Ethics and Values: April 2005 Archives

I found an interesting perspective on the ethical challenges faced by entrepreneurs in an opinion piece by Jack Roseman published in the Pittsburg Post-Gazette.com.

"(W)e give up our principles in painless little slices. Each lapse doesn't seem so bad. It's only in retrospect that we see how slippery the slope really was.

"My theory is that the more you make, the greedier you become."

My co-author Mike Naughton says that this becomes the problem when we view wealth as the singular, ultimate goal in a business rather than as an important outcome of the pursuit of good and moral ends. Wealth is not a bad thing; quite the contrary. The ability to pursue wealth is essential in a free society. But to view wealth as the only outcome of our entrepreneurial activities can cause us to eventually corrupt our souls: with each decision, with each non-decision, with each action, and with each inaction.

I have written several posts about the ability and the responsibility of entrepreneurs to integrate their values into the businesses that they build.

My daughter Maggie suggested I look at what a mortgage company out of Georgia, HomeBanc Mortgage Company, is doing to integrate their values and their faiths into their company. She heard about this business this past week while attending a large retreat for Fellowship of Christian Athletes (she plays volleyball and will be transferring to Belmont this fall). HomeBanc Mortgage sponsored the entire weekend for these students.

HomeBanc Mortgage is a company that recently went private through a leveraged buyout from its former parent company. Their vision statement, their statement of values, and their faith-based statement all set the tone for the values that shape how this company will be run and how all that work there will do their work. Their statement of ethics gives specific expectations of how management and other employees should integrate their shared values into how they do their work.

Many get nervous when we speak of integrating faith and work, and indeed some companies have become too prescriptive about what faith people should follow. While predominantly Christian, HomeBanc Mortgage takes great strides to be inclusive:

"As a faith-based company, HomeBanc Mortgage Corporation believes that associates should not have to check their spirituality at the door. We recognize that spirituality is deeply personal - we do not seek to impose any particular faith or doctrine upon any associate. We welcome people of all different beliefs into our family, treating each associate with dignity and respect. Regardless of our differences, we all share the common commitment to putting the needs of others ahead of our own. By serving others with the heart of a servant, we strive to enrich and fulfill the lives of our associates, our customers and our communities."

"Cardinal Ratzinger has not contradicted John Paul II's...teachings on economics, which found great merit in the market economy and even condemned European-style welfare states." This what Fr. Sirico sees from the papacy of Pope Benedict XVI. Read his complete essay here.

When I ask a room full of young entrepreneurs about their goals, some envision a life full of starting and growing businesses. Others tell me that they want to achieve business success early in life and then retire young. To them, entrepreneurship is simply instrumental to other plans they have for their lives.

Wilson Ng at Business-Driven Life ponders the question of early success in business and what it means for the rest of his life. He worries about peaking too early, as he is certain he would miss the excitement that entrepreneurship brings to his life.

When I was active as an entrepreneur I would often think about the next deal to chase. Like Wilson, I enjoyed the excitement of starting and growing a business, and we had many opportunities to do just that.

Then about nine years ago we sold most of our businesses. I was ready to find the next opportunity. But, my wife pulled on my sleeve and encouraged me to slow down. She suggested that I take some time to think about what I really wanted for the next phase of my life. At first it was hard for me, as I had lots of opportunities to examine and possible deals to pursue. But she is wise, and I listened to her advice. I took my time and really examined what I wanted to do next.

With time I realized that I wanted to spend more time with my family. I realized that there were other things for me to do besides another business start-up. I realized that I missed college teaching. I had never taken the time to think about all of this in the heat and excitement of building a business. But, once we sold our business I could take time to reflect and discern: and my wife made sure that I did.

Entrepreneurship is a wonderful path in life. I will always be grateful for the opportunities and challenges it offered me. But, I realized that it was not all that I was called to do in life.

When life offers you a chance to pause and reflect, take advantage of it. You may jump on to the next deal and you can do so knowing it is where you need to be. But, you may realize it is time for a new chapter.

Even though my days as an active entrepreneur are probably over, I truly believe that my best days are yet to come. Success takes many forms.

I have written quite a bit on the dramatic fall-off of IPOs among entrepreneurial ventures due in large part to Sarbanes-Oxley. Fortune Small Business has a story on this in their April issue.

"A combination of Sarbanes-Oxley's steep compliance costs, Wall Street's neglect of small caps regardless of their performance, and heightened investor distrust has turned running a public company into a far less appealing proposition. The number of private firms selling out (instead of plying the IPO seas) is near an all-time high. And many public-company CEOs are yearning for privacy: The number of public companies fleeing the stock market hit record levels during the past two years."

Where this will lead us is anybody's guess. One outcome that I hope for is that this growth in privately held firms will allow more CEOs to take ethics and values more seriously in how they grow and build their firms.

One stumbling block for public companies being more ethical has been the responsibility to the public financial markets to maximize returns. Those CEOs who do not, particularly in small cap companies can find themselves out of work if they miss quarterly financial expectations of the market.

Private businesses are in a better position to look at a broader array of criteria for what defines success, be it job creation, work environment and so forth. Entrepreneurs and the other shareholders define the rules and can set their own definitions for effectiveness in their companies. Profits remain the primary goal, but private companies can place this goal within a context of ethical and moral considerations that address other stakeholders and broader considerations.

Unintended consequences do not have to be all bad.

Thomas Merton is one of my favorite writers, so when Prof. Harry Hollis passed this quote along to me I had to share it here:

There is a pervasive form of contemporary violence (and that is) activism and overwork....The rush and pressure of modern life are a form of violence.

The frenzy of our activism neutralizes our work for peace. It destroys our inner capacity for peace. It destroys the fruitfulness of our won work, because it kills the root of inner wisdom which makes work fruitful. (Thomas Merton)

An article at Knowledge@Emory raises an interesting possibility. They question whether the newly passed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 may dampen our entrepreneurial economy. Why? Because so many entrepreneurs use personal credit cards and second mortgages on their homes to finance start-ups. For these entrepreneurs, easy bankruptcy provides a safety net if things don't go right.

When I teach entrepreneurs and potential entrepreneurs I try to push them to think about start-ups in a prudent and responsible way. Success and failure will both have consequences, so they need to think things through very carefully. I am much less concerned with how many of them start-up a business as I am with how many of them still are operating their businesses three, five, even ten years from when I have them in class. Those businesses that do last over time are my measure of the success of what I do, not the volume of those who do any old start-up.

I want them a little afraid at their start-up. I want them a little nervous. I want them a little worried about what happens if they fail. Entrepreneurs who rush in blindly like marauding pirates have not learned the lessons we try to teach them in our classes.

When thinking about how easy bankruptcy has become, I recognize what a different time and place that I grew up in. When I was young bankruptcy brought a certain shame if it was self-inflicted. Certainly some folks ended up at this point through events outside of their control, and for them we all felt pity. But, if someone was reckless in jumping head first into a business deal that was full of risk with only a small chance of success, there was not pity except for his family who had to endure the consequences of his failure and the resulting bankruptcy. Some spent years slowly and quietly paying of debts from deals gone sour just so they could avoid the stigma of self-inflicted bankruptcy. They were good people who understood that they had a responsibility to fulfill. The Corporate wall of protection was rarely used as a shield from personal responsibility for a business that failed.

Now just like marriage, we encourage people to jump into business with the knowledge that there is an easy way out. We don't get along? No problem, we can just get a quick divorce. Business doesn't make it? No problem, bankruptcy can protect us from most of the consequences.

To me this now means that socialistic thinking has crept into two of the most important foundations of this society: marriage and private enterprise. We now can jump into a marriage or a business deal knowing that there is an easy exit, limited consequences, and a great big government with all kinds of programs and laws to protect us and make it all better.

If Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 causes folks to think twice about their business idea, that to me is a good thing. If one of their main exit strategies is a quick and easy bankruptcy, then I want them to either rethink their plan or start over. Or if they are one of my students, plan to take the class again next semester.

(Thanks to Jennie Bowman for passing this article along to me).

Fr. Robert Sirico of the Acton Institute offers his poignant reflection on Pope John Paul II.

"One of the marks of John Paul's greatness was his rejection of ideological categories and limitations and his ability to hold complex thoughts together as a result. For him, there was no contradiction between celebrating the vocation of business leaders, as he does so innovatively in his 1991 encyclical Centesimus Annus, while upholding and defending the rights and dignity of simple peasants. In his view, both positions flowed, not from some poll he took, but from the intrinsic dignity and eternal destiny of the human person: a being at once unique, unrepeatable and immortal."

As a Catholic and as a capitalist, Pope John Paul II's Centesimus Annus, more than any other document, has helped me to integrate my religious faith and my belief in free markets. And yet, nothing has challenged my thinking more on what it takes to pursue free enterprise within a moral context than this same document.

As George Weigel said in an interview with Religion and Liberty:

"Centesimus Annus is, with Leo XIII's Rerum Novarum (1891) and Pius XI's Quadragesimo Anno (1931), one of the three great texts of modern Catholic social teaching. But Centesimus Annus did more than recapitulate the teaching of John Paul II's predecessors; it also set the social doctrine of the Church on a new path by its endorsement of the 'free economy,' its empirical sensitivity on questions of economic development, and its insistence that a vibrant, publicly-assertive moral-cultural order is essential to the functioning of the free economy and the democratic political community. Catholics, and indeed everyone interested in the relationship between moral truth and the free society, will be wrestling with Centesimus Annus for at least a century."

Pope John Paul II recognized in Centesimus Annus the importance the entrepreneurial process in building a strong economy.

"A person who produces something other than for his own use generally does so in order that others may use it after they have paid a just price, mutually agreed upon through free bargaining. It is precisely the ability to foresee both the needs of others and the combinations of productive factors most adapted to satisfying those needs that constitutes another important source of wealth in modern society. Besides, many goods cannot be adequately produced through the work of an isolated individual; they require the cooperation of many people in working towards a common goal. Organizing such a productive effort, planning its duration in time, making sure that it corresponds in a positive way to the demands which it must satisfy, and taking the necessary risks -- all this too is a source of wealth in today's society. In this way, the role of disciplined and creative human work and, as an essential part of that work, initiative and entrepreneurial ability becomes increasingly evident and decisive."

However, Pope John Paul II threw a bright light on the false choice between a blind belief in free markets versus the notion that only government can effectively manage the economy for the common good. Pope John Paul II understood the power of freedom, including economic freedom, but also challenged us to understand the critical importance of a moral culture to give our freedoms meaning and purpose.

As I have written at this site time and time again, the more we keep government out of the details of business the better. Markets work. However, that is only part of the equation. To assure that the social contract of market capitalism survives requires prudent, just, and moral actions on the part of its stewards. Otherwise we are at risk of society backing out of this contract and ultimately we risk the loss of many of our freedoms. As William Simon describes it, we must focus on both "doing well and doing good."

Pope John Paul II has gone home. But, let us continue to pray that his legacy will last for many generations to come here on Earth.