Building an Ethical Team and Avoiding Unexpected Ethics Pitfalls: Steve Cody

Joining me on this week’s episode is Steve Cody, the founder and CEO of Peppercomm, a purpose-driven, strategic, integrative communications and marketing agency. Frankly, Steve is one of the most incisive and insightful PR pros I have ever met.

In this free-wheeling discussion, Steve addressed a number of key ethical issues including:

Why don’t you start off by giving a little bit of background about yourself and your agency?  

I’m an ex-agency refugee. I worked at both Hill and Knowlton and Brouillard before starting Peppercomm 23 years ago, with no clients and $7,500 from my mother-in-law, and $5,000 from my brother. That was my seed money, and we took it from there. We’ve had our ups and downs, but Peppercomm today is, I think, among the best-known midsized independent agencies. Independence is critically important to us, for the obvious reasons. As we tell prospects and clients, there’s no one in London, Paris, or St. Louis or anywhere else, telling us, “You have to resign this client because of a conflict. You have to downsize 20%, because our overall numbers aren’t what they should be. You also have to pay us a 10% fee, on top of whatever fee the clients are paying you.”

I really soured on that, and I also soured on the political machinations within some of the organizations in which I play. I came away with some phenomenal strategic learning lessons, rubbed elbows with some of the very best people in the industry. I was able to take what I saw as the best practices, rinse the worst practices away, and tried to embed a different type of culture and a different type of positioning for my firm from the very get-go.

I knew I was entering the New York City market, which, not denigrating the other markets, but boy, it is dog eat dog. The Sinatra song still holds true. If you can make it in New York, you can make it anywhere. For me, in a sea of commodities, how do I differentiate on day one. I focused on what we did best and what I had been trained to do at Brouillard and Hill and Knowlton, and that was strategic positioning programs. At that point in time, 1995, Al Ries and Jack Trout had written books about positioning, but positioning was owned by the ad agencies. It really wasn’t being practiced by PR firms.

Our positioning was what separates us from our competition is helping to separate clients from their competition. That enabled us to start going after major companies’ challenger brands. We’ve always been focusing on challenger brands in marketplaces, the number two, the number three, the number four. They’re just being outspent and out-thought, and they need somebody who can help them out-think and outflank.

They appreciate the fact that we’re constantly coming with setting meetings and saying, “Have you thought of this? What about that?” We’ve had any number of clients, who have said to us, “We want ideas that will get agencies fired. We’re not going to fire you, but we want you to really get on the bleeding edge. We’re probably not going to implement anything you do, but we want you to come to us with that idea.”

That got us started really scouring the world, as the Internet became more and more sophisticated, to just look at what the best and brightest agencies, in digital and advertising and PR, et cetera, were doing in different markets around the world, put together a biweekly news alert, news you can use, basically, and pushed it out to clients and prospects, and this is, in our opinion, best in class. We’d get calls and they’d say, “Can you do this?”

I would say, “We can do part of it. We could certainly find partners to help us do the rest of it.” We really started moving our way up the food chain and winning General Electric’s Imagination at Work campaign, Tyco hiring us in the aftermath of the Kozlowski scandal, Whirlpool hiring us to handle all four brands for seven years, beating big, big, global holding companies. Today, our client roster … Not bragging at all, but we’ve got some great blue chip names, and again, it’s all about anticipating needs.

Right now, we are heavily involved in societal crises and helping clients anticipate what they should or shouldn’t say, based upon their purpose. We’ve created our own analytical tool that will surface issues in advance, as they become more and more talked about on the various social media sites, so that we can start cueing up statements, either positive or reactive, having the discussions whether we want to put this out on a website, on a tweet, or as some companies do, and I think it’s a very smart practice, go directly to a beat reporter at an old school trade management publication or a beat reporter at Wall Street Journal, and tell a factual story that way, to damp down some of the fake news, some of the insinuations based upon the attack, et cetera, et cetera.

Two potential ethics pitfalls: supply chain and skeletons in the closet

We also help companies look at their supply chain partners, to make sure those supply chains share the same intrinsic values and are aligned with our client’s, because you don’t want to be in a foxhole with somebody who’s helping you to try to create the next great widget, only to find out that they think and act completely differently than you do. You really want those values aligned. We also take a complete look at the advertising sponsorship spend of an organization, to see where there might be vulnerabilities, i.e., advertisements on the Tucker Carlson Show, sponsorship of stadiums post Colin Kaepernick, a Starbucks type of situation where the diversity and inclusiveness training hasn’t been put into place.

Many companies came to us, who were in the Southwest, and said, “We’d like to have some thinking on what we should say if, in fact, these Guatemalans,” as you remember, who were marching up, “should breach the wall, come in. God forbid, there are some people killed, we want to be able to make a statement.” It’s really fascinating.

Obviously, the other thing we do is work with Chief Human Resource Officers, to make sure that, not only their C-suite, but their Board of Directors, their track records … We go back 25 years to make sure there’s nothing in the files that could pop up and become a major scandal. If it is, we surface it. We ask the individual to leave, give him a severance package, publicize it, and put it behind us. As you know, that’s the way you want to handle a crisis.

Speaking of crisis – on this whole societal crisis issue, the big fallout for a lot of these companies that don’t do it right, that either say the wrong thing or don’t say anything at all, is losing talent, either existing talent or critical talent from the business schools, undergraduate schools, et cetera, because, as you know, the millennial generation, in particular, want to work for organizations, whose values align with their own. It’s a new world. It’s the kind of world where your crisis manual that was prepared by … I’ll use Hill and Knowlton, since I worked at Hill and Knowlton, in 2006, is pretty much out of date. It will still help you with a product recall, but it’s pretty much out of date for tariff wars with China or NAFTA being tossed out the window or countless national parks being opened up for oil drilling.

That stuff just didn’t exist, and you’ve got everybody angry. You’ve got a country of angry people. I just saw a new survey about the Gillette campaign, and it skews red state/blue state. It’s dividing a further divided company. As you might expect, 75% of people identify themselves as liberals, loved the campaign, thought it was spot-on, and hope that Gillette continues to morph it into multiple different dimensions; 45% of Republicans found it insulting. As you know, there are already some #boycottgillette movements out there.

Nike did something very, very smart, because Nike stayed on message. Ever since their founding, they were always partnering with outspoken, controversial celebrities, sports athletes, et cetera. Gillette was always featuring the macho man, and now, all of a sudden, now … Why now? You know, 18 to 24 months after Charlie Rose and Matt Lauer and Harvey Weinstein, and Bill Cosby, why now? Why? It just, it strikes me a little bit more of opportunism than being … Obviously, they care. There’s a caring there, but both were business-driven decisions, but Nike’s was on target, on message, expected, so while they alienated some red states, they tripled their business in blue states; whereas, I don’t think Gillette thought about their core audience, which I don’t have access to demographics, but I think skews pretty heavily in terms of blue collar, red state purchasers.

What is the most difficult ethical challenge you personally have ever confronted in your career?

Pinning the rap on a first-degree murder on somebody else?

No, I’m joking.

It’s ironic, because it happened maybe three or four months after I first had the pleasure of having dinner with Harold Burson. A friend introduced us, and I’ve had lunches and dinners with Mr. Burson. I’ve read his book. I’m absolutely fascinated by the man.

We got to talking about ethics, and he said, “I believe in the first amendment. I believe every company has a right to have its say in the marketplace.”

I said, “Obviously, that includes tobacco.”

He said, “Absolutely.”

I said, “That’s where I draw the line.” I said, “I’ve seen too much carnage, and I do not want to associate my company with a brand that is killing people.” I mean, it’s killing people. You can sugarcoat it any way you want, and sugar is also killing people in a different way, but that’s where we draw the line. We’ve never been approached by a Smith and Wesson or Glock or the NRA or anything like that, but then again, that is too toxic an issue. We would not take it on. It’s not just because it doesn’t fit with our purpose and our values. It’s also a very real business decision.

My employees would quit. I would lose probably 80% of my employees if I did something like that, and deservedly so. It’s a combination, I think, of what is the organizational purpose? Making sure that all of your employees buy into that purpose, that in the interviewing process, they understand very clearly, this is who we are, this is what we stand for, this is why we show up to work every day, and that you will be involved if there’s ever a controversial subject.

We were once approached by a religious group, asking us to represent them. It just became too much of a toxic conversation within the workplace, that I said, “Let’s not go down this road. The money’s good, but let’s just not do this.” We’ll make decisions based also upon our employees’ values. For me, the big ones are the guns and the tobacco, but we have represented alcohol companies in the past, so you could certainly make the case that alcohol also leads, if taken in excess, it can kill you and obviously is a big contributor to automobile accidents, et cetera.

It’s like a snow … Every snowflake is different, and every potentially ethical conundrum is different and has to be weighed very, very carefully. Having had 23 years of that under my belt, and my senior management team’s been with me 20 years, we pretty much know what the guardrails are, and what we want to be known for and the kind of work we want to do, and the kind of work we wouldn’t touch with a 10-foot pole.

Building an ethical team

I think this is an outcome of my having worked at global agencies, we’re very, very high maintenance in terms of our interviewing process. We really want to make sure that individuals coming in are not going to be … Wolves of Wall Street. They are not coming in to undercut other people, take credit for other people’s work, self-promote, some of the things that some of the larger agencies are known for. We root that out at its core and warn the individual, and if he or she continues, they’re gone.

We’re very, very careful in guarding that culture and making sure that no one’s bringing toxic behavior. We have used David & Gilbert for workplace sensitivity programs for us, because obviously it’s a whole new world, and nobody’s quite sure what to say and how to say. When one of your colleagues from San Francisco comes into the office, do you hug her? Do you give her a handshake? Do you just say, “Hi, Jane.”? I mean, what’s the new decorum. I mean, obviously, that’s driven by the culture. You need to know what’s permissible, what’s acceptable, what’s unacceptable.

We’ve spent quite a bit of time with Davis, and I’m not trying to give Mike Lasky a plug here, but we’ve spent quite a bit of time with them working with our employees in terms of applying the #metoo rules to the Peppercomm culture and see where we come out. I want to have clear guardrails, internally and externally, as to what is ethical behavior, and who are the ethical organizations with whom we’ll work.

How do you check for that, as you’re doing the interview process? What kind of questions do you ask?

A lot of it is talk about your previous experience. A lot of it is talk about the role that you played. Talk about the fact of risk taking. What’s your point of view? You have six people reporting to you. If one of them came up with an idea, and he or she failed, how would you respond? We’re looking for people who are looking to nurture, mentor. We want a risk-taking culture, but we want a culture that learns from those mistakes. As much as we want to be egalitarian, if John Smith keeps making the same mistake over and over again, John Smith’s going to be shown the front door.

Obviously, there are exceptions, but I want to make sure that our people aren’t afraid to fail. I want our people to fail fast and learn from failing. That’s a big part of the interviewing process, to get into the person’s head, from the middle manager level and up, and whether it’s digital, whether it’s video, whether it’s PR, whether it’s social, whatever the area is, research, whatever the area is that we’re hiring for. Those characteristics, those abilities, those qualities, and for us, a serious … I shouldn’t use the word. A self-deprecating sense of humor is critically important to succeeding at Peppercomm.

As you may know, we train all of our employees in stand-up comedy. It’s been huge for us, in terms of enhancing presentation skills, breaking down barriers between people, fostering new friendships, increasing productivity. We’ve done 25-30 workshops for different types of companies, usually in post-merger situations, where they’ve got the inquirer and the inquiree just not talking to each other.

It’s a very different culture, by design. It’s right for us. It’s got the guidelines that not only help us select the right individuals, who we think will succeed for the long-term, but it also provides parameters in terms of the written word and what’s spoken orally. They know what’s appropriate, having gone through standup comedy training, what’s appropriate to be said at the Broadway Comedy Club on Saturday night, and what’s inappropriate to be said Monday morning at Peppercomm.

We’ve had two or three instances, where that blew up big time, but we had the training in place. We quickly addressed the problem. The person apologized, and we moved on. It became part of our employee handbook, without naming names. When you get our employee handbook, you’ll see these are things that have happened in the past that you need to avoid. We try to arm the employees with as much ammunition to succeed as possible, if they fit our criteria. If one of our senior people has second thoughts, that’s when we start going beyond the references provided, because somebody knows somebody who knows somebody who worked with this person, and so I’ll call a friend, and I’ll say, “Look, this conversation never happened, but I’d really appreciate …” I get asked all the time, too, “Should I go ahead with Jane Doe.”

“Well, what would Jane Doe be doing?” That’s the other … That’s the really cool part. I mean, we’ve got each other. We’ve got people at other agencies. PRSA’s Counselors Academy has been a great addition to helping me, in terms of hiring people. Page and IPR have been really helpful, in terms of what are the best practices, from cultural standpoints. I’ve learned a lot, and the industry associations have really helped me crystallize our culture, and ethical and moral behavior, because I hear it from the very best in our business. I’m not reading an advertorial in PR Week, I’m hearing the real deal from somebody at United Airlines or GE or whatever.

You have to be able to pivot on a moment’s notice. Things change so quickly. You have to change with the times. You have to realize, with millennials, it’s a very different mindset, and they live, eat and breathe on their mobile devices. You have to accept the fact that they’re going to have various browsers open. As long as they get their job done, and we’re keeping the client satisfied, if not delighted, they can go to whatever web browser, as long as it’s not pornographic. We’re not strict that way. We will not deny access to employees. They can spend time on whatever they want to do, play cards, or whatever they want to do. We’re pretty liberal about that.

Why do companies create RFPs just for ideas? What impact does it have?

I hate to say it, but it’s an easy way to get new ideas. If the pressure is on, and you don’t have the budget, and you don’t necessarily have a moral compass, it’s pretty tempting to do an agency search, have them come in, give you some great ideas, and then come back and say, “Geez, you know what? The budget that we thought had been approved in November, it’s still being debated, so we’ll get back to you,” and you never hear from them again. I think there’s still a tremendous amount of that going on, and it’s not being policed. It’s not being addressed by the Arthur Pages of the world, either, and it should be.

Ad Age did a big expose on it, but it’s happening all the time in PR. It’s as if it doesn’t even exist. You will not find articles in PR Week or Holmes about it. It’s like it’s not happening, but yet it’s happening to every single agency, and we’re losing time, and we’re losing money and intellectual property, the whole nine yards. Somebody’s got to step up at some point. It’s been discussed in the past. If one big agency draws the line in the sand and says, “No more. You’re going to pay us for our ideas, and we’re going to come in and present them. If you don’t like them, that’s fine, but we’re getting paid.”

“Well, four other agencies said they didn’t need to be paid, so if you’re insisting on being paid, we’re not going to let you pitch the Panasonic business.”

“Okay, fine.” At least you’ve put the line in the sand. We’re going to start doing that as much as possible. I mean, if we do get a Google or a Facebook asking us to pitch, maybe we’ll waive that proviso, but if it’s Joe and Bob’s Tree Nursery asking us to go up to Nashua, New Hampshire, to pitch against three other firms, I am not going to do it, unless they pay our way and pay for our ideas. We’ve instituted that, over the last couple of years, to try to cut down on the bait and switch as much as we can.

How well has that been received?

They respect it. I mean, they’re not happy, but they’ll respect it. Some of them are very taken aback and will say, “No other agency has asked that.”

My typical response is, “Well, not every agency is Peppercomm.” They’ll check and they’ll come back, and typically they’ll say, “We’ll meet you halfway.”

I’ll say, “Okay.” If it’s a good. If it plays to our sweet spot, and they’re willing to meet us halfway, in terms of the out-of-pocket cost, et cetera, et cetera, we’ll go. If they say, “No, you’ve got to pay,” we just won’t do it.

From the agency side, ethically, who should be in the room when you’re doing the new business pitch?

That’s a great question. I firmly believe, and we end all of our new business pitches, which is why we have a 90% loss rate … I end by saying, “I hate to break it to you, but what you see is what you’ll get.” I bring in … I don’t bring in people from central casting, who were press secretaries and former governors for the State of Wisconsin. We don’t play that game. We don’t bring in the A-team and dazzle the prospect, and then if we are fortunate enough to win, all of a sudden, they’ve got a 24-year-old, a 26-year-old, a 22-year-old. What just happened?

We actually win quite a bit of business by picking up the pieces after an organization has been burned by a bait and switch competitor of ours. It catches up to you big time, and you do get the reputation, certainly, within the corporate world, when the CEOs gather together at Page or Seminar or whatever. It’s definitely an issue from the client’s side. Big issues, from the client’s side, are the bait and switch, the account turnover. They get sick and tired of having to retrain people every three or four months, because there’s constant churn.

Are there ethics issues around research?

As you know, a big taboo is the lack of understanding of the business, of a client’s business. That was actually one of our taglines for four or five years, understanding the business of our client’s business, because we insist that we go out on sales calls. We want to play a fly on the wall.

We want to hear it directly from the audience’s mouth, what’s keeping them up at night, why they’re considering a Whirlpool washing machine, as opposed to a Samsung. We don’t … Not that we don’t trust our client’s primary and secondary research. We like to layer on our own research with the end user, because we see ourselves as the liaison with the client in the middle, liaison obviously with the media, but also the liaison and the ambassador for the target audience. We want to make sure that whatever campaign the client thinks is going to connect with the audience, their ad agency has done some quantitative research, and we’ve done this quite a few times. We’ve don’t qualitative research and come back and say, “This is not flying.” I’ll give you a classic example…

We worked for a big office copier company, back in the Dunder Mifflin days, when everything was going, and the great Dunder Mifflin tagline, “Endless paper in a paperless world,” which I thought was brilliant. We had a big copier company, and they were making a big investment in going green. They were going to be the leader in creating green office space, vis-a-vis their copiers and, back in those days, fax machines were still around.

They had already hired the ad agency. The ad agency had already launched the ad campaign, and we were brought onboard to do all the B2B PR. I mean, we were basically going to office managers, procurement managers. I mean, those are the people who were buying that equipment.

We tagged along on countless sales calls, and every single one of them said, “I honestly don’t care about the green office. I’m not being compensated for building a green office. I’ve got to keep costs down. If you’re telling me this new environmentally friendly copier is going to cost me $1000 more than your competitors, I’m not interested; end of meeting.”

We went back to the client, and we said, “You’re missing the mark big time. You’re ahead of the curve here, and you are going to lose market share.” This is one of my proudest achievements. We forced a two-day offsite with the complete management team, the ad agency, and they were livid. The ad agency … They were livid. We presented all of our findings. In a couple of instances, the office managers allowed us to videotape them, their comments, so we could bring the voice of the customer into the conference room, and boom! The campaign was killed, and we went back to a more traditional campaign, so that we could be competitive and try to grow market share.

It’s interesting how many clients, and I’m not in any way, shape, or form bashing advertising research, but the quant research only goes so far, because it doesn’t enable you to ask the why question. If you can keep drilling down on the why question, you’ll get to the heart of the issue, why green, environmentally friendly office equipment isn’t important to you right now. That’s when we can come back with the insights that will drive a campaign.

What do you see as one of the key ethical challenges facing the industry today or tomorrow?

Well, we’re still not doing nearly enough, in terms of the gender gap. We’re way behind. We’re way behind in diversity and inclusiveness. If you look at the PR industry, it’s fractured. It’s the global holding companies, three or four APCOs, Waggener Edstroms, MWWs, eight or ten Peppercomms, and then thousands of two-person/three-person shops. It’s Balkanized, and there isn’t one source of information, one trade organization, one group, PRSA. None of them, none of them, have the capability or the desire to educate, inform, and enlighten the industry, as a whole. I think that’s to our detriment, because I think the advertising industry, whether it’s the 4As or the Internet advertising research groups, they just do a much, much better job of being inclusive and looking at the small up-and-coming agencies, and what their wants and needs.

I’m worried that we’re falling behind, because there is this focus on the global agencies, as opposed to really hot, up-and-coming agencies that are creating new services, new products, et cetera, and that we’re not doing enough to … This is another biggie. We’re not doing enough to reflect the changing face of America. Our industry should be an exact mirror replica of the country, as a whole. We should be whatever the percentages are.

But for the most part, we’re still very much a white-centric and increasingly female-dominated industry. That’s great, I mean, the advancements that women have made in our industry, but that does not mirror society. In order to do the best work to connect with those different components and target segments, you have to have people who were born and raised in inner cities. You need that diversity. We are remaining plain vanilla, and it’s really going to hurt us.

What is Peppercomm doing to help change that?

Well, I can talk to Peppercomm. We have made a major outreach to the traditional colleges, black colleges and universities, and are trying to do more and more work with the Alcorns and the Howards, in terms of paid internships. That’s been job number one. We certainly don’t look at a quota system, but if you look at Peppercomm, three years ago we were probably 65% male, almost 90% white. Now, in our senior management ranks, I’m the only guy, so I mean, out of 10 people, 90% female. If you look at the diversity, you’ll see, as David Dinkins said, a rich mosaic.

We have people from South Africa. We have people from Europe. We have geographic diversity. We have diversity of thinking. We want people coming in with fresh ideas, et cetera, and we’re making real strides, I think, towards bringing in people with different backgrounds, too, engineers, data analytics types, coders. I mean, there’s a whole new generation, as you know, of employees that are entering the workforce. It’s diversity in every shape and form that I think will separate the good agencies, good or great agencies, from the ones that will be commoditized and go out of business.

What is the best piece of ethics advice you were ever given?

When in doubt, leave it out.

If your gut says no, don’t go.

You have to rely on the hope and belief that your moral compass will guide the organization to make the right decision. I don’t make those decisions in isolation. I’m very much inclusive in terms of, A, checking with the entire agency, if it’s a borderline client, and B, getting together with the senior managers. If there’s dissension, and there was once when an electronic cigarette company approached us. This was like 10 years ago, and one of our partners was on the Board of the American Lung Association, and she said, “I’m appalled by this.”

We said, “You know what? You’re right. We’re not interested.” It’s that type of approach that keeps us hopefully focused on doing the right thing and representing companies that are doing the right thing, but again, you never know what’s going on inside a company, and the best you can do is tell them to be as transparent as possible, and the lawyers will tell them the exact opposite, because they want to win in court. You and I want to win in the court of public opinion, and that fight is never going to end.

Listen to the full interview, with bonus content, here:

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Mark McClennan, APR, Fellow PRSA

Mark W. McClennan, APR, Fellow PRSA, is a senior strategic communications professional. He has more than 20 years of tech and fintech agency experience, served as the 2016 National Chair of PRSA. drove the creation of the PRSA Ethics App and is the host of EthicalVoices.com
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