Capitalism is based on the ability for businesses, markets, goods and services to be profitable. Businesses need to explain how it is achieved. Milton Friedman, an American economist, has said that businesses should be solely focused on increasing profit, as long as they engage in an open, free competition devoid of fraud.
The study of entrepreneurship and business ethics are becoming increasingly established, and the intersection of entrepreneurship and ethics is receiving a lot of venture capital attention. Nada Miljkovic talks about these.
What are ethics?
Ethics is the moral structure by which a person lives his life. Morals are the ways in which somebody decides what is right and what is wrong. So, it is by that compass which we all have internally that is applied when we are given a choice. So, the study of ethics is the idea of how to create a system by which we can decide more easily whether something is right or wrong.
What is the relationship between business ethic and entrepreneurship?
The beginning of corporations started with the East India Company which was given the right to colonize. So, corporations have a negative history. So, one should think about the history where their company can be different.
A company begins with a founder. The founder has an essential idea, the solution that they want to bring into the world by finding some problem that they need to solve. So, a company is based on the founder’s characteristics. Hence, a founder needs to be very careful while beginning a company.
Then, they look for a team to augment their skill sets to create a sustainable and scalable business. So, the ethos of a company is embedded in their founder’s principles. As a founder, you need to think about what kind of company culture you need to create.
Another way to look at it is through the evolution of entrepreneurship, capitalism and businesses. We have gone through a lot of iterations through the evolution of corporate structures that we have got today.
A very big prominent idea is the idea of the 3 Ps - People, Planet and Profit.
The next bigger structure that people think about is the ‘cradle to grave’ idea. One of the essential qualities of a moral system is the sense of responsibility for your actions and decisions. The same thing is reflected in your company.
As a CEO or a founder, you are not only beholden to your customers but also your workforce. So, keeping in mind the cycles by which ideas, services and products are being used, it might take a year and a half for the sales cycle. Hence, you have to be constantly thinking about your next product and service to keep your workers working.
How do the decision making and ethical behavior come into entrepreneurs?
It starts with the person doing an internal discovery of what they are motivated by. There are 6 different systems that govern the decision making policy of entrepreneurs. Let us consider a value-based system. They have ideal values. They care about making some kind of contribution to their community. They are motivated to create a solution to make the world a better place. You, as an entrepreneur, need to know who you are. Studying philosophy is very helpful for that. It is a deep internal motivator. So, you have to start with who you are as a person. It is not just to figure out what your morals are as an entrepreneur but what are your motivations, passions and strengths.
There are many different kinds of leaders. This might be based on strategy or community growth or social bonds. These different types of leaders have one thing in common that they are leading through their personal strengths and abilities.
A smart CEO will look around and find out if he is not good at his strategy. He/she will find partners that can augment that part of the personality.
What is the three-legged model of entrepreneurship and how do ethics affect it?
Successful businesses are based on a 3 legged stool model to stand across. If any leg is weak, you will topple. The first leg is the investors who provide funds for business cooperatives. They should be rewarded with profit. The second is the employees who should be treated fairly in the world and should be reasonably paid with benefits. The third leg is the customers. Without customers, employees will not have jobs. There will be no profit.
We have to choose really carefully. Surround yourself with people that have a moral ethos. Your company has a culture. That trickles down from the top executives down to the least skilled workers. So, we have to think about how we are modelling our behavior as a founder.
As far as the funders are concerned, you should be very careful because the funders are your partners. Hence, your funders must also have a similar moral compass. Otherwise, there is going to be a huge conflict.
Let us take an example. There is an ice cream company called Ben & Jerry. Ben and Jerry are the founders of this company who wanted to sell good ice cream using the best ingredients. A few years ago, they decided that they wanted to get milk from a specific type of dairy whose milk was the best. But, the shareholders sued Ben & Jerry because they thought that spending money on expensive milk was taking away their profit. So, Ben and Jerry had to sell off their profit because the shareholders were obstructing their aim to start the company. Hence, you have to think beyond the shareholders. It is not only about the shareholders involved, but it is about all the people that are affected and that are in the ecosystem of your company.
Another aspect that can be brought into analogy is timing. There are many studies that show that you can have the best team and ideas but if your timing or technology is a little bit advanced for the infrastructure, it is not going to be sustainable. You have to be constantly looking at the trends. For instance, who would have realized 3 months ago that the entire world would be going into COVID-19 crisis.
In India, we have various cultures and different ethics, so what should we do if we have a clash between our partners/employees/customers?
There has to be the idea of a win-win situation. Entrepreneurs have to be very creative at their core. They have to be artists and figure out solutions to the problems in a way that no one else can see. The decisions should be made by taking into consideration all the shareholders and communicating with them. They should find a common ground that will be a benefit for everyone. You can win over challenging situations as long as you are communicating with everyone, everyone's needs and agendas are transparent. Do ethics apply in the venture capital business?
Ethics is a neutral term. We have our ethics and moral compass. If your driving force is to only make money, then cheating, stealing and not being transparent can be a part of your morals. You should be very careful that your partners are in alignment with your company’s moral structure. They might have ethics but it is not sure that those are the ethics that you hold dearly.
What is the best way to convey the best ethics to a team by a young founder?
You start with the founders and the co-founders. Then, build a team with people that are similar. Be very transparent about what are the missions and the visions of your company. Further, you co-create a document that puts those things down which keep you motivated. You should not lose sight of these things as you move forward and evolve bigger.
How can entrepreneurs do ethical selling?
We have had a large trend over the last few years when the internet started. There was a huge void to figure out how we make a revenue stream out of the internet. So, all kinds of things were figured out. The biggest of them was the ‘FREEMIUM’ model. The companies would give their service for free by which they would make money on the internet by advertisements.
GenZ is another name for our newest generation. They can spot these clever company hacks from miles away. They know when they are being used. This generation is thinking of different ways that are not advertisement based and can help them create a revenue stream. They want to earn by not using customer data. And, if the data is being used, they want to be transparent.
How do you avoid getting into an echo chamber of ethics and keep updating your worldview and standards?
As an entrepreneur, you are constantly looking at the macro and the micro view. Keeping both perspectives at the same time is tricky. You need to understand how the entire system works because now we are at a global level. We just saw that a pandemic can happen in a month or two. So, understanding your connection to the entire system and the influence of your actions is important.
What does the Theranos scandal teach about business ethics?
The main problem with them was that the system was completely non-transparent. In fact, in the beginning, if anyone disagreed with the executive team, they were fired. So, having an open-door policy that makes people feel confident about their views even if they disagree with the executives makes a company sustainable. What should a founder do when in a dilemma of fake or make?
The founders are constantly having desperate pressures that they have to balance. But, forgetting the ethical values and cheating with your customers should not be a part of their moral compass. That is why you have to constantly think about the values that you are giving to your company. You also have to differentiate yourself from your competition. So, find out why your customers are leaving you. Customer discovery never ends.
It doesn't just begin when you are starting up. It has to be a constant activity in your company to have a direct understanding of your customers’ needs and demands. Moreover, the customers stay with those companies that are in alignment with their moral compass. Further, you don't have to use your workers. You can all be cooperating and collaborating together so that everyone’s need is taken care of. That is what the kids of GenZ are looking for.
Rewards of being an ethical entrepreneur
Socrates said that you could look back on your life and be proud of yourself. Your children and the world can look at you and be proud of you. Everyone experiences lying in the death bed and looking back at life. So, you won’t be regretting what you and your company have done to the world.