An Ethical Dilemma

Contrary to the stereotypical view, salespeople are not predisposed to face any fewer, or any more, ethical dilemmas than anyone else. But that doesn’t mean that sales organizations can’t become ethical – and legal – nightmares. Just ask Lake Forest, Illinois-based TAP Pharmaceutical Products Inc.

According to a story in Business Week, (June 24, 2002 – “A Whistle-Blower Rocks an Industry” by Charles Haddad), in 1995, when TAP hired Douglas Durand as vice president of sales, the company owned the best-selling prostate cancer drug, Lupron, which was generating $800 million in annual revenues. The only problem, as Durand quickly discovered, was that TAP was building and maintaining Lupron’s market share illegally.

Durand found that TAP’s sales force was busy sowing a minefield of explosive ethical and legal problems. With management’s knowledge and approval, the company’s salespeople were offering doctors a 2 percent kickback, in the guise of an administrative fee, to prescribe Lupron. They were also distributing undocumented samples of the drug and encouraging doctors to sell them – in addition to offering every one of the nation’s urologists a game show’s wealth of televisions, vacations and high-tech gadgets in return for treating their patients with Lupron.

The new sales exec tried to clean up the mess, but found himself ignored and shut out in TAP’s numbers-driven business culture. Frustrated, Durand began documenting the abuses and, within a year, brought suit under the federal whistle-blower law. In October 2001, TAP paid an $875 million fine to the government. Durand, who had left the company in early 1996, received $77 million for his evidence and testimony in the successful prosecution.

Admittedly, most sales organizations are not dealing with problems as extreme as TAP’s – if you are, go straight to legal counsel. But every day, salespeople and their managers are faced with a variety of ethical dilemmas that have the potential to negatively impact their lives and their companies. The key question: How do you equip your sales force to deal with ethical dilemmas?

Ethics Flow Downhill

A formal code of sales ethics is probably not the right place to start. “You can’t just slap an ethics code on a sales force like a barnacle on the side of whale,” says Marjorie Kelly, publisher of Business Ethics and author of The Divine Right of Capital: Dethroning the Corporate Aristocracy (Berrett-Koehler Pub., 2001).

Instead, sales ethics should be an extension of the organization’s ethics, which in turn are an extension of organizational values. At privately held Seventh Generation Inc., the nation’s leading brand of nontoxic, environmentally safe household products, there is no code dedicated to sales ethics. “We don’t look at sales ethics differently than we look at ethics in general,” explains Jeffrey Hollender, president of the Burlington, Vermont-based company. “Sales ethics emanate from organizational values. And there is a lot of work that we do in developing organizational values that obviously then impacts everything we do. Quite honestly, we have never found it necessary to define sales ethics any differently than we look at our general ethics.”

San Francisco, California-based Charles Schwab & Company Inc., a company noted for having avoided the ethical meltdown among the stock brokerages, is another firm that has not found the need for a formal statement of sales ethics. “It’s a values-driven company,” says Parke Boneysteele, senior vice president of sales and service effectiveness. “So, our values are to be fair, empathetic and responsive in serving clients; to respect and reinforce fellow employees and respect the value of teamwork; to strive relentlessly to innovate in how we provide value; and then, to always earn and be worthy of our clients’ trust. And that is what we are all about.”

The fact that sales ethics do not require a dedicated code is not, however, to be construed as a free pass to ignore them. At both Schwab and Seventh Generation, sales ethics are always on the radar. Even when strong organizational values are in place, the application of broad-based ethics to the sales process remains a critical issue.

Creating Ethical Specificity

“Salespeople need special training that says, ‘Here are some boundaries,’” says Jeff Salters, programs director of Washington, D.C.-based Ethics Resource Center – “some things that you can and cannot do that will allow you to adhere to the code of ethics and still be an effective salesperson.”

Salespeople need dedicated attention when it comes to ethics, not because they are less ethical than other employees, but because they face greater ethical exposures than most other employees. Patrick Murphy, professor at Notre Dame’s Mendoza College of Business and director of the Institute for Ethical Business Worldwide, says, “One thing that makes selling ethics a bit different than other organizational ethics is that most salespeople are on the road. So, when they get hit with an ethical dilemma, often they have to deal with it on their own as opposed to in a meeting or checking with a boss down the hall. Organizations need to be sensitive to the fact that salespeople are often on their own and need to have a support structure.”

The ethical support you create for your sales force should address two categories of ethical issues. There are issues that are generic to the sales discipline – that arise from the act of selling itself, such as overpromising – and those that are specific to your company and industry, such as the FDA’s regulations for pharmaceuticals.

First and foremost, of course, are the legal issues, which Murphy identifies in the forthcoming textbook Ethical Marketing (Prentice Hall, August 2004), such as federal regulations and applicable state and local regulations, including the Uniform Commercial Code, cooling-off laws, and Green River ordinances. Aside from notable exceptions such as the Lupron debacle, most salespeople don’t stray into this territory and most companies are active about ensuring that they never do.

Less well covered, however, is ethics support that addresses what Murphy calls, “the gray areas of selling.” These represent issues that, while not necessarily illegal, can cause great damage to sales careers and companies. They are:

1. The use of company assets, including abuses of equipment such as cars and computers, and expense reports;

2. Customer relationships, which includes such abuses as overstocking, overselling, overpromising, overtelling, and underinforming;

3. Competitor relationships, including disparagement, tampering and spying;

4. Relationships with peers and supervisors, including such abuses as territory poaching and false reporting;

5. Conflicts of interest, including improper disclosure;

6. Gifts and entertainment in excess of corporate and customer policies; and

7. Bribery and facilitation, specifically in countries in which they are accepted practices and not illegal.

“If companies have a formal policy regarding gray areas, then the salesperson can tell the customer that they are not allowed to offer tickets to more than one game once a season or once a month or things of that nature,” says Murphy. “That is where I think specificity, if you will, helps the salespeople when they get put in a tough spot.”

Translating Ethics into Reality

Ensuring the linkage between sales ethics and organizational values and creating policies that specify behavior is all well and good, but doesn’t guarantee ethical compliance. After all, Enron had a value statement and a 65-page Code of Ethics, a copy of which now resides in the Smithsonian. So, how do you ensure that your sales force lives up to the highest ethical standards?

First, build ethics into your hiring process. “Alignment from a values perspective is about 50 percent of the equation on a new hire,” says Hollender of Seventh Generation’s employment process. “We would not want to hire someone who is 100 percent focused on the result and 0 percent focused on the process. What you have to find is people who are very committed to the result, but understand that the process through which they achieve that result is of equal importance. It’s a very different mind-set.”

“Forward-thinking companies are even going as far as doing initial testing to check for ethical values. They test salespeople prior to hire,” says Anthony Zuanich, a veteran sales manager who worked at IBM and ADP before becoming senior vice president of sales at the HR Outsourcing division of Aon Consulting Worldwide, an arm of Chicago, Illinois-based AON Corp.

Second, provide new hires with written policies and ask them to sign them to indicate both comprehension and compliance. “Salespeople should get new-hire packets that document ethics issues and policies, including the ethical dilemmas that are unique to that company,” explains Zuanich. “New salespeople should be educated and sign off that they agree to the policies and will not harm the company’s reputation as well as their own by not following these ethical guidelines.”

Third, build ethics and values into the training curriculum. “Then its about reinforcement,” says Schwab’s Boneysteele. “We have it in our new-hire training, in our manager training, in our sales training, we always have conversations and discussions about values…we talk about it as vision and values as opposed to ethics.”

Schwab’s training is designed to help employees distinguish between appropriate and inappropriate behavior. “We have a segment where we ask people to come up with things that would be contra to the values and discuss them as part of our new-hire training,” says Boneysteele.

The reinforcement of ethics extends into the training provided by sales managers. “As we ask for results, as every good sales manager should,” explains Tony Zuanich, “we need to be aware of where there are areas where the salesperson could cross the line. You have to document those areas as a manager and point them out to the salespeople.”

Build Ethics into Structure and Process

There are two adages that companies that are serious about creating a highly ethical sales forces would do well to keep in mind. “You get what you pay for” and “What gets measured, gets done.”

“Sales ethics need to be designed into the process,” says Marjorie Kelly. “This arises out of a recognition that incentive shapes behavior much more than codes. So companies need to look at how they have structured incentives and what kind of behavior that drives. Is your commission structure sending an opposite message from your ethics code?”

Seventh Generation, for instance, created an employee review system that uses 360-degree appraisals to evaluate behavior relative to the corporate values (community, growth, leadership, responsibility, service and trust) as well as performance. “Half of that evaluation is about their traditional business responsibilities, and half of it is about their behavior relative to the values of the company,” says Hollender. “Salespeople are evaluated not just on meeting sales objectives and managing expenses, but also in terms of the progress they make in growing from a personal perspective in ways that are in alignment with our values. And they cannot earn 100 percent of their bonus, even if they necessarily double the sales in their budget, if they aren’t also making progress in this personal-development area, as well as some kind of community involvement and community service.”

At Schwab, some of the gray areas of selling, such as conflicts of interest, have been effectively eliminated by the structure of the company and its compensation programs. “We’ve kept investment banking conflicts out of our business model,” says Boneysteele. “Our customer-facing people are not compensated on whether or not a client picks a particular stock. We don’t pay our front-line reps based on revenue that is generated by trading activity. So there are an awful lot of what might be industry gray zones that we just don’t get into.”

Here are a few more ideas for building sales ethics into the structure and process of sales:

1. Deliver ethics support to the field. “With technology, in particular cell phones and even instantaneous computer communication, your salespeople could literally step out of a meeting and call the office and get support and information,” says Notre Dame’s Murphy. “I think that companies need to use technology for their ethical benefit and encourage their salespeople to do the same.

2. Create a process for considering ethical issues. “Is there a hotline that I can call if I see something that is unethical or illegal happening?” asks ethics consultant Frank Bucaro. “Is there a number that I can call anonymously and report it?”

3. Use ethics violations as teaching tools. “In your weekly sales meeting,” says Tony Zuanich, “take those dilemmas and use them to educate people. Explain what happened and discuss it.”

4. Make ethics and values part of your sales presentation. “Even though it often takes time directly away from the sales presentation,” says Seventh Generation’s Hollender, “we try to make the presentation of our values and operating principles part of what is presented to our customers, so that they understand our commitment, understand what to expect from us.”

5. Make your policies public. Schwab maintains a “business practices disclosure” section on its public Website that explains exactly how representatives in 10 sales-related functions are compensated.

Sales Ethics Compliance

Ultimately, the ethical level of a sales force is dependent on management’s willingness to comply. If compliance and enforcement are ignored and/or applied inconsistently, salespeople will quickly learn that ethical behavior is not a priority.

The first issue in enforcement is consistency in compliance. “Very often organizations put policies and procedures into place that they’d like all of their employees to adhere to. However, many of them make exceptions when it comes to the sales force because the sales force is typically what helps to drive their profits,” says Jeff Salters of the Ethics Resource Center. “The way we approach ethics here is, we like to talk about a consistency of message, a congruency of policies and procedures. So you can’t state these principles and say, ‘We want to adhere to the law, we want to adhere to our code,’ and then make exceptions. Actual behavior trumps your stated policy.”

Salters points to the pharmaceutical industry as an example: “Doctors might prescribe drugs that were approved for one purpose for other purposes. There are some firms that would discourage a doctor from doing that, even though it might limit the amount of sales they could make of that drug. There are regulations that say you should not sell a drug other than for its intended or approved purpose. When those lines become blurred, some firms try to adhere to a higher standard; some other firms wouldn’t care.”

The second issue is consistency in enforcement. “I think that in the selling function there is always that inclination or potential proclivity of the people in the higher sales management or up the marketing ladder to look the other way and not ask too many questions about how some salespeople get the sales they do,” says Patrick Murphy. “And I think that in this day and age that really comes back to haunt people.”

The only ethical answer is what Tony Zuanich calls a “no-excuse response.” He says, “The severity of the ethics violation depends on what the issue was, but I think you always need to send a clear message with violators. That sends the message to the rest of the sales force that that kind of behavior will not be tolerated. And in the end, that kind of management will help the results of companies.

“I have and I will terminate employment,” says Zuanich. “I will give you a very real one – a difficult case from a past employer. We had a person who was a top producer who gained a reputation for just having an incredible work ethic. We’re talking about a salesperson who had a big ego. That person felt like a top gun – indispensable to the company – and the rules didn’t necessarily apply. There was a policy about poaching in other salespeople’s territories. The person was caught once and given a warning. It happened again and we sent a message. It’s a tough thing to do for a results-oriented company, but we had to terminate our very top producer.”