Successful startup behaviors match purpose Founders Can Learn From Corporate Deceit

 In Benefit Venture Blog, Entrepreneurship, Insights, People

Founders Can Learn From Corporate Deceit*: Founders can learn more from corporate mistakes than the the things they appear to be doing successfully. The big boys often say one thing and do another. Successful startup behaviors match purpose.

successful startup behaviors match purposeFor example, in June 2019, The Guardian reported that the bank, Wells Fargo had said: “Savings from tax reform enabled Wells Fargo to further invest in our team members and communities. We have raised the minimum US hourly pay rate to $15 per hour1, increased philanthropic support by 55% in 2018 to $444m, and we will target 2% of our after-tax profits for corporate philanthropy.”

Other big corporates reacted in a similar fashion to company tax cuts. However, it does not seem that much of the billions of tax dollars saved will end up with either staff or job creation, but rather in share buy-backs, salary increases for senior executives and the like.

The Bank bought back 350 million shares in early 20182, worth about $22.6bn, increased CEO salary by 36% (Tim Sloan, CEO, received $18.43 million in total compensation for 2018, according to a regulatory filing. (5 percent more than the $17.5 million he earned for 2017). The company announced plans in September 2018 to eliminate at least 26,000 jobs in the US over the next three years. It’s interesting to note that one of their goals is to increase economic opportunity.

It’s interesting to note that one of their goals is to increase economic opportunity. Many listed companies behave similarly, claiming that their actions are simply in line with their fiduciary duty to shareholders. They do indeed have such duties, but it may be that such actions may turn out to be detrimental to shareholders in the longer term.


* Corporate deceit is when a person (corporation) intentionally and knowingly deceives another person. Well-known cases of corporate deceit include: Enron (accounting) and Volkswagen (emissions).


Espousing values is one thing, behavior is another

This bank’s behavior seem to be at variance with its aspirations: for example, two of their five primary values are stated as:

  • People as a competitive advantage. We strive to attract, develop, motivate, and retain the best team members — and collaborate across businesses and functions to serve customers.

  • Ethics. We’re committed to the highest standards of integrity, transparency, and principled performance. We do the right thing, in the right way, and hold ourselves accountable.”

successful startup behaviors match purposeOf course such declarations sound great, but are open to different interpretations. In the very early days, startup founders may be in a much easier position to ensure the integrity of their business purpose, simply as a consequence of small scale.

For instance, in December 2018, the Bank was zapped with fines of $575 million by all 50 States and DC, to settle claims that a fake-account scandal in its retail bank, and improper auto-loan and mortgage charges.

Such behaviors are not new to the Bank. In 1992 it agreed to pay $43 million to settle a lawsuit alleging that it conspired to fix the interest rates on millions of credit card accounts4.

Lessons for new ventures

Such behavior at variance with the Bank’s published aspirations, is not simply an oversight. It is organized by management, generally with no malice of forethought, but rather as a consequence of its focused commitment to financial goals. The behavior is most likely culturally embedded. On the other hand, successful startup behaviors match purpose.

This common way of conducting Bigcorp business has a strong impact on entrepreneurs, as they work hard to refine their own intentions and public declarations of their espoused values. Of course, you might expect the alignment of intent and practice would be easy in new ventures, but from my own experience it is not always the case, especially as the company grows.

For several years, Bigcorp has spent lots of energy and dollars on defining their non-financial missions. In most cases, what gets produced is a bunch of pious hopes. The mission and values statements are all too often not translated into daily actions that exemplify them. Thdisconnect between declarations and behaviors, in big companies, is sadly, also all too often present in startups, whose attention is naturally focused on survival.

On the other hand, in his 2018 Letter to CEOs, Larry Fink CEO of BlackRock said, “Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked. Profits are essential if a company is to effectively serve all of its stakeholders over time – not only shareholders, but also employees, customers, and communities. Similarly, when a company truly understands and expresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability.”

Struggle to survive and flourish

Startups typically do not have the ‘baggage’ that established firms are stuck with and can aim to be ‘different’ from the get-go. However, achieving positive cash flow, while at the same time flourishing5 is tough. Founders will need to commit time, energy and sometimes money, to avoid values being actively and demonstrably real. Successful startup behaviors match purpose.

Here are six ways a new venture can use to ensure consistency of purpose.

  1. Create a participative culture that is actively committed to the regular inclusion of all employees in dialog.successful startup behaviors match purpose Words and actions must both remain true to the firm’s purpose. This can be painful and needs to involve a clear definition of how to examine and record performance openly.

  2. Set a maximum top to median pay ratio. It’s a tough job for both the founder and the lowest paid in the startup to be happy with what is fair and reasonable. Also, it may not be fixed for all time, given progressive changes in the sector, the market/competition, technology and other factors. Clearly ratios in the hundreds to one should not be justified under any circumstance. Wells Fargo’s case, for instance CEO:median pay ratio in 2018 was 129:1.

  3. Examine how to become a certified BCorp and register as a Benefit Corporation (possible in 36 States, so far). Benefit corporations and Certified B Corps are both leaders of a global movement to use business as a force for good. Both meet higher standards of accountability and transparency.

  4. Consider some form of stakeholder6 equity participation in the venture. This can quickly become either a political or a philosophical issue. Therefore it should be tabled early, but agreed only after considerable analysis and debate.

  5. Develop a formal means to monitor employee attitudes and concerns7 and share the results. Make sure that they are part of a culture of openness and an organized way togain personal, group and anonymous feedback, suggestions and concerns. Capterra lists over 250 employee engagement software products, but use extreme care in making a choice, if you decide to go digital.

  6. Initiate a code of ethical behavior from Day 1 of the new venture, that integrates with the startup’s purpose and its commitment to the community, that ensures long term survival. Beware the separation between this and the startup’s business objectives. Wells Fargo says, “We are committed to being the best we can be — for each other, our customers, our communities, and our shareholders.” From their behavior, however, it might appear that their business policies focus on shareholders.

Further insights on how new ventures can change the world:


1. The small Amalgamated Bank, a B Corporation, raised its minimum wage to $20 an hour on July 1st, 2019, a rate that Wells Fargo employees are pushing to for, as the Bank continues to post multibillion-dollar profits. There are 7 other US banks that are BCorps.

2. Investopedia says (October 2019), “A company may choose to buy back outstanding shares for a number of reasons. Repurchasing outstanding shares can help a business reduce its cost of capital, benefit from temporary undervaluation of the stock, consolidate ownership, inflate important financial metrics or free up profits to pay executive bonuses.”

3. By comparison Amalgamated Bank CEO, Keith Mestrich, makes $1.59m a year. He says, “CEOs should look at the pay gap in their own corporations as a way to address the larger gap in the economy.”

4. See the Bank’s past ethical history with regard to customers.

5. Marked by vigorous and healthy growth: very active and successful—Merriam-Webster

6. “A person such as an employee, customer, or citizen who is involved with an organization, society, etc. and therefore has responsibilities towards it and an interest in its success”—the Cambridge English Dictionary.

7 Awareness of hidden tech problems at Boeing resulted in immense damage to the company, for example.

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