Taking the Long View on Customer Relationships

by Hanh Pham and Bernadette R D'Alessandro

By focusing on risks that may lie on the horizon so companies can head them off—rather than reacting to them after the fact—internal auditors can help protect a company’s overall value and reputation


As we contemplate trust and transparency in business against the backdrop of unethical sales practices events over the last year and the need to prioritize customers’ needs and expectations over the sales journey, the various customer touch points along the value chain come to mind. For many companies, moments of contact stretch out over months or years. A salesperson reaches out to a customer in person or online. An account executive handles a transaction. Collection officers manage a sensitive discussion with a customer regarding payment plans. Branch managers throw out the welcome mat to build a loyal, transparent, and trusted relationship with the customer and the broader community. 

Indeed, this sales practices ecosystem is expansive, and everyone in the company has a role to play. Not just front line staff, but also product managers, marketers, and the internal audit executive responsible for verifying that proper controls are in place. 

Hidden vulnerabilities

What can go wrong without such controls? Opening accounts and moving funds without customer consent, making misleading statements that pressure account holders to buy new products or services, or forcing them to accept products they may not want because they are bundled with those they do want are all examples of deceptive practices that have gone under the microscope in recent regulatory investigations. While the regulatory focus has been on financial services, it’s worth noting that customers are vulnerable in other areas. This can be true, for example, when they are purchasing vital services such as healthcare or insurance, in which decision-making is complex and personal. 

Preventative controls that keep a customer’s needs and expectations top of mind are critical along the value chain and play a key role in protecting a company’s reputation. If neglected, these safeguards can lead to far-reaching and potentially enduring repercussions, not only to the transaction at hand but to a company's brand and competitive position. 

Board oversight

Appropriate and responsive measures at the board and executive level are crucial to put the right controls in place. This might include focusing a more targeted sales practices lens on existing processes, such as whistleblower programs and the staff exit approach. Internal audit should be prepared to highlight sales practice risks to the audit committee and board to point out areas of increased risk and exposure. 

Companies facing growth pressures may be unintentionally motivating their salesforce to use aggressive methods to entice customers through messaging or the design of a compensation system. Peering deeply and broadly beyond transactional data to what truly drives sales behavior – including misaligned incentives – is critical to ensure that the root causes of potential sales misconduct are addressed. These root causes can be identified through analysis of compensation metrics, exit interviews with sales executives or analysis of hotline calls.

Industry associations are also taking note. In October 2017, The National Association of Corporate Directors released a report entitled Oversight of Culture Should be a Top Governance Imperative for Boards that suggests boards monitor company cultures assertively and weed out incentive-pay plans that could weaken company culture. According to The Wall Street JournalFranz Humer, chairman of a panel on corporate governance convened by The National Association of Corporate Directors (which produced the report) and a senior advisor to Citigroup, made it clear that Citigroup wanted managers to judge its teams by “how we achieve results, not just the results achieved.” Companies are taking seriously the need to address culture, not just results, in order to drive effective long-term success.

Regulators are weighing in too on the need for boards to be more engaged around risk topics. Earlier last year, the Federal Reserve proposed new supervisory guidance advising directors to increase the time they devote to “core” responsibilities, such as setting risk tolerance and ensuring effective risk management.

Best practices for sales practices

But even when companies place monitoring sales misconduct high on their agenda, hazards can still easily escape notice. Sales practice risks can, for example, slip into a company’s culture unexpectedly as a company expands digital channels for service or product delivery. New governance structures such as those imposed after a merger can also bring unexpected risks, as the two companies’ sales cultures are blended. While a company’s existing culture might actively avoid the use of incentives that could foster aggressive sales practices, the new culture may not be quite as conscientious. Early communication with the newly acquired salesforce about sales practices and values can help set clear expectations and foster a respectful and honest sales culture.

As companies transition to a new culture or blend the old with the new, internal audit can be a trusted advisor to key executives in fully reviewing, recommending and monitoring processes by delving deeper into sales practice risks. Flagging any concerns, however nascent or ill-defined, is a good starting point. 

Experienced internal auditors will bring an arsenal of tools to help companies avoid risks, such as an audit plan that provides sufficient coverage of sales practice risks. For example, a knowledgeable audit team might perform advanced data mining to identify accounts with red flags or salespeople who are outliers to uncover sales-practice risks. 

Specific skillsets including human resources, ethics and legal experience may be required to review and detect potential issues. For instance, a skillful audit team might include a human resources professional with experience examining the onboarding and off-boarding of staff to impart organizational values and expectations of sales conduct to new recruits.

The year of trust

In a world where consumers quickly vote with their wallets if they lose trust in a brand, rapidly assessing damage done by dangerous sales practices isn’t enough – an appropriate response should follow. Internal auditors must also report regularly on systemic and significant sales practice issues, so any problems come to the board’s attention early.

Ultimately, by focusing on risks that may lie on the horizon so companies can head them off—rather than reacting to them after the fact—internal auditors can help protect a company’s overall value and reputation. A truly proactive audit team may go one step further, ensuring that controls are in place when considering new products or incentive plans.

Given the pace of business today, steps such as these can provide businesses with an unmatched competitive edge – and following a season of breaches and other incidents of mistrust, foster the culture of trust, transparency and respect that customers truly value.
Hanh Pham is a Partner at PwC and Bernadette R D'Alessandro is Director, Assurance at PwC.