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The Ethical Concerns of Operating in China

Google's recent issues with operations in China shines a light on an important question for all Western businesses: How do we protect our long term operating interests when confronted with state sponsored theft of intellectual property?

The recent consideration by Google on whether to pull up its tent stakes in China is no big surprise.  Simply perform an online search for china intellectual property and you will find news articles and blogs rich with stories of intellectual property theft.  Walk down the streets of Shanghai and you will see Chinese police browsing through collections of pirated DVDs for sale.   On one hand, the Chinese government is concerned about controlling information to the population through censorship, but on the other they encourage (at the very least through a lack of action) or engage in theft to transfer intellectual property to state or Chinese business hands.  Is there really any doubt that the attacks on Google’s mail was sponsored by the Chinese government?  The real question, I argue, is what are the responsibilities of a Western company operating in China?

As stewards of companies, our fiduciary obligations are to our shareholders and stakeholders of the company.  One argument obviously is that Google has the obligation to maximize shareholder wealth and in order to do that they need to operate within China for maximum possible advertising revenue.  But operation in China carries certain operational risk as seen by the recent breach of corporate infrastructure and resulting theft of mail associated with Chinese “activists”.  This calls into question a company’s obligation to protect the interests of the data and information that makes the company money.  Theft of intellectual property can easily reduce a company’s competitive advantage relative to its competitors not just in China, but worldwide.  What if software or other products had been stolen?  What is the risk/reward of operation in the light of potential state sponsored theft versus the revenue and profit upside of those operations?

It is difficult for companies to take on governments, especially when those companies have little recourse within the country given their foreign status.  It is more difficult when the country in question takes, sponsors or allows actions against those foreign entities for the purposes of technology or information transfer.  Given the degree to which the deck is stacked against Google, and other Western companies, why would one subject themselves to the risk and potential loss?  The obvious answer as discussed above is growth and profit.  But the question remains – can a Western company truly be successful long term in China?  Will the Chinese government ever crack down on intellectual property theft and anti-competitive behaviors (rather than sponsoring them)?

Unfortunately today it appears that the Chinese government allows foreign competitors into the country in order to more quickly transfer intellectual property through state protected theft.

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Ethics Fail

If you are a somewhat frequent reader of our blog, or have read our book, you know that we often speak of ethics.  Some people wonder why we discuss ethics so frequently.  Well, this moron kind of makes our case for us (taken from his Amazon 1-star review of our book):

“Jeez, don’t they realize that in this day and age, “personal success is everything”, only a fool would put shareholder value ahead of his own personal gain.”

Obviously a graduate of the Ken Lay/Enron school of management, this blossoming product genius also gave the Apple iPod Nano a 1-star rating.  We’re in pretty good company I guess.  He did, however, give “Speak English Like an American” a 4-star rating, which will likely make this ethics terrorist hard for the TSA profilers to catch.

There’s also no doubting this genius’ power of reading comprehension.  He asks “Did they read the classic “the mythical man month”? Probably not.”  Well, at least not other than the mentions in Chapters 9 and 28 anyway.  But thanks for double checking us pal…

Sorry – we just couldn’t pass up the opportunity to point out exactly why it is necessary to talk about ethics.  If, like us, you feel it’s necessary to rip on those who are morally bankrupt, feel free to comment on his review of our book here.


4 Things I Wish I’d Learned as an Undergraduate

I recently had the honor to speak with the CS and IT majors of the USMA (West Point) Class of 2010.  Recognizing that these young men carry an incredible burden for all of us,  I struggled for what I could tell them.  These young men and women, after all, are going to be the tools of our international efforts against terrorism for quite some time to come and in 5 years will likely see 2 combat deployments.  The price they pay for their “free” education is much higher than the one my partner and I paid and larger still than the 99.9+% of the rest of their generation (those that never serve their nation in uniform).

I settled on trying to pass along four things that I wish I had learned in school – before the Army and before becoming a civilian.  These aren’t four things that I wasn’t taught mind you.  I may have been taught some of them, and at any rate the burden for learning should really be placed upon the student – especially in college.  These are four things that I wish I had recognized, retained or learned on my own; four things that would have made my Army and civilian life much easier.  Here they are as I discussed them with elements of the USMA Class of 2010:

1)      Moral and Ethical Challenges Occur Frequently – More So Than You Might Think

It doesn’t matter if you are in the Army and parts for your dead-lined vehicle magically appear overnight or you are reviewing the use of company assets and find that people are using company assets for personal use – potentially in violation of company policy.  Sometimes even people who are on balance “good” make ethical mistakes.  And make no mistake, there are morally bankrupt people committing unethical acts at an incredibly high rate all around us.

Most of us, quite honestly, are ill prepared to address ethical issues upon graduation.  Many schools barely touch the subject.  Even the service academies, with their strict honor code, too often paint topics as black and white rather than the spectrum of blacks, whites and grays that occur in the real world.  As we’ve written in the past, the journey to moral bankruptcy isn’t one giant leap, but a series of small steps.  Draw lines in the sand early in your career so that you know you are heading in the wrong direction as you progress.  Build a support group of people who will tell you the truth and help guide you should you start to go astray.

2)      Smart People and Terrible Teamwork Equals Crap Technology

Intelligence is only one of many independent variables (inputs) resulting in the dependent variable (output) of overall team performance.  Behaviors of individuals within the team are another equally important independent variable.  Leadership and culture are important moderators of this equation.  It is possible to have brilliant jerks, incapable of getting along with anyone, who completely destroy the output of the team.

We should reward people on their accomplishments and their ability to work as a team.  Intelligence is great, but we simply don’t pay people for being smart.  Who cares if you are smart if you can’t either get something done or alternatively destroy team morale and throughput?  Consider using this 2×2 matrix presented within The Art of Scalability to evaluate the individuals in your team for both behaviors and accomplishments.

3)      Leadership is about EQ – Not IQ

Our frequent readers will also remember this from our postings abroad.  As Malcolm Gladwell has indicated within his book Outliers, all of the evidence points to the notion that the most successful leaders have some minimum IQ.  But IQ alone is not sufficient to be a successful leader.  The greatest leaders have high emotional quotients, often considered a combination of social intelligence and emotional intelligence.

Two of the world’s foremost experts on the topic of leadership and social and emotional intelligence, Richard Boyatzis and Annie McKee have written two wonderful books on this topic:  Primal Leadership and Resonant Leadership.  In keeping with our theme of 2×2 matrices, here is Richard and Annie’s representation of commitment and emotional quotient.  The Y axis indicates how mindful the leader is of himself/herself (emotional intelligence) and how mindful they are of others (social intelligence).  The X axis indicates their overall emotional tone towards others.  Successful (aka Resonant) leaders have on balance a positive emotional tone and are in touch with themselves and their teams.

4)      It’s All About Performance

See my brief discussion of the model for success.  Superior performance, I argue, is measured as improving long term stakeholder wealth.  This might be emotional wealth in the case of some non-profits or financial wealth in the for profit world.  This means getting things done on time, on budget, in an ethically appropriate manner, with the right quality and meeting the expectations of stakeholders.  Time and experience are just moderators to this equation; they only help performance.  Independent variables are intelligence, drive, commitment, behaviors, etc.  Look to build the right teams with the right behavior at the right time.  Don’t get tied up in how much “experience” people have.  I’d rather have a dedicated person with 5 years of experience than a lazy person with 20.


I Need a Shower

In our article, Ethics: How Good Companies Go Bad we made the case that most people don’t start out bad but rather make small steps in that direction over time.  After yesterday, I feel I may be wrong.

From time to time, we find ourselves spending time with investment bankers.  This encounter may be at a conference, or while we are working with one of our client companies on financing, etc.  One thing is true nearly every time I have an “IB” encounter – the feeling that I need to go scrub myself as if I just swam through a sewage treatment plant.

Don’t get me wrong, there are some very nice and very good bankers out there.  But the number of times I find myself questioning their approach to financing on the grounds of ethical concerns just far exceeds the number of times I find myself doing it for any other profession with which we have interactions.  I don’t know why so many bankers are like this – maybe its as we indicated in our previous article; they just take small steps over time to get the deal done and pretty soon they are providing unethical advice to CEOs.

These folks provide a valuable service.  But, as with anything else in your life, do not just assume that they will always propose ethical approaches for your needs or dilemmas.  It is not alright to create performance forecasts for your company that you know you can’t achieve.  That’s called lying and lying, even to make your shareholders wealthy, is not acceptable.  That makes you no better than Madoff.  If you are producing fictitious plans to create extraordinary valuation then you are no better than the Madofffs of the world.

Just remember that only you can guard your integrity and ethics.  If someone convinces you to do something unethical, it is your fault – not theirs.  They might be bad people – but its still your choice.

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