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Volume 4 Number 5 February
24, 2006 |
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Full disclosure People with conflicts of interests ought to inform
people they 'advise' When I worked at a high-tech publication some years ago, our company ethics policy forbid us to hold stocks in individual technology companies (although we could hold technology mutual funds). The premise was that holding stocks in companies might either compromise our coverage of those companies, or at least give the impression that we were swayed by our financial interest. I had no argument with the policy. It seems to make sense that even the most honest person would have a hard time separating personal interest from objective reporting. Of course I would want to make Microsoft look good, if I held a lot of Microsoft stock. I might not say things that weren't true, but I might give them a little more attention that I ordinarily would if I didn't hold any stock at all. I also might ask some tougher questions, if I didn't have a financial interest, which always tends to cloud our judgment. The idea of divorcing personal financial interests from advice or guidance you give other people doesn't seem controversial. At least it didn't until a week or so ago, when I learned quite accidentally that one of the largest auto dealers in my area paid its "service advisers" 100 percent on commission. The more service they sign you up for, the more money they make. At first, I was shocked, but then I figured it might just be one of the many gaps in my education, or at least my street knowledge. So, I put the matter to a couple of automotive mavens I know, people who spend a lot of their time thinking about cars. Hmmm, they said. They never heard of this. And they're sure their service guy isn't padding their bills. So, I took this to mean that either it's a common practice that a lot of people don't know about, or that my local dealership is an anomaly. My gut tells me that there isn't a lot in the auto business that's an anomaly, when it comes to generating more revenue. If dealership A is doing it and it makes money, it won't be long before dealership B is doing it. And then C and D, and so on. More important, it raises the question of whether people who have a direct financial interest in the advice they're giving you also have a duty to inform you of that conflict of interests. In some cases, most people do know, and reasonable people should know, that the person trying to sell you something will make more money the more he sells you. Anyone who doesn't know that an automobile salesperson works on commission shouldn't be out buying cars alone. People who don't realize that their stockbroker makes more money the more you churn your accounts aren't going to succeed in the investment business. Other people we expect to put our interests ahead of theirs. Our doctor, we hope, is giving us the straight scoop and not just trying to pump up the revenue. Lawyers, we hope, are giving us advice based on our best interests and not solely theirs. On both those scores, I'm fully aware those expectations aren't always met. I'm disturbed, as are other ethicists, about doctors who hold strong stock positions in companies whose services they recommend to patients. It's not unusual for some doctors to be part owners of MRI machines, leading you to wonder whether the doctor's recommendation that you get an MRI is solely for your own good. Some lawyers do drag out lawsuits just to finance the second home. But I know many lawyers who advise clients against pursuing suits because the client would pay too much in fees for the expected benefit. But the "service adviser" case was a new one on me. I still haven't sorted it all out, but my initial intuition is that customers should at least be warned that the person giving them the "advice" has an overwhelming financial interest in the outcome. Why is the service adviser at the dealership any different from the salesperson? Why shouldn't we just assume that they're out to relieve us of as much money as possible? That's a good question. One answer would be that the role of auto sales people, and their method of compensation, is well-known. Also, you are free to go to whatever dealer strikes your fancy and buy whatever car you like, or none at all. And most people buy the car based on very personal factors. They like the styling, or the color, or the reputation. Buying service, however, is a different type of purchase and one not so amenable to the so-called "free market." We're no longer talking personal preferences. We are talking life and safety issues, and for the person who isn't car savvy -- and fewer people are as cars become more complicated -- the "advice" a professional gives you carries more weight. Sure, you could "shop around," but most people have no way of knowing whether the next person's advice is better or worse. When it comes to buying a car, you know what you want or need, although some people may be unclear on even that. The car salesperson's job is to try to convince you that the model he's trying to "put you in this afternoon" meets your requirements. The salesperson doesn't have any specialized knowledge about your needs or likes. When it comes to servicing a car, the equation changes. Most of us don't know what our car needs to keep running properly and safely. Some do, but most don't. It's the service people who have that knowledge -- and the knowledge imbalance creates a power imbalance. Because the service adviser has more knowledge, he has more power in the relationship. And that power imbalance creates an obligation not to take unfair advantage of it. I'm not saying the service adviser can't try to sell you top-of-the-line service, but I think he does have an obligation to at least warn you that his salary is directly proportional to how much service you buy. And I'm not even saying that for him to take advantage he has to deliberately "pad the bill" or recommend unwarranted service, as my auto mavens mentioned. For most problems, there is more than one approach. Some problems, for example, may be annoying, but you could live with them without endangering yourself or the car. Or you could just go flat out and repair whatever's wrong. An honest "adviser" would present both of those options, along with the risks and benefits of each. Someone whose salary is tied directly to the outcome is more likely to omit mentioning that you could, without penalty, just live with the annoyance. And someone who is ethically deficient would try to convince you that disaster is imminent if you don't opt for the repairs. I realize I may be placing too much weight on the term "service adviser," which is probably just another example of title inflation, along with "store clerks" who have become "customer satisfaction associates." But the fact remains that they do purport to offer advice, and they do so from a position of power that comes from specialized knowledge. And that makes all the difference. Whenever there is such an imbalance, and the possibility exists that people will rely on the "advice," then ethics would seem to dictate that in order to make an informed decision, people should also be aware of any potential conflict of interests on the part of the person offering advice, and that's the person who bears the burden of voluntary disclosure. |
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© Copyright 2006 Carlton Vogt |