Business Ethics and the Bottomline
Steve Tennant posted an interesting tweet yesterday, "SAP must pay $1.3B in TomorrowNow damages. Add $160M legal costs, that's a -14,700% ROI on your $10M acquisition.http://bit.ly/fjtF6p" His tweet got me thinking.
For those of you who don't know the TomorrowNow story, they were founded by ex- PeopleSoft employees who left the organization to start a company that provided maintenance services for PeopleSoft's customers. This was in the era following PeopleSoft's launch of PeopleSoft 8, the internet version of PeopleSoft's client server product. At the time, there were PeopleSoft customers who did not intend to migrate to the new version and therefore did not believe that they would get value from their PeopleSoft maintenance fees. Over time, TomorrowNow acquired a base of these customers. Shortly after the successful Oracle hostile takeover of PeopleSoft in December 2004, SAP smelt blood in the water and pursued many PeopleSoft customers to move to a SAP solution. It was during this time that SAP acquired TomorrowNow, presumably as a vehicle to form trusted relationships with PeopleSoft clients so that they could persuade them to migrate to SAP. In 2007, Oracle sued SAP and TomorrowNow for theft of Intellectual Property. According to Bloomberg:
"Oracle said in its lawsuit that the copyrighted software was used by SAP's U.S.-based TomorrowNow unit to offer technical support to customers of companies that were acquired by Oracle, to lure the customers to buy products from SAP, and to deprive Oracle of support revenue for future product development. SAP's executive board knew that TomorrowNow might be accessing Oracle's software when it considered buying the unit, according to evidence at trial. SAP acquired TomorrowNow in 2005 and kept it incorporated as a separate entity as a "liability shield," Oracle attorneys said."
Before the trial SAP admitted to TomorrowNow's theft of Oracle software and the trial became an argument about the size of damages and the award.So as Steve points out, on a $10M investment to buy TomorrowNow, SAP has to pay $1.3B in damages. A pretty hefty price to pay for what some would judge as a lapse in business ethics and judgment.
A wise man once coached me that when faced with a question of ethics, ask yourself a simple question: If you aren't comfortable with the decision you are about to making being published on the front page of tomorrow's Globe & Mail, then don't make it.
Ethics isn't about crossing the line and it being ok as long as you get away with it. Ethics is about a set of values you and your company have that guide your business judgment. When I speak with many entrepreneurs, I find that they spend a massive amount of time thinking about their product, their market, their prospective customers and how they will be successful. All too often, they overlook spending time on who they are, what are their core values and how will they behave.
Dave Duffield, the legendary founder of PeopleSoft, spent a lot of time at the beginning of PeopleSoft's journey defining his company's core values. Dave's personal motto was that he wanted, "Dave Duffield had happy customers" as the epitaph on his tombstone. One of PeopleSoft's core values was "Clean Bathrooms" because Dave believed that he could not earn the confidence of prospective customers if his employees could not even keep the company bathrooms clean. Why would a company trust PeopleSoft systems to run their company if we couldn't even keep our own house in order.
I am quite sure that SAP executives did not wake up one day with an idea to steal Oracle's intellectual property in order to lure their customers over to SAP, yet somehow, five years after they acquired TomorrowNow, they are on the hook for these damages. So how this happened, we will probably never know, but how we prevent it in our businesses should be a concern to all.
Some of the prevention comes from experience. A client was recently approached by another company to allow them to represent my client in a large government opportunity. In return for their assistance, they proposed to be rewarded by payment of a percentage based success fee if my client won the contract. The offer was quickly turned down, largely because success fees in some parts of the world are synonymous with pay-offs and bribes and as a company, my client was not going to be drawn into any situation that could impact their reputation.
Otherwise, prevention comes from basing decisions on solid core values and using the "Globe and Mail test" as the acid test to double check your judgment.