In a talk between the former eBay CEO and her colleague there, Rajiv Dutta, Whitman discusses how to create a company's character early on
In February former eBay (EBAY) CEO and current California gubernatorial candidate Meg Whitman sat down with her former colleague Rajiv Dutta to discuss what they call "the character of the company"—a dialogue about business ethics that is particularly timely in light of the corporate scandals dominating the news today.
Dutta, who previously served as president of eBay Marketplaces, PayPal, and Skype, is currently the distinguished executive-in-residence at the Drucker Institute and the Peter F. Drucker and Masatoshi Ito Graduate School of Management in Claremont, Calif. His on-stage conversation with Whitman—one in a series that Dutta is conducting with leading executives—was part of the Drucker Centennial, a series of events marking the 100th birthday of the father of modern management, Peter F. Drucker. For more on the Drucker Centennial, including an events calendar, please visit www.drucker100.com.
A partial, edited transcript from the Whitman-Dutta event follows. (To see the full video, including questions from the audience, please go to http://www.youtube.com/DruckerInst.
Rajiv Dutta: There are so many questions I could give you. But I think the question that comes to my mind is just what does "the character of the company" mean?
Meg Whitman: I think it means the set of values and principles by which you run the company that really begin to become part of the DNA of the company. And "the character of the company" came from our good friend, Howard Schultz, who was on the board of eBay for many years. It was at a particularly knotty time in the early stages of eBay, and we were trying to wrestle with a problem, which I think we'll tell you about in a moment. And he said: "Meg, what kind of company do you want to run? What do you want the character of the company to be?" And it became the phrase that encapsulated for us what I think eBay became known for, which was that moral center, that sense of right and wrong, that we ended up I think doing a good job of instilling in 15,000 people in 30 countries around the world. And it's almost the sense that you know what to do. It's not written on a piece of paper, but you know what the right thing to do is.
And one of the things that you took a personal interest in doing was just saying that: "Listen, this is important." What was behind that?
I think it's important because companies form culture very early on and they get imprinted very early on with a sense of right and wrong. And it starts from the top. It started with the CFO, the President, and CEO. And so, I think I had this innate sense that we needed to establish very early on what the code of behavior was going to be, what the code of ethics would be. And it's easier when you have 30 people in a room. I mean, eBay was half the size of this room for the first year that we worked together. And I saw everybody every day. Rajiv saw everybody every day. And so, it's easier to imprint a set of beliefs and values when the company is small.
Every day there are teaching moments. Every day there are opportunities to grapple with issues. That is how organizations learn. And I think one of the early lessons in grappling with issues that we had is—it's hard to remember back to 1998, but the Internet was much more of a Wild West really than it is now. And there was something called the Digital Millennium Copyright Act. And what that said was that certain venues, like eBay, like AOL, were not responsible for the content on your site unless you actually looked for what was on your site. And if you took down items that were not legal for sale, all of a sudden you became responsible.
In a sense, you sort of incurred liability if you tried to do the right thing.
Exactly. Let's say there was something that was illegal on our site. If the owner of that item, whatever—the copyright or whatever—said please take it down, then you could take it down with impunity. But you couldn't proactively take it down without being liable for everything on the site. And so, we were a very young company and after the first six months we said, O.K., well, this is how it's done in the business, and we will do that. And there was a seminal event that the video-game companies—Activision, Atari, Sony—were starting to see bootleg copies of video games on eBay. And so, I went over to a meeting with the CEOs. The CEO of Activision said: "Meg, you know, there was a game that was developed by our engineers that was called Cop Killer. And I stopped the development of that game, but there were almost-finished versions of the game that were in development, and they were leaked out, and those games are now on the Web."
Selling like hotcakes.
Yes. And he said: "You need to be proactive about taking these kinds of items down." And I said: "But the Digital Millennium Copyright Act—we can't do that. We would jeopardize the whole thing." And he looked at me and he said: "What's the right thing to do?" And I came back. We had a board of directors meeting that afternoon, and I said: "I think we have to change our point of view on this." And that afternoon, actually, we began to proactively monitor the site for illegal and infringing items. And I remember saying to the 40 or 50 people that worked at eBay at the time: "Yesterday we had this point of view. We were abiding by the Digital Millennium Copyright Act. And we are completely changing our mind, and we are now going to proactively screen the site because it's the right thing to do. And that's how a culture gets invented. When you come across a very tough dilemma, you make a decision, then you explain to people why it is that you did it. I mean, there were hundreds of examples in our company's life. And it's an accumulation of many, many moments where you make the best decision and the right decision and it becomes part of the culture.
That just brought a memory to me. Many years later, the company had expanded significantly, and we were out looking for additional office space. And I'll never forget one particular company that we walked into that had these slogans hanging from the walls—all of these things that you ought to be doing and the right things. And then, of course, actually that was not the case at this particular company. And Meg and I looked at each other and said: "It's not about what you say. It's about what you do." And we had a couple of strange ones with memorabilia.
Yes. Well, our community of users was very entrepreneurial. I mean, practically anything was for sale on eBay. And we always enforced—if it were legal to sell on eBay, in the country in which we did business, it was legal for sale on eBay. And one of the very first categories where we began to wonder whether or not we needed to exercise some judgment was there began to be a category on eBay called "Murderabilia." And I remember the day when Jeffrey Dahmer's refrigerator showed up on eBay. And it was one of the first times—and we tried to be very restrained about this, but it was one of those times that we made a judgment call saying this is just not appropriate for the kind of company we want to be. And it was a really tough decision, because what might offend you might not offend Rajiv. What might offend Rajiv might not offend me. And so, it was really the CEO and a very small group of us who made some of these decisions that we just didn't want to be in that business. And we would have arguments about it, and we could agree to just disagree. But in the end, I had to make the call or Rajiv and I had to make the call as the CFO. And we didn't do it a lot, but we were very thoughtful about some categories.
One we certainly got questioned on was tobacco, firearms, and alcohol.
Correct. So as it turns out, alcohol, firearms, or tobacco is perfectly legal for sale in the United States and on the Internet. And this was another case where we said, especially in the early days of the Internet, I mean, you have to remember this was nearly 10 years ago, we just didn't know who those firearms were actually going to be sold to. We didn't know whether it would be underage kids who would be buying the alcohol. And frankly, there was a myriad of regulations where it was perfectly legal to sell wine from California to Wisconsin, but not California to Texas. And so, we said, you know, there are so many issues here. This is just one—again, one of those categories that we feel like we don't need to be in this business.
That's very interesting, because this is not necessarily financially a good decision.
Judgment calls. We actually realized that we needed people to just make policy as to what was appropriate, what could be sold, what was legal, and the department was called Trust & Safety, and it was run by Rob Chestnut, the former federal prosecutor.
Now, there was one call that you and I disagreed on. And the issue was: Should we enable Paypal for legal adult and gaming sites?
I said no.
Right, that this was out of character for the company to do. And my comeback was that PayPal is a currency, and we cannot use it in some places and not in others. And so, we had this spirited debate, and you let me do what I wanted to do, which was enable PayPal.
Well, that's a very good question. Why did I do that? No, I'm teasing. Companies are led by collections of individuals. I mean, yes, I was president and CEO of eBay, but you are only as good as the people you surround yourself with. Whether it's a nonprofit institution or a university, you're only as good as the people you surround yourself with. And I think if you want to get the very best people, you need to give them degrees of freedom, you need to give them latitude within a set of defined points of view, rules, if you will. And you need to let them figure it out. And PayPal was a separate division in eBay, which of course is a separate division from Skype. And this was a gray area.
It was a gray area.
And I was persuaded by your logic. And you were head of PayPal, and this was the kind of decision that I thought the division president should actually make.
Tell me a little bit, Meg, as a CEO, about what the risks are when you actually declare a character, a set of ethics for the company? And what I'm thinking about is the slippery slope so it doesn't get away from you and you can't control it.
Yes. Well, I think it also gets incredibly complicated as the company grows. I mean, when I stepped down as the president and CEO of eBay, we had 15,000 individuals operating in 30 countries across four major divisions. And by the way, cultural norms in different countries are very different. What the Korean team felt was appropriate was quite different from what the Chinese team felt; it was quite different from what the American team or the Argentinean team felt. And so, people said to me, well, how do I know what is the right thing to do? And this is something that worked worldwide, and it worked at all levels of the organization from president to administrative assistant. And what we said was, if you are in a room making a decision about an ethical or a moral issue for eBay, the eBay family, and your mother was in the room or your son or daughter was in the room or your husband or wife was in the room and they were watching you make that decision, would you be proud to have them watch? Would you be proud if they knew exactly what you had done? And if the answer to that is yes—
And it translated.
It translated across every culture. And then, the other test we used was, would you be proud to have that discussion almost word for word on the front page of The L.A. Times or the front page of The New York Times or the front page of The Wall Street Journal? And if you can't answer that in the affirmative, then it's probably not the right thing to do.