A business scam begins with collision of circumstances. A scheming opportunist crosses paths with a person prone to deception. The extension of trust sparks ignition. As Philip Broughton wrote in his book, Mastering the Art of the Sale, “the moment of maximum trust and cooperation is when the virus of dishonesty takes hold.”
A chain reaction follows where value flows from prey to predator. And the victims are not just buyers, but just as often employees, investors, and other stakeholders. As you will see in this article, some victims recover, but for others, the damage can be permanent.
Scammers have low barriers to entry. They need to concoct a scheme and have immunity to shame. Then, they must stack information to their advantage – a skill humans cultivate early in life. Finally, they need access to vulnerable people. Voila! A scam is born. Notably, investment capital isn’t always required.
Low barriers and easy access to victims are why there is a bottomless well of candidates for the Annual Sales Ethics Hall of Shame. And lately, defanged consumer protections have added to the community. Don’t get me started.
Companies inducted into The Hall satisfy three criteria:
- The primary purpose of the enterprise cannot be to sell an illegal product or service, like crystal meth or human trafficking.
- More than one employee must be involved in unethical activity. Scams involving a single, rogue employee are not eligible.
- The deceit must be systemic.
In 2017, a new-old revelation emerged from the muck: a network of executives and investors enriched themselves by exploiting women. They caused or allowed unspeakable human suffering. In particular, three “superstar rainmakers,” Harvey Weinstein (The Weinstein Companies), Bill O’Reilly (Fox News), and Paul Parilla (USA Gymnastics) – sat protected in their offices drawing outsize paychecks, smugly confident their behavior was unassailable for as long as they kept their cash machines humming. They were right, until they were outed by their victims. Business ethics aren’t available in a more revolting variety.
As these transgressions were taking place, Marketing and PR departments at these companies were cranking hard to keep the sunshine pumps running full bore. Their message to consumers and investors: Everything’s rosy. Profits are up! Just keep buying! Do you think Fox’s CFO didn’t maintain a General Ledger account titled Hush Payments to Victims of Bill O’Reilly’s Predations? As Fox stroked checks to victims, the CFO, the Assistant CFO, and the Internal Auditor all knew the annual amount down to the penny. So did the General Counsel, who wrote the contracts enforcing the victims’ silence. It takes a village to contain news that might harm revenue. As taxpayers, we all paid for O’Reilly’s shenanigans. Yep – I’d call that a scam.
The 16 inductees into the Sales Ethics Hall of Shame for 2017:
- The Weinstein Companies: “My motto is keep the peace.”
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- Fox News: The company’s accountants paid victims $13 million to settle harassment claims.
- USA Gymnastics: Executives knew about Dr. Nassar’s sexual abuses weeks before they reported it.
- Bronze Star LLC: Sell now, deliver . . . never. “After Hurricane Maria damaged tens of thousands of homes in Puerto Rico, a newly created Florida company won more than $30 million in federal contracts to provide emergency tarps and plastic sheeting for repairs. Bronze Star LLC never delivered those urgently needed supplies.” (Business Insider)
- Mitsubishi Materials: Fake numbers. “The company revealed [in 2017] that workers had doctored quality data to make it appear that such products as rubber gaskets and copper products met customer standards when they didn’t.” (The Wall Street Journal).
- TIAA: AKA Transparency Isn’t Always Available. “TIAA says its 855 financial advisors and consultants operate in a commission- and conflict-free environment. But ex-employees counter that it pays bonuses when sales people steer clients toward more expensive proprietary products and services.” (Barrons)
TIAA spokesman Chad Peterson described its operations as ‘highly transparent and ethical.’ But 10 former employees told the New York Times ‘that TIAA managers doled out ambitious sales quotas and instructed reps to stoke clients’ fears, including those of a retirement shortfall.’” (New York Times)
- WalMart: Timely applies to supply chains, not consumer disclosures. Wal-Mart Stores was sued [in 2017] on behalf of consumers who said the world’s largest retailer sold products falsely labeled ‘100 % Egyptian Cotton’ from an Indian textile company for many years after it first became suspicious of their origin. Wal-Mart questioned the fiber content of Welspun India Ltd’s products as early as 2008, but waited until [2017] to halt sales of its mislabeled Egyptian cotton bed linens.” (Reuters)
- Zenefits: No license? No problem! In 2017, “Zenefits confessed that some of its insurance salespeople were selling products illegally, without legitimate state licenses. [Zenefits CEO] Parker Conrad had developed a software tool that allowed insurance salespeople to cheat on an online training course that’s required to receive state certification.” (Forbes)
- TD Bank: Plagiarizing the Wells Fargo sales fraud playbook. TD Bank employees across Canada “admit they have broken the law at their customers’ expense in a desperate bid to meet sales targets and keep their jobs. Hundreds of current and former TD Bank Group employees wrote to Go Public describing a pressure cooker environment they say is ‘poisoned,’ ‘stress inducing,’ ‘insane’ and has ‘zero focus on ethics.’ Some employees admitted they broke the law, claiming they were desperate to earn points towards sales goals they have to reach every three months or risk being fired.” (CBC)
- Tanium: A software demo using another customer’s live data? Sure! Why not? “For years, cybersecurity startup Tanium Inc. pitched its software by showing it working in the network of a hospital it said was a client. That and other efforts helped the company grow quickly, notching a valuation of $3.5 billion and a big investment from Andreessen Horowitz, one of Silicon Valley’s most prominent venture firms. But Tanium never had permission to present the demos, the hospital said, meaning a company selling security actually was giving outsiders an unauthorized look at information from inside its customer’s system . . .
To drive sales, co-founder and Chief Executive Orion Hindawi designed a presentation that he said showed his company’s software running inside a client. The system in the demo belonged to El Camino Hospital, a nonprofit community hospital based in Santa Clara County, Calif. He and his staff gave the presentation hundreds of times, from at least as early as 2012 through mid-2015, according to people familiar with the matter and three demonstration videos posted online by Tanium and its resellers. ‘The hospital did not authorize desktop management data or other information to be used in any product demonstration and was not previously aware of these demonstrations or videos,’ El Camino Hospital said in a response to inquiries by The Wall Street Journal.” (Wall Street Journal)
- SunRun, Inc., and Solar City: The big number they report is the CBC – Contracts before Cancellations!
“The SEC is investigating [SunRun and Solar City] because it believes the companies are not being as transparent and forthright as they need to be in disclosing their rates of cancellations, i.e., how many buyers rescind their agreements prior to installation. The cancellation rate affects the value of the shares of the solar companies because that cancellation rate is an indication of growth potential and whether the revenue stream is subject to further fluctuations.
At SolarCity, cancellations reached 50% in 2016, just before Tesla’s acquisition. Sunrun had a cancellation rate of 40%. Some solar-energy companies have recently disclosed in public filings and earnings calls that increasing numbers of customers are canceling, but the companies have provided few details about the number of cancellations or their impact on the companies’ business.
The door-to-door sales [for residential solar energy] have become problematic because of some of the tactics used. For example, one customer decided against a Sunrun system and called to explain that she was not interested. The company indicated that she already had a contract and could not cancel. She did not recall signing a contract, but the company pointed out that she had checked a box on the sales rep’s iPad and that was the contract. Known as fraud in factum, this is a ploy often used to get customers committed. The customers believe they are simply checking a box for the sales rep to show that there was a demonstration. The checked box is actually the signature for a contract. The customer is entitled to set aside the agreement when there is fraud in factum. The customer was so taken aback by what happened that they decided to forget about solar panels entirely.” (Cengage Learning.com, Wall Street Journal)
- Fyre Festival: A start-up specializing in separating fools from their money. “Billy McFarland sold elite millennials (and his investors) on an ultra-luxurious ‘Coachella in the Bahamas,’ but the much-ridiculed fiasco that actually took place in April derailed the 25-year-old serial entrepreneur’s checkered bid for moguldom.” (Vanity Fair)
“The endeavor has also become the focus of a criminal investigation, with federal authorities looking into possible mail, wire and securities fraud, according to a source with knowledge of the matter, who was not authorized to discuss it.” (New York Times)
- Outcome Health: Baking the numbers. Outcome Health installs video screens in doctors’ offices and offers pharmaceutical companies the opportunity to pay for advertising aimed at patients. The company accepted around $500 million from investors. In May, 2017 the company had a $5.5 billion valuation, and venture capitalist Bill Gurley tweeted that Outcome Health CEO Rishi Shah, was “the real deal.”
“Somewhat less real were aspects of some deals Outcome cut with pharmaceutical advertisers, say former employees along with several advertisers. Interviews with these people as well as internal documents and other material from Outcome reviewed by The Wall Street Journal show how some employees misled pharmaceutical companies by charging them for ad placements on more video screens than the startup had installed.
“Some Outcome employees also provided inflated data to measure how well ads performed, created documents that inaccurately verified that ads ran on certain doctors’ screens and manipulated third-party analyses showing the effectiveness of the ads, according to some of these people and documents.” (Wall Street Journal)
- Uber: Trusting the honesty of thieves.
“Hackers stole the personal data of 57 million customers and drivers from Uber Technologies, Inc., a massive breach that the company concealed for more than a year. This week, the ride-hailing firm ousted its chief security officer and one of his deputies for their roles in keeping the hack under wraps, which included a $100,000 payment to the attackers. Compromised data from the October 2016 attack included names, email addresses and phone numbers of 50 million Uber riders around the world. The personal information of about 7 million drivers was accessed as well, including some 600,000 U.S. driver’s license numbers.
At the time of the incident, Uber was negotiating with U.S. regulators investigating separate claims of privacy violations. Uber now says it had a legal obligation to report the hack to regulators and to drivers whose license numbers were taken. Instead, the company paid hackers to delete the data and keep the breach quiet. Uber said it believes the information was never used but declined to disclose the identities of the attackers.
“None of this should have happened, and I will not make excuses for it,” Dara Khosrowshahi, who took over as chief executive officer in September, 2017 said in an emailed statement. “We are changing the way we do business.” (Bloomberg)
- Equifax. Profits over all!
“It took six weeks after credit reporting agency Equifax found out it had been hacked for the company to notify the 143 million customers whose private data was at risk. Following what might be the worst data breach of the past decade, such a long delay is shocking — but given the lack of regulation it’s not all that surprising.
“It hasn’t helped that Equifax has handled the situation incredibly poorly. High-level executives sold off almost $2 million of the company’s stocks after finding out about the breach in late July, weeks before they went public about the hacks. (Vox.com)
- Unroll.me. What’s mine is mine, and what’s yours is mine.
“Unroll.me, a free service to unsubscribe from email lists, can scour people’s inboxes for receipts from services like Lyft and then sell the information to companies like Uber. The data is anonymized, meaning individuals’ names are not attached to the information, and can be used as a proxy for the health of a rival.
Slice Intelligence , a data firm that uses an email management program called Unroll.me to scan people’s inboxes for information, faced an outcry [in 2017] after The New York Times reported that Uber had used Slice’s data to keep tabs on its ride-hailing rival Lyft.
After the revelation, angry users demanded that Unroll.me explain why the company had gone into their inboxes and betrayed their trust. [In 2017], Jojo Hedaya, the chief executive of Unroll.me, apologized in response to the surprised reaction to a practice that he said the company had been open about in the past.” (New York Times)
See something? Say something!
For more information, please see Whistleblower Protection in the United States. or the US Federal Trade Commission (FTC) website
And, if you have a candidate for this year’s Hall, please email your recommendations to the Sales Ethics Hall of Shame: SEHOS2018 (at) contrarydomino (dot) com.
Past inductees in the Sales Ethics Hall of Shame:
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