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ETHICS plays an important role in many areas of our business world. Take direct selling, for instance. How can you tell the difference between a legitimate business and a disguised pyramid scheme? To answer this question, we need to back up and look at what "ethics" are all about and, why they are important. Then we will look at the legitimacy of the two direct selling methods.
What are ethics? Here is the most recent textbook definition from a college MBA (Masters in Business Administration) updated required reading selection, "Ethics are the moral principles that govern the actions and decision of an individual or group," Marketing 7th Edition (Kerin, 2003, 100). In other words, to choose a course of action in moral situations, we use ethics, our cornerstones or guidelines to follow.
Why are ethics important in the business arena? Because every person is a part of the whole and similar to an apple, when one person or portion of the fruit turns bad, the rest is affected. Or in the words of John Donne (1572-1631), "No man is an island, entire of itself; every man is a piece of the continent, a part of the main..." And business is no exception. Every one in the business arena affects everyone else. If a company steals from one person or group, their actions affect many. And people who aid in this immoral schematic, help steal from the whole society. Thus good ethics is good business.
About 80% of businesses establish a code of ethics, a formal statement of business principles and rules of conduct, according to Marketing 7th Edition. Usually this code covers issues like bookkeeping, professional conduct, objectives, general standards and government factors. For example Rule 202 of the Compliance with Standards section in the Code of Professional Conduct for the American Institute of Certified Public Accountants states:
member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council. (et202.htm).
An example of...
First we refer to the DSA and see if the company in question fits into their Code of Ethics. In a nutshell, the DSA says that pyramid schemes seek to make money from you (and quickly) whereas multilevel marketing companies seek to make money with you as you build your business (and theirs) selling consumer products.
Then you need to ask yourself these three questions:
1. How much are you required to pay to become a distributor?
Will the company buy back unsold inventory?
Are the company's products sold to consumers?
Compare your responses with those from respected, known professionals in the industry. If the answers are not sound and reasonable, the company in question may be practicing in an unethical manner.
When you review a business involved in direct selling, there are four areas to investigate; company sales, company representatives' training, the company marketing plan and how customer complaints are handled. Unnecessary risks are not advised. The DSA advises that you:
Take your time.
Ask questions.
Get written copies.
Consult with others.
Investigate.
One example of one direct selling case in question was The Mormon's Purchase Plan operation in Columbus, Ohio. The business presented a sound selling background campaign among a supposed group of trusted members of the community. Purchase Plus offered an array of products and services to the community for a small membership fee. The Mormon church decided to sell this Purchase Plus plan to church members, but business went sour. Church members invested large amounts of money…
Bibliography
AICPA, American Institute of Certified Public Accountants. New York. 2002. http://www.aicpa.org/about/code/et202.htm
Direct Selling Association, Direct Selling Association. Washington. 2002. http://www.dsa.org/ethics
Donne, John. "No man is an island, entire of itself; every man is a piece of the continent, a part of the main..."The Phrase Finder. 3 Nov. 2002. http://phrases.shu.ac.uk/meanings/257100.html
Kerin, Roger, and Eric Berkowitz, Steven Hartley, William Rudelius. Marketing, 7th Edition. New York: McGraw-Hill/Irwin, 2003.
Place, David Love. Impulse Internet Services. 20 January 2000. http://www.impulse.net/~thebob/Pyramid.html
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