In 2009, researchers at Harvard Business School distributed a working paper on goal-setting and ethics. The paper argues that by setting frequent quantitative goals, organizations galvanize unethical behavior. The authors detailed their findings adding, “when quantity and quality goals were both difficult, participants sacrificed quality to meet the quantity goals.” Ethics is a state of quality.
One department ceaselessly tasked with aggressive quantitative goals that are favored above qualitative objectives: marketing. Marketing goal numbers are more soothsayings than forecasts, like a haruspex methodically fumbling through the entrails of marketing, sales, and finance to announce target numbers in a room of hungry acolytes, qualitative necessity a throwaway concept despite it being the main priority of a brand against the backdrop of drastic and volatile cultural changes in which that brand must survive. The livelihood of the individual marketer depends upon her team reaching monthly, quarterly, and annual earnings goals; if not met, marketing teams often finger-point internally until someone’s job is in jeopardy. Short-term goal-setting creates a breeding ground for toxic culture and is a driving reason behind the job instability of CMOs.
So how do we convert leadership, boards, and investors to prioritize ethics? We can show them favorable studies backed by numbers and that is what Bad Brain and this article aim to do: arm you to defend and help you to deploy ethical quality in market growth strategy.
A seminal working paper from the University of Southern California and Columbia University found that “[organizations] discontinuing quarterly earnings guidance are concerned about the potential costs of such disclosures. They argue that frequent earnings guidance encourages investors and analysts to emphasize meeting short-term earnings targets which fosters myopic managerial behavior that is detrimental to firms’ long-term growth and value creation.” This type of short-term goal-setting created “managerial myopia”, a sort of Machiavellian tunnel-vision to meet short-term goals at the expense of long-term value. This phenomenon is illustrated in the table below where Dedicated Guiders are driven by short-term earnings goals and Occasional Guiders take a more long-term perspective.
The tables indicate that firms with myopic behavior significantly underperform in long-term returns though they have a significantly higher rate of meeting or beating quarterly analysts’ expectations. The same tunnel-vision that increases the chance of unethical behavior under short-term approaches is the same vision that obscures the “big picture”, leading to significant failures compared to companies that focus on long-term market growth.
So why do we care about long-term returns? Simple: security stems from stability and the human condition predisposes us with a preference for that sort of predictability. We invest in stable businesses for stable dividend payments. In turn, we anchor our economies to those businesses. Ultimately, we build our societies around the economies fixed to those businesses. Stability, for a business, is defined by its ability to weather economic conditions year after year. A non-negotiable pillar of stability in business is ethics, “the nation’s most admired companies are also among those that had the highest profit margins”.
While ethical business is typically thankless and lacks the sensationalist content media outlets publicize, there are numerous examples of how poor ethics can tank a business:
A study published in the Journal of Business Ethics found that public announcements that a company is under investigation or if a company outed as unethical, a negative excess of return exists; we, as a society, penalize unethical practices. This is also backed by a small poll we ran back in January 2019 on the very vocal Twitter:
If you learn a company uses unethical business process (marketing, production, etc.) do you cease using or buying their service/product?
sub = substitute product/service
— Bad Brain (@BadBrainGroup) January 12, 2019
This is why market growth must include ethical practices. Ethics changes as culture and society reposition to meet a community’s evolving needs. The study of these trends, therefore, becomes imperative.
At Bad Brain, we have a long history of studying humanity that we then translate into actionable, market growth plans for startups. Our exploration of and subsequent migration to the startup marketing space began after we discovered a dearth of outsourced marketing teams focused on ethical and sustainable growth strategy for seed through growth stage ventures — ventures in their formative years when culture and values are forged. We utilize behavioral and social sciences to help new and scaling ventures understand their market landscape and grow for the long-term. Bad Brain is the foil to Cambridge Analytica and we know this because we have met those guys. If you are a newly funded organization looking for long-term value creation that keeps the ethical obligations and the goodwill of your company in mind, we would love to talk to you; feel free to reach out.□