ENTREPRENEURSHIP AND ETHICS EQUALS SUCCESS
FEBRUARY 21, 2003
UNIVERSITY OF NEW HAMPSHIRE
WHITTEMORE SCHOOL OF BUSINESS & ECONOMICS
-- by Christos Papoutsy
First, let me give you a little background on my experience as an entrepreneur and successful businessman in creating value for all the stakeholders of my corporation. Do you know what I mean when I say, “stakeholders”? By stakeholders, I mean stockholders, investors, employees, vendors, customers, and the community at large. In 1960, I started a very small business [Hollis Engineering] in a garage, utilizing a pattern for pumping solder developed by Sanders Associates [Lockheed]. There was one employee (no sales, no money)--just a lot of enthusiasm, hope, and a willingness to accept failure.
Let’s take a quick overview of the three components that led to the success of this entrepreneurial adventure, a Horatio Alger, rags-to-riches story. We had a good idea, the right timing, and institutionalization:
Solid corporate ethics can be good business, too. Ethical behavior, by a small or large business, encompasses many factors. There is an old saying that if you let someone steal from you, then you’re just as guilty. That’s something like, “Lock the barn door!”
A well-run business, with proper systems and controls, accountability, transparency, and oversight, are the best incentives in operating a successful, ethical business. It starts with all the employees having respect for us leaders and how they behave. I’ll return to talk more about leaders later.
Ethical business behavior is not a complicated issue. Let’s touch upon small, simple, easy procedures and oversight. Procedures control an oversight that contributes to efficient, ethical, behavior with positive results. The small things really count. For example, every company has a product, just as we did. And every product has to be inspected and processed through quality control at various points. If quality control of a product is violated by top management, i.e. the leaders, so as to meet or exceed a particular sales or profit goal, by directing quality control personnel to act unethically to support the greedy behavior of top management, bad things can happen. What implications does deviation from quality control standards have for a corporation? It means that the deviation from standard quality control can spread to the service departments, forced to cover up a quality defect which consequently ends up with the loss of a valuable customer. Without satisfied customers, the game is over. This one unethical decision could also result in accounts receivables being extended because of warrantee problems, potential return of the product, and poor cash flow. Untampered quality control equals excellence in product, happy customers, positive cash flow, and good business ethics.
There are many small, but very important examples. Sales departments must provide full disclosure as to exactly what a product can and cannot do. Can anyone tell me what is full disclosure in the context of a sales organization? Another small, but significant area is in the purchasing departments where procedures, accountability and oversight need to be established, requiring solicitation of three to five quotes from vendors. This will result in reduced opportunities for bribery and corruption by the buyer and seller, improved quality, lower cost, and greater profitability and respect from the employees, vendors, and public. In many businesses, one of the biggest assets is the inventory. All kinds of financial games can be played with inventory, in other words, cooking the books, by increasing or decreasing the profits. How can profits be manipulated through inventory? Don’t forget the unqualified statements.
On anotherbut relatedsubject, where did the 7 trillion dollars go? As entrepreneurs or key employees of corporations, you will participate in the U.S. financial systemthe U.S. stock-and-bond market. This system has been the main source to reward entrepreneurs, start-ups, and to provide capital for corporate America. Thus, the push for more sales and profits to tap into the system. Let’s do it by volume. May I suggest that the financial system, particularly during the 90’s, became an instrument and a process for creating value and wealth, one of the main negative focal points and incentives for the white-collar crooks to operate in. For example, we saw such unethical, illegal behavior exhibited by Tyco, Enron, Worldcom, Martha Stewart, and Arthur Andersen, to name a fewall directly or indirectly tied to the stock market--paralyzing the ability of entrepreneurs, small businesses, and corporate America to raise new capital and sustain the wealth which we all assumed that we had. What makes a stock worth 10- to 50-times more than its book value? Is this not a temptation for unethical behavior? New laws, like the Sarbanes-Oxley Act, will help to reduce future fraud and unethical behavior. Can ethical behavior be mandated or legislated?
As an entrepreneur or key employee of a corporation, may I suggest that you commit to sound and ethical business practices? Grow your idea, product, and sales in a controlled, methodical manner. Meet profit goals and objectives by increasing volume and controlling cost. Build sound management. Provide incentives based on profits and tangible objectives, not on increasing sales. Don’t travel down the path of attempting to create value for your idea or business through volume growth in hope of harvesting a reward. This is what created the demise of the dot-coms. Let’s talk a little bit about the dot-com downfall.
Let’s talk about ethics for a momentwhose ethics, based on whose values? The global corporation, small or large, must develop a system of values that has a common denomination of ethics practiced by all of its stakeholders. Is there such a common denominator in values and standards for corporations that could be applied by the diverse business global community in this new era of globalization?
I believe that business ethics can be taught and implemented into a framework of global eudaimonia, introduced by Aristotle. This means the material and spiritual well-being of a community, the ultimate good, the telos of a society.
The global corporation must just not seek profit for its stockholders, and big bonuses for its senior management, but must also enhance the opportunities for society where people can contribute in a business environment in a free society for the benefit of global corporations, stockholders, managers, and other stakeholders, labor, and the world community. Global harmony and global eudaimonia must become the ultimate goals. Aristotle’s philosophy of eudaimonia is built on the virtues emphasized by the virtues of his teacher, Platowisdom, courage, self-control, and justice.
Thank you for inviting me to be with you this evening. Good luck. Now, go do the right thing.
Compliments of the Christos and Mary Papoutsy Endowed Chair in Business Ethics at Southern New Hampshire University, established to promote and enhance awareness of ethics in personal and professional settings for students and community audiences. For more information, visit the Business Arena webpage of Hellenic Communication Service at http://www.HellenicComServe.com