Business Ethics

December 12, 2006
StartupNation

"Honesty is the Best Policy" Must Be More than Words on the Wall

Entrepreneurship is a fascinating journey with tough choices at every step. Many startups focus on only one goal - survival. Yet this early phase is when you establish the values that will guide your company through growth to success.

It's all too easy to compromise your principles to get that first deal, obtain financing, hire the people you want or delay a promised payment, but in the end those decisions can destroy your business.

"Startups depend heavily on good first impressions when entrepreneurs hire employees, court investors and line up customers. In a hyper-competitive economy, any whiff of dishonesty can deep-six a new enterprise," says Ken Gaebler, CEO of Gaebler Ventures, a business incubator, holding company and venture capital fund based in Chicago, Ill.

"As a venture capital firm, the biggest factor in determining whether we want to fund a startup is its management team," Gaebler says. "Do they have the integrity and ethics to do right by their investors, employees and customers? Business ethics is important to us. Startups must adopt a code of conduct from the beginning."

You're the Model

Legendary entrepreneur Warren Buffet put it this way: "Trust is like the air we breathe. When it's present, nobody really notices. But when it's absent, everybody notices."

You can run your business from startup to retirement on ethical principles. Now is when you must put the right things in place to build an ethical corporate culture: mission, values, clear and accessible policies and processes, corporate citizenship and philanthropy.

The first step is to be a model of ethical behavior yourself, Gaebler says. "If your employees see you cutting corners and consistently working in gray areas, then they are probably going to do the same thing regardless of what your code of ethics says. It's a monkey-see, monkey-do world we live in, and like it or not, you're the big monkey everyone looks up to in your company."

Wayne Hurlbert, a blogger and Winnipeg-based business ethics consultant since 1999, says to begin thinking about your company's standards while creating your business plan. "Begin with a firm statement of your own convictions and principles," he says. These are the cornerstones of how your organization will operate in the present and into the future."

Choices Show Up Everywhere

Ethical considerations pop up almost everywhere you look. Take technology. You could commit to buying software for every workstation instead of downloading the same piece of software onto multiple machines without paying for the right to do so. It's a common practice. It's also theft. Or you could create a policy banning the use of bootlegged software, photos and other images, sound clips and other material from the Internet, and refuse to engage in unethical spamming.

Maybe you want to outline an ethical code for environmental and social responsibility - a declaration banning the use of items that contribute to the destruction of rainforests, or harm and displace indigenous people. Announce hiring practices that include people of every gender, race, age and physical challenge. Decide on a social responsibility policy. Commit to being a good corporate citizen. And there's no time like the present to think about setting up a charitable foundation.

At the very least, start with a clear, firm statement of convictions and principles about how you will treat customers and employees. "Most run-of-the-mill mission statements ignore business ethics," Hurlbert says, "but including them will establish your business on the right foot from the very beginning."

He stresses that every business must commit to providing excellent customer service: "No misleading claims. No promises not kept. No inferior products. If a business reneges on these promises, customers will leave and tell others. And bad news travels at light speed."

You're an Employer, Not a Lord

Your business ethics apply to your treatment of employees, too. "Pay them fairly," Hurlbert says. "Don't treat them as third-class citizens. Include them in the decision-making process and reward them for good ideas. Happy employees are productive and you'll experience less turnover, which is a cost savings in the long run."

Include ethics as a part of your hiring practices, says Jim Balassone, executive-in-residence at the Markkula Center for Applied Ethics at Santa Clara (Calif.) University. "Ethical businesses attract ethical people," he says. Balassone defines an ethical business as one where people are encouraged and expected to do the right thing without anyone watching.

"Make sure the people you hire share your values," he advises. "You don't want people who will throw ethics to the wayside in order to make a buck. These are the people who will end up stealing from you or screwing your customers."

Once the foundations of your ethical principles are in place, you must devise systems that will put them to use. Gaebler recommends creating an ethics advisory board made up of a diverse mix of people from within the company, and maybe even a few outsiders. He says the board's job is to research existing business codes of ethics and create one that makes sense for your company. Once established, it should be put in writing and distributed to your staff.

Corporate culture is built from the top down. Employees adopt the ethics and values of their leaders. "You are the company, and you set the standards," Balassone says. "It's your responsibility as founder to create a mission statement and goals with a set of values that includes honesty, integrity, fairness and excellence.

"Do you want ethics to be a random walk or a pre-planned foundation of your business?"

Learn by Examples

Startups have their own challenges - mainly staying afloat - and ethics can sometimes be thought of as luxuries you can't afford. But Balassone cautions against compromising your principles and bending the rules in an effort to stay in business. "Values, once put on hold, aren't easy to reclaim," he says, and offers this example:

While on the board of a startup whose management had, in essence, bribed a prospective employee to join the team, Balassone called them on it, describing the move as dishonest. "The board answered that they were just trying to get the job done," he says. "And I told them that I didn't want to be on the board of a dishonest company." That business is still foundering, he says, and it seems unlikely to succeed.

In contrast, Balassone cites Keith Krach, co-founder of Sunnyvale, Calif.-based software company Ariba, as an example of someone who understands the value of ethics.

"From the get-go, Ariba knew what type of company it wanted to be and devised a set of guiding principles that people were measured against and held accountable to," he says. "In the first five years, Ariba achieved a run rate of $500 million. Was it because of their ethics? Probably not entirely, but I'm sure it helped."

Ethical business practices are a way of differentiating yourself from the competition in attracting employees and customers. And satisfied customers will spread the word about you and your organization by powerful word-of-mouth advertising.

"Honesty is the best policy," Hurlbert says. "It pays off in customer and community relations, and it pays off for the world. Practicing strong business ethics is the ultimate win-win for everyone."

© 2006 by StartupNation