Making ethical decisions and conducting business in an ethical way is a key component to future profitability and a litmus test for keeping productive, committed employees. Yet to date too many companies do not operate from this foundation.
Ken Blanchard and Norman Vincent Peale in their bestselling book, The Power of Ethical Management, advocate asking these three questions when making ethical choices:
- Is it legal?
- Is it balanced?
- How will it make me feel about myself?
- Other experts in the field also add- How would you feel if this situation were in the news?
Well, my vote for non-ethical poster child for this year is still Theranos, which I wrote about recently. The reminder of how they operated is a fantastical story. You may recall Theranos, claimed its technology for blood testing was revolutionary. It claimed that if used, it would dramatically decrease the costs involved in blood testing with faster, better results from the testing itself.
The company’s claims made its valuation at $65,000,000 only three years into their business. Sound too good to be true, even for Silicon Valley? Well yes. Theranos faked testing results to lure investors in and to get lucrative contracts.
In 2015, medical reach professors John Loannides and Eleftherios Diamandis, and Wall Street Journal investigative reporter John Carreyrou started questioning the validity and astounding financial success of the Theranos technology.
Working with Theranos internal whistleblowers, their findings led to investigations against the company and bringing of conspiracy charges against the company founder, Elizabeth Holmes and her partner, its former president, Ramesh “Sunny” Balwani.
Stealth and secrecy
What has struck me is that it took so long for Theranos to be caught out. As stories of the company emerge they point to an “obsession with secrecy” and its founder “operating in a stealth mode.”
Ms. Holmes tracked when employees arrived at the office and when they left. Visitors to headquarters signed non-disclosure agreements before they were even allowed into the building. Security guards escorted them everywhere they went, and I mean everywhere.
The leadership style exhibited by Holmes and Balwani was appalling. And the fraud they perpetrated in their blood testing technology may result in penalties of up to twenty years in prison and millions of dollars in fines.
What’s also astounding in this story of an extreme case of unethical behavior is that Ms. Holmes legal team claims that John Carreyrou, the WSJ reporter who broke the story, “had an undue influence on federal regulators,” and that he “was exerting influence on the regulatory process in a way that appears to have warped the agencies findings against it.”
It was as a result of Mr. Carreyrou’s reporting that Theranos was discovered to be a threat to public health.
For Theranos to have achieved the success it did so quickly in a business environment where thousands of startups take place on an annual basis is extraordinary. Savvy investors like Rupert Murdoch, owner of News Corporation (which incidentally also owns the Wall Street Journal), invested $125 million into Theranos on the basis of one casual meeting with Ms. Holmes and only one “due diligence” phone call. Oracle Founder Larry Ellison and Tim Draper, founder of the prominent VC firm Draper Fisher Jurvetson, also invested. The list of investors is astounding and perhaps speaks to greed as the ROI was touted as extremely lucrative; again one of the keys which sometimes leads to unethical behavior.
Where was governance responsibility? Theranos leadership has cost. It may potentially prevent other worthy startups from getting the funding they need. Theranos has eroded a key component in ethics, trust. As Stephen Covey, author of The Speed of Trust, says, “Trust is hard, real and quantifiable. It measurably affects both speed and cost.”
The Theranos leadership beat up employees, even leading to one fired technician supposed suicide. Employees who spoke up were fired and persecuted.
ROI in Trust
According to Mr. Covey, “trust is a leverageable, strategic advantage.” It is a key element in ethical business practice, and it is imperative it be nurtured. Companies like a Theranos and the hundreds of other poster children of unethical behavior make it challenging for consumers and employees alike to trust the business they work with.
Companies that encourage ethical behavior are recognizing that eventually, this behavior leads to long term profits and employee commitment.
Amazon is a case in point. For many it’s become our go-to store for everything. Unlike many other industries, Amazon refuses to make a profit from a forgetful customer. This has happened to us all, we buy something we think we need, only to discover we already own it. With Amazon, the company actually warns us before we forgetfully buy something we don’t want, is a mistake, or we already have bought from them, before we hit submit.
It even tells you if you already own a book you’re about to purchase! As the authors of Extreme Trust, Don Peppers and Martha Rogers remind us, Amazon solidifies its loyalty and continued patronage with their honesty and that after all, we’ll now want to buy all of our books from Amazon as they prevent us from accidentally purchasing something we already own.
In a world of increased transparency, where anyone can publish their opinion when they experience a raw deal or don’t like how they are treated, or how business was conducted, ethics and trust matter.
How diligent is your company in applying the ethical test to all of its dealings? Ethics counts. Good ethics lead to more profitability and long-term commitment in both employees and customers.