What I learned about business ethics when I walked away from a billion-dollar valuation

July 18, 2013
July 18, 2013

This originally appeared on LinkedIn. You can follow Vivek Wadhwa here 

During the early days of my career, I used to think that corruption was a third-world ill. Then I started my own company and saw the world from the vantage point of a CEO. I realized that corruption is everywhere, that ethics is a slippery slope, and that the decisions you make at every juncture define who you are.

Here are examples of the many lessons I learned.

I once needed to negotiate a distribution deal with a company that controlled market access to my products. The company’s CEO demanded that I give his spouse stock in my firm in return for his support. Doing so could have led to millions in sales; if I declined, we would lose the business opportunity.

I was dumbfounded. In other parts of the world, things like this are common business practice. But this was in America. And I was dealing with a public company.

I decided that I would rather sink my new startup than compromise my values. I declined the deal. My team was forced back to the drawing board to develop new technologies. Eventually we built a company with better products, for a larger market. And we were able to raise millions in financing from top investment firms.

A key to achieving success is to assemble a strong and stable management team. We did a great job at recruiting the very best. Just as the company was taking off in a big way, I heard whispers about sexual harassment in our executive suite.

After investigating, I found a potential problem with one of my senior managers. He was asking for sexual favors from vendors and potential recruits. Losing a person so critical to our operations would be a major setback, but I couldn’t tolerate a situation like this.

I fired him and walked him out the door.

Morale took a big hit, and the company lost significant momentum. But we survived. Later I learned of other ethical breaches by the same person. If I hadn’t made this decision, the fallout would likely have cost me the company—and my reputation.

During the dot-com days, one could take just about any company public and reap fortunes. All you had to do was to make sky-high projections for growth, say you were in the Internet space, and go along with unscrupulous investment bankers and their analysts.

My company’s investors wanted me do what many other CEOs had done and go for the IPO. But I worried that I would be misleading the public and filling my company’s coffers with the savings of unsuspecting grandmothers and struggling families. The analysts and bankers hype stocks and make them seem like certain bets. They rake in big fees, walk away, and disown responsibilities for the company’s projections. The losers are always the public.

At close to a billion-dollar valuation, I chose not to take my company public.

The dot-com bubble did burst a few months later. It decimated companies’ values. Many families lost their savings. Most of the companies that had gone public also ceased to exist. When I think back, I know I could have made tens of millions of dollars and lived the high life. But I would not have been able to face the people whose money I was spending; I would not have been able to live with myself.

Turning away from the investment bankers was the best decision I ever made.

How can companies do better?

Corporate executives and business owners need to realize that there can be no compromise when it comes to ethics and that there are no easy shortcuts to success. Their companies need ethics carefully sewn into their fabric.

Business executives need to start by spelling out and communicating their values. Then they need to lead by example. This means getting rid of the bad apples and declining opportunities to sell one’s soul for instant wealth.

Corporate culture is built from the top down. Employees embrace the ethics and values of their leaders. You simply can’t have one set of standards for management and another for staff. Every executive and employee needs to be held accountable.

Employees need to be encouraged to speak up when they see wrongdoing: to “speak truth to power.” And when a mistake is made, it is better to deal with the immediate fallout than to allow it to build its own momentum. A corporate culture that doesn’t allow for mistakes is destined for disaster. The best strategy is to encourage employees to come clean and learn from their errors.

The worst approach pressures employees to hide information. A company can usually survive short-term snags; covering up a problem is likely to create even bigger problems later on. No truth remains hidden forever.

Ultimately, long-term survival is about tying reward to behavior. The best organizations build ethics into their management and compensation systems. They reinforce corporate values by making them an integral part of how success is measured and rewarded.

Remember that doing the right thing doesn’t automatically bring success. But compromising ethics almost always leads to failure.

Top News

Powered by WordPress.com VIP
Follow

Get every new post delivered to your Inbox.

Join 26,700 other followers