FEBRUARY 21, 2003

-- by Christos Papoutsy


Thank you for inviting me to talk with you this evening about entrepreneurship and the positive effects that solid ethics can have on developing a successful business venture.

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.

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Twenty years later, in 1980, through a lot of hard work on the part of a lot of good people, through internal growth and synergistic acquisitions, Hollis Engineering, now called Cooper Electronics, grew to a company with sales of approximately $200 million dollars. The company generated profits above industry standards for twenty straight years, with about 2,000 employees located throughout the world. During the early 80’s we were acquired in a tax-free stock reorganization resulting in a great return to the stockholders, investors, employees, and community. The average manager received over $200,000, with almost all other employees also sharing handsomely.

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:
  • A good idea for a better mousetrap. This was a pump that would intermix oil and solder for soldering the bottom of printed circuit boards that were previously hand-soldered.
  • Timing. The advent of axial-lead components, quickly incorporated into the printed circuit boards used by all electronics, required soldering. We were “9 AM” on the bell-curve in terms of inventing and manufacturing this great labor-saving device.
  • Institutionalization. From the very beginning, the company was organized as though it was a large, publicly-held corporation. We established a professional board of directors, including a corporate attorney, two venture capitalists, an investment banker, a technologist, and two businessmen. Institutionalizing meant sharing control, full transparency and oversight. Today, new SEC rules require companies to publish codes of ethics—if they have them—and to define the qualifications for designated financial experts to sit on a board’s audit committee. We had already done this back in 1960, at the very beginning.
  • Operations—mission, strategy, and business plan. All were clear and measurable with accountability.
  • Exit Strategy—to grow sales and profits, and to develop management and employees at all levels. The two main pathways to a successful exit strategy were for our company to be acquired by a large, New York Exchange company, or to go public (I.P.O.). To accomplish this, we worked very hard in aiming for and achieving unqualified, annual, certified financial statements—without footnotes or qualifications. We did this for twenty straight years. Do you know what I mean by ‘unqualified’ statements and what effects they have on revealing the ethics of a company and its true track record?

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 another—but related—subject, where did the 7 trillion dollars go? As entrepreneurs or key employees of corporations, you will participate in the U.S. financial system—the 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 few—all 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 moment—whose 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, Plato—wisdom, 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

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