WHAT IS A MORAL HAZARD?
It is commonplace that companies over-commit, over-sell, and over-promise in an effort to make a sale, and in a broader context to steal a march on the competition. When this behavior is acted out knowingly, however, it creates a moral hazard that an executive leadership group driven by an ethical construct that goes beyond a fixation with the bottom line can not countenance and must move to stop dead in its tracks. The consequences of ethical misconduct are real and severe and may over time doom the mightiest enterprise. Adelphia Communications, Arthur Andersen, Enron, Lehman Brothers, Wachovia, and Worldcom are but a few of the household names which were eventually cut down to size for their continued arrogance in the face of flagrant moral misbehavior. Unfortunately, the comeuppance suffered by these malefactors is little consolation to the millions of consumers who lost their jobs, their homes, and their hard-earned life-savings at the hands of these unscrupulous predators.
There is always the potential to give rise to a moral hazard anytime one party to a transaction has an incentive to behave against the interests of another party. Moral hazards can be mitigated somewhat by regulations but, in the end, regulation spells out the lowest common denominator of acceptable behavior. In all of the above cases, it’s important to remember, there were laws on the books to preclude the affronts perpetrated by these corporations. Moral hazards can also be mitigated by the presence of contracts that are fair and balanced and which give as much as they take. Unfortunately, the preponderance of marketplace transactions is essentially one-way and invariably favors the supplier. The admonition to the consumer of caveat emptor is helpful but hardly practicable in the rapid-fire of day-to-day commercial transactions.
THE SERVICE ETHIC: A SUPPLIER OBLIGATION
The onus to treat the consumer fairly, therefore, rests squarely with the supplier which abides a service ethic. The Service Ethic refers to those principles and practices that govern how individuals and their organizations behave toward the customer. The Service Ethic rests on three pillars:
- An explicit and unambiguous mission to serve the customer. The mission must clearly and succinctly state that “customers are first.” Commitments to employees, stockholders, and other stakeholders although clearly important in their own right can not purport to represent the raison d’être of the corporation. To serve the customer and the marketplace is the principal reason for the corporation to exist and it must trump all other considerations.
- A lofty mission statement to serve the customer is often nullified by tactical, operational or departmental “fine print.” If the mission to serve the customer, however, is to come to life, no policy, practice or procedure, can be allowed to subvert that mission.
- Adherence to the “golden rule of service.” This implies that the organization will always do what it says it is going to do and conversely never do what it says it is not going to do. A simple adherence to this rule admittedly difficult at times to enforce can dramatically improve customer goodwill.
It is gaining more and more currency that consumers focus as much on the integrity of their suppliers as on the quality or price of their products. It is a visionary executive leadership group, moreover, that understands that service excellence driven by an unremitting adherence to the Service Ethic can prove an unassailable competitive advantage in the 21st century while enhancing the moral standing of the corporation.