Inexperienced CEOs and immature compliance cultures

It is never too early, or too burdensome, to create a fundamental business compliance program.  Small businesses, new businesses, and experimental businesses can all benefit tremendously from the foundation and organizational structure that a basic risk control framework can bring.  A disruptive or innovative company does not have to eschew everything about traditional business in favor of transformative and novel ways of working.  It is fair that some strategies or philosophies may be seen as staid or unlikely to keep pace with the competitive and development pressures these businesses face.  However, the common sense responsibility (values-based) and implementation of legal and regulatory guidelines (rules-based) impact of a corporate compliance culture encourages and supports business sustainability.

All too often, however, start-up companies lack this structural backbone.  They do not have adequate policies and procedures in place, are unable to cope with the employee and supervisory demands that emerge in their workplaces and marketplaces, and grow into business practices without the controls framework and governance, risk management, and compliance structures that they find they need.  Most concerningly of all, with their attention span devoted to survival and then growth, these companies find themselves without genuine and integrity-supporting corporate cultures, and attempts to impose them over the top of the existing environment are artificial and difficult.

This challenge becomes only stronger when the company without a confident hold on compliance and ethics building blocks is dominated by a founder or CEO who is,  him or herself, on unproven ground.  Inexperienced CEOs may have amazing, ground-breaking ideas and new ways to develop and market them, but if they are not effective as either leaders or managers, then they may fall into leaning on personality ethic.  These are the leaders whose individual credibility and identities dominate every aspect of their business, to investors, colleagues, employees, customers, and the public in general.

Without a prevailing independent corporate culture that relies on a collective character ethic and mature organizational integrity, this situations do not make for long-term viable business strategies.  Instead, these companies all too often slip into misconduct, fraudulent practices, and an overall culture of non-compliance.   Risk from regulatory non-adherence, corner-cutting in basic business operational requirements, and other malfeasance is not controlled by the appropriate and thoughtful defense strategies that a compliance program could create, implement, and monitor.

There are a number of examples of companies which grew impressively and then suffered due to insufficient leadership or immature management.  In each case these businesses are known for a prominent figurehead whose personality attracted the press and the public and whose ideas were exciting to the markets and enticing to investors.  However, legal and regulatory inadequacies of these businesses and their cultures have hobbled these companies’ lasting ascent:

  • Apple – Steve Jobs – The ouster of Steve Jobs at the company he created, Apple, led by the mentor he brought on to guide him to the next level as CEO, John Sculley, is the stuff of Silicon Valley legend. While this often seen as an epic example of corporate disloyalty and executive board politics, the more powerful lesson here is for business values and sustainable practices.  At the time Jobs was fired from his own company, emotional intelligence, inner success, and business mission statements were not part of the popular parlance.  Perhaps if they had been, Sculley and Jobs wouldn’t have found themselves permanently estranged: Former Apple CEO John Sculley admits Steve Jobs never forgave him, and he never repaired their friendship, before Jobs died
  • Nasty Gal – Sophia Amoruso: The retail entrepreneur and self-proclaimed “girl boss” may beg to differ with her inclusion in this list, but Sophia Amoruso is a classic example of personality ethic over character ethic.  Amoruso developed a company in her own image, and then turned her image into a personal brand that both transcended and hindered Nasty Gal.  Amoruso is a polarizing personality, and the whimsical approach she embraced in her life may be great for a career as a motivational speaker and writer where people who need inspiration can take a few tips from her for self-development.  However, a business that succeeded due to Amoruso’s successes was also vulnerable to fail due to her failures, without its own corporate identity and developed business culture, and this led to the ultimate undoing of her brand (to be rescued by a larger corporate entity, away from Amoruso’s control), rather than its longevity:  What Comes After Scandal and Scathing Reviews? Sophia Amoruso Is Finding Out
  • Uber – Travis Kalanick – Travis Kalanick’s tenure at Uber started in idolatry around the industry, when everyone with an idea for app wanted to imitate and one-up his path to success. Starting in 2016, however, cracks in the pedestal Kalanick was up on began to show.  Once his public relations woes began, they never ended, even after he was ousted as CEO of Uber for countless issues with the company’s corporate culture for employees, regulatory adherence in critical markets, and legal risks.  All of these problems came out in a powerful confluence at least in part because Uber’s quick rise to the top was enabled by non-compliance via omission at its origins:  Uber Scandal Timeline: Why Did CEO Travis Kalanick Resign? 
  • Thinx – Miki Agrawal – Check out this post for a comprehensive take on the inappropriate conduct modelling of Miki Agrawal and the destructive impact it had on corporate culture at her innovative female hygiene apparel company, Thinx.
  • Theranos – Elizabeth Holmes – Check out this post for a look at the cult of personality created by Elizabeth Holmes at the blood-testing device company Theranos, and the fraudulent business practices and misrepresentations that were enabled by it.
  • Tinder – Sean Rad – Check out this post for a detailed discussion of the emotional un-intelligence that dominated the start-up culture of Tinder due to the influence of its CEO, Sean Rad, and the absence of a burgeoning compliance program to match the booming dating app business.

For an interesting counterpoint, check out the post on Eric Schmidt at Google:  Google is not without its corporate culture challenges, particularly as shown in 2017 by the loud public discussion over diversity and engagement in its ranks and the company’s clumsy and performative handling of this bad publicity.  However, Google has often portrayed Eric Schmidt at the grown-up in the room, not to prevent or obstruct innovation and success, but to steward and support these efforts while still taking care of the underlying business operations must-haves.  Check out this Wired article on how this management structure enabled Google’s development into one of the major digital companies in the world:  At Google, Eric Schmidt Wrote the Book on Adult Supervision

For similar discussions to this one, check out this post on essential compliance tips for small businesses, and this post on challenges faced by start-ups in Silicon Valley and other disruptive industries.

Tinder and the role of compliance in fostering professionalism in start-ups

Tinder is a well-known dating app which matches users based on location and social media profile compatibility. It is infamous for its “swipe” interface where users register their reaction to potential matches by swiping right on the screen to register an interest in connecting or swiping left to dismiss.

Tinder was founded by a group of childhood and university friends, most prominent among them Sean Rad. The spirit during the early days of Tinder is presented as rowdy, social, creative, and disruptive – a start-up with a millennial energy where the fun and approachability embodied in its product was inspired by its corporate identity.

Eventually, however, friendships began to sour, the novelty started to wear off, and controversy began to take seed. One of the co-founders, Whitney Wolfe, fell out with Rad and another co-founder, Justin Mateen and filed a lawsuit alleging discrimination, sexual harassment, and retaliation. Wolfe has gone on to found a competitor dating app, Bumble, in which only women can initiate communicate with their male matches. Gender imbalance, public health, personal security, and data privacy are all major concerns which have been raised against Tinder’s operating model.

In all cases, Tinder has only been able to be reactive to these issues, not to preventively address them. This goes down directly to the fact that Tinder has no native culture of compliance. Tinder has a start-up culture as described above – entrepreneurial, excitable, informal, and innovation-focused. In these dynamic cultures there is a tendency to eschew traditional foundations as staid, too likely to impose restrictions or rules that will stunt growth and prevent transformative achievements. All the focus goes on being fast-moving.

Indeed, the image of the plucky entrepreneur starting a business by maxing out personal credit cards and taking customer calls from the garage at home is an endearing and enduring one. However, when this start-up gets some cash and energy and scales up, often the investment is concentrated on people who will bring the product to market – engineers, designers, marketing and sales staff.   The below the line functions – HR, operations, finance, and indeed compliance – often stay with the principals or outside vendors for as long as possible, to the detriment of the development of compliance values at the core of the organization. This may be practical to achieve profit objectives, but it’s not professional.

A forced culture of compliance will never be a natural one. In the complex business and regulatory environment today, it would be wise to include among the early employees someone who can set the stage for a genuine culture of compliance from the beginning. A company that grows up aware of compliance and ethics obligations and has an authentic, competent champion for employee integrity will not have to try to develop this later on when it may be too late for it to take genuine hold.

For a deeper look into Tinder’s roots and Rad’s growing pains, check out this story by Nellie Bowles for The California Sunday Magazine.