"Incorruptible"

A good friend of mine recently handed over his company to his son in accordance with a succession plan. Although it has only been a couple of years since his retirement (he’s in his 90s,) I already see changes in the company. Even employees who worked for the company for many years have shifted alliances.

The situation reminds me of a book that Eric Ries, author of The Lean Startup sent me to read and review this week. Ries, who wrote one of the seminal books for startups in 2011 is now trying to figure out how we got from all the entrepreneurs who wanted to change the world to the evil corporations who bow down to Donald Trump for business opportunities and think nothing of RIFfing thousands of employees at once even when they have a good quarter.

Unlike the young entrepreneurs who started the companies we admired so much, today’s corporate leaders seem to have no thought for the value of labor.

We have gone from “enlightened capitalism” to “late stage capitalism” in the years between Eric Ries’ books, and it’s not a good look.

I have myself seen the changes in Silicon Valley since I began paying attention to startups in the 90s.I used to love and admire Silicon Valley, buying any piece of technology I could afford (think Google Glass), but now I’m stuck between my lifelong futurism and my feeling about the state of play at the center of entrepreneurship.

The difference between yesterday and today in innovation is corruption, which is why Ries has named his new book Incorruptible. It’s a good book (again) because it makes me think: how does a company move from the original vision of its founder to a BigCo with “professional management” without falling prey to the money culture.

In an early chapter of his new book, Reis defines companies as super organisms whose company cultures arise from, but don’t necessarily reflect the values of their founders. He uses an old conundrum attributed to John Steinbeck in Grapes of Wrath..

“The bank isn’t like a man.”

“Yes, but the bank is only made of men.”

“No you’re wrong there-quite wrong.

…it happens that every man in a bank hates what the bank does, and yet the bank does it. The bank is something more than men, I tell you. It’s the monster. Men made it but they can’t control it.”

This discussion illustrates how a company made up of teams of individuals can develop a sort of uber-culture that is different from any of its component parts, and that uber-culture can have an ethos almost opposite to that of the original founders.

Ries’s book is devoted to finding out how and why that happens and how it can be prevented.

I was already interested in this subject, because I don’t see how the current maldistribution of wealth in the United States can continue the way it is. I sense that we will either have a worker revolt or become a Third World country

We are now left with organizations that don’t keep promises, run by CEOs who aren’t there long enough, and market incentives that bend organizations toward extraction rather than creation.

Like children they develop their own character, inevitably absorbing ideas and values from the environment around them

How do you know if your company is succumbing to BigCo disease?

The symptoms are short term thinking, growing bureaucracy, hollow culture, and anodyne press releases. Advisors called in tend to make this worse, because they favor financial results.The force behind these phenomena is called financial gravity, and it’s a one-way arrow, pointing in the direction of the person who controls the resources.

No matter the founder, taking the company public immediately changes the ethos as every employee begins watching the stock ticker.

It’s good to contemplate this now because of the three big IPOs queued up for this year.

For example, take John Mackey, who invented the term “conscious capitalism.” He ended up selling his baby, Whole Foods, to Amazon because he was incapable of making the price adjustments he needed to scale. Finally, left with a choice between private equity and Amazon, he chose Amazon.

According to Ries, founders routinely agree to terms without understanding them, trusting their attorneys. However, the best practices of attorneys are not always aligned with the entrepreneurs they represent. For the lawyers, getting the deal done is paramount. For a founder, governance should be more important. Mackey Learned that the hard way.

If you don’t get governance, right, nothing else you do when building your product or your company will matter for the long-term. Any company can be bullied into submission by anyone who has enough money to mount a takeover or activist campaign.

This has massive consequences for product strategy and culture . After all, how can you trust an organization that might be forcibly acquired by anyone at any time practically overnight?

Over the last few decades, shareholder value has eclipsed every other part of a corporation’s mission. But, as Ries reminds us, “shareholder primacy has nothing to do with reality. This reductive view treats the corporation not as an entity with a mission, but as a financial instrument for generating returns.” Moreover, this fundamental shift in corporate purpose has never been enacted by any legislature or approved by any referendum.

If we are to continue with capitalism as an economic model, perhaps we ought to prescribe Incorruptible as required reading for CEOs and their dealmakers.