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

Short Term Disease

Lately in the financial meltdown, we have seen lots of examples of what I’ll call “Short Term Thinking Disease”. This is an infirmity that causes us to think only in terms of short term advantage, as opposed to longer term strategic thinking. The simplest example I can cite is the person who spends $10 a week on lotto tickets, looking for the big score, as opposed to saving the $10 a week in a savings account or IRA. Unless this hypothetical person is extremely lucky, in 10 years this person will be out $5200.00. Had they saved this amount in a conservative investment paying even a 4.00% return, they’d have: $6383.33.

This is a simple example. But we humans are wired for this sort of thinking, and unless we find a way to rise above this, we are quite possibly in a great deal of trouble. Consider the many CEOs of large corporations who, at the risk of alienating customers and employees, make savage cuts in service and quality in order to show a short term profit. They seem not to be concerned at the long term consequences of their actions. And inevitably the customer base shrivels up over time, and the corporation that has behaved like this is acquired or goes away completely. There are any number of companies that are dancing this type of death dance.

I once lived in a city that had two car dealerships that sold the same brand of car. One dealership treated customers respectfully, had a very good service department, and tried really hard to build a loyal following around not only the brand of car, but also their dealership. This resulted in a steady and respectable business that was sustainable. Their competition was not concerned about whether customers came back. They were all about getting a customer’s name on a sales contract. If the customer later discovered that they had been cheated, so what? It was too late. In addition, they ran a shoddy and dishonest parts and service department. People would go there once, and never go back again.

Sell one car to every eligible buyer in the city, or slowly and steadily build a loyal customer base? If you choose the former, what happens when you have swindled every possible customer? It simply is not sustainable.

We find ourselves in a difficult situation with respect to the economy precisely because of this same type of thinking at every level. Do we do the research buy a solid stock and hold it (boring!) or play the day-trader game (exciting!). Do we buy a home we can’t afford with a mortgage that will become intolerable 5 years down the road? Do we borrow to buy what we want to have today rather than saving for it?

All of this at every level has brought our economy crashing down. Why? Simply that this type of behavior is not sustainable. It may be flashy, it may bring instant gratification (which is just as quick to disappear), and it may even accrue short term financial gain for some.

I have had my small software business for 25 years now. I cannot tell you that I have always thought strategically for the long term. There have been times that I made a mistake or irritated a customer. There have been times I have chosen projects poorly, underestimated the time or costs involved. This sort of thing happens to all small business owners. For the most part, though, I have charged less than the competition and given my customers more. That is why I am still around, thriving and successful. This is why my average customer has remained with me for 17 to 18 years, with many having been on the books for over 20 years.

It is very difficult to resist the temptations presented by the mass media to go for the short term gain. But resist we must.

Corporations and small businesses need to obsess less about the bottom line, and more about pleasing customers and building quality products and services. Odd thing about that is that if we all do that, the bottom line will take care of itself.

All of us need to start being more self sufficient. Take $5 a week and build a slush fund. Take another $5 and save for the future. You won’t miss it. You can use the slush fund every now and then for some discretionary treat. And your future will thank you very much.

Matt Cantillon

Go-Payroll.com

The Business of "The Right Thing"

The Business of “Doing the Right Thing”

We are witnessing the greatest financial meltdown of our lifetime. Many of our friends and neighbors have lost a job, are in the process of losing a home, or are suffering under staggering medical bills. How is that we find ourselves in such a place?

I contemplate these issues at a time when my own small business has just passed its 25th anniversary. I am proud of the fact that I have managed to outlast several economic downturns, moves across the country, health issues, and many other of the vicissitudes of life. I am proud to say that I have several customers who have been with me more than 20 years. Why is this so? Am I cheaper than everyone else? I do not think so. I think it has to do with integrity. I am not writing this to brag about my own integrity. I leave that for my customers, friends and family to judge.

What is painful to watch in this economic downturn is the staggering lack of integrity that corporate America has shown. And now they are reaping the whirlwind. But if it were just some inept CEO’s and their henchman that were suffering as a result of the meltdown, that would perhaps be OK. But so many of us are suffering life threatening (or at least livelihood threatening) consequences for absolutely no reason.

Every day we hear some horror story about cheating in the marketplace. From salmonella peanuts to Credit Default Swaps to Collateralized Debt Obligations . We hear about exorbitant bonuses paid, not for meritorious performance, but just simply to keep the mediocre performer from moving elsewhere to perform in a mediocre fashion.

In addition, whether or not the average consumer is aware of this, there is a war on. We, as consumers of food, health care, insurance, financial services and entertainment are at war with corporate America. Or rather , they are at war with us. We are deluged moment by moment by advertising. We are expected to make important decisions without being given all the information that we need to make good choices. We are expected to believe what their marketing machinery tells us without independently verifying their claims. Many corporations do not want us to make informed choices (it’s bad for the bottom line!). So we must fight to get the data we need to make a good choice. Whether it be a cell phone plan, cable television for our home, a mortgage, a credit card, or a prescription drug.

So what are we to do to fix this?

The answers are not simple. But here are some things both individuals and businesses can do to help.

If you are a consumer:

• Always make your consumer choices based on the best available data. Use Consumer Reports and other objective sources to help in your evaluations.
• Do not support businesses that lie to you. If a company will not tell you what something costs, perhaps you ought to look elsewhere.
• Do not support businesses that engage in predatory competitive practices. Keep informed about the practices of companies with whom you do business.
• Do not accept mediocre customer service. There are many fine web sites, such as “The Consumerist” and “Rip Off Report” that can help you fight back.
• Develop a healthy skepticism about advertising that you read, hear or see on television.

And if you are a business:

• Always do what you say you’re going to do. Always. Period.
• Pay attention. So much of life is about paying attention. Listen to your customers. Listen to your employees. Listen to your suppliers. It is amazing what you do not miss when you listen.
• Provide good value.
• Always fully disclose the terms and conditions you require to do business with you. Never use hidden fees.
• Treat your employees with respect. History shows us that an adversarial relationship between employer and employees is very bad for business.
• Treat your customers with respect.
• If you take care of your employees and your customers, as well as control your costs, the bottom line can usually take care of itself.
• Not all customers are good for your business. There are bad customers as well as bad businesses. If you find yourself with a bad customer, fire them.

There are those who will read this and say that I am some sort of socialist: that I am anti-business. I am not anti-business. When I have received good service from an airline or a bank, I write letters to compliment them. What I am against is mediocrity, poor service, indifference, cynicism and dishonesty. These have no place in running a business. And if, with the government in conjunction with the outrage of ordinary citizens, we have to regulate ourselves back to a healthy business climate, so be it.

The days of “every person for themselves!” are over. We need to start acting like a society.

03-06-2009

Happy New Year

Happy New Year! This month is what we (affectionately?) refer to as 'W2 Season', wherein all our customers perform their various year end accounting functions. This year seems,at least so far to be going well. I am getting ready to design the public portion of the web site for GO PAYROLL, our new on-line payroll service.

We look forward to 2009 as a year of positive change and renewal for all of us. I will keep everyone posted on the progress of our new services.

Have a good month

Getting Close

Hi There!
The software development for the on-line payroll system is nearly finished. All that remains is the year end processing (W2 Forms and such), and some additions and security programming for the control system. We are on track to launch the product in February of 2009.

Small business is suffering under the weight of the cost of health care, until a few days ago, the staggering cost of energy, and now the economic downturn, affecting people's purchasing power everywhere. We will attempt to provide an excellent value to small business when we launch.

Please do not forget to go out and vote next week. It is crucial.

What We are Doing

Hi!

Just back from a trip to Washington State to visit family. I had never been there before and it is a beautiful state, from one end to the other. It always takes a little effort to get back up to work speed, especially for someone like myself, a one-person firm. But I have been doing what I do for 25 years. Our software, which will start going on line early next year, is 25 years young, in terms of its business logic, but has a whole new user interface, which will make it easy to do ALL of your accounting on our family of sites: GO-PAYROLL.COM, GO-RECEIVABLES.COM and GO-CHECKBOOK.COM. Regardless of your type of business, you will find an easy-to-use, economical and powerful place to manage your business's payroll, receivables and financial reporting.

In the next month, I will update the website (www.go-payroll.com) with more detailed information about the services available, and will also have available sample kits and user manuals that you can download to check out what we are doing.

Talk to you next week!

Small Business Philosophy

Hi!
This week I want to open up the discussion about small business and its needs. It is a well established fact that over 50% of the employment in this country is provided by businesses of 25 or fewer employees. And yet we small businesses are very often overlooked when it comes to tax benefits, business assistance and so forth. Just look at the current bailout bill. Is there anything for small business here?

Be that as it may, we need to persevere in this difficult economy. The most important thing to remember is to keep debt and overhead as low as possible. My first business lasted only a few years back in the 70s and early 80s before it was acquired. I have had my current business 24 years. The primary reason is that I have managed to stay debt free and have a low level of overhead. Thus this small business has allowed me to make a living for 2-1/2 decades. It is important to watch these areas carefully, especially as the economy slides into whatever euphemism you care to use. Do not waste money on bank fees, office supplies, office space, and most especially interest expense. Spend carefully, and then make every purchase count. We will, in future posts, get into detail about all these areas, and provide useful information about how to maximize the value of what you buy, keep excellent records, and competently manage the financial area of your small business.

Have a great week!