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Do You Stay the Course With Less-than-Forthright Partners?

DILEMMA

A colleague and I created some technology that could be the basis for a great company. We have several joint patents and began the pursuit of our market using this intellectual property. When we formed the small company I allowed him to bring his brother in as our interim CFO, including stock shares, and we set about raising our angel funding through friends and family. Last winter we hired a CEO. None of us is taking a salary (I thought), living off our savings while we chase this dream. In the spring, we decided to bring in outside board members, and in a difficult board meeting, I was voted off the board, along with the CFO, leaving only my colleague and the CEO as they add outside directors.

We are now close to signing a contract with a major company and we continue to raise funds. At the last meeting with potential funders, I explained that we are not drawing salary yet, and the funding is being focused on developing the business. Then I found out that my colleague and the CFO have been drawing salary since late spring. The CEO told me that he had allowed this, but that they could not afford to pay me as well. He told me not to rock the boat in our funding discussions and with our major potential customer. While I own a considerable number of founders shares, I do not have the ability to protect my interests or deal with what is clearly an unethical environment. What do I do in the meetings with the funders, the customer, and with the CEO?

A technology inventor

RESPONSE

Thanks for writing. This is tricky territory on both counts. You are correct that this is not a healthy corporate culture. Are you sure you want to stay the course with your less-than-forthright partners? Think about the temptation to deceive when the stakes are even higher. I don’t think there is a sure way to protect your investment, honor your values, and not destabilize the company all at once. You are facing some distasteful tradeoffs here.

With respect to your investors, being forthcoming with the corrected information will not do much to promote an image of open communications among the partners. However, before cutting a check, most investors of significance will perform their due diligence. If some of the potential funders with whom you shared the erroneous information decide to make a commitment, the omission will be discovered down the road. So, the best course of action (from both moral and practical perspectives) is to make the correction sooner rather than later. True, you run the risk of scaring off your potential investors, but continuing the deception and/or allowing them to discover the error later is much worse.

Kenman Wong
Professor of Ethics, School of Business and Economics
Seattle Pacific University

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