Privacy
Background
The Scope and Nature of the Privacy Issue
a. Issues of Concern
b. Privacy Violations
Business Lists
a. Source of Lists
b. Use of Lists
Confidential Customer Information
Privacy Policy
Final Comments
Background
Privacy is an increasingly prominent issue. Despite efforts by many businesses to implement voluntary privacy policies, momentum is growing for congressional action to create a national privacy standard. Small-business owners find themselves in the middle of this debate. They are both business owners and consumers, and as such have conflicting interests on potential privacy legislation or regulation. The same rules designed to protect their personal information could be costly to implement and create legal challenges within their own firms. Some small-business owners may feel that privacy regulations are needed to protect their own personal information. They may want a prescribed, standard set of privacy rules to manage their customers’ privacy concerns. Others may want to avoid the cost and hassle of implementing a federal privacy policy for their customer lists. They may feel that running their businesses without new regulations outweighs the benefits of having them. The issue will become increasingly salient for small firms as they adopt new technologies. Business owners who conduct transactions over the Internet may find both their off-line and on-line operations subjected to regulations designed to prevent on-line fraud. The Internet, therefore, also puts small-business owners in the middle. This issue of the National Small Business Poll focuses on the importance of the Privacy issue to small-business owners, as well as the perceived impacts a government privacy policy could have on small-business operations.
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The Scope and Nature of the Privacy Issue
Small-business owners are concerned about a loss of privacy in the United States by a margin of 3-2. However, not all of those who have privacy worries share the same level of concern. Seven percent are extremely concerned; 23 percent are very concerned; 15 percent are somewhat concerned; and 12 percent are just mildly concerned about the loss of privacy in the United States (Q#1). Forty-two (42) percent of small-business owners are not concerned about it. Of those who are concerned, 72 percent feel the government should err on the side of privacy over economic efficiency if a trade-off must be made (Q#2).
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a. Issues of Concern
The vast majority of small-business owners are equally worried about the unauthorized collection, release and use of their business and their personal information. Eighty (80) percent of those who have privacy concerns are nervous about both (Q#3). Just fewer than 18 percent are concerned solely with personal data while 1 percent of small-business owners are uneasy only about the unauthorized use of their business information.
The greatest concern for respondents who worry about privacy is having their identity stolen. Nearly 36 percent of those who are concerned about the loss of privacy in the United States cite a stolen identity as the one part of their lives about which they are most anxious (Q#4). Thirty (30) percent of those with privacy worries are concerned about financial matters. A much smaller number of small-business owners, 9 percent of those with privacy concerns, are anxious about the loss of privacy over health issues. Relatively few are worried about the security of their purchasing habits (6%), lifestyle issues (6%), or political activity (6%).
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b. Privacy Violations
Small-business owners tend to be concerned about their privacy, particularly when it comes to stolen identity and financial matters. Personal experience has led them to be cautious. While nearly 60 percent of all respondents have privacy concerns, 49 percent of all owners cite at least one violation of their privacy in the last three years. Credit reporting agencies are most often blamed for having abused their private information; nearly 28 percent of all respondents identify credit reporting agencies (Q#5E). Twenty-seven (27) percent feel that a financial institution has misused their private information (Q#5B) and one-quarter (25%) assert that an on-line vendor has done so (Q#5D). Fewer small-business owners claim trouble with an insurance company (17%) (Q#5C) and just eight percent feel a grocery store has misused their information (Q#5F). Small-business owners are likely aware that insurance companies and grocery stores gather personal information. Therefore, the results suggest that small-business owners either feel that it is in the scope of business for insurance agencies and grocery stores to use their information or that small-business owners see value in sharing information with these types of industries.
While there is often media discussion about the federal government misusing personal information, 79 percent of respondents are comfortable (16% are not) with the way the federal government treats their private information (Q#5A).
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Business Lists
Sixty-one (61) percent of small-business owners develop and maintain lists of customers or prospective customers (Q#7). The sizes of the lists vary widely from business to business. However, the sizes of the lists do not differ substantially based on the size of the business. Seventeen (17) percent of list-holding businesses keep fewer than 100 names; 33 percent hold between 100 and 499; 6 percent have 500- 999; 26 percent keep between 1,000 and 9,999 people on their lists; 8 percent have over 10,000 names on theirs (Q#8).
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a. Source of Lists
Of the owners who maintain lists, 39 percent use billing or payment information of their customers to create them (Q#7aA). Twenty-two (22) percent of those who keep lists each gather their information from printed or electronic directories (Q#7aC), or obtain it directly from customers in return for discounts or prizes (Q#7E). Eleven (11) percent collect information through browsers on their Web sites (Q#7D) while 11 percent purchase names from other businesses (Q#7aF). Six percent develop theirs from credit card information Q7aB).
Customers are likely to be unaware that information about them is being collected and maintained by small-business owners. Just 25 percent of small-business owners who collect information on their customers notify people that they are on a list (Q#7b).
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b. Use of Lists
Lists of customers and potential customers are often valuable commodities in today’s aggressive marketing world. They can be one of the few cost-effective advertising vehicles for smaller firms. Lists can also be a useful small-business resource in many different ways. However, small-business owners are most likely to use their customer lists for direct promotional purposes. Fifty-six (56) percent send out promotional material to people on their lists (Q#7cA). Of those who want to alert clients of promotions or specials, regular mail is the first choice. Over half (62%) of the owners who send promotional materials do so through postal mail, while one third combine e-mail with their postal mailings (Q#7cA1). Though email has become an increasingly used form of communication, just 3 percent of small-business owners rely solely on e-mail for their promotional purposes.
Beside direct promotional approaches, small-business owners also take an indirect approach to increase sales by sending greeting cards on holidays, birthdays or special occasions to those customers on their lists. Forty-seven (47) percent of small-business owners who maintain client registers find them useful to promote sales through this type of client goodwill (Q#7cE). Small-business owners also find their customer lists handy when distributing non-promotional materials. Thirty-five (35) percent of those who have lists contact customers to remind them of appointments, check-ups, or annual servicing (Q#7cB).
While telemarketing and name swapping are integral parts of some types of businesses today, relatively few small-business owners who keep customer records use them to telemarket and virtually none sell names to third parties. Among owners who maintain lists, 11 percent telemarket to their clients (7% of all employing businesses) (Q#7cC) and a mere 1 percent sell information from their databases to outside businesses (Q#7cD).
Although more than 61 percent of those polled maintain a list of customers, very few of these business owners rely heavily on lists for the success of their businesses (Q#9). Only 5 percent feel that their lists are “critical” for a successful business. Another 16 percent find them to be an “important” tool. One-third of those maintaining client databases consider lists “helpful” for a successful business and 24 percent feel that they are just “marginally useful.” Surprisingly, 25 percent of those who maintain lists consider their efforts to be a waste of time and money.
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Confidential Customer Information
Small-business owners make a clear distinction between maintaining lists of customers and maintaining confidential information about customers. While 61 percent of owners maintain customer lists, only 33 percent of owners feel that they maintain information about customers or potential customers that “reasonable people would consider personal or confidential” (Q#6).
Small-business owners who keep confidential information about customers tend to take care while handling it. Eighty-eight (88) percent of those holding personal data keep it in a locked file, room, area, or on a secure computer (Q#6aB). Seventy-six (76) percent of those who have confidential information only allow its release with written permission of the person providing the information (Q#6aA). Sixty-nine (69) percent limit employee access to the information (Q#6aC). While the majority of small-businesses have not been subjected to a government mandate requiring a written privacy policy, 58 percent voluntarily provide a written policy to those whose private information they maintain (Q#6aD).
The survey does not address how owners maintain their files of general, non-personal customer information.
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Privacy Policy
Overall, small-business owners feel that the federal government does a good job balancing the protection of privacy rights and commercial rights. Fifty-eight (58) percent of all respondents answered that government policy balances the two interests (Q#11). However, of those who feel that the government’s policy is out of balance, by a margin of 2-1, small employers are more likely to believe government policy favors commerce over privacy. Within the group of respondents who believe there is partiality toward commerce (22%), just 20 percent believe this preference is a good thing (Q#11a). Among those who feel that the government leans too far toward the protection of privacy rights (10%), half consider this good public policy and half consider it bad.
Respondents on each side of the issue share the same level of concern: 60 percent on each side feel very strongly that there is an imbalance. The remaining 40 percent on each side do not hold a deep-seated opinion.
The area where small-business owners feel that the rights of privacy and commercial activity need a better balance is stolen identity. Nearly 29 percent pinpoint stolen identity as their greatest concern (Q#12). However, within this group, not all feel that the rights of commerce prevail. Half feel that commercial rights are favored but 36 percent feel that privacy rights are. The second most frequently cited area (19%) where owners feel the need for a better balance between privacy and commerce appears in financial matters. Of those concerned about financial matters, over 68 percent feel commercial interests are too heavily favored and 26 percent say that privacy rights are. Seventeen (17) percent feel that the rights of privacy and business are out of kilter on health issues. Of these small-business owners, 60 percent say business concerns actually take precedence while 35 percent say privacy issues predominate. A majority of owners, therefore, believe that in the area where rights are most out of balance, the balance lists toward commerce. It protects privacy insufficiently. However, a sizeable contingent feels the opposite. The generally mixed result re-enforces the general tenor of the data throughout, i.e., there is some concern among small-business owners over the loss of privacy, but it is neither alarming nor unanimous.
If small-business owners were faced with a law that would require them to remove from their lists the name of any person who asked them in writing to do so, many feel it would not have a significant affect on their businesses (Q#10). Twenty-nine (29) percent report that such a law would not affect them. Most of the remaining owners would make changes to their operations in ways to comply. Twenty-three (23) percent would change operations enough to comply with the regulation. However, 16 percent of small-business owners would curb or eliminate their use of lists. Six percent would reduce the use of lists; another six percent would no longer add names to their lists or would not create new customer lists; almost four percent would no longer use lists. Several chose not to give their reaction to such a law, but their opinion of it. And, they favored it by over a 3-1 margin. Eighteen (18) percent volunteered that they approved of such a law while five percent opposed it.
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Final Comments
Small-business owners generally feel that government maintains a reasonable balance between the often-competing rights of privacy and commerce. However, those who feel there is an imbalance favor increased privacy protections over commercial protections. This is not illogical. Small-business owners are private citizens as well as business owners and often respond in the former role. They also occasionally witness confidential information from their privately-held business revealed. Both consumer roles encourage them to be concerned about privacy.
As business owners, most do not feel that they maintain personal or confidential customer information. Without such private information, they are not likely to feel threatened by potential restrictions on it. While about one-quarter say that they do maintain personal information, almost all of those have some type of security policy even if it is just locking the information in a file drawer. Privacy gains, therefore, appear possible with little downside risk. But, this is only true if legislators or regulators view privacy issues from the same frame of reference as small-business owners. Owners likely will not feel the same if the definition of private/confidential information differs from theirs, or rigorous standards of information handling are required.
It must be remembered that small-business owners are currently concerned about
a narrow field of privacy issues. Their apprehension remains focused on protecting themselves from stolen identity, misuse of financial information, and healthcare privacy. They are less concerned about other matters and that puts them at odds with some of the more ardent privacy advocates.
Privacy is a very large issue area. This survey focused on privacy concerns and the use of lists. A host of other, relevant-privacy related topics could not be addressed due to space limitations. For example, there can be a trade-off between security and privacy. How far should the employer be allowed to go to discover information that may protect one employee from another? How far do small employers go now? There are also questions about revealing the work performance of prior employees. Small employers do remarkably little reference checking. Do they believe that prior employers feel constrained to provide useful information? Or, are there other reasons? Do they provide employee references? Other questions could include workplace surveillance, computer system security, etc. The list is long, but important, and will require further investigation at a later date.