, or how to get the right thing done requires having conversations about dilemmas. Unfortunately, that idea is heretic in many sales cultures today, where perceiving things as black or white is often considered a badge of honor. “Never lie!” and “A half-truth is the same as a lie,” were among the opinions readers posted when I asked about resolving ethical dilemmas on LinkedIn sales forum. The problem is, judging actions as “right” and “wrong” discourages conversations about ethics in the first place. Most situations business development professionals encounter are not that clear.

Mitigating ethical risk is a vexing challenge for organizations – particularly those with global operations – because ethical standards must first be defined, documented, communicated and followed. In addition, companies must remember that their employees don’t enter the workplace a tabula rasa. Corporate expectations for ethical conduct will always be interpreted through an individual’s awareness of his or her own values.  Even then, we can only be protected when people have the motivation and resolve to act accordingly.

Companies should embrace ethical dilemmas by fostering a culture for open, candid discussion about them. That means  encouraging salespeople and marketing personnel to identify issues, confront them, and take action before they spiral out of control.

Malfeasance thrives in the eye of the perfect storm 1) high financial incentives for fraud, 2) lax audit controls and governance, and 3) non-integrated processes. We need a tocsin to sound in the boardroom and executive suite. Ethical lapses can destroy the best business plans, corporate and personal reputations, and brand integrity. There are too many opportunistic Travises in the world, and too much value at risk, to ignore the warning signs

How to Execute Better Strategy

In these tumultuous times, I lust for every bit of surety I can find. I search for rules, immutable truths, and superlatives. My motive is patently self-serving. Limiting my perspectives saves time. Nuance? Things to consider? Outliers and exceptions? Too squishy! Give me something concrete I can hold onto for dear life.

Here’s a superlative that has endured since I learned it in graduate school in 2005:

“All business failures result from using the wrong strategy, or executing right strategy the wrong way.”

If only I could find more like this one.

Over many years, I’ve experienced revenue craters fomented by bad decisions, misguided assumptions, and cruddy planning. I blame myself for some of them, but that’s between us. Regardless, this trusty superlative worms its way into every aftermath I’ve analyzed. Thank you, Professor Todd.

Organizational vitality depends on sound strategy. When planning and executing strategy, companies must grapple with uncertainty. There’s no avoiding it. Executives must recognize what they don’t know, and make assumptions to fill the gaps. That requires a remarkable blend of intelligence, prescience, confidence, and courage. No wonder strategy development scares the bleep out of people. “Our current engineering, supply chain operations, and product planning are based on our expectation that 25 years from now, there will be a robust global market for long-range jetliners. Please pass the Maalox.”

Strategy is defined as a plan of action or policy designed to achieve a major or overall aim. Companies should develop strategies whenever any crucial resource or result is constrained or difficult to achieve. For most companies, that includes securing capital, innovating new products or services, hiring human talent, or capturing revenue. Similarly, strategies are instrumental for achieving objectives such as high customer satisfaction, customer success, and market share percentage. Stuff that every company wants, and there simply isn’t enough to go around. None of these outcomes can be left to chance, assuming, of course, that your goal is longevity.

Without strategy, the central mission of an organization – finding and capitalizing on opportunities – would depend on happenstance. A company without a strategy is like an untethered ship at sea without power, steering, or means for navigation. Unable to harness the forces of wind, tide, or other locomotion to go anywhere, the vessel just bobs around. Many businesses operate the same way, abdicating their outcomes to vicissitude. Que será, será. This is the mantra under which many companies operate, though it’s never used as braggadocio.

But how much does strategy matter? The Evergreen Project, conducted between 1986 and 1996, asked that question, and the study revealed that companies with a strategy performed better than those without. That seems obvious, but the study offered another insight by revealing the magnitude of benefits over time:

“Financially successful companies all had a clearly defined and well-articulated strategy. No exceptions. These companies outperformed the losing companies by a 945% to 62% margin in total return to shareholders, had a 415% to 83% advantage in sales, a 358% to 97% advantage in assets, a 326% to 22% advantage in operating income and a 5.45% to -8.52% advantage in return on invested capital,” wrote Rich Horwath in an article, Does Strategy Matter? 

“While many companies have been able to survive without a clearly defined strategy in written form, a question looms: How much better could they be doing with a strategy? The 22% gain last year might seem impressive, unless of course it could have been a 65% gain with a solid strategy behind it.” Of course, Horwath can’t posit the answer, other than “A company or product or service can certainly survive without strategy, but it will never thrive.”

I agree. But even for companies that envision and execute strategy, there’s no such thing as certain survival. More Maalox.

When I taught an undergraduate class, Strategic Uses of IT, I used case studies, and asked my students questions to pique their strategic thinking. “What did [Company X] trade off when its executives decided to implement [name of project]” Many students were able to go well beyond connecting the dots. But some delivered a common response: “they traded off money.” While that’s technically correct, I was looking for deeper insight.

I followed the first question with, “when company X implemented this project, what didn’t – or couldn’t – they do as a direct consequence of that decision?” Examples: Providing customers high-touch luxury experiences trades off low-price leadership. Generating large profit margins sacrifices high inventory turnover. Offering extensive point-to-point airline routes precludes maintaining hub-and-spoke operations.

Over time, I learned that this strategy exercise can be vexing for students and seasoned executives alike. I also learned that when executives are vested in their strategy, the common response changes to “I don’t think we’re trading off anything.” Early-stage strategy ossification, happening before our eyes.

The trade-off concept is key to understanding strategy. When you can parse the answer into more than one outcome or consequence, you’re thinking strategically.

Before undertaking strategic planning, understand its characteristics:  

  • Strategies are based on assumptions – e.g. existence of a customer need, economic forecast, availability of key operational or technological capability, continuation of a trend or trends
  • Every strategy involves making trade-offs – “instead of pursuing [X], we will pursue [Y]”
  • Strategies create potential weaknesses –Effective strategies provide strength, but choices not taken present future vulnerabilities. It’s important to recognize what they are.
  • Strategies contain inherent risks and opportunities – By definition, the purpose of strategy is to capitalize on opportunities, and achieving them carries inherent risks.
  • Strategic execution requires committing and consuming resources – including time, money, and/or physical and mental energy

 

While understanding the characteristics of strategy is an important first step for success, I’ve discovered through practice that effective strategies tend to . . .

  • identify and address consequential matters. Start by asking the right questions. One client told me that they wanted to direct their strategy toward “providing every user in the agency a suite of desktop applications software.” That vision didn’t overcome the “so what?” test. I recommended the organization ask a different question about the results they wanted, and focus effort on a more meaningful outcome.
  • use sound assumptions. A frequent trap. Many strategies are based on outsized or unrealistic estimates, or tenuous predictions.
  • be clear and unambiguous. An example of one that’s not: Customer Obsession is an Employee Engagement Strategy, Too.
  • be difficult to replicate. FedEx, Amazon, Zappos. These companies have been endlessly analyzed, and their strategies are well-known to competitors. But they are also complex, involving the entire company for execution, not just a department or two.
  • be grounded in what’s possible. The Fyre Festival was logistically doomed from the start. Any bets that SpaceX will successfully complete a Mars mission by 2022?
  • minimize potential conflicts of interest. This one just came across my desk: A company developed a strategy that rewards Sales for capturing revenue, but penalizes Operations for failing to meet customer demand. I forecast intense infighting until the strategy is scrapped.

Ethics and strategy – it’s complicated, but I’d be remiss if I didn’t address it. For society, business strategies can produce outcomes that are beneficial. The credo for Conscious Capitalism provides both inspiration and guidance:

“We believe that business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence, and it is heroic because it lifts people out of poverty and creates prosperity.”

Contrast that lofty ideal with Theranos, a once high-flying startup which used strategy for nefarious purposes. Stakeholders were harmed. People likely died as a direct result of the company’s activities. For a time, the company’s strategy was considered effective, but now Theranos is defunct, leaving destruction and pain in its wake. Never assume an effective strategy is also kind and benevolent.

Ethics problems start when strategies are revenue- and profit-focused, to the exclusion of all other outcomes. Every year, I call out a new list of offenders in the Sales Ethics Hall of Shame award – a showcase for executives who believe the revenue-profit ends justify the means to achieve them.

Ethical strategies don’t occur by prescribing rules or steps, but by asking questions:

  1. Is the premise of the strategy good? This is a central question behind the ethics and efficacy of for-profit prisons. Does a business model that that depends on the incarceration of people for revenue and profit help society as much as it rewards the owners and investors of the company?
  2. Are the intentions of the strategy honest? Strategies that depend on factual obfuscation and deceit are not ethical.
  3. Does the strategy protect stakeholder interests? Ethical strategies include mechanisms for ensuring bad ethics and dishonesty don’t metastasize and harm employees, vendors, customers, and investors.
  4. Does the strategy reward – or penalize – employees who exercise sound moral judgment? Every company inducted into the Sales Ethics Hall of Shame has failed this question.

If we’ve learned anything from the Wells Fargo and VW scandals, protecting companies from calamitous risks requires answering these questions not just in the C-Suite, but by corporate boards. Especially by corporate boards.

Strategies are a progression, a continual work-in-progress. On November 8th, 2018, The Wall Street Journal reported these artifacts:

  • “Ford is getting into the electric scooter business.”
  • “Vice Media plans to shrink its workforce by as much as 15%.”
  • “Google is gearing up for an expansion of its New York City real estate that could add space for more than 12,000 new workers.”

Each, representative that the companies have set their sights on goals necessary for survival or growth. And these objectives will evolve into new ones. With strategy, there is no “final triumph.” There are also no superlatives, rules, or immutable truths to ascribe. Is Vice Media’s plan to shrink its workforce the best strategy? It’s impossible to say. In the strategic analysis, all we can do is judge is whether it was effective at achieving the intended goal – and move on.

Sales Lesson #1: Don’t “Get” Your Customers to Do Anything!

Every so often, an article with a title like How to Get Any Customer to Take Action Immediately, burbles into my newsfeed. There are infinite variants. No matter what you want your customers and prospects to do, you can count on finding a putative method for making it happen. But for all the how-to’s devoted to getting customers to do things, it’s easy to forget that the goal, of course, is helping them succeed, and not twisting their arms – figuratively or otherwise.

If you ask top producing sales reps – those who truly serve customers – how they get their customers to buy, they’d probably be confused by the question. Instead, they’d reveal that they don’t get their customers to do anything. What produces their excellent results is their ability to guide their customers, and ultimately help them achieve good outcomes. Guiding versus Getting: these are fundamentally different approaches, with little in common. Guiding assumes prospects can be trusted, Getting assumes they cannot. Guiding sees prospects as partners, Getting sees them as objects. Guiding views prospects as capable decision makers, Getting views them as inept. Guiding relies on inquiry and collaboration, Getting relies on telling and insistence. In countless interviews I’ve held with successful sales professionals, I’ve learned they embrace Guiding in every customer interaction, and eschew Getting.

“How to get your prospect to [fill in the blank]!” What regularly emerges are manipulative high-pressure sales tactics that break customer rapport and erode trust. Instead of improving sales outcomes and buying experiences, the resulting behaviors and activities undermine them.

The top producers I’ve worked with have figured out a better way, and honed their skills accordingly. They begin with a natural curiosity, and connect it to a sincere desire to understand customer problems, limitations, issues, concerns, performance gaps, and strategic challenges. They uncover the intensity of motivation to change the situation, and learn the mechanisms their customers have developed for investing in solutions. And if customers lack the mechanisms, top producers guide them to create a path forward. From there, they harness the power of the customer’s will to change. The energy might be low, or altogether absent, which is why reps, often goaded by their managers, turn to Getting. My question to them: how’s that working for you? . . .

The best salespeople know that attempting to force customer action can become a distraction. It can also backfire. As one rep, Denise, explained it to me, “I don’t push the monthly specials the way management wants me to. They don’t work, and it’s not the way my customers buy . . . When I talk on the phone, there’s no sales urgency to my voice.” The year I interviewed her, she was her company’s top producer out of over 50 reps. Though her immediate boss wasn’t clear about the reasons for her success, her statement provides much of the answer: Denise guides her customers. She doesn’t get them to do anything.

Is Maximizing Shareholder Value Poisonous?

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 truthEven 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.

Wells Fargo Disinfects Its Sales Culture. Will Other Companies Follow?

I’ve never taught corporate strategy to second graders, but I sometimes think about how to approach the challenge. I’d begin by representing a company as hodgepodge of contraptions. Maybe, a school bus with feathered wings on top, a boat anchor dragging behind, and wheels of various sizes and materials randomly positioned underneath. “Pretend this is a company. How far do you think it could go? Would it sink or crash? Can it reach Profit Land before everyone jumps off?”

Or, maybe I’d just give the kids a dark, real-world example. Say, Wells Fargo, circa 2016. “The top executives are bullies who believe rules don’t apply to them. They scare the sales staff on purpose, and they tell them to lie to customers – all so the stock price will go up! That way, the executives can get paid lots and lots and LOTS of money!”

I envision an eruption of giggles and laughter. “That’s dumb! And it would NEVER be sustainable, silly!” Every corporate board needs at least one seven-year-old to call out the obvious.

Wells Fargo wants to change that narrative. In the wake of their recent scandal, the company replaced its senior management, and announced its intention to disinfect its infamous sales culture. That effort began in January through a new compensation plan for employees, and success measurements that reflect customer value delivered. Wells Fargo employees will say goodbye to “stretch” goals, low base pay, individual bonuses for entry-level sales employees, and onerous demands to open new customer accounts. They will say hello to higher base salaries, less variable pay, and team incentives. Yes, you read that correctly: team incentives. No more divide and conquer as a daily tactic for employee intimidation. And, probably less employee intimidation, too.

You won’t find “salesy” behavior here! Under the new management regime, Wells Fargo will monitor growth in the number of customers who rely on the bank as their primary financial institution. And branches will be measured on customer retention. Meet the new Wells Fargo, where consumer bankers, loan officers, and financial planners cooperate, collaborate, and support one another. Go team, go!

Wells Fargo’s new plan “will focus on customer service, customer usage and growth in primary balances,” Emily Glazer wrote in a Wall Street Journal article, Wells Fargo to Roll Out New Compensation Plan to Replace Sales Goals . These new objectives are light years from what they were less than one year ago, when the company’s goals included having every customer hold eight accounts, even if it meant browbeating the sales team to open accounts surreptitiously. And by browbeating, I mean threatening to ruin careers for noncompliance, then conspicuously enforcing the threat.

Such reforms are instrumental for building an ethical culture, improving customer experiences, and keeping customers happier, longer. By forgoing an aggressive sales environment with harsh punitive measures, Wells Fargo can also close the chasms between their written Corporate Vision and Values, what their employees do in the field, and how management recognizes and rewards their efforts. Can is the operative word. It won’t happen automatically, and it won’t occur overnight, but I predict for Wells Fargo, the outcome will be greater revenue, profits, and higher investor returns over more quarters. And for the same reasons, Wells Fargo’s customers will feel good walking into a branch and talking to a banker who now is far more likely to have benign intentions. That’s huge, and it doesn’t happen on its own.

These changes seem so pragmatic and sensible that I’m surprised they are not more widely adopted. But in the sales world, they compare to a diamond in the rough. Similar initiatives are rare, so whenever you discover one, savor it by examining it closely. One of my clients, a global cloud software developer, deviated from a widespread industry practice that provides reps commissions on seats sold. Instead, my client’s plan compensates reps not for seats sold, but for usage. They go even further. Their plan penalizes reps for dormant seats. The reason? Nothing puts a vendor in a financial buyer’s crosshairs more than writing checks for stuff that nobody uses. “I see we’re paying Squishysoft $400,000 every month for supply chain software that only 10 of our employees log into daily. They told us we’d save money by going to the cloud!” No vendor wants that conversation taking place in the buyer’s offices. My client was shrewd in recognizing the risk lurking in an attractive revenue stream, and they mitigated it through their pay plan.

Some might dismiss Wells Fargo’s new sales strategy as an obvious choice to restore customer and employee trust. No doubt that’s a motivator. But I think their kinder, customer-centered selling approach is an astute competitive maneuver, and long overdue in revenue strategy.

Why does Wells Fargo today appear at the vanguard for a sales model that should be commonplace? I don’t know. But I have a theory that specific forces impede companies from jettisoning practices that consistently antagonize and alienate customers and employees:

1. Demands on CXO’s to grow shareholder value. For the investment community, stock price and potential revenue growth are connected. Unfortunately, many senior executives operate under the misguided notion that growing shareholder value is not only their primary responsibility, but an obligation. In turn, their demands for short-term revenue growth seeps into selling strategy, undermining the delivery of longer, more sustainable value to customers.

2. Sales managers today are unable to adapt to evolving needs, because they began their careers in “revenue-driven” organizations. Customer loyalty, customer retention, and user satisfaction have emerged as value drivers for vendors. But sales managers are slow to change their expectations, along with their coaching and mentoring.

3. Many outside the sales profession stereotype salespeople as “thriving on pressure.” As we learned from Wells Fargo, they can also be sickened by it. Accountants, lawyers, and logisticians don’t thrive on pressure any more than salespeople do. But for salespeople, the stereotype leads to dysfunctional pay policies and incentives.

4. Hiring managers still believe money-motivation as integral to selling success, and strategies are built around that assumption. Further, firms that provide psychographic testing for sales candidates perpetuate obsolete traits deemed essential to a “sales personality.” But these were formulated at a time when “individual contributor” was a synonym for “salesperson.” That doesn’t cut it today. Yesterday’s competencies won’t fill tomorrow’s sales needs.

5. In many organizations, sales operates as a stand-alone entity, with procedures, goals, targets, and objectives that are disconnected from other parts of the organization. By contrast, Wells Fargo has developed a model built on collaboration and goal congruity between departments.

Wells Fargo’s new sales culture is a risky move, but if successful, it will be a powerful competitive differentiator. Much can go wrong. Will a company with a heritage of individual revenue production make a successful conversion to competing as a team? Will the new customer retention measurement backfire? For example, what will happen when a customer wants to close an account because he’s combining assets with his fiancé’s at another institution? Will he encounter a gauntlet of red and gold-clad bankers hellbent on preventing that from happening? By now, Wells Fargo’s management knows about Comcast’s retention debacle. Will they commit the same error? The answer depends on how tightly Wells Fargo adheres to its Vision and Values, the incentives it provides to its sales force for meeting goals, and the penalties it metes out for failing.

I applaud Wells Fargo’s board for addressing a daunting selling challenge, and for setting a worthwhile example that others should follow. For many, the concept of paying team bonuses and rewarding reps for outcomes tangential to direct revenue production might seem as heretic as NASCAR including fuel economy and safe driving as additional criteria for who wins a race. But promoting positive customer outcomes and fostering ethical practices requires companies to change the strategies underpinning their business development activities. And that means reforming sales pay and incentives.

If you need advice starting out, ask a second grader: “When a person buys something they should feel good. And they should always be happy that they did, because that will mean the person did a good job deciding, and the person who sold them something did a good job, too!”

Thanks, kid. You have a great future in business development. I know you’ll go far.

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