Members of Congress, lobbyists, and car salesmen edged out telemarketers as having the worst reputations for honesty and ethical standards, according to a Gallup poll taken at the end of 2011. Other professions that ranked low on the trustworthiness scale include business executives, stock brokers and real estate agents.
What makes these professions so maligned by the average American? Not all people in these industries are cheaters, liars or flat-out crooks. But while there are bad seeds in every industry, those seeds really bloom in these professions. And it all boils down to bad incentives -- incentives riddled with conflicts of interest that allow (encourage, even) people to rationalize bad, unethical behavior.
Americans Love to Hate These Professions -- and No Wonder
Congress members and lobbyists are frequently embroiled in scandals, often involving lobbyists paying our elected representatives to push through policies that promote their business's interests.
Recall the Jack Abramoff scandal, which implicated government officials, including Rep. Bob Ney (R-Ohio), in receiving lavish gifts in exchange for political favors. While it's now illegal for lobbyists to offer personal gifts to politicians, lobbyists and the organizations they represent still have the power to make campaign contributions through political action committees, or PACs.
Here are some of the top corporate political donors in 2011-2012:
Defense companies like Honeywell and Lockheed have a clear incentive to make campaign contributions and create a quid pro quo relationship with politicians who make decisions about defense spending. Similarly, telecom companies like AT&T and Comcast have an incentive to encourage government spending on infrastructure that benefits their bottom line.
And the legality of campaign spending through PACs gives them a perfectly legal means to promote their agendas, even when those agendas may not be consistent with the country's overall best interests.
When people think of stock brokers, they usually think of full-service brokers who offer investment advice in addition to transacting trades. And how do many of them earn their money? From commissions on those trades.
If you could add some extra padding to your paycheck by clicking buy or sell a bunch more times, would you keep your finger off the button? It's a compensation system that gives stock brokers an incentive to encourage frequent trading, even when it is not in their clients' best financial interests. This incentive system takes the focus away from offering good financial advice and puts it squarely on inflated fees.
Executives in the C-suites have a lot of power -- the kind of power that creates many opportunities for them to push their own agendas, even when they undermine the business's long-term success and work against the best interests of customers and shareholders.
A lack of an adequate system of checks and balances on executive behavior increases the likelihood of such misconduct. In many businesses, a single person acts as the CEO and chairman: That's like being your own boss. In these cases, CEOs have a great deal of influence over the board of directors charged with evaluating their performance and determining their pay package. And it can be tempting even for the best CEOs: Apple's (AAPL) Steve Jobs, a widely admired CEO, got into trouble for backdating stock options after the company became more profitable.
The pay structure for real estate agents creates a misalignment of their own interests and the interests of their clients -- the actual buyers or sellers of homes. Real estate agents get commissions on homes they sell, encouraging them to hike their pay by pushing the most expensive houses on their clients rather than helping them find the best fit for their needs and budget.
But if the selling agents want to sell the most expensive houses, this should be good for home sellers, right? Nope. To maximize their pay, real estate agents also have to worry about volume -- that is, they want to speed up the sales process to increase their own pay per hour. This means that an unethical agent could stoop to selling houses for less than they are worth if it means getting a quick commission and moving on to the next house on the block.
Car salesmen get a bad rep for similar reasons. Like real estate agents, they get commissions on the cars they sell. This not only encourages them to push the most expensive cars on their clients, but to also trick customers into buying a bunch of unnecessary add-ons.
Americans love to hate these five professions -- but not because there's anything inherently wrong with them. Rather, the common theme is that the professions' incentives are frequently misaligned with the interests of their customers and stakeholders. Consumers and investors alike would do well to pay attention to the way business's incentives and systems are set up so they can protect themselves from manipulation.