A fresh young entrepreneur approached me with a new idea. He was planning to set up an outsource operation in India, and the impetus was a big first client, a Fortune 500 company that wanted to work with him. At some point in the conversation he brought up his key contact at the F500 company – and he asked me, should he reward this person with stock in his new company? Or form another company to give him hidden ownership? I was stunned, and said, “neither.” Not surprisingly I never heard from him again.
The current trial against Raj Rajaratnam for insider trading got me thinking about some of the things that winning company founders say. I realize that when we’re on the record and being interviewed, we all tend to say the right things because that’s what’s expected of us.
But I also think that for most of the founders interviewed in How They Did It, they really meant what they said, about the value of their own integrity, about having honest dealings in business as not only the right thing but the practical best solution. Take for example your style and method in managing employees. To be manipulative or subversive as a boss can serve the ends of the company. But in a day and age of many employers and vast job resources, and in an environment where millions of us blog and tweet constantly, what’s the practical impact of dishonesty or sharp practice? The negative impact can be immediate.
So it’s also interesting to note that in the federal case against Mr. Rajaratnam, while he is alleged to have turned a short term profit of $900,000 on the sale of Goldman shares, as the WSJ pointed out, had he bought on the publicly available news and held the shares, he’d have registered a $9.6 million gain to date. This also reminded me of Martha Stewart’s predicament years ago, when she sold shares of Imclone on alleged inside information, protecting a declining stock position. The reality was that a year or two down the road, had she simply held, she would have been up by even more.
Does honesty pay? Maybe not in a corrupted form of capitalism like Russia. But in the US, with the benefit of a superb legal system, let’s put it this way: while you may be tempted to cut corners, there’s plenty of evidence that playing by the rules does not disadvantage you.