Integrity - A Cornerstone of Entrepreneurship
By Mr. R. Ravimohan, MD and Region Head of Standard & Poor’s South and South East Asia division, and also the appointed Chairman of the CRISIL Board of Directors.
The recent episode of fraud by he Chairman of Satyam and all the several other frauds perpetrated by other entrepreneurs around the world is a shame on the name of entrepreneurship. These isolated episodes have a tendency to make other entrepreneur’s life tougher. They bring a bad name to the ilk. They are usually followed by tougher regulations, which have a tendency to restrict freedom of business choices for entrepreneurs. They make conduct of business more expensive. Financiers too increase the risk premium and generally make entrepreneurs grovel more to get at their money. All because, someone got greedy and unscrupulous. The price that genuine entrepreneurs pay for the fault of these scamsters is so huge that it is worthy of a self disciplined vigil within the community itself. There is a case for them to
become active policemen of themselves and blow the whistle when they see one of their cohorts behaving funny.
In my long experience funding, raising funds and rating the entrepreneurs over the past thirty years, I have seen two stages when the bug of cheating
bites the entrepreneurs hardest for different reasons - at the initial phase and once success is established. When the project is in the initial phase there is a focused pursuit of a limited objective – may be a small project- driven by a passion to succeed and gambling everything to increase the prospects of success. There is not much care given to forms, rules and norms, perhaps not affordable as well, as typically entrepreneurs start poor, are up against established players who are much more powerful. Some entrepreneurs mistakenly believe that their only way to succeed is to pursue some short cuts, which seem to work for sometime. Unfortunately the road that greets entrepreneurs in India is often littered with obstacles and tempting chances for wrongdoing and many fall prey to those temptations and compulsions. This it seems has become the norm rather than the exception. It is unfortunate because, those entrepreneurs of lesser competitiveness and objectivity do fall prey to this and compromise so
much of their business future. They never learn the right way of doing
business. They do not understand competition and believe corruption to
be a legitimate part of business. They do not develop strong work culture
and leadership within their organization, filling them instead with
incompetent staff that will learn to manipulate rather than work smart
to ensure business success. Most harmful of all they will earn for
themselves an ill reputation, which may be tolerated, but never
respected and hence will not ever be the choice partners for financiers
and businessmen.
The second stage when entrepreneurs go off track is when the flush of
success many times powers them with a sense of invincibility. There is
either a cooling off or a phase of complacency that sets in or a
megalomania that prods them to play ‘god’. In either case, focus shifts
away from managing the business with the edge that ensured its initial
success, and business falters. Instead of correcting that in the right
manner, entrepreneurs resort to short cuts that their newly acquired
‘power status’ offer them and set down the path of wrongdoings which
often brings them to a collapse. Some of the well known global
philanthropists, such as Rockafellers went through this process of
metamorphosis, reportedly starting of as bootleggers, but who them
redeemed themselves before it was too late and earned a respectful
place in society and history by becoming philanthropists!
The initial period of struggle sets the tone for the character and behavior
of entrepreneurs through the lifecycle of their ventures. Azim Premji in
the early 80s, is reputed to have declined to ‘take care’ of some corrupt
officials in his hydrogenated oil plant in Karnataka in the early stages of
his entrepreneurial life. As a result, the officials closed the plant on false
charges of flouting of excise rules. Azim Premji did not buckle down; let
the plant remain shut, while fighting the case legally. It took reportedly 3
years for him to come out victorious, thanks also to the support of the
employees of the plant who were also suffering, and reopen the plant.
While it was painful, the episode surely sent a clear message to all that
Azim Premji is not to be messed around and I seriously doubt if he has
ever been harassed on that front ever after. More importantly, it is still
remembered and recounted as a legend in principle based entrepreneurial behavior. The way I look at it, Mr Premji invested the suffering caused by that incident, including massive financial losses in creating a credibility capital, from which he is still reaping benefits. This early strength in his resume ensured businessmen and financiers around the world respect Mr Premji as a trusted business partner, aiding him considerably in his ventures to date.
While there are connotations of ethics and morality associated with the notion of integrity, I am focusing on the competitive advantages of integrity
as a corner stone of entrepreneurial behavior. Once an entrepreneur earns the credibility as a person of integrity, doing business becomes that much
easier. Partners will seek to do business with such an entrepreneur who they can trust, and might be even willing to pay a premium for that feeling of comfort. Financiers will vie with each other to provide funds, as they know their money is relatively safe with such an entrepreneur. Once the entrepreneur sets the limits on acceptable behavior based on principles of integrity, he and his team in the organization know that they can not resort to short cuts and need to be genuinely competitive to succeed in business. This makes them seek real competitive advantages and conduct business to succeed against not only other routine businesses, but also some that may ‘enjoy’ advantages due to practicing business without integrity. This is not easy and I am not asking the entrepreneur to be a monk.
Let us take a live example from the field of road contract business. Let us
assume there is one contractor (called Mr I) who behaves with completely integrity and there are others whose integrity quotient lets say varies from awful to ‘godawful’. The challenge that Mr I faces when he bids for a contract are that he needs to take into account the possibility that the bidding process is perverted to favor the others because they may ply bribes, or for someone in the bidding organization to let these corrupting bidders know the lowest bid amount, so they can quote a marginally lower prices and win the contract, etc. Can Mr I can overcome this challenge while maintaining integrity? Yes. There are many things he can do, including, finding technological solutions to render road building less expensive and hence can quote so low that others without that technology may find it unattractive to bid at those prices. He could resort to the new provisions of Right To Information (RTI) to shed the required extent of transparency in the bidding process. He could build high quality roads on a pro-bono basis to demonstrate the longevity and riding comfort, and hence win the support of the users, who could be used to campaign for him. Incidentally these are
ideas I picked up from several good contractors’ real life experiences.
Let us not kid ourselves. It is tough to be straight. But who said being an
entrepreneur is a cake walk? But setting your behavior right from the beginning, though might make it tougher, straightens a lot of stuff for
the lifetime of clean, successful business. Giving into pressures or temptations to cut corners usually sets entrepreneurs on a slippery slide that look so inviting and harmless at the beginning and then keeps getting harmful over time to what Ramalinga Raju calls the ‘riding the tiger, without knowing how to get out without being eaten’ phenomena.
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