Monday, May 18, 2009

The Concept of ‘Caveat Emptor’

This week begins a series of essays on business ethics. I hope to discuss a variety of subtopics under this main topic. We will begin with the concept of “caveat emptor”, or ‘let the buyer beware’.

This is an age old concept that asserts that when we enter into a transaction, we should be skeptical and we should perform all possible due diligence to protect ourselves from being cheated. This concept remained the conventional wisdom for centuries. In the marketplace, those buyers who did the most homework were able to most often avoid being cheated. And those who did not got plucked, like the pigeons they were. Who among us has not read a story about someone falling for the “Nigerian Banker” scam, shook our heads and smugly thought, “I’d never fall for that!”

For purposes of this discussion, let’s leave aside all the obvious scams, ponzi schemes, spam, phishing and pump-and-dump operations. We hopefully all know enough to avoid these types of scams. But what about navigating the everyday marketplace?

There are many who will argue that the ‘marketplace’ is sacrosanct, and should not be regulated in any way. The marketplace, so this logic goes, will police itself, and cheaters and scammers will be winnowed out because buyers are smart and can spot them. There are many areas of the ‘marketplace’, where this argument simply does not hold water. Why? Because the game is rigged. The average person’s chances of success in certain ‘marketplaces’ are as poor as they might be in a casino, or a lotto.

A while ago I was in a supermarket and was looking at soap to purchase. The particular soap I wanted was $1.79 for a regular bar. Next to the individual bars, they had a special group of the same sized bars banded together and labeled with a “ SPECIAL 2 for 3.99!”, inferring that the better deal was the “2 for 3.99”. I wandered around the store and found several other such examples where the inference was that buying multiples would be cheaper, and in each case, purchasing 2 of the single item was cheaper than the multiple offer. Do we really have to always be on our toes to this degree when we go shopping in order to avoid being taken advantage of?

Corporate America brings to bear some powerful weapons to motivate us to do whatever it is they want us to that day. And we are all susceptible. Because we are busy, tired, stressed and overworked we are susceptible to motivations and mild misdirection.

In the pharmaceutical sector, we are deluged with ads urging us to ask our doctors if “lipo-hydro-oxy-blasto-narco-soma is right for you”. Often these ads are very clever at glossing over the real facts behind the use of certain pharmaceuticals they advertise. Under the idea of ‘caveat emptor’ we would drag out our “Physician’s Desk Reference” and read all the chemistry and pharmacology related to any medicine we are considering taking, so we are fully aware of it’s implications. Or perhaps we could suspend our normal career and get a degree in biochemistry or pharmacology.

We are deluged with come-ons from financial service companies that then bury the terms and conditions in layers of incomprehensible jargon, so that we are hard pressed to make a determination as to the benefits of the offer. Perhaps here, we can all become lawyers to protect ourselves against hidden or obscure terms and conditions buried in a mountain of legalese.

Retailers, telecommunications companies and other giants often obscure the true pricing of what they are selling in order to preclude us from being able to comparison shop.

In virtually every area, commerce with larger entities (not every one, mind you, but a good many) becomes a futile exercise in trying to determine what is real. What is the real price? What fees will I be charged? What are the side effects of this medicine? What if I want to cancel my plan?

As consumers, we are obviously not going to become lawyers, doctors or pharmacists just to learn the truth of each advertisement we see or hear. But we can pay attention, we can do the math, we can bring to bear a healthy skepticism about any advertisement to which we are exposed.

And as businesses, can we not try to be more forthright in our advertising? Are the bottom line and shareholder value so important that we are willing to compromise all our ethics to achieve positive results? I do not think it would be naïve of me to suggest that we are now witnessing the consequences of too much emphasis on shareholder value. If you trade in your ethical standards for increased shareholder value, you will end up with neither.

Matt Cantillon
05-18-2009

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About Me

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Ann Arbor, MI, United States
I am a software developer. I have been in that business for over 4 decades. I am also recently widowed, having lost the love of my life to ovarian cancer.