“I don’t care how you make your number, as long as you make it,” my district manager admonished his sales team back in 1993. He chuckled, but he was dead serious. His laissez faire attitude was risky. We could have interpreted his statement as permission for dishonesty – a gremlin that regularly meanders into sales organizations. In an odd way, my manager was lucky. I brought moral boundaries when I joined the company. So did most of my colleagues. But a few did not . . . “If I told you all that went down, it would burn off both of your ears.”
I don’t malign my former manager. He didn’t care how his team made quota because his boss didn’t care. Neither did his boss’s boss, or any of the bosses above him. That’s how things often work in sales. When you have a razor-sharp pink slip dangling over your neck, scruples can interfere with job security. The choices are stark: eat, or get eaten. Making goal and focusing on how much you will earn at plan matter more than ethical interpretations. In fact, over my many years as a sales rep, I remember countless meetings and communications dedicated to how to make quota, but I don’t recall a single instance where ethics, honesty, and integrity were even mentioned.
Since before the advent of double-entry accounting, revenue has been glorified, particularly in marketing and sales. Companies heap recognition on top sales producers. They’re consecrated as “Rock Stars” – a term that grates on me when used in this context. Pundits slather on the puppy love, lavishing praise and attention on entrepreneurs and companies that have achieved “explosive revenue growth.” If you’re on the margins of this frenzy, you can tap into “proven” ways to replicate the selling dynamite. Around the world, revenue is the most revered financial metric. And the word carries additional positive meanings: income, earnings, gain, and profit – not to mention connotations of success and power. “Revenue is king!”
Search online for “crush your quota” and “outstanding revenue growth,” (in quotes) and you’ll get about 5,500 and 7,700 results, respectively. These glimpses reveal society’s unflinching adoration not just for revenue, but for its fast and furious capture. But we pay a price. When sales are ill-gotten, revenue reeks. And when we become immune to the stench, there’s pain and suffering. Some of it lasts forever.
In its 2016 annual report, 21st Century Fox, parent company of Fox News, wrote,
“The Fox News Channel, under new leadership, is stronger than ever, and is on track to have its highest rated year in its 20-year history. There has been some speculation that Fox News’ unique voice and positioning will change. It will not.”
“Selling, general and administrative expenses decreased 3% for fiscal 2016, as compared to fiscal 2015, primarily due to the sale of the DBS businesses and Shine Group partially offset by higher selling, general and administrative expenses at the Cable Network Programming segment.”
VW’s 2014 annual report reported revenue this way:
“The Volkswagen Group continued its successful course in fiscal year 2014, again generating record sales revenue and operating profit in an ongoing difficult market environment . . . The Volkswagen Group generated sales revenue of €202.5 billion in fiscal year 2014, 2.8% higher than in the previous year. The clearly negative exchange rate effects seen in the first half of the year in particular were offset by higher volumes and improvements in the mix. At 80.6% (80.9%), a large majority of sales revenue was recorded outside of Germany.”
Yet, at both companies, sordid activities were fully underway at the very time these bland sentences were crafted. At both companies, the activities had direct connections to revenue. And at both companies, senior executives knew what was happening. In the case of 21st Century Fox, hush money was paid to victims of host Bill O’Reilly, whose show, The O’Reilly Factor, was a cash cow for Fox News. And at VW, a clever engineering tweak made it possible to sell nearly 500,000 vehicles illegally.
Of course, it’s ludicrous to think 21st Century Fox would choose to write,
“Revenue and profits were up this year at Fox News due to lower than expected payouts to silence Bill O’Reilly’s sexual harassment victims. Legal costs decreased as well. As a result, SG&A expenses as a percent of revenue achieved its biggest decrease in five years. We expect that trend to continue, despite the obvious risks from Mr. O’Reilly’s predilections.”
Or for VW to share, “While our vehicle portfolio has achieved dramatic improvements in average mileage, VW has not reduced fleet CO2 emissions. However, the company has developed technology to circumvent environmental standards enforcement worldwide, resulting in unhindered sales, and significantly higher profits than could be achieved with compliant vehicles.”
The content in these financial reports, and others, are lies by omission. Providing broader information about legality or ethics would seem the right thing to do, but financial reporting has been a longstanding showcase of corporate self-interest. What emboldens companies to remain opaque about their dirty revenue laundry is the knowledge that the word revenue carries a pleasing blend of excitement, gravitas, and respect. Whether on a financial report, blog, or press release, consumers of financial information want to be awed, impressed, and amazed. And apparently, deceived. That, and accounting standards don’t require CFO’s to distinguish ethical revenue from unethical. Most companies lump everything into a single account, and present the consolidated figure.
Even respectable business publications bow at the revenue altar. On April 3, 2017, Forbes published an editorial stating that O’Reilly’s job was “safe” at Fox News. The reason? One word: “Money.” The article continued with forceful facts: “The O’Reilly Factor generated $446 million in advertising revenue for the network from 2014 through 2016, according to Kantar Media. Last year, the show brought in an estimated $110.8 million in ad revenue, according to iSpot.tv. That compares to the 2016 of $20.7 million in advertising for MSNBC’s biggest star, Rachel Maddow, who is on an hour later. Fox News makes up about 10% of its parent company 21st Century Fox’s revenue and about 25% of its operating income.” No wonder O’Reilly felt his crude behavior was beyond reproach.
“’21st Century Fox certainly has an economic incentive to keep Bill O’Reilly on air,’ says Brett Harriss, an analyst at Gabelli & Company, adding that any backlash the company faces from advertisers would be temporary.” Just 16 days after the Forbes column published, Fox fired O’Reilly. Yes, Mr. Harriss, preventing a valuable brand from winding up in the dumpster is a powerful economic issue, too. To the women who suffered from O’Reilly’s depredations, there’s little solace that the company’s numb executives eventually kicked him to the curb. It should have happened much earlier.
My former boss’s attitude about making quota isn’t unique. In fact, it has spread far and wide. A rogues’ gallery of corporate apathy that recently splashed into the news:
In making goal . . .
We don’t care if employees are grievously harmed. (Wells Fargo)
We don’t care if innocent people are sickened. (Peanut Corporation of America)
We don’t care if the people who use our products die. (Takata, GM, Turing Pharmaceuticals)
We don’t care if our customers are hurt. (United Airlines)
We don’t care if our customers are deliberately deceived. (Wells Fargo, Trump University)
What’s the remedy? The problem defies simple approaches, but here’s a start:
1. Care. “I don’t care how you make your number, as long as you make it,” isn’t inspiration. It’s infection.
2. Stop rewarding executives, marketing professionals, and sales staff exclusively for revenue achievement. Select other measures that include customer value delivered.
3. Stop obsessing over maximizing shareholder value. One reason that many strategic decisions ultimately cause harm. According to Professor Bobby Parmer of the University of Virginia’s Darden Graduate School of Business, “Shareholders don’t own the corporation. Public companies own themselves. Shareholders own a contract called a share. There is no legal reason to put shareholder interests above anyone else. It’s a choice, but not mandated. There is no legal duty to maximize profit. As long as executives aren’t violating the law, the courts won’t interfere with their decision making . . . Across hundreds of studies, there is no evidence that companies that maximize shareholder value are more profitable.”
Would these tactics eliminate all corporate harm? Probably not. But they would reduce the likelihood. We need to redirect our revenue infatuation into pursuing outcomes that bring broader benefits. We need to abandon our consistently polite, reverential rhetoric about revenue. We will always have good revenue and bad revenue. First, we must learn to distinguish between the two, and to appreciate that the difference matters.
The post Why Companies Should Care about How They Earn Revenue appeared first on Contrary Domino.