Changing Mindsets to Build Better Company Cultures: A Conversation with Rob Chesnut
This article was originally published to Medium on October 6th, 2020.
Early-stage companies have to keep a keen eye on the bottom line. Even those that thrive right out of the gate operate with a focus on fundraising, creative thrift, and shipping products. And Ethena is right there with them. In addition to this list, however, we propose another goal, one that may not seem financial, at first glance, but that actually has a direct impact on your company’s well-being: intentional company culture. While this aim is often seen as “idealism” up until a problem arises (occasionally in the New York Times), addressing integrity upfront is the most effective—and beneficial—way to ensure your company’s values grow with you as you scale.
Ethena sat down with Rob Chesnut, former Chief Ethics Officer of AirBnB and author of Intentional Integrity: How Smart Companies Can Lead an Ethical Revolution, to discuss building ethical company cultures and how that work changes as companies scale.
Ethena: Why should companies at early stages focus on culture?
Rob Chesnut: When you’re just starting a company, it’s critical that you know what your north star is, what your purpose is, why you exist. Profit is not purpose. Profit is necessary in order to operate a business, but you’ve got to have a reason the company is good for the world. That’s what increasingly customers and employees are looking for, and, frankly, investors are looking for as well, so you’ve got to make sure you can articulate that purpose from the beginning.
The first ten people you hire are going to have a huge impact on your culture going forward because they’re going to hire ten people. It’s really hard to change a company’s culture fundamentally once it’s gotten big. The time to focus on doing things the right way and with integrity is early on with it with those first early employees, and get it built into the culture so it becomes something that’s passed along as your company gets larger.
Ethena: What are tactics that work in creating culture early?
RC: What works is authentic conversation from the top. I like to say that a leader is the thermostat for a company ethically — not the thermometer, which takes the temperature of the room. The thermostat sets it. The leader is the one who is setting the tone and setting the temperature in which everyone operates. What I look for is what the leader says and does. If you send the message as the leader that we’re going to do things the right way through your words and by your actions, it makes a huge difference. Everyone will typically follow that lead. But, if you have a leader that says, “Hit this number no matter what,” that almost gives permission or demands to cut corners in the way you operate, which sets a completely different tone.
When you’re in the early days, the CEO can call everyone around the table and talk for five or ten minutes about operating with integrity and doing the right thing. When you’re scaling and have offices in multiple parts of the country and multiple parts of the world, it gets more complicated. Sometimes, integrity is easy — don’t lie, cheat, or steal — but as you grow, ethics can get gray and complicated. What the founder does is still critical, but then you need help. You need other leaders bought in and communicating as well, and you need to be thinking differently. When you’re small, one person can make an ethical decision, but when you’re large, you need a diverse input. Who am I to decide whether something has integrity? I’ve found that I often have an informed perspective, but I learned a lot by listening to people who came from different disciplines and their perspectives on individual situations, as long as I’m open and willing to learn. It’s a matter of spreading integrity throughout a broader culture and listening to diverse points of view. That’s what you have to get good at as you scale a company.
Ethena: What do you mean by following the spirit of the law?
RC: It’s difficult for laws to keep up with the pace of entrepreneurship. You may be operating in an environment where the laws were created fifty years ago before the Internet even existed, where the law isn’t terribly clear. I respect companies and entrepreneurs that do things that are good for the world. Sometimes, that means operating in gray legal environments. What you shouldn’t lose sight of is that you should be doing things that are good for the community and good for society, and not be operating in a stealthy, evasive way to try to avoid detection or mislead officials about what you’re doing. Coming to the government and regulators with an open spirit, helping them understand the way you’re doing business, why it’s good for communities, and why and how you’re doing business is consistent with not just the letter of the law but the spirit of the law as well, sets you up for longer term success. If you want to build a company that lasts and isn’t going to flame out quickly with problems, build a brand you’re proud of that communities will want to support and work with. That means doing the right thing, even in an unclear legal environment.
Ethena: What are common mistakes and pitfalls as you scale?
RC: They’re everywhere. A fundamental one that is born out of decades of bad philosophy around corporations, basically that anything that creates shareholder value is good, and companies should do it. The problem with this approach is that it came to be viewed in a very short term way and didn’t take into account the ethical implications of what you were doing. If it got the share price up by a dollar, it didn’t matter if it was good for the community or the world. It didn’t matter if it was ethical or not. All that mattered was that share price going up. Over time, we’ve come to realize that that the fundamental shareholder value approach doesn’t work. It leads to a lot of unethical behavior. It leads to inequality of wealth, because who benefits when the stock price goes up? The CEOs and the very top of the company. It meant that companies were dumping carbon into the sky and polluting streams and not worrying about it because all that really mattered was getting the stock price up. What we’ve now realized is we need better than that. We need companies that are not only thinking about shareholder values but thinking about other things. There are stakeholders aside from investors. That’s what the world wants from companies. I think the stakeholder approach is going to lead to more ethical action by companies.
What we need to do is get out of that old way of thinking. I’ve found in business that you do what you measure. Everybody is really good at measuring the financial stuff. What we need to get better at is thinking of what are the metrics that tell us the health of other stakeholders. How much carbon are we putting into the sky? How happy are our customers? Not just how much money are we making. I see a lot of problems in the companies that haven’t crossed the bridge yet from shareholder value to the twenty-first century way of thinking around stakeholders.
I see a number of mistakes inside of companies in the way people treat each other. What brought #MeToo home to me was how many people were suffering in silence and afraid to speak up, and how much bad behavior was being swept under the rug. Companies are still dealing with people who are abusing their position, who are still not thinking of the consequences of serving too much alcohol at company parties, for example, or not thinking closely enough about conflicts of interest. You want to be ethical inside the company in how you treat people, and ethical outside of the company in the way the company interacts with the world.
Ethena: What’s the opportunity for companies to do better?
RC: Companies need to embrace the new way of thinking. It isn’t easy. Investors are used to being treated a certain way. Boards are used to operating a certain way. Leaders are used to being compensated a certain way. And, it needs to evolve. I think companies that can move more quickly into this new way of thinking are going to be real winners. Those who resist it are going to find resistance from inside the company and from customers. Employees are speaking up like never before. They want to be proud where they work. It’s their brand. We want to feel like when we go to work every day we’re making a difference in the world. They’re on Slack, they’re tweeting, they’re blogging. Employees are even walking out in protest of what they see.
Customers are doing the same thing. Data shows that two-thirds of customers are conscious consumers. They want to see that the companies they patronize have values that align with their own. If they perceive a company isn’t acting ethically, they’ll move their money. The government used to think that tech companies are good for the world. Things have changed. Companies are under pressure now, from the government, employees, and customers. Companies can either use this as wind at their back and get ahead of it and be seen as ethical, or they can fight the current, which I think is going to be painful. What the data shows is that companies that are perceived to be operating ethically actually outperform the market and outperform competitors. If you do this right, operating ethically can actually be good for business. I’d love for you to do the right thing because it’s the right thing, but if you’re doing the right thing because it’s actually better financially, I’ll take it.