The secret code in business

‘You sell your product, but you don’t bad-mouth others. You don’t say bad things about Bernie Madoff. That is where you cross the line’ – an anonymous Merrill Lynch manager on why nothing was done sooner about Bernard Madoff who is alleged to have swindled wealthy investors out of $50bn, though several prominent Wall Street investment banks apparently had a ‘red light’ on doing business with him.

The Bernard Madoff saga seems to be spreading its tenterhooks even further. According to the Financial Times, Wall Street investment banks including Goldman Sachs and Merill Lynch, were so suspicious of Madoff’s rock-solid returns and total lack of transparency that they wouldn’t let their clients channel money to his funds. They also didn’t share their concerns with regulators, which could have probably brought Madoff’s ponzi scheme to an earlier and less expensive end.

As for the reasons why neither bank didn’t raise Madoff’s reluctance to show them his books this with the regulator? They were not compelled to do so by law and more importantly, “they were worried that being rude about a competitor might make them look bad”

So is there any collective responsibility in enterprise or is it every entrepreneur for themselves?

Bending rules, cutting corners and looking the other way

At the startup stage, it is so easy to envision creating a business that acts and functions on the basis of certain values and standards. However, incorporating these ethical standards into how businesses operate day-to-day is another thing altogether.

While the house of cards that global finance built over the past decade continues to wither and fall, small enterprises are also being affected. There has never been a greater time when the prospects of turning a blind eye in the name of profit seemed more appealing.

Bending rules, ignoring creditors and paying the occasional bribe just to get a process fast tracked or even to get a contract (the scale of annual bribery is estimated at US$1 trillion worldwide) are common dilemmas faced by today’s entrepreneur. And if one is doing it, then you can bet that this erosion of integrity in business is growing more prevalent by the day.

It’s much the same way how China’s milk industry was contaminated not just from the processors, but from the farm gate. Farmers were pestered to produce more milk to feed a ravenous market demand, and so resorted to watering their milk down to get larger volumes. This in turn led to low protein content milk culminating in the use of melamine as what we can only guess as some sort of a stab at “supplementing” the milk. This led to fatalities and illness in scores of babies in China.

Closer to home, Nigerian babies faced a similar fate when they were poisoned with contaminated teething gel. The compound used in this case is also used in car engine coolant! (Talk about a way to cool down the pain of growing teeth!)

The dilemma of bending the rules is that though one business may recognise that it is wrong to engage in underhand acts, there will always be a short-term advantage to those individual companies that opt to do so. If all businesses agreed that they should stick to a set standard, all would be better off; but if one business cheats, the practice quickly spreads to other firms.

Even industry regulators can only go so far in ensuring that such daily dilemmas don’t reach the scale of the dirty little secret that the Madoff saga became.

So as we begin 2009 we need to ask:
• To whom do we owe the duty of care? Is it to ourselves, our customers, suppliers, the state…?
• To whom do we owe the duty of loyalty? To our fellow entrepreneurs in the industry (competitors), customers, the state …? And probably most significantly:
• For whom should our individual business judgment benefit?

David Pitt-Watson the Chairman of Hermes Equity Ownership Services summed up this fundamental choice entrepreneurs face in responding to the growing pressures of the financial meltdown against integrity and ethics in business saying that “the abuse of entrusted power for private gain is always fine for the one person doing it, but it becomes catastrophic if everybody starts doing it.”

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About yipe
Yipe an acronym for the Youth Interactive Portal for Enterprise is an organization that assists entrepreneurs to start up and manage their small businesses.

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