Companies Must Care How Revenue is Earned

If you search online for the phrases crush your quota or outstanding revenue growth, you’ll get about 4,500 and 8,000 results, respectively. We adore not only revenue, but its fast and furious capture. Revenue is king! As my district manager used to say, “I don’t care how you make your number, as long as you make it!”

Those words are less inspiration, and more infection. Dishonesty and heavy-handed persuasion are common selling problems, and the district manager made it clear that he had no concern for ethical boundaries. If you’ve worked inside a sales organization for even a short time, you have probably experienced ethical dissonance. “If I told you all that went down, it would burn off both of your ears.”

The DM didn’t care because his boss didn’t care. Nor did his boss’s boss, or any of the bosses above him. That’s how things work in sales. When you wake up every day with a knife-sharp pink slip suspended above your neck, scruples make job security into an oxymoron. Sadly, many reps find they don’t have the luxury of acting on their values. Over many years as a sales rep, I endured countless hours in meetings given to “tips and tricks” for making quota, but I don’t recall a single time when ethics or honesty were even mentioned.

Don’t put all the blame on aggressive, amoral sales reps. This is a leadership issue that traces all the way to the top of the org chart. Want proof? Consider how companies have hyped their revenue machismo, while sweeping their ethical dirt under the rug. In its 2016 annual report, 21st Century Fox, parent company of Fox News, wrote,

“The Fox News Channel, under new leadership, is stronger than ever, and is on track to have its highest rated year in its 20-year history. There has been some speculation that Fox News’ unique voice and positioning will change. It will not.”

and,

“Selling, general and administrative expenses decreased 3% for fiscal 2016, as compared to fiscal 2015, primarily due to the sale of the DBS businesses and Shine Group partially offset by higher selling, general and administrative expenses at the Cable Network Programming segment.”

VW’s 2014 annual report reported revenue this way:

“The Volkswagen Group continued its successful course in fiscal year 2014, again generating record sales revenue and operating profit in an ongoing difficult market environment . . . The Volkswagen Group generated sales revenue of €202.5 billion in fiscal year 2014, 2.8% higher than in the previous year. The clearly negative exchange rate effects seen in the first half of the year in particular were offset by higher volumes and improvements in the mix. At 80.6% (80.9%), a large majority of sales revenue was recorded outside of Germany.”

Keep in mind that at the very moment these self-congratulatory passages were written, 21st Century Fox was paying hush money to victims of Bill O’Reilly’s predations, and VW was rolling illegal carbon-spewing vehicles off their assembly lines. That’s a truckload of eeeeeeewwwwwww to fluff up the financials, and these companies could write a how-to for converting ethical stench into the sweet-smelling perfume of ka-ching. They’re far from alone.

A transparent 21st Century Fox would have written,

“Revenue and profits were up this year at Fox News due to lower than expected payouts to silence Bill O’Reilly’s sexual harassment victims. Legal costs decreased as well. As a result, SG&A expenses as a percent of revenue achieved its biggest decrease in five years. We expect that trend to continue, despite the obvious risks from Mr. O’Reilly’s unchecked predilections.”

And VW would have shared, “While our vehicle portfolio has achieved dramatic improvements in average mileage, VW has not reduced fleet CO2 emissions. However, the company has developed technology to circumvent environmental standards enforcement worldwide, resulting in unhindered sales, and significantly higher profits than could be achieved with legally-compliant vehicles.”

Fat chance. The excerpted passages are lies by omission. Companies get away with it because marketers know the power of the word revenue. Just by itself, the word commands gravitas and respect. Pad it with punchy words like “Achieve geometric revenue growth . . .” and readers will forget they have ethical concerns. Don’t look for a change anytime soon. FASB guidelines don’t compel companies to differentiate ethical revenue from unethical. We refer to it with a catch-all: “The Top Line.” In other words, “a buck is a buck.” Few realize that some bucks are toxic, though I’m certain that the CFO’s at 21st Century and VW have already experienced that epiphany.

On April 3, 2017, Forbes published an editorial stating that O’Reilly’s job was “safe” at Fox News. The reason? Money. The writer presented what he thought were forceful facts: “The O’Reilly Factor generated $446 million in advertising revenue for the network from 2014 through 2016, according to Kantar Media. Last year, the show brought in an estimated $110.8 million in ad revenue, according to iSpot.tv. That compares to the 2016 of $20.7 million in advertising for MSNBC’s biggest star, Rachel Maddow, who is on an hour later. Fox News makes up about 10% of its parent company 21st Century Fox’s revenue and about 25% of its operating income.” Given this adulation, it’s little wonder that O’Reilly felt unassailable. I’ve seen the same pattern within other organizations. Top rainmakers seldom receive adequate oversight.

Yesterday, the New York Times reported that Douglas Greenberg, among Morgan Stanley’s top 2% of brokers by revenue produced, continued to work at the company, despite four women in Lake Oswego, Oregon reporting that his violent behavior drove them to seek police protection. “For years, Morgan Stanley executives knew about his alleged conduct, according to seven former Morgan Stanley employees.” (Morgan Stanley Knew of a Star’s Alleged Abuse. He Still Works There, New York Times, March 28, 2018).

“’21st Century Fox certainly has an economic incentive to keep Bill O’Reilly on air,’ said Brett Harriss, an analyst at Gabelli & Company, adding that any backlash the company faces from advertisers would be temporary.” Just 16 days after the Forbes column published, Fox fired O’Reilly. Apparently, in his smug surety that revenue is king, Mr. Harriss forgot that preventing a valuable brand from winding up in the dumpster is a powerful economic issue, too. Lest anyone forget, this debate brings no solace to O’Reilley’s victims.

Startlingly, the US Equal Employment Opportunity Commission (EEOC) reported that since 2010, employers have paid $699 million to employees who have alleged they were harassed in the workplace. The report “cited an estimate of settlements and court judgments in 2012 that racked up more than $356 million in costs. These don’t include indirect costs such as lower productivity or higher turnover,” according to reporter Jena McGregor of The Washington Post. The EEOC report didn’t distinguish how much of those fines costs were attributed to top revenue producers, but I’m willing to wager based on this evidence, it was a sizable chunk.

Here’s what “I don’t care how you make your number as long as you make it” looks like when it reaches the headlines:

• We don’t care if our employees are grievously harmed. (Wells Fargo)
• We don’t care if innocent people are sickened using our products. (Peanut Corporation of America)
• We don’t care if our exploding airbags make people die. (Takata)
• We don’t care if preserving our profit margins endangers the lives of our customers. (GM)
• We don’t care if our pharmaceutical price hikes make life-saving medications unaffordable (Turing)
• We don’t care if our customers are hurt through no fault of their own. (United Airlines)
• We don’t care if we deliberately deceive our customers by exploiting their dreams. (Trump University)

What’s the remedy?

1. Care. “I don’t care how you make your number, as long as you make it” should never be a sales mantra.
2. Stop rewarding executives, marketing professionals, and sales staff exclusively for revenue achievement. Instead, compensate on value delivered. That’s more difficult, but it’s safer.
3. Stop obsessing over maximizing shareholder value. One reason that many strategic decisions ultimately cause harm. According to Professor Bobby Parmer of the University of Virginia’s Darden Graduate School of Business, “Shareholders don’t own the corporation. Public companies own themselves. Shareholders own a contract called a share. There is no legal reason to put shareholder interests above anyone else. It’s a choice, but not mandated. There is no legal duty to maximize profit. As long as executives aren’t violating the law, the courts won’t interfere with their decision making . . . Across hundreds of studies, there is no evidence that companies that maximize shareholder value are more profitable.”

Would these changes eliminate all harm that corporations create? That’s unlikely. But we need to stop our blind, reverential rhetoric about revenue. We need to redirect our revenue infatuation, and instead honor and reward outcomes that provide broader, more sustainable benefits. We will always have good revenue and bad revenue. It matters when we can recognize the difference.

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