The forthcoming book by venture capitalist Ben Horowitz, The Hard Thing About Hard Things, figures to be fantastic. He recently blogged about one of his career experiences as a sort of teaser.
In his blog he writes about an experience that, had he handled differently, might
well have caused him to go jail.
Having the opportunity to hire a star CFO at one of his companies, he
jumped at the chance. The CFO
recommended a change to the company’s stock option practices that could
potentially have benefited the employees.
But Horowitz was already a believer in a strong legal
function and had his General Counsel review the suggestion. The General Counsel believed that the
practice was illegal and recommended against it. Horowitz followed his General Counsel’s advice. Years later, the same CFO would be
accused of wrongdoing by the SEC for stock option granting practices at a prior
company. She was asked to leave
the Horowitz company and ultimately did spend a few months in jail. It sounded like a difficult period for
Horowitz and one that left a long term impression.
This challenging episode is a great reminder to me that, in
Corporate America, a little bit of bad luck can be good and a ton of good luck
can be bad. This seems counter
intuitive at first so I will explain.
A few rough seas of the sort Horowitz experienced in his
introduction to creative stock option practices can be a valuable learning
lesson. He had enough bad luck to forever
remember the lesson but not so much as to sink his company. I imagine that today Horowitz feels
even more strongly that an effective General Counsel will report to the
CEO. That creative accounting
isn’t necessarily a good thing.
And that lawyers who simply speak the truth and are heard are an
executive’s best protection against going to jail.
By contrast, companies, executives and boards that have had only
good luck tend to lack these war stories.
They don’t have the tough learning experiences to draw upon. It’s not so much that they are certain
to be more reckless, but rather that they may not consider the importance of
compliance or ever think about the events that could destroy their businesses
or careers. That is, all the good
luck is a bad thing – it exposes their blind spots and allows them to become tolerant
of sloppiness that hasn’t (yet) caused major problems. As a result, a sort of quiet bliss makes
them more susceptible to big failures that more seasoned, perhaps hardened,
business people will know how to avoid.
