What Every Direct Marketer Must Know About Risk and LiabilityA look at some of the basic compliance problems that trip up marketing departments
Compliance, corporate governance and recent legislation such as Sarbanes-Oxley are nothing new to corporate executives who run the risk of exorbitant fines and even jail time for failing to conform to mandates. But accountability for corporate compliance and risk, areas that once were reserved for the upper echelons of an organization, now are making their way to the marketing department largely because of this group's sizeable budget and the enormous impact its actions have on customers and shareholders alike.
Ironically, direct marketers, whose sole job is to ensure the proper communication of a company's position and sales offers through external media and branding efforts, tend to be very poor in articulating these same messages internally to peers in other departments, such as sales, manufacturing, R&D, regulatory, compliance and legal. As a
result, the lack of streamlined internal communications between marketing and the rest of the organization is creating severe compliance risks that can tarnish a company's reputation, destroy brands and create serious legal implications and monetary risk. Further complicating matters is the use of existing marketing automation solutions, as they further exacerbate this situation by enabling the execution of risky actions faster than non-automated methods could.
To avoid the most common compliance risks arising out of uncoordinated marketing activities, direct marketers first need to understand where their vulnerabilities lie before they can detect and eliminate such risks.
Areas of Compliance Problems
Racial bias: We've all seen it, the news story that talks about how the attorney general's office in some state or another is investigating a mortgage company due to charges of racially based lending practices. However, and in most cases, mortgage and lending institutions tend to represent one of the best models for Equal Housing Lender and ethical business practices. More often than not, the culprit lies in the chaotic and random use of the firm's customer database marketing practices.
For example, a marketing manager may be preparing to send out a direct mail solicitation to targeted buyers by mining his firm's customer database for pre-selected demographic elements. While the criteria used for selecting these targets might have been clearly articulated in a business case and approved by both his firm's legal and regulatory teams, there often is no control to ensure that the final database query used to generate the list of mail targets actually conforms to the pre-approved criteria. Quite often, the above-mentioned criteria are modified by database experts in order to supply the requested number of targets. In postmortem, when many such mail campaigns are audited, a racial bias may emerge even though there was no active corporate policy to promote such unintentional discrimination.
Now, companies are forced to look carefully at marketing process reengineering to protect the reputation of their organizations and to avoid the financial risk associated with unbeknownst racial biases. Audit trails and transparency increasingly are becoming a focal point for the marketing function, which traditionally had used automation only for database marketing. Today, companies are looking beyond their existing marketing auto-mation solutions in favor of new technologies (such as marketing operations management applications) because they are capable of targeting these issues. For instance, by using a comprehensive workflow solution an organization is able to ensure that
the correct checks and balances are in place on the campaign generation process along with tight version controls and a clear track of "who is doing what" to avoid the risk of racial bias.
Erroneous representation: Faced with shrinking product life cycles and rapid global rollouts, very little time is available for direct marketers to fully review and verify that the information communicated to the consumer via product packaging, sales material and Web sites is consistent and accurate. As a result, very dangerous errors may occur. For example, pharmaceutical marketers may unintentionally communicate improper dosage information, omit allergy-causing ingredients or incorrectly label proper product handling instructions, all of which could lead to catastrophic results.
By its very nature, the marketing function touches many different departments, including those that typically work in silossuch as R&D, clinical trials, etc.which makes cross-functional coordination and process implementation a significant and error-prone challenge. Any discrepancy or breakdown in the communications cycle can have
severe and immediate consequences for an organization by eroding both the consumer's perceived value of and confidence in a product and/or brand.
By leveraging next-generation marketing solutions, marketers can eliminate misrepresentation errors as these technologies automatically account for the planning, reviewing and tracking of marketing campaigns.
Marketing expense tracking and Sarbanes-Oxley: The recently enacted Sarbanes-Oxley Act requires that a company report on the effectiveness of its internal controls as it relates to the company's financial reporting. Crucial to effective internal controls is ensuring that computing systems protect the integrity of corporate, financial and customer data.
As mentioned previously, marketing expenditures represent a significant percentage of the overall expenses incurred by a company. Marketing departments are famous for ad-hoc, unplanned operating expenses as a result of evolving market conditions and competitive landscapes.
Unfortunately, these unexpected operational expenses are almost never attributed accurately. As a result, it is likely that most corporate P&L statements have an error margin of 6 percent to 10 percent that can be directly credited to inadequate financial reporting by marketing staff.
Ironically, while nearly every other department/function within a company has gone through a rigorous Sarbanes-Oxley audit, marketing has remained fairly unaffected by this recent legislation, resulting in highly inaccurate
financial reporting by most corporations. It is only a matter of time before companies turn to marketing for tougher compliance auditing.
As a result of Sarbanes-Oxley, marketing departments now are forced to become financially accountable. After all, enterprise marketing communication spending tends to be significant and often requires senior management
to assess and make representations about the effectiveness of the procedures for financial reporting. The measurement process for marketing is complex, as the creative process of marketing has never lent itself to formal quantitative measurement. As a result, marketers are being forced to create comprehensive documentation for internal controls.
In order to improve Sarbanes-Oxley compliance, many chief marketing officers are requiring that their companies' marketers use technology that will allow them to tightly integrate financial reporting to marketing procedures. In doing so, strategic planning and budgeting modules can track expenses and cost overruns, thereby improving
Simple Changes Can Help Avoid Severe Consequences
Like it or not, marketers forever will play an instrumental role in an organization's ability
to remain in corporate compliance. Granted, most marketers will argue that they are unfit to take on the job of corporate auditor. However, by understanding where the risk lies and by leveraging technology to institute checks and balances that monitor spendwhile promoting a strong corporate-wide communications culturethey may find that the road to compliance is much easier than once thought.