Business Ethics Case Of National Advertising Division: Issues And Solutions
The ‘Pay for Play’ Scheme of BBB and Its Stakeholders
1. Which is the national advertising division’s most important stakeholder, business or consumers ?
2. Do You believe the BBB can be truly impartial given its financial dependence on business ?
3. What actions would you take to ensure an ethical misconduct disaster such as the pay-for-pay scheme does not happen again ?
Business ethics has been the most important area to be focused on in this competitive world. However, there are few organizations that are neglecting the importance of business ethics and creating issues for their customers and clients. Similarly, this report discusses about the ethics case of National Advertising Division, BBB best known watchdog group of the consumers. The organization was blamed for running a scheme named “pay for play” in which the A –plus ratings are honored to the businesses that pay fees for their membership, and F ratings was utilized to punish the businesses that don’t. To analyze the issues, the report starts discussing about the important stakeholder of BBB, the consumers and the business. The businesses are the important stakeholders of the organization because the association cannot develop a trust community without the businesses and the consumers are the important stakeholders if the consumers ignore or neglect the BBB ratings, then obviously the businesses will not invest further. The issues of “pay for play” scheme is viewed from the perspective of two different theories one is the stakeholder theory which would help the managers of the BBB to understand the importance of stakeholder’s ethics and another from the perspective of corporate social responsibility where four different obligations: the economic responsibility, the legal responsibility, the ethical responsibility and the philanthropic responsibility have been analyzed for BBB. The last part of the report discusses few solutions to solve the issues of BBB. The report is concluded by summarizing the overall report.
The National Marketing Division, Better Business Bureau is one of the well-Known self-regulatory trade associations of United States. The main purpose of this association is to develop an environment of trust among the sellers and the buyers. However, , The Better Business Bureau, one of the nation’s best known watchdog group of the consumers is being blamed by entrepreneurs for running a scheme named “pay for play” in which the A –plus ratings are honored to the individuals who pay fees for their membership, and F ratings was utilized to punish the individuals who don’t. Accordingly, this rating framework is truly unworthy of purchaser trust or certainty and is possibly destructive and misdirecting to buyers. Not just does this show an absence of trust in their own particular product, it makes it outlandish for anybody to complain about the Better Business Bureau to the association. Moreover, The BBB is financed by enrollments paid for by organizations. This rightly or wrongly gives the presence of a clash of investment. These appear to have been effectively diverted by the BBB as simply being monetary distortions of a local nature, and not something to concern, or go under the domain of, the CBBB. This report will analyze the ethical misconducts of BBB and its impact on its stakeholders. The report will also recommend some solutions to ensure that the misconduct is not repeated again. The report will be concluded by summarizing the overall discussion of issues of BBB.
Analysis from the Stakeholder Theory and Corporate Social Responsibility Perspective
Generally, there are many stakeholders of an organization like employees, shareholders, customers, local community, government, and suppliers. Focusing on the case study of BBB (Better Business Bureau), it is found that for any recognized business, they pay to join the BBB and have the benefit of the high rating system compared to other business. The “pay-to-play” scheme has impacted the businesses negatively due to unreliable ratings apart from business which have paid fees for receiving high rates (Watson and Weaver, 2003). Comparatively, the rating system is very important for non-accredited businesses which help the consumers to choose the product or service provider due that rating. Through this scheme, the consumers started choosing the accredited business instead of non-accredited business which made the non-accredited businesses to lose their consumers despite having good products and services (Vitell and Paolillo, 2004). . It is to be noted that the firm requires many businesses to join them so that they ac effective give services to their customers. The association cannot develop a trust community without the businesses. Thus it can be said that the business is an important stakeholders of the NAD division.
However, it is to be noted that consumers can easily access the website of BBB at free of cost and observe the ratings of the organization or business they are looking for provided that they are BBB accredited. Consumers identify name of BBB more that of Federal Trade Commission. Since the business provides resources for BBB to develop high brand reputation and brand image in front of consumers. So, if the consumers ignore or neglect the BBB ratings, then obviously the businesses will not invest further. Thus consumers are the most important stakeholders of BBB.
The moral viewpoint attests the rightness or misleading quality of particular firm activities freely of any social or stakeholder obligations. While market orientation is viewed as a key vital part of marketing method, the criticalness of consumers in the improvement of moral programs and social obligation is not generally clear (Tuttle, 2013). As organizations participate in competitive markets, customer focus and market orientation has been perceived as key drivers of performance of marketing. Then again, sometimes fierce competition breeds dishonest conducts even at the point when orientation of customer is in role. In this way consumers would be confounded if BBB gives an unjustifiable rating and build the evaluations with respect to whether the organization is a part of the affiliation. Furthermore, since BBB is prevalent and reliable of its dispassionately evaluating framework, consumers are more inclined to pay more for same administrations or items on the off chance that they pick a BBB part business in light of the fact that a licensed business must compensate for what it paid to BBB by raising the cost.
Thus the main responsibility of BBB is to take strong legal protection to consumers. This would help to build and develop mutual expectation and also create fair dealing, good faith and trust (STEVENS and BROWNELL, 2000). According to Moral Management model, it is the ethical norms, the code of conduct in profession, orientation towards law, the motives and goals of the organization that help to maintain the ethical standards towards the consumers. This model conveys that the management should aspire to succeed only through ethical precepts. This can only be done by following an ethical leadership. This is the only approach that helps to seek the right things to do. Moral Management model says that the following ethics is an integrity strategy that drives the success of an organization. The ethical values shape the management and offers opportunities to make effective decision and also design a proper organizational system. BBB also must emphasize on ethical values in their rating system (Jamnik, 2011). This integrity framework would help BBB to frame a common reference and serve to amalgamate the various functions, their business line and also stakeholders group. Thus ensuring fair and faithful dealings with the stakeholders.
Solutions to Solve the Issues of BBB
BBB has received huge controversies with their rating system which was one of the main ethical issues that the organization faced. The controversy started when the renowned restaurant “Ritz-Carlton Hotel” received rating “F” despite of no complaints. This left the consumers puzzled that why such a prestigious companies or figures are received poor grades. The reason behind such ratings were that the some of the employees of BBB rated high ratings for the businesses which paid fees to BBB members while rated low for the business that did not paid any due fees to BBB. This allegation led critics to claim the BBB is operating a “pay for play” scheme. This “pay-for-play” is a fraud system in which the individuals and the organizations pay for their good treatment at the cost of extra entities. This was something discriminating process where BBB awarded good ratings “A” for accreditation for those who paid fees while discriminating others who did not paid fees by rating “F”. These problems occurred due to misconduct conducted by the Los Angeles Branch of BBB. Various business owners reported the BBB was giving low grades to their business despite now customer complaints or resolved. The owners also reported that BBB was supporting pay-for-play where to get high ratings you have to pay. Those who became the members of this firm saw modification in their grades the very next day.
However another issue of BBB was too friendly in with the business organizations. Consumers reported that whenever they lodged a complaint against some issues like issues in cell phone carriers, etc, the BBB asked the consumers to make some additional information for their complaints in a form. These forms were then sold to the businesses to look upon their weaknesses. The consumers got upset knowing the fact that this was not disclosed to them that how their information is being used.
Thirdly, the organization also was involved in launching partnership with few businesses to make profit for both the parties. The non-accredited business organizations claimed that BBB did not pay much attention or acted as an intermediary among the business and customers that denied to pay due fees. From these issues, it can be said that helping the customers to know the businesses was a corporate social responsibility. However, the BBB did not follow the ethical rules towards this. In this way the organization destroyed the value of the customers and also business.
From an analytical point of view, the organization should focus on the stakeholder approach. The stakeholders’ theory can help supervisors by advancing investigation of how the organization fits into its bigger surroundings; how it’s standard working methods influence stakeholders inside the organization and promptly outside the organization. Freeman recommends, for instance, that each one firm ought to fill in a “generic stakeholder map” with particular stakeholders (Redwardfreeman.com, 2015). In a normative sense, stakeholder theory unequivocally proposes that disregarding the different stakeholders is an imprudent or incautious and/or morally unjustified. To this degree, stakeholder theory takes an interest in a more extensive level headed discussion about business and morals: will a moral organization be more beneficial over the long haul than an organization that looks just to “what really matters” (Kimber, 2005).
Similarly, according to the theory of corporate social responsibility, there are four obligations of an organization, the economic responsibility, the legal responsibility, the ethical responsibility and the philanthropic responsibility (Banerjee, 2007). According to the economic responsibility, the companies focus on making profit through their operations but should be in ethical way. However, BBB fails in this responsibility. The BBB generated income mainly by selling the memberships to various business and collecting the accredited due fees. It did not receive any financial help from the government. Then the legal responsibility, where means adhering to the rules and regulations. This means the organization obey certain rules to make good faith. However, the BBB did not had such rules that the firm would obey to make a trustworthy group (Bolte, 2009). The BBB branches reduce their costs utilizing personnel which do not have the prerequisite that will allow them to judge which complaints are suitable and which are not. Thousands of businesses have faced with various unprofessional decisions made the unprofessional personnel to damage their businesses. Then the ethical responsibility, which is all about doing the right thing at the right time. This theory depends on rational corporate culture that sees the business itself as a citizen of society. This is the main responsibility, in which BBB lacked in (By and Burnes, 2013). One of the main ethics that the BBB lacked in is transparency. It lacked in maintaining transparency with their customers. Information is the most vital part which permits the business or individuals to make choices, so that other parties cannot abuse. However, not disclosing about why BBB collected the information from customers made them upset. Similarly, quality was another factor. It was one of the complex issues that BBB lacked in, thus not meeting the expectations of the customers and the businesses. This factor directly affected the value creation stage of the BBB. This made BBB to strive hard to gain the trust of the consumers (Crane, Matten and Spence, 2008). The business group is very much aware that the BBB oppresses non parts; evaluating distinctively charge paying parts than non parts. Hundred of a great many organizations over the USA experience this separation direct. This “Mafia” style of the BBB strategies to gather “Accreditation Fees” created a disturbing number of internet posting, court cases against BBB and also blogs. Lastly, the philanthropic responsibility that mainly focuses on contributing the society with their projects and process. But, the BBB created confusing environment. Similarly, the complaints system is additionally defective in light of the fact that buyers normally can’t read the specifics of issue from past clients. It was difficult to get a feeling of whether the given complaint is genuine, or in the event that it’s originating from a wrench that would presumably never be fulfilled. This truth is frustrating for customers and businesses alike (Das Gupta, 2010).
Discussing all the issues, it can be commented that the BBB can be partial if the financial dependence is on their business.
The key issue of “pay for play” scheme was that the selling of memberships. Thus to make sure that this misconduct is not repeated again, the BBB can implement a rewards system, where the reward like extra benefits of being a member of BBB instead of discriminating in the rating system. This standard can be utilized to give some extra benefits to members of BBB, like if they are having some issues, they can discuss with the experts to solve the issues. This process would motivate the businesses to become the member of BBB and further would help BBB to improve their revenue and stakeholder’s base. Further, they can focus on few grading elements that would help them to lower this misconduct. These elements can be (Ferrell, 2004):
- Analyzing the history of complaints for businesses in BBB- through this the BBB can establish reliable information about the business to customers which would help them to have a clear picture about the brand they want to know.
- Business Type: BBB can categorize their rating system based on the type of business like suppose, Type A- Business that experience high violation due to their services and products should be given F grade
Type B- Business that has received the highest customer dissatisfaction comments can be rated as E grade.
- Business Time: The BBB grade is lower if the duration of business operation is less. BBB should verify all the information about that business to make the customers aware of the new brand in the market.
- Business Background: The BBB grade is lowered if the business does not provide relevant information or fail t provide the background information that BBB asks for may lead to lower grade. Then the business that having some conflicting information about the business and are unable to resolve the issue might lead to lower grade.
- Failing to honor commitment to BBB- the BBB grade will lower down if the businesses fail to comply with the commitments or the accreditation standards.
- Government and Licensing actions known to BBB- If the business fail to have the competency licensing then it would experience low grade. Similarly, if the business faces some issues against government actions will receive a lower grade.
- Issues related to advertising: The BBB grade will lower down if the business does not respond properly to the challenges related to advertising like use wrongly of BBB marks, or some other potential issues of advertising identified by BBB.
Further, BBB should make sure that all the businesses are well aware of these grades, so that they can act accordingly.
To prevent such misconduct the BBB must make some strategies that would make sure that the businesses and the consumers are not confused with the rating system. The strategies can include (Bolte, 2009):
- Combating fraud: To prevent misconducts, it is recommended the BBB establishes some anti-fraud team to preserve an effectual whistleblower hotline which is confidential and accessible. They should also recognize that the organization culture should also play a role in preventing and detecting the risks associated with the fraud. A proper investigation team can be formed to take care of such issues. To make sure that the code of conduct is enforced properly across the organization, it is the responsibility of the investigation team to create a comprehensive strategy for keeping the cost of compliance and cost of employee misconduct at a minimum level.
- A proactive approach for managing risks- The BBB must implement a reporting mechanism that would help to observe what is going around in the business surrounding and also ensure that anything going against the policies of BBB is reported immediately. Utilizing a Six Sigma approach, the BBB can deploy the case management and also reporting mechanism system that would help to report, handle and resolve the issues that may expose due to the compliance risks or fraud of organization. Even selecting a third party vendor would give safe and trusted resources for the employees. The BBB must make sure that reporters should upload the documents with all the details like ,witness, name, issue etc that would help BBB to recuperate losses and also recognize how to combat similar issues.
- Providing each case a constant review: Developing a centralized integrated management system would help BBB to identify the risks and also permit the different departments to work collaboratively. Teams including the Human resource, legal, internal audit and security representatives, can collaborate to investigate any such fraud issues. This would help the organization to better recognize the trends and risk areas for the organization.
- Developing business ethics for everyone: With consistent and comprehensive system placed across overall BBB operations, the BBB can reinforce the culture of the company and also code of conduct. All the employees of BBB must recognize they are accountable for Code of conduct. The BBB must empower few employees who would bring the fraud or misconduct in line with integrity culture of the organization which would help to increase the keenness to communicate about the violations of Code of conduct.
In conclusion, the present report has highlighted the ethical issues of BBB. The report found that their scheme “pay for play” had created misconduct for the businesses and the consumers. The important stakeholders that actually drive the business of the organization are the consumers. However, the business also plays an important role as a stakeholder. The report highlighted that it is a myth that the BBB is impartial. The truth is that it created discrimination between the accredited and non-accredited businesses. It collected membership fees and then graded based on the dues. The business that paid the dues received “A plus” grade and the businesses that refused to pay the dues received ” F “grade even though there was no customer complaint about their product or services. The report linked these issues of BBB with the stakeholder theory and also the four obligations of corporate social responsibility. At the later part, the report recommended some solutions to combat such misconducts in future. The report discusses that the BBB must implement a new reward system and also makes some categories to provide the ratings. These categories should be disclosed clearly with the businesses to avoid confuse.
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