Tuesday, October 21, 2008

When Does Business Gift Become A Bribe: A Marketing Policy Perspective

Introduction : The Business of Gift Giving

Business gift giving has always been common and contentious at the same time. Business gifts are usually seen as an ‘advertising, sales promotion and marketing communication medium’ (Cooper et al, 1991). Arunthanes et al (1994) points out that such gifting is practised usually for three reasons: (a) in appreciation for past client relationships, placing a new order, referrals to other clients, etc.; (b) in the hopes of creating a positive, first impression which might help to establish an initial business relationship; and (c) giving may be perceived as a quid Pro quo (i.e. returning a favour or expecting a favour in return for something).

The practitioners of gift-giving generally argue that doing business is often an aggregation of personal interactions and relationships, and gift-giving should be seen as a natural way of maintaining and enhancing these relationships. ‘Business gifts, especially one given in the course of the festive season, is regarded as an invaluable means of strengthening corporate relationships and creating goodwill’. (Greaves, 2001) Business gift-giving has also shown itself to be effective in creating favourable relationships among industrial consumers in the United States (Beltramini, 1992), and also in increasing business and building long-term goodwill among realtors (Shama and Thompson, 1989).

While it is generally accepted that gift giving may enhance the prospect and image of a company, businesses must tread carefully as corporate gift giving has several legal, ethical and practical questions attached to it. Most observers agree that there is a very fine line between business gift giving and bribing, and it is seldom clear when the line is crossed. TIME reported, back in 1965, that ‘in Finland, any gift exceeding $30 is considered a straight bribe’ (TIME, 1965), but the situations today are rarely so straight-forward. Some research also indicates that gifts of high value, and gifts to prospects rather than existing customers, affect supplier choice negatively (Trawick et al, 1989, cited in Bodur et al, 2005).

Kanter (2008) reports that 20% of the 100 buyers surveyed by Supply Management magazine in the UK have reported of being offered an inducement to secure business, but ‘purchasers remained divided on what actually constitutes a bribe’. While William Fyfe, the Procurement Manager of National Trust Scotland, reported ‘a zero tolerance approached’ and accepted nothing, others did not think ‘hospitality, such as lunch, as bribe’. Some of the respondents accepted gifts ‘within the acceptable levels of company policy and always with the knowledge of my line manager’, one of them turned down an offer as this could affect his future decisions about the supplier.

At least one participant in the Supply Management survey mentioned above pointed out that the risks of bribery has increased with globalization. Undeniably, the complexity of issues related to Business gift-giving has increased manifold as businesses have to deal with global suppliers, customers and employees. The global businesses are not only exposed bribery laws of different countries, which may take different views regarding what constitute a bribe, but also require to reconcile several cultural issues in terms of policy.

Arunthanes et al (1994) points out that while gift giving is a ‘critical part of conducting the business’ in High-Context cultures such as the Japanese, Arabs and in the Mediterranean, it is only an ‘optional custom’ in Low-Context cultures like US, Germany and Switzerland. Even if such broad cultural contexts are accepted (Often, a company’s culture may differ from the culture of its nation of origin, because the executives running the company may have come from elsewhere, or the business has grown accustomed to dealing with international customers), global business transaction may still involve scenarios where a high-context gift-giver has to take extreme caution to not to offend a low-context gift receiver, and where a low-context gift giver may have to put in an effort not to disappoint and to appear cold and detached to a high-context gift receiver.

In summary, gift-giving is a complex policy area facing the companies today. However, the implications of getting it wrong can have significant impact on the company’s performance, and create a number of legal, ethical and brand-related issues. This paper will attempt to examine the various facets of this issue from a marketing strategy perspective and attempt to recommend a set of guidelines that businesses can use to formulate effective gift policies.

Case Study: Microsoft ‘Bribes’ The Bloggers

Joel Spolsky writes JOEL ON SOFTWARE, an influential blog on software industry. He reported the story of Microsoft’s attempt, through Edelman, its PR agency, to get bloggers’ attention to its new software, Windows Vista. During Christmas Season of 2006, Microsoft sent out 90 Acer Ferrari laptops, loaded with Windows Vista Operating system, to influential bloggers. The accompanying email from a Microsoft employee mentioned that ‘this is a review machine’ and stated ‘while I hope you will blog about your experience with the PC, you don’t have to.’ It also said that ‘you are welcome to send the machine back to us after you are done playing with it, or you can give it away on your site, or you can keep it’. [http://www.joelonsoftware.com/items/2006/12/28.html]

This gift generated heated debate, and many bloggers who received the gift expressed joy in their newfound importance, but ridiculed the effort [One of them asked for free socks to be sent out next]. B.L. Ochman, who writes a blog on Social Media and Internet Marketing trends, titled her piece ‘Edelman has new ethics scandal brewing with Microsoft’s Blogger Bribe campaign’. She alleged that the campaign of giveaway laptops, valued at around $2000, was conceived to generate a false opinion about Windows Vista, as the software, like previous Microsoft software releases, may run well on this brand new machine, but is expected to create problems when users try to upgrade their operating system on older machines.
[http://www.whatsnextblog.com/archives/2006/12/edelman_doesnt_give_a_crap_what_you_think_about_their_ethics.asp]

Ochman also quoted to some length the Journalist Dan Warne – a news editor from APC, the Australian IT Magazine and Web portal. Warne left a comment on IStartedSomething, a blog hosted by Long Zheng, a Melbourne-based student and one of the 90 bloggers who received and reported the gift on their blog.

With his mainstream media credentials adding weight to his comment, Warne wondered: “But giving away whole computers? Microsoft isn’t a computer company! It’s a bit like the owner of a motorway giving journalists free cars.” Pointing out that the giveaway laptops are top-of-the-line and expensive, he commented “Microsoft’s PR people would no doubt argue that this is about giving bloggers access to a machine that’s going to give them the best experience running Vista, and will allow them to fully explore the mobility features of Vista. But frankly, if that were the case, the machines could have been a six month loan. –Giving the machine to the bloggers is just … weird … given the risk of reputation damage to Microsoft.”
[http://www.istartedsomething.com.nyud.net:8080/20061227/microsoft-free-ferrari/#comments]

On the other hand, Robert Scoble, who writes Scobleizer, and widely seen as one of the pioneers of corporate blogging, took the position that “That is a GREAT idea. After all, how can anyone have a decent conversation about Windows Vista without having put a bunch of time on one of the machines?” He further says, “Now, regarding blogger ethics. Did you disclose? If you did, you have ethics. If you didn’t, you don’t. It’s that black and white with me.” [http://scobleizer.com/2006/12/27/i-think-the-microsoft-vista-giveaway-is-an-awesome-idea]

Joel Spolsky argues that Scoble is indeed wrong and sending out laptop – ‘yours to keep’ – is ‘ethically indistinguishable from bribery’. He argues that disclosures by bloggers are not enough, and since they may still feel obliged to blog about it and regardless of what the consumers think about their credibility, ‘their message is corrupting the medium’.

Microsoft’s response, as reported in an Australian News Site, was that this was meant to be an evaluation program, and the bloggers ‘had the option of sending them back or keep them for further discussion’. As justification of giving away such expensive laptop models, it was mentioned that “the laptops allow the bloggers to experience the full capacity of Windows Vista".
[http://www.australianit.news.com.au/story/0,24897,20986786-15306,00.html]

Yet, others, like Jeremy Peppers of POP!PR, a PR practitioner and blog writer, saw flawed execution, rather than an ethical misstep, in this fiasco. [http://pop-pr.blogspot.com/2006/12/ethics-of-blogosphere.html] Yet others suggested that this whole controversy was started by bloggers who did not receive a laptop and were jealous of those who did. [Andy Beal on http://www.marketingpilgrim.com/2006/12/microsoft-vista-laptop-bloggers.html] It was further suggested that Microsoft’s ‘undue’ attention to bloggers turned the mainstream media against them [veteran software reviewers writing for well-respected magazines only got a pre-release disk of Vista], and these columnists added further momentum to the furor over the issue.

The jury is still out on the case, but the debate over this issue drowned whatever little positive opinion Windows Vista had generated in the blogs. While no one thought there is a legal point to be won here, this stands as a good example of a business gift program going wrong. Microsoft not only wasted the dollars spent in gifting [none of the bloggers reported to have returned the laptops], but ended up getting severe bad press for weeks and the debate sourly overshadowed the commercial launch of Windows Vista.

From a marketing perspective, it is imperative for businesses, therefore, to evolve robust strategies to avoid such fiascos related to gift-giving. However, before attempting to develop a policy framework which will enable businesses to do this, it may be worthwhile to look closer into this debate and understand what may be called the three dimensions of Business-Gift-versus-Bribe debate.

The Three Dimensions of Business-Gift-versus-Bribe Debate

The case study above provides a three dimensional framework to understand when a business gift may be perceived as a bribe, or, in other words, where it seems to have crossed the ethical threshold. This understanding will form the basis of a clear set of rules to keep business gifting above-board and design a set of actionable policies which the business could follow.

Content

The principal problem relating to Microsoft’s gift was its content itself. This is both about what it was [a top-of-the-line, shiny new laptop] and its price [$2000 or more]. Some commentators even argued that it is unrelated [‘Microsoft is not a computer company’].

Microsoft’s defense was that such a high-end machine was needed to showcase the full capability of Windows Vista. They pointed out that the bloggers were given the option of returning the machines or to give it away, and therefore the question of trying to bribe does not arise.

However, the key issue here is that Microsoft departed from the standard industry practice of shipping preview disks of software to opinion-makers. Whether $2000 laptops are less or more, or whether they are justified in the context of the accepted norms in the other industries [like sending out fashion clothing to movie stars], is beside the point. Microsoft broke a convention here by changing the nature of gifting practiced in the industry.

Also, sending out the machines around Christmas, Microsoft tried to tap in the Festive Gift goodwill – implying that these machines were indeed sent out as gifts.

The key lesson here is that what is being given as a gift defines the nature of gifting, and extreme care must be taken to define should be given out [or received]. While market price of the gift item can be used as a benchmark, the type of gift is as important as the price of it [If Microsoft gave out $2000 worth of software, this would not have been an issue]. It is always worthwhile to understand the convention, including knowing that something sent out around Christmas may indeed be perceived as a gift.

Context

The other objection to this gift was why it was being given. It was argued that by giving such a disproportionate gift [most bloggers are amateur writers; Long Zheng, who received a laptop, was studying in the University of Melbourne at the time], Microsoft tried to induce a reciprocity in the bloggers. Though the email may have said ‘you don’t have to [write about Vista]’, this is more of a legal protection as the United States Corruption Law covers corporate gifts which are designed to induce action by the recipient. While Microsoft steered clear of this legal issue, they tried to exert a psychological influence on the bloggers to write about their ‘pleasurable’ experiences with Vista.

The other argument was that a laptop was given out to bloggers in the hope that they would lack the proper testing environment that mainstream tech journalists will have access to, and would write good things about Vista by seeing it at work in a brand new machine, tuned and tested for this purpose by Microsoft engineers. The experience of actual users, who may be influenced by these bloggers’ opinions, will be different – as they will have to install this software on an older machine running pre-existing software programs and will have no help from Microsoft in doing so. So, it was argued that this gift-giving exercise was designed to create a false opinion in the market.

While most businesses define what is a bribe and what isn’t in terms of the content of the gift, law in most countries consider the context of the gift to define the issue. So, regardless of the size, type and value of the gift, if it could be established that such gifts were given to induce, or with intent to induce, action, it will be regarded as an offence. The lesson here is that it isn’t enough for businesses to set clear value / type benchmarks for corporate gifts; it is also necessary to be sensitive to what these gifts are designed to do; and stop short of attempting to induce the receiver to any action that would cross the ethics threshold [for example, by being less than optimum for his/her employers or customers, by being factually wrong / false, or by being dangerous or harmful to anyone].

Culture

There was a prominent stream of opinion that Microsoft’s faux pa was all about bad execution due to misunderstanding the culture of blogging. This stream of opinion came primarily from PR and Marketing practitioners, who pointed out that Microsoft’s gift to elite bloggers violated the equality and sponsorship-free nature of social media [though there are services like Pay-Per-Post, they are deeply unpopular].

These observers maintained that this isn’t a question of content or context, but one of culture - because the bloggers [even those who received it] detested the practice while most physicians will treat a gift from a pharmaceutical company as perfectly normal.

This is the third, and clearly important, aspect of gift-giving : establishing clear protocol so that a gift is perceived as such. For businesses, this will translate into a third dimension of policy-making, wherein they will have to go beyond setting value/type benchmarks and consideration of induced action, and understand the gift-receivers’ mindset and culture before making the gift. This is possibly quite obvious in personal gift-giving; but somehow the idea of such discretionary gift-giving hasn’t gained ground in business. However, as illustrated with regard to international business relationships and again in the context of Microsoft’s mistakes, it is important to factor in the cultural preferences of the receiver before attempting to make a gift.

Towards a Strategy of Business Gift Giving

Many businesses today has clear policies on Business Gift Giving and Receiving, though most of these do not consider all the three dimensions as mentioned above.

For example, the Building Material supplies company, Wolseley, has a clear policy on Business Gifts, which states

It is recognised that the giving and receiving of business gifts is an integral part of the way in which some businesses operate. The giving or receiving of business gifts should, therefore, remain appropriate to the business and should be modest. The receipt or giving of modest gifts may be expensed in the normal way if paid for by a group company. The giving or receipt of more lavish gifts must be approved by the person's manager. The manager should ensure that an appropriate record is maintained. In cultures where the refusal of an expensive gift would give offence, such gifts may be accepted on the basis that they will become the local company's property, unless the managing director of the local company otherwise determines. [Wolseley Corporate Governance Policy; www.wolseley.com]

However, it must be noted that policies are not enough by themselves. Lucas (1995) reports how sixteen Honda executives pleaded guilty of taking bribes when it was established that they took extravagant gifts such as Rolex watches and cash in late 1980s and early 1990s when the company set a $50 limit for gifts. This is where the system of accountability, maintained through the usual chain of management, failed to work.
Gordon et al (2001) studied the corporate approach to bribery using 246 codes of conduct. It shows that despite a clear intent to contain bribery, the task is complicated because (a) it is difficult to define what constitutes bribery; and (b) the international policy framework for bribery is less developed. It was observed that while most companies made a public commitment to fight bribery, the codes differ in terms of how far they go in defining bribery, specifically in terms of (a) parties in corruption – some regard private bribery as well as that of public officials; (b) Active vs Passive Bribery – some codes take into account receiving bribes as well as giving them; and (c) Promising Bribery and Actual Bribery – some codes go further than others and spells out clear rules on solicitation. In this study, 13 standard management tools were cited to be used to control bribery - internal monitoring, monitoring suppliers, reports to Boards of Directors, use of compliance manuals, whistle-blowing facilities, signatures of directors, training, periodic compliance reviews by managers, employee signatures, internal auditing, disciplinary action and active communication.

To steer clear of Bribery but to maintain a healthy gift-giving culture which is beneficial to business, Lynn (2000) suggests that companies must have clear policies related to gift giving and receiving to steer clear of potential problems arising out of gift-giving. She pointed out three areas of policy-making – (a) Workplace gift giving, which should ideally be prohibited or restricted; (b) Acceptance of Gifts from Suppliers and other outside entities, where a clear guideline should be set for type and value of gifts the employees can accept, and a policy to return any gift that fall outside the set parameters; and (c) Giving Gifts to suppliers and other outside entities, where it would be important to define who can receive a gift, along with ‘how these gifts are selected and presented’ and also to cognizance of the gift policies of any company that is being included in the list.

Conclusion

Admittedly, this is a complex area of policy-making, but as the discussion above illustrate, businesses must engage in defining and maintaining a clear and consistent policy towards gifts. Given the convention, and the beneficial effects of gifts on business, they can not be ruled out altogether. But extreme care must be taken – as improper gifting can create legal issues, affect the morale, corrupt the employees and destroy the brand. Discretionary gift giving appears to be the key. The difficult part actually remains in creating a robust company culture, and a value system which rejects bribing in any form. With keener regulators and invasive media, it is increasingly clear that businesses must operate with a high ethical standard to survive. One may hope, therefore, that executive intent will not be in short supply.

Bibliography

Arunthanes, W., Tansuhaj, P. & Lemak, D.J. (1994), Cross-Cultural Business Gift Giving, International Marketing Review, Vol 11, Issue 4, Pg 44

Beltramini, R.F. (1992), "Exploring the Effectiveness of Business Gifts: A Controlled Field Experiment", Journal of the Academy of Marketing Science, Winter, pp. 87-91.

Cooper,M. J., Madden, C. S., Hunt, J. B.,& Cornell, J. E.(1991). Specialty advertising
as a tool for building goodwill: Experimental evidence and research implications. Journal of Promotions Management, 1, Pg 41–54

Gordon, K., Maiko, M. (2001), Business Approaches to Combating Bribery: A Study of Codes of Conduct, Journal of Business Ethics, December, Vol 34, Issue 3 & 4, Pg 161

Greaves, S. (2001), How Corporate Gifts Add Value to Firms, Marketing, Oct 4, Pg 33

Kanter, J.(2008), 20% of buyers have been offered bribes by suppliers; Supply Management; Vol 13, Issue 9, Pg 11

Lucas, A. (1995), When Gift Giving Goes Too Far, Sales & Marketing Management, June, Vol 147 Issue 6, Pg 15

Lynn, J.(2000), Holiday Gift Giving: Navigating the Minefield of Holiday Gift Practises, Commercial Law Bulletin, Sept/Oct, Pg 36.

Shama, A. and Thompson, K.J. (1989), "Gifts Build Goodwill and Market Share", Journal of Retail Banking, Vol. 11, Summer, pp. 55-9.

Trawick, I. F., Swan, J. E., & Rink, D. (1989). Industrial buyer evaluation of the ethics of salesperson gift giving; value of the gift and customer vs. prospect status. Journal of Selling and Sales Management, Vol. 9, 31–37

TIME (1965), The Business of Giving, Dec 17.

Blogs
1. Joel on Software
http://www.joelonsoftware.com Accessed on 18th July 2008
2. What’s Next Blog
http://www.whatsnextblog.com Accessed on 18th July 2008
3. I Started Something
http://www.istartedsomething.com Accessed on 18th July 2008
4. Scobleizer
http://scobleizer.com/ Accessed on 18th July 2008
5. POP! PR
http://pop-pr.blogspot.com Accessed on 18th July 2008
6. Marketing Pilgrim
http://www.marketingpilgrim.com Accessed on 18th July 2008

Websites
Wolseley Corporate Website
http://www.wolseley.com/InvestorRelations/Ourgovernanceandethics/CodeofEthics/default.asp#pol9 Accessed on 18th July 2008
Australian IT News
http://www.australianit.news.com.au/story/0,24897,20986786-15306,00.html Accessed on 18th of July 2008

1 comment:

promotional corporate gifts said...

Very nice article on this website. It is rare these days to find websites with useful data . I am relieved I came upon this site. I will eagerly look forward to your incoming updates.Thanks for sharing it here

Popular Posts

How To Live

"Far better it is to dare mighty things, to win glorious triumphs even though checkered by failure, than to rank with those poor spirits who neither enjoy nor suffer much because they live in the grey twilight that knows neither victory nor defeat."

- Theodore Roosevelt

Last Words

We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

- T S Eliot

Creative Commons License

AddThis