The Ethics of Business

There are many times when the demand for profits and revenue outweigh what is right and wrong in business. In a recent GigaOm post, Om Malik calls for the necessity of transparency in startups:

Josh Silverman, former CEO of Skype told me in an interview that company employees take their cue from their leader, and a confident leader instills confidence in her troops. Similarly, a founder or a CEO who is unable to be transparent with his board will make excuses. He will cut corners and create a company culture based on fear and deceit.

But I’m not sure this applies to just startups. Obviously, more mature companies, and especially those that are public, have a fiduciary responsibility to be transparent. But that is only from a numbers perspective. Although it’s good that public companies are required to disclose their profits and losses, the need for transparency extends well beyond that. As Om pointed out, it’s about establishing the right culture. When management (and not just at the executive level) begin to hide things, the process and concept of hiding things becomes accepted all the way down. And when things do come out, it tends to undermine the culture of the company as people ask themselves why they didn’t know about it sooner.

Alternatively, having everything transparent isn’t conducive to building a successful company in today’s highly competitive global markets. The slightest advantage created by keeping something “close to the vest” can make or break young startups and veteran businesses alike.

There must be a balance between the need to tell and the need to hide. History has proven that hiding potentially damaging information can cause more harm than just coming out with the information in the first place. But it seems that for some reason we believe we can fix the problem before it gets out of hand, a belief that usually ends in ruin.

The need for transparency is critical in businesses, especially during the early years when there is a “circle of trust” within which investors and executive management must work together to help achieve business success. But that transparency cannot come at the cost of the business itself. It is an ethical battle that all managers may one day have to face.