December 16, 2011

How to Spot Untrustworthy Leaders

In a recent post on startup ethics, I emphasized the fact that employee equity is an investment like any other, and it is unethical for insiders (CEOs, select investors, etc.) to structure deals in order to screw employees out of their equity shares.  I also hypothesised that character traits that are important for startup success, can also increase the likelihood of these kinds of unethical deals happening (Just like how banking attracts people who like manipulating wealth). Clearly that’s not a fixed causal relationship, but I wouldn’t be surprised if it is statistically correlated.

As an employee investing in a startup you want to sign up to a company that has strong entrepreneurial leadership, but also one that won’t screw you along the way.  Structural and legal elements should clearly be part of your decision making, but you will always know less than the leadership, which puts you at an intrinsic disadvantage.  If a founder wants to screw you, they will probably find a way. So how do you find leaders who won’t use that power?

Having never been a non-founding startup employee, I adapted my investor/advisor rules for selecting leaders to work with. It’s not a perfect science, but here are my selection criteria for ethical leaders.

1.      People who decouple money from their personal values.

There is a dividing line that lies between people who value money for the sake of their personal wealth – are obsessed by personal wealth – and those that consider money a measure of their success, but ultimately prioritize other values.  You can spot the first group by looking at things like their standard of living, types of expenditure, and how they treat money in general (as a status symbol and so forth).  That’s not to say that the second group won’t have a good standard of living or that they will run around in rags (in fact some people who run around in rags will nevertheless screw you because they enjoy getting away with it), but ultimately you are looking for some indication of whether a person values money for the sake of money, over other values.

For example, you want someone who’s happy that she built a $100M company instead of a $10M company, because that means they have the right kind of motivation to be a founder and that will benefit the whole organization.  But you also want someone to whom it matters less what percentage of that $100M is his, and for whom that $100M success doesn’t translate into a desire for personal wealth (fancy cars and high living).

2.      People who value results in and of themselves. 

The second thing you can look for is whether a leader takes pleasure in achieving deals, or in the making of deals.  That is a distinction I’ve observed a lot over my career. The first type closes deals to enable a particular result. The second type closes deals because they actually enjoy the engagement itself – the negotiation, the adversarial manipulation, the sense of having ‘triumphed.’ In my experience, the second type is more prone to manipulate structures so that they don’t necessarily result in a win-win scenario, and leave someone behind. Doing that in outbound deals will open the door to doing it inside your organisation as well. Again, this is a fine line.  Your head of sales should obviously have good sales skills, but I am more comfortable associating myself with those that enjoy getting sales results as opposed to those that enjoy ‘winning’ the process, or outsmarting the other parties involved.

3.      People who cut corners for the wrong reasons. 

Pay attention when people are under stress, need to adapt on the spot, or cut corners.  You want a leader who has a clear vision of customers’ wants versus needs, and can prioritize under stress to deliver the results needed to sell your product.  An effective leader will recognize what some corners simply cannot be cut without serious consequences for the saleability of your product or organisation. An ethical leader will also recognize that some corners cannot be cut without unacceptable consequences to others.  If a leader doesn’t think twice about making a decision that implicitly hurts someone else, even on the small scale, watch out.

Of course tough decisions are going to be made that have consequences for other members of a startup (people may need to be fired, overtime will be necessary), but an ethical leader will take ownership of these decisions and implicate herself in the consequences (A leader who personally fires someone, gives the reasons why, and has communicated effectively what that person needs to do not to be fired; A leader who personally implicates and involves themselves in the work that results from their decisions). Look for the little things. Does the leader offload significant tasks to unqualified people, providing insufficient guidance, so that he can go home early?  Does the founder accept responsibility and take action when she fails to meet her objectives, or do they hide the fact and offload responsibility to someone else?  Also pay attention to how often and how many corners they cut, and whether their reasons for doing so were principled or simply convenient.

Most start-ups hire with a several month long probationary period. As a new employee, you should use that time not only to impress your new team but also to evaluate the company and its leadership. You will be devoting a big part of your life to a startup – make sure you spend it with good people.

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