Beware of Unethical Business With a Smile

Why Friendly Service by Itself Isn't Enough

Don’t let your guard down just because a customer service agent has a disarming smile. Research from the University of Maryland’s Robert H. Smith School of Business shows that companies can be friendly and unscrupulous at the same time. “Service climate is distinct from ethical climate,” says Smith School professor Hui Liao, co-author of the study featured in the Journal of Applied Psychology. “It’s possible to do harm, but to do it in a nice way.”

Some companies even use flattery and attentiveness to compensate for their failure to protect customer interests. “Service providers may amplify superior service behavior to distract customers from unethical acts,” Liao says.

Prior research has demonstrated financial payoffs for companies that offer quality service, but Liao and her co-authors from the University of Notre Dame, Fordham University and Renmin University of China go deeper, exploring the synergies between doing things well and doing things right.

Data came from 196 Chinese movie theaters, which the authors tracked for six months. Some findings are predictable. The financial rewards for delivering quality service, for example, increase when companies also behave ethically. Other findings are more nuanced and perhaps surprising. Here are three highlights:

1. Rules don’t apply to everyone.

Poor service and unethical behavior do not always cause lost patronage. Companies can get away with bad behavior when competition is less intense. “Customers might have concerns about quality of service or morality but still purchase whatever is being sold because of the lack of available alternatives,” Liao says.

Market turbulence — when customer composition and preferences are highly changeable — is another factor. “Customers with changing wants and desires tend to critically evaluate service and expect it to cater to their preferences,” the paper concludes. “Even if customers receive good service, they are more likely to discern unethical behaviors and respond negatively and cynically.”

2. It doesn’t happen by chance.

Employees often interact with customers without close supervision, which makes service behavior difficult to monitor and control. Liao says companies that want their customers treated well and ethically must proactively build the right climate through policies, procedures and codes that reward the desired actions.

Liao says companies should consider their service and ethical climates separately. “Don’t assume that one follows the other,” she says. “Service climate or ethical climate each focuses on aspects of customer orientation that are not explicitly emphasized by the other.”

3. Beware of sins of omission.

Unethical behavior might include willful actions, such as selling expired or stale snacks in a movie theater. But employees can also harm customers through inaction.

“For example, employees in a theater setting may cheerfully, pleasantly and patiently respond to customers’ questions about movies to help them make their best choice, but may hurt customers’ long-term interests by failing to tell them about promotion or coupon information for future purchases,” the authors write.

What is ‘unethical’?
Business done right involves win-win outcomes. Liao and her co-authors define “unethical behavior” as service employees’ misconduct that enables them to benefit at the expense of customers. These are win-lose scenarios. Examples include:
-- Misrepresenting the nature of service.
-- Creating an unnecessary need for service.
-- Withholding negative information.

Read more: Do It Well and Do It Right: The Impact of Service Climate and Ethical Climate on Business Performance and the Boundary Conditions is featured in the Journal of Applied Psychology.