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Compliance, corporate governance and recent legislation such as Sarbanes-Oxley (SOX) are nothing new to corporate executives who run the risk of exorbitant fines and even jail time for failing to conform to recent mandates. But what's new is this: Accountability for corporate compliance and risk—areas that were once reserved for the upper echelons of an organization—is now making its way to the marketing department.

That's because marketing's sizeable budget and activities have an enormous impact on customers and shareholders alike.

Paradoxically, marketers—who's sole job is to ensure the proper communication of a company's position through external media and branding efforts—tend to do a poor job of articulating those messages internally, to peers in departments such as sales, manufacturing, R&D, regulatory, compliance and legal. As a result, the lack of streamlined internal communications between marketing and the rest of the organization creates severe compliance risks that can tarnish a company's reputation, destroy brands, and create severe legal implications and monetary risk.

Further complicating matters is the use of existing marketing automation solutions, because they exacerbate the situation faster than non-automated methods could.

To avoid the most common compliance risks arising from 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... stories like the one about how the Attorney General's office is investigating a mortgage company due to racially biased lending practices. However, in most cases, mortgage and lending institutions tend to represent one of the best models for 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 pre-selected demographic. Though the criteria used for selecting these targets might have been clearly articulated in a business case and approved by both the legal and the 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 pre-approved criteria.

Often, the abovementioned criteria are modified by database experts in order to supply the requested number of targets. In postmortem, when many such mail campaigns are audited, a racial bias may become apparent even though there was no active corporate policy to promote such bias.

Suddenly, companies are forced to look seriously at marketing process reengineering in order to protect the reputation of their organizations and avoid the financial risks associated with even unintended racial biases. Audit trails and transparency are increasingly becoming a focal point for the marketing function, which had traditionally used automation only for database marketing.

Today, companies are looking beyond their existing marketing automation solutions in favor of newer technologies such as Marketing Operations Management (MOM) applications because they are capable of targeting these issues. For instance, by using a comprehensive workflow solution, like the ones mentioned above, an organization is able to ensure that the correct checks and balances are in place along with tight version controls and a clear track of "who is doing what," to avoid the risk of racial bias.

* Erroneous Representation

Faced with shrinking product lifecycles and rapid global rollouts, marketers have little time 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, very 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, all of which 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 and Clinical Trials—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 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. Furthermore, because these solutions support automatic data gathering, the marketing department can generate status reports and track efficiencies to avoid erroneous representations.

* Marketing Expense Tracking and SOX

The recently enacted Sarbanes-Oxley Act requires that a company report on the effectiveness of its internal controls in relation to financial reporting. Crucial to effective internal controls is that computing systems be capable of protecting the integrity of corporate, financial and customer data.

As noted, marketing expenditures represent a significant percentage of the overall expenses incurred by a company. Marketing is dubiously famous for ad-hoc, unplanned operating expenses as a result 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 6-10% 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, resulting in highly inaccurate financial reporting by most corporations.

As a result 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.

To improve SOX compliance, many CMOs are requiring that marketers use technology that will allow them to tightly integrate financial reporting with marketing procedures. In doing so, strategic planning and budgeting modules can track expenses and cost overruns, thereby improving accountability.

Simple Changes to Avoid Severe Consequences

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, all the while promoting a corporate-wide communications culture, they may find that that the road to compliance is much easier than they once thought.

Continue reading "What Every Marketer Must Know About Risk and Liability" ... Read the full article

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ABOUT THE AUTHOR

Chetan Saiya is the founder, chairman and CEO of Assetlink. Contact him at Chetan.Saiya@assetlink.com.


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