Marketing and Compliance: What Every Marketer Must Know About Risk and Liability
Accountability for corporate compliance and risk -- areas that once were reserved for the upper echelons of an organization -- are making its way to the marketing department largely because of their sizeable budgets and the enormous effect their actions have on both customers and shareholders alike.
Ironically, marketers whose sole job is to ensure the proper communication of a company's position through external media and branding efforts tend to be bad at articulating these same messages internally to peers in departments such as sales, manufacturing, research and development, regulatory, compliance and legal.
As a result, the lack of streamlined internal communications between marketing and the rest of the organization is creating compliance risks that can tarnish a company's reputation, destroy brands and cause legal implications and monetary risk. Complicating matters is the use of existing marketing automation solutions, as they further exacerbate the situation by enabling the execution of wrong and, even worse, riskier actions faster than even non-automated methods could.
To avoid the most common compliance risks arising out of uncoordinated marketing activities, marketers need to first 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 story that talks about how the attorney general's office is investigating a mortgage company because of racially biased 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 customer database marketing practices.
For example, a marketing manager may be preparing to send out a direct mail solicitation to targeted buyers by mining their customer database based on a preselected demographic. Though the criteria used for selecting these targets might have been articulated in a business case and approved by both their legal and regulatory teams, there is often no control to ensure that the final database query used to generate the list of targets actually conforms to the preapproved criteria. Quite often, the criteria are modified by database experts to supply the requested number of targets. In postmortem, when many such campaigns are audited, a racial bias may emerge even though there was no active corporate policy to promote one.
Now, companies are forced to look seriously at marketing process re-engineering to protect their organization's reputation and to avoid the financial risk associated with racial biases. Audit trails and transparency are becoming a focal point for the marketing function, which had traditionally used automation only for database marketing.
* Erroneous representation. Faced with shrinking product lifecycles and rapid global rollouts, very little time is available for 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, 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 that could lead to catastrophic results.
By its very nature, the marketing function touches many different departments including those that typically work in silos such 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 due to ineffective communications can have severe and immediate consequences to an organization by eroding both the value 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. Further, because these solutions support automatic data gathering, the marketing department can now generate status reports and track efficiencies to avoid erroneous representations.
Marketing Expense Tracking and SOX
The recently enacted Sarbanes-Oxley Act (SOX) requires that a company report on the effectiveness of their internal controls as it relates to their 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 is dubiously famous for ad-hoc, unplanned operating expenses because of evolving market conditions and competitive landscapes. Unfortunately, these unexpected operational expenses are almost never accrued accurately.
As a result, it is likely that most corporate P&L statements have an error margin of six to ten percent that can be directly attributed to inadequate financial reporting by marketing staff. Ironically, while nearly every other department/function within a company has gone through a severe Sarbanes-Oxley audit, marketing has remained fairly unaffected by this recent legislation which has resulted in highly inaccurate financial reporting by most corporations.
Because of SOX, marketing departments are now 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 SOX compliance, many CMOs are requiring that 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 accountability.
Like it or not, marketers will forever 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 spend, while promoting a corporate-wide communications culture, they may find that that the road to compliance is much easier than once thought.