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Ethical and Legal Issues in Selling

© Cosmopoint International University College

What is Ethics?

• Ethics are the codes of moral principle and values that uphold the behaviours of a person or a group with respect to what is right or wrong.

• Ethics set standards for what is good or bad in conduct and decision making.

WHY BE ETHICAL?

• There is inner benefit. Virtue is its own reward. • There is personal advantage. It is prudent to

be ethical. It is good business. • There is approval. Being ethical leads to self-

esteem, the admiration of loved ones and the respect of peers.

• There is religion. Good behaviour can please or help serve God.

• There is habit. Ethical actions can fit in with upbringing or training.

WHAT IS ETHICAL BEHAVIOR?

• Ethical behaviour refers to treating others fairly. The term “ethical behaviour” refers to how an organization ensures that all its decisions, actions, and stakeholder interactions conform to the organization’s moral and professional principles.

• These principles should support all applicable laws and regulations and are the foundation for the organization’s culture and values. They define “right” from “wrong.”

What consists (makes up) of Ethical Behaviour?

• Being honest and truthful• Following the rules• Conducting yourself in the proper

manner• Treating others fairly• Demonstrating loyalty to company and

associates• Carrying out the work with more

responsibility and dedication – 100 percent effort.

ETHICS IN DEALING WITH SALESPEOPLE

• Managers have both a social and ethical responsibilities to sales personnel.

• Salespeople are a valuable resource; they are recruited, trained and given specific roles and sales targets to achieve.

• There are situations that may arise where it is difficult to say whether a sales practice is ethical or unethical.

• Many sales are somewhere in between both extremes of completely ethical and unethical.

Five ethical consideration sales managers face are:

• Degree of sales pressure to apply on a salesperson

• Decision on a salesperson’s territory

• Honesty with the salesperson• Medical rights of employee• Employee legal rights.

Level of pressure

• There must be reasonable level of sales pressure to apply on salespeople.

• The Sales Manager has discretionary power to use on his or her sales personnel.

• Since managers are responsible for group goals, they have a tendency to place undue pressure on salespeople to reach their goals.

• Some managers have higher sales quotas imposed on their salespeople.

• Other sales managers may use sales motivation training to gain greater momentum in their overall sales.

Decisions affecting territory

• Managers make decisions that have an effect on the salesperson’s sales territories.

• Manager must be fair to all salesperson when he makes a decision to break up sales territories.

• The Sales Manager must inform the customers of this change.

• Customers must welcome this change that they are the supervision of a new salesperson.

• Customers must understand change taken by sales manager and welcome it openly without any dissatisfaction but it is for the good of all.

• Key Accounts or big corporate customer are valuable both to:• Business Organization• Salesperson

• Sometimes the company may decide to convert this key accounts into In house or corporate accounts.

• Thus this will deprive sales persons valuable sales commission and effect their livelyhood.

Decisions affecting territory – key

accounts

To Tell the Truth

• Sales Managers must be able to assess truly the capability of their salespeople.

• Good judgment must prevail. Sales Managers need to be honest with their subordinates i.e. the salespeople.

• The Sales Manager must not practice double standards, but be fair to all.

• The Sales Manager must act without fear or favour in executing his task and be seen as man of his or her words.

The Medically Unfit/Drug Addict/Alcoholic Salesperson

• An organization may use its discretion to administer the following situation:• Those who persistently violate company policies will

face drastic action.• Firstly the company’s representative may counsel

employees to discourage them from engaging in these negative habits.

• However should employee be defiant, the company through the Human Resource department will proceed to take action to dismiss employee for non-compliance of company policy and rules.

What is Employee Rights?

• Employee rights are rights sought by employees regarding their job security and their treatment by employers while on the job, whether those rights are currently protected by law or through trade union agreements.

• There are issues that need to be resolved:

• Employers have the right to terminated for poor performance, excessive absenteeism, unsafe behaviour or conduct, and insubordination.

• Personal information should not be disclosed or be subjected to scrutiny by anybody, but the person with the authority to do so. This information must be kept discreet and should be able to handle carefully by all employees without divulging such information to third parties.

• Sexual Harassment is unwelcome sexual behaviour by a supervisor usually a man towards a female employee or subordinate. Such an act by a superior to a female subordinate could demoralize the employee or may make her leave the organization.

SALESPEOPLE ETHICS IN THE ORGANIZATION

• Salespeople and Sales managers should not misuse company assets, do any other work during company time, cheat or falsify records to claim more commission, download valuable company information upon resigning or sacked.

Misusing the Company Assets

• Wilful act of damaging company assets due to intentional or negligent damaging can cause the company tremendous losses.

• The use of corporate assets for personal gain or as bribes and kickbacks (illegal payments) to customers should not be encouraged.

• Thus, companies use CCTV (Closed Circuit Television) to monitor employees work activities while they are in the office premises.

Moonlighting

• Moonlighting is the process of engaging in any outside work with outsiders without your employer’s approval.

• Salespeople not closely monitored and consequently they may be tempted to take a second job perhaps on the company time.

• This is an unhealthy practice as the company’s allocated time is used for one’s own personal gain to the disadvantage of the employer or company that engages the salesperson full time.

Cheating

• A salesperson may not engage in fair play in his business undertaking.

• The salesperson may be not fully disclose vital information, or collaborate with the customer to engage in illegal activity to defraud (cheat) the company.

The Impact of Salesperson behavior

• The unethical practice of one salesperson can have negative effect on the rest of the group of salesperson.

• When a salesperson discounts and offers lower prices by forgoing his or her commission just to gain customer and market share.

• Other salespeople would be unhappy and dissatisfied because they lose their customers to the salesperson who gave illegal discounts.

Technology Theft

• A salesperson or sales manager who resigns or has been sacked will try to drain out some valuable corporate information or steal unique technology and sell it to rival competitor.

• The Sales Manager vents his anger by engaging in an illegal act to avenge the loss he or she suffered by action taken by their former employer.

ETHICS IN DEALING WITH CUSTOMERS

• Numerous ethical situations may arise dealing with customers, and sales organizations may create specific business conduct guidelines to deal with these matters.

• Some common problems that affect the public image of the organization and the salespeople are:• Bribes, misrepresentation, • price discrimination, • tie in sales, • exclusive dealership, • reciprocity • and sales restraint.

Bribes

• A Salesperson may offer money, gifts, entertainment, and travel opportunities. There is a fine line between good business and misusing a bribe or gift to gain favour or an advantage.

• Sometimes buyers may ask for cash, gifts, and merchandise or travel payments to offer the salesperson’s company a lucrative contract.

• Though it is very tempting, the salesperson must resist and uphold its ethical value and not give in to this temptation. A Salesperson may offer money, gifts, entertainment, and travel opportunities.

• There is a fine line between good business and misusing a bribe or gift to gain favour or an advantage. Sometimes buyers may ask for cash, gifts, and merchandise or travel payments to offer the salesperson’s company a lucrative contract.

• Though it is very tempting, the salesperson must resist and uphold its ethical value and not give in to this temptation.

Misrepresentation (Misstatements)

• Untrue statement of fact, made in the course of a business transaction that induces (lures) the other party (prospect or customer) to enter into a binding contract.

• When a customer depends on a salesperson’s statement, purchases, the product or service and then finds that it fails to perform as promised, the supplier (the salesperson’s company) can be sued for misrepresentation and breach of warranty.

• The Salesperson must avoid making misstatement and those intending to lure the customers to sign up a contract or buy up a product or service.

Price Discrimination

• Price discrimination refers to selling the same quantity of the same product to different buyers at different prices. This can be illegal if it hampers (stop) or reduces competition. It is unfair and unethical and no way to treat customers.

• Certain customers may enjoy special price reduction, promotional allowances, and support. But this may not be so for all the customers.

• Individual salesperson or managers may practice price discrimination to improve sales. rice discrimination refers to selling the same quantity of the same product to different buyers at different prices.

• This can be illegal if it hampers (stop) or reduces competition. It is unfair and unethical and no way to treat customers.

• Certain customers may enjoy special price reduction, promotional allowances, and support. But this may not be so for all the customers. Individual salesperson or managers may practice price discrimination to improve sales.

Tie in Sales & Exclusive Dealership

• Tie in Sales• If a buyer is in need of a particular product, but he

or she is compelled (forced) to buy some other product with the intended product. This is called a tie in sale which is considered to be an illegal act.

• Exclusive Dealership • Where a buyer is forced to purchase from one

manufacturer only, it is an exclusive dealership. This helps to lessen competition.

Reciprocity

• Reciprocity means buying a product from someone if the person or organization agrees to buy from you.

• Simply means “you scratch my back I scratch your back.”

• Though this is done in an informal manner in many business activities without due regard to its consequences.

Sales Restrictions and Cooling off period Sales

Restrictions and Cooling off period Sales Restrictions and

Cooling off period Sales Restrictions and Cooling off

period

Sales Restrictions and Cooling off period

• In order to protect consumers against unethical sales activities, the law provides a cooling off period. • What is a Cooling off Period?

− A Cooling off Period is a number of days provided in which the buyer may cancel the contract and return the merchandise to the seller and obtain a full refund. This cooling off period acts to protect consumers from salespeople using unethical, high pressure sales tactics.

MANAGING SALES ETHICS

• Managers must take active steps to ensure that the company stays ethical in the day to day business activities.

• Some of the measures (actions) that can be taken include:

• Ethical Leadership and direction of Management

• The respective heads of the organization and top management need to set an example by their actions, conduct and nature of business by being ethically minded in all their day to day activities.

• The top management must nurture, guide and monitor to ensure the success of its various ethical programs if it matters.

Careful Selection of Leaders

• The choice of managers and recruitment must be done properly to ensure that the person promoted or appointed has the capability to perform exceptionally well but be also ethically minded in all aspects of business operation and objectives.

Establish a Code of Ethics

• A Code of Ethics is a formal document with a set of rules governing the behaviour of members of an organization that has established the conduct and behaviour of individuals to conform to its requirement.

• There are two types of Codes of Ethics:• Principle based Statements• Policy based Statements

Principle based Statements

• These statements are created to affect corporate culture, define fundamental values and contain general language about company responsibilities, quality of products and treatment of employees. General statements of principle are often called corporate credos. Example are ITOCHU’s credo is “Committed to the global good”.

Policy based Statements

• Direct Selling Association of Malaysia.• Generally outlines the procedures to be

used in specific ethical situations. These include marketing practice, conflict of interest, and observance of laws, proprietary information, political gifts and equal opportunities. E.g. Direct Selling Association of Malaysia’s Code of Ethics is applicable to all Multi Level Marketing salespeople.

Ethical Committee

• A group of executives appointed to oversee company ethics. The committee provides rulings on questionable ethical issues.

• The ethics committee assumes responsibility for disciplining wrongdoers. This responsibility is important if the organization is to directly influence employee behaviour.

• The act of knowingly changing the behaviour of an individual is behaviour modification.

Creating an acceptable ethical working environment.

• Sales Managers must help develop and support their code of ethics.

• Top managers must initiate action to improve the ethics in their organization. Managers must inform about the code of ethics and oppose any unethical sales practices engaged by salespeople or other employees.

• A stronger level of ethical adherence can be achieved during a sales meeting, training sessions and when contacting customers while working with salespeople.

• The company’s credo, code of ethics should be visibly displayed in the premises. This can be displayed at place where the salespeople are in contact with customers.

• Effective control system must be put in place. • Methods must be used to determine whether

salespeople engage in any unethical behaviour.

• Management must make sure a concerted effort to create an ethical working environment.

• Customer in turn will realize the value of the implication to them and the salespeople it is for the good of all.

Establish Control Systems

The Direct Sales Act 1993 of Malaysia• The Direct Sales Act 1993 (DSA 1993) acts as

government engineered mechanism to protect the customer from unscrupulous multilevel marketing and direct marketing companies.

• DSA 1993 safeguards customers from being cheated, abused by the MLM Company or salespeople.

• It put into place various mechanism, checks and balance to ensure the smooth operation of MLM Company and direct selling companies.