Alf's Articles

Ethics and Profit: Oil and Water?

by Alf Nucifora

Even the most committed acolytes of Adam Smith and Ayn Rand would, by now, admit to a growing queasiness about the state of American business as it intersects with ethical behavior. The litany of bad behavior is oppressive to the point of water torture. Wall Street brokerage houses and investment banks are "outed" for their malfeasance. Martha Stewart joins the ranks of the accused. Headlines announcing income restatements abound. Collegiate sport is riddled with overt payoffs and questionable interpretation of the rules. The venerable New York Times tumbles from its lofty perch. And, political operatives revel in the effectiveness of their misinformation and deceit. What's an average business person like you and me to do?

Ethics are an Issue

According to research recently conducted by the Southern Institute for Business and Professional Ethics (www.southerninstitute.org), "Short-term pressures, especially financial pressures, lead businesses to cut corners or make ethical compromises?" In fact, CEOs believe that compromises are more likely to occur during economic downturns.

It gets worse. As reported in the Institute's Survey of Georgia CEOs on Business Ethics, "only about 10 percent of companies have a board-level ethics committee, and less than one-third have designated an executive as ethics officer. A greater surprise was the finding that more than one-fourth of respondents have no stated ethics policy or code of conduct." The Survey further reveals that although smaller companies were less likely to have a code of ethics, a significant number of firms in the $50-250 million income range also lack an ethics code. What's more, fully one-half of public companies reported that they have no code of ethics and no plans to implement one.

Where's the Angst?

The Top Ten Ethical Issues that worry business management according to the survey are as follows:

1. Stealing/theft
2. Deceptive sales practices
3. Drug/alcohol abuse
4. Conflicts of interest
5. Dishonesty with customers
6. Lying on reports/falsifying records
7. Unfair treatment of employees/customers
8. Discrimination
9. Bribes and kickbacks
10. Sexual harassment

It's instructive to note that four of the ten issues are directly related to the sales and marketing functions. In the case of deceptive sales practices, the issue involves drawing the line between good salesmanship and deception. The widely held belief is that it's permissible for the sales process to involve some form of deception. As proof, consider the simulation program, Car Town USA, currently taught in fifteen states, which involves middle-school students in role-playing the buying and selling of used cars. After five years of testing, the outcomes are by now highly predictable. The nation's students (and future marketers) believe that guile and deception in the sales process are both acceptable and expected. Young minds have now been hardwired to embrace the notion of "buyer beware". "Get as much as you can," is considered as normative as "respect the flag." Irony prevails, however. The fact is, for the free enterprise system to survive and flourish, there must be an acceptance of and dependence upon honest and ethical behavior in the transaction. Without it, ebay dies and retailers wither on the vine.

A Catechism of Good Behavior

The good news is that ultimately the system will be self-correcting. As long as the Harvey Pitts are replaced by the Elliott Spitzers, we can expect consumer outrage, leading to public protests, funneling to stricter enforcement, resulting in fuller disclosure. Understand, of course, that disclosure involves more than trust and honesty on the balance sheet. Respected giants in the airline, pharmaceutical, healthcare, soft drink and fast food industries, for example, will be forced to acknowledge the deficiencies of their current marketing postures. Will it be enough for the hamburger chain to post its fat content in 10 point type on the wall when the nation's youth is heading to an early demise as a result of obesity and diabetes caused in a significant way by the heavy consumption of fast food? And, with employees less likely to believe in their employer (thank you Enron), the onus will now be on the employer to do more to enhance disclosure and transparency with employees as well as customers.

Ethical practice must occupy a significant role in sales and marketing. Building brands is all about enhancing relationships with the customer and building loyalty based on reputation and trust. The process is long-term. Brand loyalty can only be earned over the distance and can't be bought solely by advertising and PR. For the savvy marketer, the following behavior makes sense:

Just the Facts: First, be willing to present the product or the brand in an objective way. The FTC notes that truth in advertising involves the absence of ambiguity, concealed facts and exaggeration. Cellular phone companies, auto retailers and airlines need to take heed and seek a more honest match between ad headline and the mileage of small print at the base of the ad.

Encourage Listening: Always provide an opportunity for redress for the customer who was disappointed with the brand experience. Offer easy access to someone in authority who will heed the complaint and rectify it immediately. I like the sign posted on the cash register at my local Johnny Rockets that lists a 24/7 complaint line to the manager in instances where the staff won't listen or respond.

Keep Good Company: Form marketing partnerships with companies who possess a superior reputation. Ultimately the customer knows you by the company you keep. That may mean that the partnership is weighted in the other party's favor. That's the price you pay to maintain good friendships.

More Steak, Less Sizzle: Even if the dot.com generation had survived, there was always the gnawing feeling that it was much flash and little substance. More so today, the consumer is seeking value from the transaction. This means brand performance, tangible benefit, superior customer service and added commitment to the customer. Flash is fine, but only as an adjunct to substance.

Set the Culture: Your employees and particularly new hires must know where the company stands on the ethics food chain. It involves constant management reinforcement and a willingness to take action against those who break the rules.