5 Business Warning Signs That Signal Ethical Exposure

Based on my years of experience working with entrepreneurs, I strongly believe that most of you start your business with the highest of ideals, but have no idea how many situations you will face that don’t have clear-cut answers, or raise ethical dilemmas. For example, how should you handle a cash flow crisis, where you have to choose between paying a creditor and your employees?

Every time I see an example of another company apparently having succumbed to integrity or ethical problems, such as the recent demise of Theranos, I wonder how an early advisor might have coached them to a different outcome. Theranos was a multi-billion dollar startup that was going to revolutionize blood tests with a single prick, but now has been shut down for fraud.

In my view, every entrepreneur and new business owner needs to start by reaffirming his or her own personal values, and then watching diligently for the warning signs that test your integrity and that of your team, or show that cracks are already appearing in your armor. Here are some key warning signs that I see most often, with guidance on how to respond:

1. You sense a team switch to survival versus growth mode. When customers or funding fail to materialize, and cash runs short, everyone on the team starts to resort to more desperate measures to keep their job. It suddenly seems easy to cut corners on quality and service, or make commitments to customers with no real hope of delivering.
   To keep your team on the right track, they need visibility and straight talk from you and other internal leaders that they respect and trust. Don’t fall for the temptation to withhold the bad news, or sugarcoat the situation. Provide specifics on what is required, and how you expect them to act. In my experience the team will surprise you with their results.
2. Conflicts of interest with outside investors and stakeholders. It’s not uncommon for investors to push strong personal agendas, or major stock holders to focus on short-term goals in lieu of your high-level ones. For the team, these pressures can cause tensions to run high, overriding their normal checks and balances on integrity and ethics.
   The best solution is real due diligence up front, before signing investors, to make sure they have the same values and objectives that you do, and agree to your key milestones. Then communicate regularly with all stakeholders, so they don’t get surprised, or feel that you have changed direction to their detriment. They have to understand and trust you.
3. See efforts to minimize or cover up product or customer issues. Even with the best laid plans, and dedicated teams, things can and do go astray. The reality is that following your conscience can often have unfavorable consequences for your business. Thus the temptation is always great to hide the problem, or fudge results, as with Theranos.
   Entrepreneurs must make sure they take a visible leadership role in communicating and resolving key issues which can impact the business. Don’t forget your first and final obligation to the customer, and don’t delegate the final decision on such issues to your team. Team members should be rewarded, rather than penalized, for surfacing problems.
4. High team culture impacted by elements of negativity. Without constant attention to hiring and coaching, every team can be poisoned by people who become disillusioned or negative about the current leadership or direction. Negative vibes and team members are a virus that can kill your culture, and cause others to take integrity or ethical shortcuts.
   Smart entrepreneurs stay fully engaged with their team, pick up on negative messages and team members early, and deal with them quickly. Complainers and low producers need to be moved out of the organization, before others are dragged down to that level.
5. Multiple teams evolving into isolated silos. Cross-team communication and trust becomes more difficult for every company as it grows. Teams can become more and more focusing on their own priorities, at the expense of others, and even your customers. For example, sales challenges can always be argued as marketing or product problems.
   Your challenge as a leader is to keep all elements of your organization integrated and pulling together, by communicating common goals and objectives, setting priorities consistently, and rotating people across organizations for development and creativity.

In all cases, integrity and ethical behavior must be demonstrated from the top of the organization. Commitment and transparency are the catalysts that every team needs from their leaders to maintain a healthy and strong values. Have you checked for slippage in your own performance lately, or team warning signs anywhere that you can fix before they become a disaster?