Something I’ve noticed over the past few years is how outright unethical people are becoming in the technology business. I can imagine the reply. “Bad ethics in business; you mean that’s news?” Sure, people have done bad things for money for as long as there has been money. I get that. The difference that I sense is that there doesn’t seem to be much shame in being unethical. People are becoming proud of it, and a lot of our industry’s perceived leaders are openly scummy, and that’s dangerous.
An example is Mark Pincus, who prides himself on having done sleazy things to establish his career, and who moved to deprive his employees of equity by threatening to fire them if they didn’t give it back. When he was called on this, rather that admit to minority shareholder oppression, he went on a tirade about not wanting to have a “Google chef”, referring to the first cook at Google who earned over $20 million. In his mind, blue-collar workers don’t deserve to get rich when they take risks.
This is bad for startups. Equity is the only thing that pre-funded startups have to attract talent. These types of shenanigans will create an environment where no one is willing to work for equity. That is often the externalized cost of unethical behavior. It doesn’t hurt only the “victim”, but it harms all the honest players out there who are less trusted.
I will state that what appears in the news is only the tip of the iceberg. Here’s some shit I’ve either seen, or been credibly informed of, in the past 24 months, most of which was never in the news: no-poach agreements, attempted blacklisting of whistleblowers, a rescinded job offer based on a rumor that suggested PTSD, abuse of process within large companies, extortion of ex-employees, gross breaches of contract, frivolous lawsuits, threats of frivolous lawsuits, price fixing among venture capitalists, bait-and-switch hiring tactics, retaliatory termination, and fraudulent, no-product startups designed to embezzle angel investors. That took me about 60 seconds; two minutes more and the list would be three times as long. None of this was in finance: all tech, with most of these pertaining to reputable companies. I’m not an insider. I’m no one special. If I’m seeing these behaviors, then a lot of people are, and if a lot of people are seeing them, it means that a lot of unethical things are happening in a sector of the economy (technology) known for good behavior and a progressive mindset.
This is just the first act. This is what it looks like when the economy is doing well, as in technology, it is. The wronged move on. Their jobs may end and their equity may be stolen, but they move on to better opportunities. Those who’ve entered criminal patterns in order to keep up with expectations can still break out of them, if they do so now, without spiraling straight down. We’re not seeing the lawsuits, the disclosures of misconduct, the bitter fights and the epic crimes yet. At some point, presumably in a worse economic environment than what we have now, that will come. When it does, the results will be terrifying, because the reputation of who we are, as an industry, and what we do is at stake.
People, in the U.S., have developed a reflexive dislike for “finance” and “Wall Street”. The financial industry has certainly earned much of its negative reputation, but finance isn’t innately bad (unless one believes capitalism to be evil, which I don’t). Most of finance is just boring. I would also caution us against believing that “technology”– this brave new world of venture capital and startups and 25-year-old billionaires– is incapable of developing such a negative reputation. A few bad actors will give us all a bad name.
In finance, most of the unethical behaviors that occur have been tried so many times that laws exist to discourage them. There are problems of lax enforcement, and too often there is frank regulatory corruption, but at least there is clarity on a few basic things. One example: you don’t front-run your customers, and you will go to jail if you do. In addition to legal pressure from without, finance has imposed regulations on itself, in part, to regain its reputation. Self-regulatory organizations like the New York Stock Exchange have fired people for life over the worst crimes.
The ethical failures in technology have a different, and more intimate, character than those in finance. Financial crimes usually cause the loss of money. That’s bad. Sometimes it’s catastrophic. What makes these crashes especially newsworthy is the sheer number of people they affect. Nearly everyone was affected by the late-2000s property bubble, for example. The recent spate of ethical lapses in technology are of a more focused nature. They don’t inflict their losses on thousands of people, but they damage careers. The most common example that I’ve seen would be bait-and-switch hiring, where a person is brought on board with the promise of one type of project and given another. There is no legal recourse in this case, and there are lots of other ethical lapses that have similar effects. These activities waste the time of highly talented people in fruitless relationships, and often on pointless work.
In technology, we haven’t figured out how to regulate ourselves, and we’re risking the reputation of our industry. Too much depends on us to allow this. With the aging population, the depletion of fossil fuels, and the exigent need to move toward an environmentally sustainable economy, we’re just too important to the world for us to take a dive.
One might argue, in response to that claim, that most of what comes out of VC-istan isn’t “real technology”, and I’d agree. Venture capitalists may love “semantic sheep-throwing coupon social network” build-to-flip startups, but those don’t have much social or scientific value. For that, most of the unethical activity I’ve seen comes from the “fake technology” companies, but not all of it. Either way, few people make this distinction, and regarding them making it, I wouldn’t take that chance.
Who has the authority to address this problem? In my opinion, it’s an issue of leadership, and the leaders in technology are those who fund it: the venture capitalists. I’m not going to assert that they’re unethical, because I don’t know enough about them or their industry to make such a claim. I do, however, think they encourage a lot of unethical behavior.
What causes the ethical compromise that occurs commonly in the financial industry? My opinion is that it’s proximity to money, especially unearned money. When working for clients with $250 million in net worth, often who inherited it, people begin to feel that they deserve to get rich as well. It’s human nature. The cooks feel entitled to some of the food. Some people in that industry just take that mentality too far and begin committing crimes. I don’t think the problem with finance is that it attracts scummy people. I think it tempts them to do scummy things.
The sociology of venture-funded startups is similar. The entire funding process, with its obscene duration that is measured in months, with terms like multiple liquidation preferences and participating preferred, and with the entrepreneur expected to pay VCs’ legal fees– I am not making that up– is based on the premise that MBA-toting venture capitalists are simply Better Than You. Venture capitalists, in no uncertain terms, outrank entrepreneurs, even though the jobs are entirely different and I would argue that the entrepreneur’s job is a hundred times harder. Among entrepreneurs, there are Those Who Have Completed An Exit, and there are the rest. It’s not good to be among “the rest”; people can dismiss you as having “no track record”, which is a polite way to call someone a born loser. Among that set are Founders (of funded startups) and “founder-track” employees– proteges invited into investor meetings so they might become “Founder material” in the future– within funded startups… and then theres’s everyone else, the fools who keep the damn thing going. It seems like a meritocracy, but it’s the same social climbing bullshit found in any other industry. The meritocratic part is derived from what does when one has resources, but to get the resources one usually needs a full-time devotion to social climbing. There are exceptions, and incubators are making this situation better, but there are not that many.
Venture capitalists may not all be unethical, but they’re not ethical leaders either. They establish this lack of leadership through onerous terms, malicious collusion, and the general attitude that the entrepreneur is a desperate huckster, not a real partner. The Better Than You attitude they cop is intended to make people feel hungry, to make them want to get to the point where they actually “deserve” the company of venture capitalists, but it actually makes them act desperate. Does this lead to unethical behavior? Sometimes yes, sometimes no. When not, it still produces ethical ruin in the form of inappropriate, hasty promotions, which lead to the same kinds of behavior in the long run.
In other words, this ethics problem is not just limited to “a few bad apples”. Culpability, in my mind, goes straight to the top.