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Ethics and the Entrepreneur

Jennifer Lawton, Owner, Just Books, Inc.

The article below is the opinion on the author, and does not necessarily represent the opinion of EntreWorld or the Ewing Marion Kauffman Foundation.

This last year has been momentous in so many ways - our world has been turned upside down and inside out. The moral and ethical corruption has been vast and immeasurable: from the corrupt minds that blew up the World Trade Center buildings to the greedy, scared, morally bankrupt people who have destroyed the public's trust in business, to the inevitable unveiling of the inside milieu of "public trading" that includes nonpublic information, payoffs and vigorous back scratching. Just such a momentous year.

Ethics has always intrigued me. In high school, my senior social studies class was actually first-year college philosophy. We spent a lot of time talking about the difference between ethics and morals - ethics being the rules of behavior for society at large, morals each individual's inner guiding principles. I've since spent time over my life - in which I've built and sold a high-technology company and now own two local bookstores - mulling that difference and questioning why my morals don't always match the ethics of the moment. I believe there has been some level of moral decay, in large part the result of the poor example set by plummeting ethical standards.

In the not-so-distant past - say 20 years ago - the concept of lying was difficult. You just didn't do it. There were consequences if you were found out, and the shame was beyond personal, beyond a breach of morals. It was public. In short, lying violated the ethics of the country. Furthermore, if caught, the guilty party could do little more than slowly build back trust and never lie again.

Ethics Today

What happened? Today, we are living in a world in which may seem to question if lying is a moral breach; certainly, it is no longer an ethical breach. The new ethics seems to be that it's preferable that you don't lie, but if you do, you should be sorry or come up with some reasonable defense. Once you've apologized or defended yourself, you should be free and clear and in the same position of trust and stature that you were prior to lying.

In short, we now seem to make allowances for ethical standards declining by using the law of averages to settle on a standard that is the least common denominator. The result, unfortunately, is similar to a rudderless board with a collective populace trying to recalibrate its moral standards based on a sea change in society's ethical expectations.

Perhaps, though, things are changing. In the wake of the scandals that affected mostly large public companies, we seem to have blown the whistle on the ethical decline. Suddenly, it's not OK to lie, steal or cheat. Well, it's not OK because you're lying to "me," stealing from "me," cheating "me." Maybe the massive collective ethical breaches by an entirely too large populace of public companies offended the "me me" switch of the collective investing public enough that we're now willing to draw a line in the sand and demand the ethical standards of yore.

Enter Entrepreneurship

All of this begs a question: What are the ethics of entrepreneurship? I had an interesting discussion recently about what private companies that lie, steal and cheat are doing. Are they cheating their investors? Robbing the company bank? Stealing from employees? Lying to customers and investors? Most likely not, but is that because of ethical standards? Put another way, do business ethics differ between private and public companies? Does it matter if you are an entrepreneur or a corporate CEO? Perhaps it does.

Why would the CEO of a private company lie? It would be lying to one's self. What's the end goal? What's achieved? Not much other than maybe some rose tint to the world at large. Would an entrepreneur cheat employees out of retirement plans with false information? Not likely. Knowing that employees make the company and need to be invested to help you succeed would make that a huge risk with no reward.

A public company CEO has more leeway in that regard. With the resources of the organization a more considerable distance from one's self-interest, it is easier to embrace the dual slide in morals and ethics that has allowed for greed, "me first" and instant gratification.

Another part of the answer, however, lies in that other enemy, the one we have met and found to be "us." Did investors really want to know that there weren't enough customers for the telco infrastructure that was put into place? That there was no way for companies to grow exponentially, with smooth upward trajectories and eternally positive bottom lines? Indeed, we investors were willing to gloss over reality to believe that with a few pixels dropped in and out, we saw a prettier picture. Who was really lying - the CEO or the investor? Is it a lie when both parties ignore reality?

Battle Scars

I've been out of the world of a public company for about a year now. I left the company I was at - the successor to the concern that had, in 1999, bought the entrepreneurial venture I had co-founded eight years earlier - before it went painfully bankrupt, collapsing under the weight of heady expectations set by analysts, the public, the world. That company truly wanted to believe and meet or exceed those expectations. It was, after all, a part of a great idea, the Internet explosion. However, as a leader of that company, it never felt OK to say, "We're not going to grow this much and here is why." It should have been OK, but it wasn't, because that's failure, and so the accepted next step was to do everything to meet the goals, even if that required a slipped rule here or there.

There are powerful lessons to be learned from today's ethical morass. You can wake up each day and vow to live by a higher ethical standard. That standard should include being honest even when it hurts; not cheating when you know it's the only way to win; not robbing Peter to pay Paul - or robbing anyone or anything, ever. And I do think the vast majority of the business population, public and private, conducts business this way.

However, I also think that the entrepreneurial world - particularly the high-tech entrepreneurial world - is living through a time of high temptation. The devil on one shoulder tells you to make the numbers and set projections to make investors feel good, the angel on the other says to tell the story like it really is. The confusion is over the feeling that the devil is what gets you there quicker; perhaps it is the only way to bring in the next round of funding that takes you to the top in half the time so you can turn around and fix the errors you made along the way, cover it all up, and make it right.

Entrepreneurial Ethics

I own a bookstore now, a small bookstore - well, two small bookstores. Every day, I deal with the public. When people come in to buy books, we talk. We talk about what people like to read and why; what they want to read to take their minds off of the problems they want to escape from. Inevitably, we talk about the "general malaise" of the world, including the total lack of confidence in the public markets because of the depth and breadth of the lying, cheating and stealing that's taken place.

I've always lived by a set of simple morals, bounded by what I believe are the tenets of our country's ethics. Be honest. Don't lie. Admit mistakes. Treat people with respect. Be bounded by the ethics of "do unto others…," "inalienable rights," "innocent until proven guilty," and "free speech." And I've always conducted business that way. Whether public or private, I told the truth. If the company we were buying was the wrong company, I said so. If I couldn't make the sales numbers, I said so. If I can't get your book, I tell you.

These are troubling times. And so I love getting back to my entrepreneurial roots with a small business. In a world that lost its ethical bearings and is just now waking up to that fact and struggling to regain what has been lost - I am not willing to wait for it to do so. It is a relief to live again in a world that I am in control of and in which I can set the ethical tone.

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