When legal isn't good enough

When a congressional report listed eBay CEO Meg Whitman and several other eBay executives as recipients of IPO shares from investment firm Goldman Sachs, the company was quick to defend the actions of its executives by declaring that acceptance of IPO shares was legal and consistent with generally accepted business practices.

The disclosure spawned several investor lawsuits against eBay, claiming company executives breached their responsibility to shareholders by participating in a personal relationship with Goldman Sachs that may have impugned their objectivity as eBay corporate officers.

The eBay situation--certainly not unique--underscores the changing mores for corporate behavior in the post-scandal business climate.

Doing things legally may not be good enough. Closer scrutiny, public condemnation and possible legal consequences are going to result if companies or their representatives continue to violate generally accepted standards of ethics and fairness--even if the actions are technically legal.

The direct behavior of corporate officers has clearly become a significant factor in how companies are viewed in the wake of Enron, WorldCom and other corporate scandals. But the scrutiny is likely to extend beyond the executive offices in the months ahead.

Doing things legally may not be good enough.

Whether a company consistently behaves honorably is going to profoundly shape its overall image. And the responsibility for building a healthy corporate image falls on everyone in the company who maintains an outward-facing relationship--not only the executive leadership.

Aggressiveness in business situations has often been viewed as a positive trait for a company--particularly a young company trying to establish a market niche. The high-tech sector is a classic example of where aggressive business practices have been seen as having a "winning attitude."

Consequently, many companies routinely overstate the functionality, availability and competitiveness of their products. Problems (with the product or delivery of it) are often concealed from customers and business partners. Paid consulting relationships with industry influencers are often leveraged to help promote (or at least minimize the criticism) of a company's products. Advertising contracts are sometimes used to pressure media outlets to alter, or soften, their coverage.

Resellers and other business partners are often pressured to promote specific products (or product combinations). Employees are often not compensated fairly, or compensation promises are not met. Indiscriminate (or punitive) layoffs are often used to keep employees in line.

The abuses of ethics and fairness extend well beyond the executive suites in many companies. Often these abuses have been tacitly approved by management, or deliberately ignored. If something did become public, companies often cited the "rogue employee" defense--claiming a single employee, acting alone, violated corporate policy.

The definition of "acceptable" corporate behavior will become more rigid.

Cleaning up accounting practices and executive behavior is a small first step toward bringing higher levels of integrity and ethics to most corporations. The next wave of attention will focus on the overall corporate image, and many IT companies will be forced to invest heavily to redefine corporate policies and practices to establish (or restore) an image of corporate responsibility.

Ultimately, the executive leadership team will still be held responsible for the overall performance of the company. However, the definition of "acceptable" corporate behavior will become more rigid. Meeting financial objectives will remain an inflexible metric. Achieving financial objectives honestly will become a new requirement.

Does this mean companies will suddenly become nice? Hardly. Aggressive business tactics, strategic maneuvering, puffery and "spin control" will (and probably should) remain key elements of many companies' business plans. Flat-out lying, deception and abuse (even if technically legal) will not be tolerated and will fall under much tighter scrutiny by the government, investors and customers.