Building Value through Sales Ethics

Common Unethical Sales Practices

Unethical sales practices are common in sales organizations across the world. In a survey of 948 sales professionals in the United States, Mexico and Canada, Li and Murphy (2012) report around 70% of respondents (Canada, 73.8%; USA, 73.2%; Mexico, 57.2%) engaging in getting customers to make forward purchases, a common unethical sales behaviour. Li and Murphy also report high willingness to shirk from organizational responsibilities among these professionals (Canada, 74.6%; USA, 66%; Mexico; 28.6%). Cheng et al. (2013) report 1,256 ethical violations of 957 salespeople working for a life insurance company in Taiwan. They report the most common ethical violations were misleading and misinforming customers about products to secure sales (39%) and prioritizing conflicts of interest over employee duties (27%). Turyakira (2018) focused on ethical climates of small and medium-sized enterprises (SMEs) in developing countries and demonstrated how unethical sales practices persist. Turyakira reports high levels of fraud, bribery and corruption in international SMEs, often to the level where unethical sales practices are not only commonplace, but the norm.

The propensity to act unethically in sales exists even among those outside the sales profession. In their experimental study of undergraduate students, Bolander et al. (2015) find a strong positive correlation between a high willingness to breach company ethics to secure future sales success and repeated employee failure to perform. Why do these unethical sales practices persist despite efforts of companies and business schools to instil ethics into their employees and students? To understand the perpetuation of unethical behaviour, we dig deeper into the structure of sales organizations.

How the Structure of Sales Promotes Ethical Sell-out

While an individual’s background, demographic and work experience all play a role in the development of individual ethics (Cheng et al., 2013; Klopotan et al., 2020; Li & Murphy, 2012), organizational climate and structure can greatly influence the ethical motives of employees (Sulistiawan et al., 2020). When over 5,000 Wells Fargo employees opened two million falsified accounts, the public blamed management for creating an unethical environment (DiPietro, 2016). This kind of unethical environment is commonly created through the overemphasis of quotas and performance (Bellizzi, 2008; Bolander et al., 2015; Cheng et al., 2013; Li & Murphy, 2012), the inadvertent condoning of unethical behaviour (Cheng & Ho, 2019; Valentine et al., 2018) and problematic relationships between employees and management (Bryant & Merritt, 2019), with many of these principles overlapping.

Sales generally require emphasis on goals and plans to reach said goals. However, when these goals are limited to performance instead of more holistic organizational or integrated goals, salespeople experience increased pressure to act unethically to meet performance-based goals. Bellizzi (2008) found that sales managers were more inclined to turn a blind eye to the ethical violations of their top sellers compared to their worst sellers. This sends the covert message that performance takes priority over ethics and the inadvertent message that breaches of ethical conduct are permissible so long as the company benefits. Cheng and Ho (2019) confirm Belizzi’s findings in their study of over 1,200 Taiwanese salespeople. Cheng and Ho find that neglecting to challenge misconduct significantly affects both the employee’s number of repeated ethical violations and the repeated violations of their organizational peers.

Unethical behaviours can also persist through well-intentioned practices of sales organizations. Bryant and Merritt (2019) report that the more attached employees are to their organization, the more willing they are to act unethically for the benefit of their employer. Overemphasis on company success can unintentionally diminish commitment to company ethics. This phenomenon leads to unethical prosocial behaviours (Umphress et al., 2010): actions taken to profit the company at the expense of ethical conduct (Merkle et al., 2020).

The Costs of Unethical Sales

Unethical sales can bring catastrophic costs to the company, executives and employees. When caught, dishonest companies can lose money far greater than the initial value of the fraud itself. These losses are due to unfavourable media attention, drops in stock prices, losses in market share, regulatory fines and a plethora of incoming lawsuits (Association of Certified Fraud Examiners, 2016). The median cost of a single case of occupational fraud is $150,000, and over 20% of occupational fraud cases result in a loss of at least one million dollars (Association of Certified Fraud Examiners, 2016).

Unfortunately, sometimes executives underestimate the risks. Consider, for example, the cost to General Motors from selling cars known to have faulty ignition switches. In 2016, GM received a lot of negative publicity for its faulty ignition switches. Emails and other documents showed that GM leaders knew that the switches were a safety risk but chose to continue selling cars with the defective part. This problem could have been fixed for around $1 per car, preventing injuries and deaths. Instead, by letting the problem continue over several years, the company had over $4.1 billion in fines, settlements and recalls (Isidore, 2015; Klayman & Beech, 2014; Levine-Weinberg, 2016; Lienert & Thompson, 2014).

Executives themselves may also face huge reputational and personal losses if their firms are caught in sales scandals. In the Wells Fargo falsified account incident of 2016 (DiPietro, 2016), CEO John Stumpf was pushed to resign from the company and to relinquish his seats on public boards (Beckerman, 2016). Reputational costs of unethical behaviour also affect organizations. In a review of customer comments on the unethical actions of salespeople in the retail banking industry, Tosun (2020) reports that positive customer perception of an organization decreases in response to unethical employee behaviour. This can decrease customer loyalty, customer retention and overall organizational reputation (Tosun, 2020).

While the financial costs of unethical behaviour are indeed high, so too are the frequently less considered human capital costs of unethical sales. Employees suffer when their internal values conflict with pressure from their company to meet sales quotas. Over the last 20 years, research shows that job satisfaction decreases and turnover increases when employees battle stress related to persistent ethical dilemmas (Bischoff et al., 1999; DeTienne et al., 2012).

Potential employees are less interested in working for a firm with a reputation for poor ethics (McMurrian & Matulich, 2016; Strobel et al., 2010). In short, unscrupulous behaviour in a sales department may push out or keep away the very talent the organization needs to survive. Clearly, every company’s leaders need to use a broad perspective of value creation for their customers in order to prevent sales fraud.

Just as unethical sales destroy value, ethical sales create value. Research shows that among the benefits of higher ethical standards, companies will experience increased customer satisfaction, loyalty and referrals (Agle et al., 2016; Alessandri & Aleo, 2015, 2021; Bischoff et al., 1999; DeTienne et al., 2012). Such satisfaction leads to increased long-term profits as well. Other research suggests that adherence to ethics leads to greater employee commitment, improved financial performance and greater operational efficiencies (McMurrian & Matulich, 2016), as well as increased customer loyalty (Chen et al., 2020). The next section of this article draws on our qualitative and quantitative research and details how leaders and executives can create ethical sales cultures.

Promote, Protect and Measure Ethics

Performance matters. However, when managers emphasize sales performance at the expense of all other values, propensity for ethical complications rises. Jamie Lee Campbell and Anja Göritz (2013) showed how performance-dominated organizational cultures, with their ‘war’ rhetoric, can lead employees to rationalize corrupt behaviours; they feel they must bend the rules to win. With managers’ unrealistic goals threatening employees’ security, organizational norms begin to punish those who act in non-corrupt ways. The firing of Wells Fargo whistle-blowers exemplifies this cycle. Ironically, given the devastating consequences of scandal, a performance-only sales culture can undermine the future performance of the firm. An organization benefits when its communication and reward structures go hand in hand with its ethical values and sales performance goals.

We saw such a system emerge at Ceska Sporitelna, the largest bank in the Czech Republic. In 2008, CEO Gerhard Mittendorfer worried that the economic slowdown might drive his employees to inappropriate means. Mittendorfer commissioned an ethics expert to conduct an ethics audit, then set aside two days with Mittendorfer’s top management team and board of directors to develop an ethics infrastructure. The bank’s vulnerabilities were identified and specific company leaders were assigned to complete recommended tasks. Soon Ceska Sporitelna had named a corporate ethics officer, updated its code of ethics, added an anonymous system for reporting ethical violations, and circulated positive ethics stories in the company newsletter. These practices unearthed several areas of concern, which Mittendorfer then addressed.

Following a period of 18 months, a second ethics audit showed a marked increase in the strength of the bank’s ethical culture. Employees behaved more ethically when leaders were involved and there was a system in place to regularly follow-up on ethical concerns. Not only had the bank resolved many complaints, but also it had prevented potential ethical breakdowns from occurring that would have cost the company far more than the costs of developing the ethics infrastructure.

Strengthen Weak Spots

The Ceska Sporitelna case underscores another important point. Although ethical principles, such as honesty and fairness, should apply across job descriptions, the ethical dilemmas faced in an industrial or medical environment are different from the ethical dilemmas faced by a salesperson. That is why having a blanket code of ethics is not enough.

Leadership is important (Duncan, 2020). Leaders in each department can develop guidelines that specify how the company’s ethical principles are enacted day-to-day for their function of the business. Given the variability of sales situations, providing company-specific examples and case studies can help salespeople identify potentially hidden ethical conflicts (Rousselet et al., 2018). Sales managers can collect and share real-life, on-the-job stories of ethical behaviour by their teams.

Whenever violations of ethical standards emerge—through the auditing process or some other means—companies must respond consistently and appropriately. If employees see that the code of conduct is haphazardly enforced, they will be more likely to deviate. By establishing clear ethical guidelines and enforcing them, companies avoid an atmosphere where sales associates feel success requires bypassing ethical practices.

Sales-specific ethics guidelines also serve another purpose—they help employees see the ethical implications of everyday decisions. Research conducted by David Welsh and Lisa Ordóñez (2014) shows that when people are primed to think about a situation as involving ethics, they are less likely to engage in dishonest behaviour—even when they are not being monitored. Learning to view ambiguous situations in ethical terms may ‘inoculate’ employees against unethical behaviour.

Train Associates in Ethical Sales and Building Relationships

Increasingly, the sales profession demands specific technical and soft skills, not just people with a ‘gift’. By training associates to sell effectively—and ethically—companies improve not just sales quotas but also associates’ well-being.

Ethical selling is more than refraining from using lies, bribes or coercion. To sell ethically is to create fair and lasting value for all parties in the relationship. Part of ethics training, then, involves adjusting the associates’ interpretation of the sales task. Recent research shows how a relational approach can shape negotiators’ a priori expectations, the behaviour of both parties and post hoc interpretations of the interactions (DeTienne et al., 2019; Ingerson et al., 2015a, 2015b). In other words, salespeople who view their work in terms of establishing and maintaining relationships are more likely to behave ethically during the sale and to feel more positively about the outcomes.

A relational interpretation of selling will help associates resolve long-standing negative perceptions of the sales process. The traditional view of sales as a competition of interests—the company’s versus the customer’s—traps sales professionals in a conflict of identity and allegiance. By contrast, training through the relational lens helps employees analyse their company’s offering, fit the offering to the customer’s needs and estimate its total value, including tangible and intangible benefits (Mahajan, 2020).

A series of studies by Gary Weaver and Linda Treviño (1999) demonstrates that a values-based culture, where the focus is on shared organizational values, is significantly more effective in promoting ethical behaviour than simply a compliance culture. To build a values-based culture and to resolve any identity conflict, some companies involve their associates in conversations about personal and organizational values that seem to conflict (Alessandri & Aleo, 2021). These discussions also enhance employees’ commitment to behaving ethically.

Ethical organizations make a point in training to assure associates that it is okay to let customers go if the deal does not truly benefit them. The mantra ‘never lose a customer’ negatively impacts salespeople and their companies as well. In fact, sometimes companies do well to ‘fire’ customers who do not generate revenue (Flandez, 2009; Seawright et al., 2008) or who are abusive towards their own companies’ employees (Conzett, 2016). Ethical selling is about creating value for both sides.

While it is impractical to abandon performance goals, shifting the focus from entirely on sales numbers can keep unethical behaviour from becoming necessary in the eyes of employees. In 1999, DaVita, a for-profit healthcare firm involved in kidney care, was on the brink of bankruptcy. The newly appointed CEO, Kent Thiry, along with Javier Rodriquez and others, restructured DaVita and transformed its culture with an emphasis on providing excellent patient care. In interviews we conducted, employees raved about the changes in the company’s focus: they finally felt good about their jobs and enjoyed coming to work. They were far more motivated and experienced greater satisfaction in providing care to sick patients than in striving to create wealth for stockholders.

The employees were not the only ones who felt good about the changes. The company saw dramatic operational and financial improvements across the board. Since 1999 the company has been named a top company in healthcare and often appears on Fortune’s ‘Most Admired Companies’ list. The company stock also went from $0.958/share on April 28, 2000, to $115.61/share on October 22, 2021. DaVita has clearly figured out how to align employee and company values, and the results speak for themselves.

Align Incentives

Reward structures are key in promoting ethical sales behaviour. Whatever the incentive plan, it should align the interests of the employee with the long-term interests of the organization—and should keep the sales associate involved throughout the entire selling process. The best reward systems build trust among company leaders, sales associates and consumers.

To start, quotas and sales expectations must be realistic. Rather than motivating sales efforts, unrealistic targets place undue stress on sales associates and cause increased turnover and unethical behaviour. At Wells Fargo, for example, employees reported a total disconnect between the company’s ethics training and its office practices. To meet seemingly impossible targets, some employees created fraudulent accounts. Then, based on these apparent successes, leaders made the targets even more aggressive (Flitter, 2020).

In contrast, at Best Buy, 20% of a performance review is based on ethical behaviour, which signals that ethical employees are more likely to get good ratings and move up in the company (Thilmany, 2007). Wal-Mart’s ‘Integrity in Action’ program is another good example of rewarding ethical behaviour (Global Ethics & Compliance, 2020). By inviting employees to nominate co-workers for the award, Wal-Mart not only shares successful stories of ethical behaviour but also creates a positive culture where employees support each other in doing what is right.

Another aspect of aligning incentives involves the final stage of the buying process, the post-purchase behaviour. Ethical sales practices should align incentives in that step with the previous four steps. In fact, a Delphi study with a national sample of consumers in the United States suggests that the ethical behaviour of sales associates is significant for consumers and will impact their post-purchase behaviour in ways that can be measured by companies, such as the online reviews that consumers post (Fergurson et al., 2021). An example of this is from one of our clients, a coffee company, during the COVID pandemic. Since customers no longer felt safe traveling out to coffee shops, the company needed to pivot to e-commerce and direct sales to customers. We worked with the business to develop remote relationships with customers and to reinforce customer care skills. The friendly customer care employees helped customers to design in their homes the kind of experience for which they had previously travelled to coffee shops. Due to the success of this strategy, the reputation of the company was further strengthened, and many competitors imitated the approach.

Measure and Compensate Strategically

Rewarding intermediate task goals, rather than sales alone, can also aid in ethical value creation. For instance, researching customer needs, presenting solutions to customers and making follow-up visits are tasks over which salespeople have more personal control. Subsequently, salespeople have a better chance of accomplishing these tasks ethically. Tracking these steps helps to ensure associates are making steady progress. Further, sales conversion funnels emerging from these data allow companies to tailor their sales training and their sales strategies, as well.

Consistent measurement also makes a difference. Surges in sales towards the end of a reporting period sometimes indicate desperate associates are resorting to unethical or inappropriate practices to meet their goals. Measuring performance frequently or in real-time, rather than over months, can help organizations avoid these surges. Additionally, regular evaluations tend to reduce inflated promises, coerced sales, unsustainably reduced prices and poor matches between the company’s offering and customer needs.

Finally, we recommend compensating based on a combination of factors. Executives at Montalti Worldwide Moving (MWM), a logistics company, saw progress after redesigning their sales reward structure. Rewarding associates for sales only was resulting in more deals that did not benefit the company than deals that did. At the recommendation of a sales consulting firm, MWM adjusted their compensation plan in order to incentivize associates to engage in exploration and after-sale processes. The plan was based on the following four major metrics: customer satisfaction, as measured by a survey; customer loyalty, based on average duration of the associate’s accounts; the profit margin generated by the associate’s sales; and the sales associate’s level of cooperation with supporting departments, as reported by department managers.

Within a year, sales increased 5.5%, compared to the industry average of 1.2%. This increase was largely driven by the upselling of additional services to clients who were pleased with the initial services they received. Additionally, the amount of customer complaints for the different teams dropped between 24% and 46%. For MWM, the new bonus system clearly aligned roles, duties and outcomes in a way that motivated employees to sell and deliver quality services to customers, creating value through customer satisfaction and increased business.

Create and Maintain a Culture of Ethical Values

An important aspect of maintaining an ethical culture is living the values day by day. Research by Cheng et al. (2019) demonstrates the ‘trickle down’ effect of responsible leadership. For example, a strong ethical culture will impact choices in a variety of areas, such as in choices about financial reporting (Zhang et al., 2021).

In a now classic article applying economic theory to crime, Gary Becker (1974) develops a model of optimal levels of social loss from crime. In his work, he makes the argument that crime, or ethical behaviour, is affected by the probability of being caught and the severity of the sanctions for being caught. Thus, through various mechanisms such as ethics hotlines and corporate policies against unethical behaviour that are clearly communicated and enforced, organizations need to be vigilant in deterring small acts of misbehaviour in order to avoid large violations of ethics and law.

Research and experience suggest that developing and maintaining a strong ethical culture may help carry your company through the rough patches. Scholars have investigated how responsible leaders with a culture of ethics can more effectively respond to crises (Varma, 2021). One famous example is the Tylenol crisis. Because of the ethical culture of ‘doing the right thing’ at Johnson and Johnson, the leaders took early, proactive steps that enabled the company to maintain trust with customers and recover from the crisis quickly (Coldwell et al., 2012).