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How Data Ethics Drive Better Business Decisions

By Jim Molis

Published November 12, 2021 • 6 Min Read

All businesses have customer data. Even a small business can have lots of customer data. Whether it is their phone numbers, payment information or other personal information a customer has shared, you likely have stored the data in some manner, perhaps for future use.

But just because you have data on customers doesn’t mean you should use the information for anything other than the use for which customers provided it. Collecting, using and storing customer data properly is essential to building and maintaining the reputation on which business growth depends. That is, data ethics are paramount.

Customers want to protect their information as much as possible in today’s world of data breaches and spam messages — and they expect businesses to do the same. Businesses that misuse or mishandle data often lose customers, while companies that manage data well and adhere to data ethics often gain business through trust.

Data ethics principles and policies can help you grow your business by enabling customers to trust you with their information. “When we talk about how to use data, we always have to think about what’s best for the customer,” said Jennifer Stott, RBC’s Chief Data Officer.

Defining data ethics

Focusing on the customer is at the heart of data ethics. “It’s about defining what the boundaries are for acceptable behaviour,” Stott said.

Or, in some cases, it is easier to describe unacceptable behaviour. For instance, if a store were to use only one piece of data to decide whether to extend credit to customers.

“You want to get a rounded picture and help inform decisions but not to the detriment of a group of individuals,” Stott said. “If you’re using data to jump to a conclusion or using a finite number of attributes to ascribe an assumption to a group of people and then use that data to back that up, that would be unethical.”

Stott likened the role of data in decision-making to how online shopping works. A website may suggest items that you might like based on other products you’ve viewed but it would not decide to buy a recommended item for you. “They are making a suggestion, not a decision,” she said.

You can similarly use data to inform your company’s decision-making without overstepping the boundaries of data ethics. “Whether overt or subtle, ethics missteps are bad for business. Affected stakeholders are left feeling that a promise — implicit or explicit — has been broken,” according to a Gartner article on embracing proactive data ethics. Businesses with data ethics are better positioned to avoid or withstand data mistakes, which will likely become more common as data use increases, Gartner says.

In addition to protecting your business from reputational loss, data ethics can give you a competitive advantage. “As customers prioritize data privacy, they will pick providers that offer full transparency about their data collection and processing,” according to a McKinsey & Co. article on ethical data usage.

Implementing data ethics

Your company’s data ethics and policies should align with your organization’s brand because your reputation means everything, Stott explained. Form data ethics around your company’s values, she suggested.

If you do not have a formal mission or value statement or are looking for additional starting points, Harvard Business School suggests following five principles of data ethics for business.

  • Ownership: Clarify that a customer’s personal information belongs to them and establish ways to collect their data only with their consent.

  • Transparency: Tell customers how you will collect, use and store their data.

  • Privacy: Protect personally identifiable information (PII) by storing it securely.

  • Intention: Determine why you want data and how you will use it before you collect the information to assure that you will use it for good.

  • Outcomes: Consider unintended consequences that could result from using the data that you want, like a “disparate impact” that could illegally harm individuals or groups of people.

As a business owner, you may not have dedicated data or ethics professionals or executives to form your data ethics policies around your values and brand, but you can involve representatives from different parts of your business, like administration, marketing and operations, in assessing how data is gathered, used and stored. You can also formulate data retention and destruction policies to help protect your customers.

Establish opt-in data policies for customers as well — not opt-out policies. “Regulators are getting more focused on making sure that clients’ rights and clients’ voices are acknowledged and registered,” Stott said. “You need to show you have asked explicitly and are using the information within the boundaries of that agreement.”

Communicating with customers

Customers also want to know how their information will be used and to assure that it is not used for any other purpose. “It’s important that customers understand what they are opting in for and understand how it will be used,” Stott said.

Customers are also more likely to provide information if they perceive value in doing so, Stott noted. “If you get valuable data and give valuable data back, you will continue to build your brand,” she said.

In RBC’s case, exchanging valuable data may mean that it recommends savings opportunities for customers in exchange for their information. Or, the bank may use the data provided to protect the customer’s money through anti-fraud measures.

Conversely, using a customer’s data simply to market to them may not be “valuable” enough for them to consent. Stott recalled a large company being bombarded by negative feedback for telling its customers that it would use their data to serve them targeted advertisements.

“When your customers believe you work ethically, honestly and transparently with them, you build fierce loyalty, which translates to continued interactions and profits. You literally cannot buy such clients with money, but you can endear them for life with proper data ethics,” ChristianSteven Software Chief Executive Christian Ofori-Boateng wrote, in a Forbes article about the rise in data ethics.

Maintaining data ethics

Though vital, implementing data ethics policies and processes and sharing them with your customers is not enough. Just as developing data literacy among your employees helps your company grow, embedding data ethics throughout your organization may keep you from making choices about that data that might hurt your business.

For instance, a financial institution should not deny a customer’s loan application just because their banking statements showed that they spent regularly on alcohol (which may be gifts or entertaining and not personal consumption). With data ethics in place, team members would be less likely to make assumptions about the customer’s transactional data if they were to first consider the potential implications.

“If you make an assumption about me based on buying and then use it to make a decision, that would be unethical,” Stott said. “Unethical behaviour has the highest potential for damaging a brand.”

Knowing how your company should use customer data and how it shouldn’t can help you protect your brand from damage and grow your business by gaining trust.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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