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At the Center
Ethics: Who You Are
Friday, Jan. 27, 2012
“Ethics are a fundamental statement of who you are,” said Franklin “Pitch” Johnson, founding partner of Asset Management Company, at a talk Jan. 25, sponsored by the Ethics Center and the SCU Department of Accounting. Johnson, whose company has made over 250 venture investments during its more than 43 years of operation, spoke on “Ethics and Venture Capital: Reflections of a Silicon Valley Life.”
Johnson counseled an audience of business students, faculty, and members of the community not to separate personal and business standards but to bring honesty and transparency into the workplace. He especially focused on the need for accuracy in representations about investments made by venture funds. “Many people aren’t careful enough in helping investors understand the performance track record of the funds.”
He also stressed the need for honesty in presentations to funders made by start-up companies. “When we interview entrepreneurs we're looking for openness,” he said. “Many people don't want to tell you the downside, but [venture capitalists] have seen the same thing 25 times with different companies, and we may be able to help. It’s kind of a falsehood not to tell important things.”
The entrepreneur’s ethics count in the venture company’s decision whether or not to become involved in a venture. “We think a lot about that,” Johnson said. “If we see things that are misleading or dishonest, it’s a turn-off. We check a person out, look into their experience and standards of behavior. The character of the person is the first thing we ask about. If it’s not there, we don’t go any further.”
Johnson also described how ethics enters into his decisions about what companies to fund. He recounted an opportunity he had to invest in the Mustang Ranch, a brothel in Nevada, where prostitution is legal. “The fact that it’s legal doesn’t mean I want to invest in it,” he said.
Asked if he would invest in a company because it was doing something for the common good even if it wouldn’t make as much money, Johnson indicated that he sees that kind of outlay coming from his charitable foundation rather than his venture funds.
But he also expressed his interest in funding biotech companies, which can take longer to become profitable than other investments. “Everything in biotech is expensive,” he allowed, “but it’s a great feeling when you find a product that can help thousands of people. We don’t go into it for the good we do, but we’re very well aware of that potential. It’s not eleemosynary, but it’s very satisfying.”
Ironically, Johnson said, the worst ethical lapses in business tend to happen when times are good. “People come in without business plans. I wouldn’t say their pitches are dishonest, but they’re not rooted in reality. In good times, people tend to be less careful because no matter what you do, you make money.”
Venture firms then face the ethical dilemma of whether to go into deals without long-term plans because people are making money on them. “Do we owe this to our shareholders?” Johnson asked.
Asset Management, he said, has taken a “more conservative view,” funding such companies as Amgen, Applied Bio Systems, Applied Micro Circuits, Conductus, Hybritech, IDEC Pharmaceuticals, Octel, Qume, Red Brick Systems, Remedy, Sierra Semiconductor, Tandem Computer, Teradyne and Verity.
Tags: business ethics