A few weeks ago, a fascinating New York Times article described observations of morality in the behavior of apes. For example, Chimpanzees, who cannot swim, have drowned in zoo moats trying to save others. Given the chance to get food by pulling a chain that would deliver electric shocks to a companion, rhesus monkeys will starve themselves for days.
Apes are social creatures. So for the good of the species, evolution has wired them to act in unselfish ways which can be interpreted as moral or ethical. Since we are also social creatures, it might be nice to think that perhaps humans have also developed "good" DNA like those apes.
With the invention of language, logic and technologies (such as the printing press, invented almost six hundred years ago), human societies and cultures have been evolving at rates far faster than evolutionary pace. Even though culture is a human creation rather than a biological one, culture now has a powerful influence over us.
For example, economists demonstrated the influence of culture by studying data from New York City on parking tickets issued to U.N. diplomats. From an economic point of view, diplomats should not care how many tickets they get (due to diplomatic immunity). However, according to the data analyzed between 1997 to 2002, certain diplomats committed hundreds of violations while "not a single parking violation by a Swedish diplomat was recorded...Nor were there any by diplomats from Denmark, Japan, Israel, Norway or Canada."
The reason for such wide variations is that we are not merely products of DNA or economics. Human beings are shaped by cultural and moral norms. According to the article, "if you're Swedish and you have a chance to pull up in front of a fire hydrant, you still don't do it. You're Swedish."
I'm no expert on Swedish culture, but I'd guess that there is a sense of honor and values which influence behavior more so than rules and regulations. In fact, Sweden perennially ranks among the least corrupt in Transparency International's Corruption Perceptions Index.
In modern society, I believe there is a third powerful influence - it is the culture of our workplace. The corporate entity is a relatively new invention dating back to the mid 19th century. Before then, liability was not limited to a corporate entity so owners and managers often risked all of their personal reputation and assets. (What would happen to the venture capital industry if we had to risk far more than invested capital?).
An example of a company with a powerful culture is Toyota (now worth more than GM, Ford, and Chrysler combined). According to Michael Cusumano, a professor of management at MIT, “the founders and the managers created and refined Toyota company culture, which is far more powerful than Japanese culture. It does build on many things that are Japanese — precision, quality, loyalty. But the Toyota culture dominates.”
With corporate scandals over the past few years our confidence in corporations has been shaken. Isn't it ironic to think that apes may have a sense of right from wrong, but humans need more and more laws and regulations? It seems a whole new profession is thriving these days - that of corporate ethics and compliance officers.
Unfortunately, I think we are barking up the wrong tree. New ethics and compliance officers won't shape human behavior any more than new regulations, motivational posters or "core values" statements on plaques. Anyone who has worked for different companies knows that companies have very different and distinct cultures. Whether good or bad, corporate cultures influence behavior.
In the "HP Way", David Packard did not talk about ethics and morality (and certainly not about compliance). He did talk about values - integrity was presumed. Packard promoted mavericks - people willing to buck the system and go against the rules (in order to create a great product and rise above bureaucracy). But when it came to ethical issues, everyone knew Packard had a "zero tolerance policy."
Both Hewlett and Packard set the tone for decades. HP was a highly ethical company long before there was a "Chief Ethics and Compliance Officer" (a new position created by Mark Hurd, after the recent board scandal). So where did they go wrong? As a society, where did we all go wrong? Answering such questions probably requires a book rather than this short blog post.
As VCs, we work with entrepreneurs and managers who shape the culture of companies from day one (whether they intend to or not). For example, I recently noticed that one of our companies has a peculiar culture - most employees get to work by 7:30am. That's unheard of in Silicon Valley, especially for engineers. Well, it turns out that the founder is an early riser and often gets to work by 4am. That company had only one employee last year. Now that it has a few more people, we can start to see the culture forming. (It'll be interesting to see how it evolves).
Over the years, we've observed that the behavior of management has a huge influence on the values and cultures of companies (what they DO, not what they say). If we want more honorable behavior by corporations, we don't need more regulations (and we don't need more compliance officers). What we need is better leadership. Character, integrity and leadership should go hand in hand. Being ethical is also more profitable in the long run. (Even merchants and traders from centuries ago figured out that a great reputation was the only way to build a great business).
Entrepreneurs have always had huge influence over the rate of innovation and the growth of world economies. I believe they can have even a more profound impact. Just as DNA can impact entire species starting from a single cell, start-ups can be the beginning of new corporate entities which can change our lives. It is much easier to get it right from the beginning than it is to change a fully grown entity. Entrepreneurs are the future. They can set the tone with the example they set in the companies they build.