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Caveat emptor – buyer beware
We have all heard the statement caveat emptor, which means buyer beware. If you have ever bought a house or a second hand car or some other second hand item, you will have been warned to do all the appropriate checking before you sign the contract because after that it will probably be too late.
If you buy a house and find out later it is infested with white ants or if its foundations are subsiding, you will be up for a substantial maintenance bill with very few, if any, rights of recompense from the seller. If you received some bad advice from a financial advisor, lawyer or a real estate agent you could pursue the legal route but the road to justice is so long and hard it is often not worth the trouble.
Tectonic shift towards seller beware
With the rise of the internet, social media and smart phones, there has been a tectonic shift from buyer beware to seller beware (caveat venditor) particularly for large organisations with a multitude of customers. Many of those same organisations haven’t yet realised the full implications of this dramatic shift, nor have they put in place the necessary strategies to deal appropriately with this heightened risk.
Take smart phones which have completely changed the power and influence relationship. Customers can be in a store looking at a product, but check the price online and decide not to buy then and there. Or a bank customer may be in the branch asking for help from a customer service employee. Dissatisfied with their response and inability to act due to bank policies and procedures, the customer could use their phone right there to transfer all their accounts to another bank.
Consumer laws were designed to protect customers’ rights. These days, if a customer feels they have been wronged they can protect themselves by naming and shaming online, instantly and globally. Others can quickly jump on the bandwagon either in support or advising that they were wronged in a similar manner by the same or a similar company.
The court of public opinion
The reputation of a company or organisation is now easily and quickly lost as the buyer of the product/service/emotion now has the means and power to inform others, worldwide, in an instant.
The court of public opinion quickly determines if the actions were fair and reasonable or totally inappropriate. And if you don’t respond quickly enough (or at all), you can kiss those and many other customers goodbye. Or if you say one thing and do another, instantly everyone will know that there is a disconnect between your values, ethics and the product/service/emotional connection that exist with your clients/stakeholders.
If the court of public opinion says that your company’s poor disclosure, your advisor’s poor advice, or your unreasonable rejection of a claim has caused harm and loss to a customer, your company’s reputation will be damaged and trust in your company and its products and/or people will fall. And it will be very hard and will take a long time and significant investment to regain that trust.
Not just customers, but employees too
Social media and the internet also give prospective employees the power to choose and influence. Candidates now interview a company, both at the actual interview and online via social media and their website to see if the company meets their values and needs. The candidate is now, if you like, “buying” the company, and the company has to “sell” itself to the candidate as well as the candidate “sell” themselves to the company. On the flipside, departing employees feeling disgruntled or wronged may publicly share their views of their previous employer on social media, damaging the company’s reputation while gathering support from others.
Billions of dollars of impact across whole industries
The spotlight has been shining brightly on the banking sector in recent times for what the community see as inappropriate behaviour, including poor financial advice, inappropriate rejection of life insurance claims and even interest rate manipulation. The recent Commonwealth Bank scandal involving allegations of over 53,000 breaches of anti-money laundering laws and what the public see as excessive CEO pay and bonuses only adds fuel to the fire.
And the loss of confidence and trust in the banks has been extremely costly. CBA’s share price dropped over 10% following the revelation of the alleged anti-money laundering breaches and is now facing a potential class action in relation to the losses made by shareholders. The cost of CBA defending itself, including the cost of rebuilding trust, will be in the hundreds of millions of dollars. The new $16 billion Federal government banking levy is another case in point.
Increased regulatory attention
The recent rise in the regulatory oversight and attention given to conduct and culture risk, particularly in the financial sector, has been significant. ASIC, APRA and the ACCC have all jumped on this issue that was given very little attention just five years ago.
For example, Rod Simms, ACCC Chair, recently called for widespread health insurance reforms as the ACCC took legal action against a health fund for allegedly removing certain costs that were covered by one of its policies without fully informing its members. In support of the proposed reforms he says that the public should expect that policies that are advertised as “full cover” or “no gap” would be precisely that, without any fine print that listed numerous exclusions.
Don’t wait for lag indicators
Many organisations have begun to put in place some good lag indicators of conduct and culture risk around customer complaints, satisfaction and the like, but organisations shouldn’t wait for a regulator or a sufficient number of customers to express their dissatisfaction before taking action. By then it may well be way too late.
Organisations should get on the front foot when it comes to their own reputation and doing the right thing by its customers, employees and the community. This means setting a very high tone and clear messaging from the very top that doing the right thing by customers will not be compromised even for a little extra profit. Organisations may need to review their incentive schemes to ensure that they don’t inadvertently send a different message that profit is more important than anything else.
Remember that the world has changed and it is now seller beware!
This article was written by Insync CEO Nicholas Barnett, with input from Trevor White, Principal at The-WhiteGroup, a consultancy and advisory service.