Accountability for corporate compliance and risk is now making its way to the marketing department, largely because of its sizable budgets and the enormous impact it can have on customers and shareholders alike.
Unfortunately, the lack of streamlined internal communications between marketing and other departments in a company can create severe compliance risks that can tarnish a company’s reputation, destroy brands, and result in lawsuits and huge payouts. By its very nature, marketing touches multiple other departments and functions, including those that typically work in silos, such as R&D and clinical trials. This makes cross-functional coordination and process implementation a significant and error-prone challenge.
Further complicating matters is the use of existing marketing automation solutions, which can exacerbate this situation by enabling the execution of wrong and, even worse, riskier actions faster than even nonautomated methods could.
To avoid the most common compliance risks arising out of uncoordinated marketing activities, marketers need to understand where their vulnerabilities lie before they can detect and eliminate such risks. Three areas in particular are key:
1) Racial bias. We’ve all seen stories about an attorney general’s office investigating a mortgage company due to racially biased lending 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 its customer database based on a preselected demographic. While the criteria used for selecting these targets might have been clearly articulated in a business case and approved by the legal and 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 preapproved criteria. Quite often, the above mentioned criteria are modified by database experts in order to supply the requested number of targets. In post mortem, when many such mail campaigns are audited, a racial bias may emerge even though there was no corporate policy to promote such bias.
Now companies are forced to look seriously at marketing process reengineering in order to protect the reputation of their organization and to avoid the financial risk associated with even unbeknownst 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, 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.
2) Erroneous representation. Faced with shrinking product life cycles and rapid global roll-outs, very little time is available for marketers to fully review and verify that the information communicated to the consumer via product packaging, sales material, and Websites 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 product-handling instructions, all of which could lead to catastrophic results.
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. Further, because these solutions support automatic data gathering, the marketing department can now generate status reports and track efficiencies to avoid erroneous representations.
3) Tracking marketing expenses. The recently enacted Sarbanes-Oxley Act (SOX) requires public companies to report on the effectiveness of their internal controls as it relates to their financial reporting. Crucial to effective internal controls is ensuring that computing systems protect the integrity of corporate, financial, and customer data.
As mentioned previously, 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.
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.
In order to improve SOX compliance, many chief marketing officers are requiring that marketers use technology that will allow them to tightly integrate financial reporting to marketing procedures. In doing so, strategic planning and budgeting modules can track expenses and cost overruns, thereby improving accountability.
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. But by understanding where the risk lies and by leveraging technology to institute checks and balances that monitor spend, while promoting a corporate-wide communications culture, they may find that that the road to compliance is much easier than they’d thought.
Chetan Salya is founder/chairman/CEO of Assetlink (http://www.assetlink.com), a provider of integrated marketing operations management solutions.
