Running an ethical business

A week ago, I wrote:

These days, there's a legit risk that your US government, or US government contractor, client will (for example) build software to arrest and deport people in defiance of judicial rulings and without due process.

So: If you're in an operating role at a company today, are you, your leadership team, your board thinking about this? What steps are you taking to assure that you can support legitimate, law-abiding clients, but legitimately decline or terminate contracts with those who violate the law? Have you struggled with this idea and thought of impediments or problems I should consider?

I got some useful feedback. Thanks to those of you who offered ideas.

It's possible, of course, for a founder to simply refuse to do business with a particular customer for reasons that matter to her. If she objects to ICE masked arrests and detentions in violation of due process, she can choose not to sign any deals with ICE or the Department of Homeland Security.

That decision could be hard to enforce, though. Investors and board members care about revenue growth and profitability. Unless she can persuade them that her position is correct, they might pressure her to reverse it. Boardroom dynamics are complicated and pushing out a founding CEO is difficult and dangerous, but getting fired from your own company is a steep price to pay for principle. Even if it were the more ethical choice, a thoughtful CEO should look for ways to avoid that showdown.

I think a better plan is to include a section in your standard sales agreement in which each party warrants that it will comply with all laws and judicial decisions during the commercial relationship. It would be hard for investors or directors to argue in favor of lawlessness in the delivery of products or services. Customers who argued for removal of the section would have a hard time justifying their position. Executive teams could legitimately decline contracts with customers whose violations of due process, for example, had already been documented. It allows vendors to terminate contracts for cause in case of later malfeasance.

Founders may still choose to forgo business with particular prospects for reasons that matter to them. Having a standard contract clause that requires legality, though, will make those one-off decisions rarer. It will also be more difficult to reverse the policy if the founder leaves the business – someone will have to win an argument inside the company that it's okay to work with lawbreakers. Other leaders and employees in general are likely to disagree.