Who’s in Charge Here?

I recently met with the CEO of a start-up to discuss strategies for growing the business. Or, at least I thought I was meeting with the CEO. I quickly discovered that although the corporate documents designated him as the CEO, he was really one of two co-CEOs in that the CEO does not make an important decision without the approval of another employee.  The two co-CEOs have a long, strong personal relationship and possess complementary skills.

Two heads are better than one, right?

I don’t think so.

Continue reading

Checks & Balances

Organizations make decisions all the time: who to hire, which vendor to use, what marketing strategy to employ, which businesses to acquire, and even what mission to adopt. In some cases, a single person has the unilateral ability to make a decision — but the majority of consequential changes to the status quo require the consent of more than one person. Organizations impose checks and balances to ensure that decisions are made appropriately.

One method for establishing checks and balances is to require approvals from a decision-maker’s superiors or from an independent department. An alternative method for checks and balances is to use committees to make decisions.

Which approach is best in which situations?

Continue reading

The Single Principle of Business Ethics

Mentor Graphics (where I used to work) states “Win, Ethically” as one of its core values. Of course, winning is a desire of most businesses; it is the “ethically” part of the statement that is notable. During my time at Mentor, I was impressed with the ethics of the people with whom I worked. As an employee, I was fairly treated. And, as an executive, I was always encouraged to “do the right thing” for employees, customers, and suppliers — even when that lead to additional expense, or inconvenience for the corporation. “Win, Ethically” wasn’t just an empty slogan.

But, to say that ethics implies doing the right thing is of course circular; how does one know if one is doing the right thing?

During my tenure, Mentor administered an annual ethics training course to all of its employees. That course reminded employees that revealing confidential information was unethical — with significant legal consequences. We were advised that making a promise to a customer that went beyond our contractual obligations was a “side letter” — which might prevent revenue recognition. And that bribing a public official in a foreign country, no matter how customary such payments might be, was a violation of the Foreign Corrupt Practices Act — possibly resulting in criminal sanctions.

Certainly, all of these actions are unethical — but why? What is the unifying principle that makes all of these actions unethical?

Corporations often have goals that go well beyond “increasing shareholder value.” For example, some companies make commitments to the ethnic diversity of employees, to delivering environmentally sustainable products, or to providing assistance to impoverished regions of the world. Employees, customers, and even shareholders often find these goals attractive. (Of course, if employees are more productive, or customers more willing to buy, even shareholders with a purely financial motive should rationally support such initiatives.)

It is, however, ethical for a corporation to pursue profit, without substantial concern for social or environmental goals. Hiring employees in a low-cost region (at the expense of jobs in a higher-cost region) or using cheaper, but harder-to-recycle, packaging is not inherently unethical. (Of course, I’m not in any way condoning slavery, dumping of heavy metals, or other such abuses!)

If you are my customer, I have no expectation that you will continue to do business with me if you find a better supplier, no matter how amicable our relationship. If you are my employee, I will not consider you dishonorable if you take a better job elsewhere. And if you work for a competing enterprise, I will not hesitate to call on your clients, even if I know that my victory might result in harm to your career. I never expect favors from a business partner, even if we have a personal friendship.The business world is competitive, and, in some respects, brutal.

The one foundational principle of business ethics is very simple: an ethical businessperson keeps his or her word.

If I tell you that I will deliver a particular product on a particular date, I must do everything I can to honor that promise. If I tell you that I will purchase your product if it has Feature X, and you demonstrate Feature X, I should purchase your product. If I sign an employment agreement to work for you, it’s unethical for me to accept a competing offer the next day. If I tell you that I am committed to hiring more minority employees, I should have a substantive program to recruit such people.

This principle explains why side letters are unethical; the person promising delivery of the new feature (the salesperson) cannot guarantee that the people responsible for implementing the feature (the engineering team) will in fact make delivery. Resulting financial restatements are an important practical problem for the corporation, but they are not the inherent reason that the side letter is unethical. Likewise, it is unethical to share confidential information because such sharing violates a promise, not because of the legal consequences. It makes no difference whether the promise was made via a signed NDA, a handshake, or a mere nod. Bribing a foreign official is unethical because the transaction must be concealed (a form of lying), because the official is violating a commitment not to accept a bribe, and because the offeror is almost certainly violating her promises to her employer. The fact that the offeror may go to jail is a consequence, not a cause, of the fact that bribery is unethical.

This foundational principle of business ethics explains why many businesspeople routinely use linguistic hedges. Phrases like “I expect that” or “we have no current intentions to” are common because they convey intent, but avoid making a promise the speaker is not in position to keep. To some, these sounds like “weasel words,” but to me they reflect that the speaker is honest. I’d much rather a business partner tell me “I am confident we can close the deal” than tell me “It’s a done deal” — only to tell me later that the CEO didn’t approve.

Can you think of an unethical business action that does not somehow involve a failure to honor a commitment?