Honesty Is the Best Policy - Trust Us

It's always fascinating to step inside a Silicon Valley start up and ask the people there to share stories about what makes their company special. The anecdotes that rank-and-file employees tell a visitor tend to reflect the way that their company views its character and its culture.

At some companies, the legends in the making involve mad, all-night scrambles to launch a Web site or to release a new piece of software. At other companies, the best lore involves relentless efforts to line up customers. And if a company is attracting favor from venture capitalists or from public shareholders, it's a safe bet that at least one story will involve the shock and delight of employees upon realizing how valuable the business has become.

Employees at CenterBeam Inc., based in Santa Clara, California, could tell variants of all of these stories. Since April 1999, CenterBeam's main service -- taking charge of small companies' computer departments by installing networks of wireless, Internet-oriented machines -- has attracted hundreds of customers. While CenterBeam hasn't yet gone public, it has attracted ever-higher valuations from VCs and strategic investors. But those aren't the stories that CenterBeam's employees want to tell. Their favorite stories touch on a theme that hardly ever takes center stage in Silicon Valley: integrity -- that is, the make-or-break importance of simply keeping your word.

Early on, for example, CenterBeam was on a hiring spree, trying to recruit enough people to carry out its rapid expansion plans. The company offered a job to one candidate, but before that person could accept, a résumé from an absolutely dazzling contender arrived. Could the first offer be rescinded, managers wanted to know, so that the company could hire this superstar instead? The answer from Sheldon Laube, 49, CenterBeam's chairman and CEO: No way. "We made a promise to the first candidate,'' Laube recalls. "If we're going to be the kind of company that people trust, we've got to keep our promises.''

Around that same time, CenterBeam executives ordered $500,000 worth of tape drives from a distributor. Those drives (vital equipment that the company uses to back up customer-data files) soon arrived at CenterBeam's headquarters. But before engineers could unpack the merchandise, they learned that a rival distributor was offering comparable machines at a price that would save CenterBeam $93,000 a year. A few engineers wanted to refuse delivery of the more-expensive machines. But CenterBeam executives treated the shipment as binding. Instead, they asked the distributor to take back the expensive system and then bought the cheaper system from the same distributor -- at a cost that was roughly $50,000 more than the rival distributor was charging.

What's the road to success for a startup? For many companies, it's whatever road leads them to the most business in the least amount of time. The Internet economy worships at the altar of fast action, fast growth, and fast results. Plenty of companies (and the people who lead them) are prepared to cut a few ethical corners in order to move faster: not gross violations, such as accounting manipulations or outright fraud, but day-to-day dilemmas -- leadership moments in which you do either the right thing or the expedient thing. Are you aboveboard with investors when you know that the next quarter may be disappointing? Will you say anything to recruit a great job candidate, or are you honest about the risks involved in an assignment?

If this were a Sunday-school lesson, the answers would be obvious. Virtue would triumph, and cheaters would be vanquished by truth tellers. But the startup business is not so simple. There's a widespread feeling among entrepreneurs and venture capitalists that if a new company doesn't display a bit of bluster and outright exaggeration in its launch phase, it won't be taken seriously -- and it won't get a chance to change the world. What fun is starting a company if you can't be a little devious?

Yet if hubris was a winning strategy in the past, its perils have recently become all too clear. Many of the Net companies that went public on the strength of extravagant promises have stumbled badly. In some cases, signs of a credibility gap are so severe that they ooze from companies' financial statements -- and translate into plummeting stock prices.

"It's amazing how many employees have come up to me and said, 'It's great to work at a company that has integrity,' '' says Laube. "Many employees tell me that at their old companies, 'people promised things that they just didn't deliver.' '' Yolanda Gonzalez, 48, VP of human resources at CenterBeam, estimates that two-thirds of the company's new hires tell her that they were uncomfortable with the low ethical standards that prevailed at their former employers.