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Vol. 17  No. 21 Final Edition
Clovis Free Press

New Ethics: Trails to Nowhere?
Questionable behavior is Silicon Valley's next big thing.
By Jerry Useem

     CLOVIS -- Back when greed was good, in the 1980s, a lot of rapacious capitalists got together and decided it was okay to do some bad things, like selling junk bonds to each other and doing insider trading and playing racquetball and stuff (this on top of that whole S&L debacle), which is to say that Wall Street's Decade of Greed was a carnival of immorality that is a stain on our national conscience or something.
     Whew, thank goodness that's over! Today, by contrast, we have Silicon Valley and the Internet boom--a deeply wholesome movement of idealistic risk takers who are out to change the world and who, incidentally, all look like Jeff Bezos. These good folks and their IPOs have been blessedly free of the sort of shady doings that characterized those ugly predators and their LBOs. And if our TV screens are full of people declaring "I feel the need for greed," well, that's only a game show.
     Nice story. But we're not so sure we buy it anymore. For the articles that follow, FORTUNE explored a series of increasingly common business practices in the Internet world that, while not yet the stuff of a Michael Douglas movie, collectively don't smell right.
     The first story, Jeremy Kahn's "Presto Chango! Sales Are Huge!" examines the woolly accounting methods by which many dot-coms inflate their revenues. Melanie Warner delves into the world of friends-and-family stock--and reports how one company used it to reward key employees at what was then its only customer.
     Mark Gimein scrutinizes the decisions of CEOs who unload big chunks of their own stock, and Peter Elkind asks whether dot-coms' insiderish boards of directors are a corporate governance disaster waiting to happen. Finally, Erick Schonfeld shows how the "objective" opinions of Wall Street's Internet analysts may not be as objective as you think.
     Together, they present a portrait of an industry awash in ... what? Greed, certainly. But something else too: an inverted dynamic, born of a stock market gone mad, in which entrepreneurs have begun to regard the capital market not as a disciplining force but as the customer. Companies are created, hyped, and sold with less concern for attracting real customers than for lining one's pockets with investors' money. The result is that participants can wear a set of ethical blinders, behaving in ways that might seem perfectly acceptable within this insular context but that, when viewed with a modicum of objectivity, look borderline at best. One can already imagine the post-mortem articles that will follow any Internet crash. SiliconValley.con, they'll call it.
     "The bull market has attracted a huge number of people for whom money is the only motivating factor," says Roger McNamee of Integral Capital Partners, a Menlo Park, Calif., investment firm. He's not alone in voicing such concerns. "We're getting to the stage where the frauds are going to come in," warns Bill Joy, Sun Microsystems' co-founder and chief scientist. "There will be handwringing afterward. We've seen this movie before." Only this time the sums at stake are much, much larger, making the end of the '80s look like kindergarten. Move over, Bonfire of the Vanities.
     For the most part, they're not talking about latter-day Michael Milkens. (Though the Valley has had its share of out-and-out frauds, as when MiniScribe shipped bricks instead of disk drives. More recently, the Securities and Exchange Commission accused software-maker Informix of booking sales that were ... well, not exactly sales.) Among the common infractions: companies stealing one another's intellectual property, cheating employees out of promised stock options (as two former execs have accused iVillage of doing), or intercepting private e-mail, as when Interloc, the corporate predecessor of rare-book company Alibris, started collecting messages sent from Amazon.com to its customers.
     But before we talk further about business ethics, plural, a bit about the business ethic, singular, that has evolved along the fertile crescent between San Francisco and San Jose. The story starts, unsurprisingly, with the stock market and its recent tendency to grant to barely-off-the-drawing-board concepts--BlowYourNose.com, TheseDarnPants.com, what have you--market caps large enough to acquire most of the U.N.'s nonaligned bloc. With every IPO, every newly minted billionaire, the message gets louder: You're supposed to be getting rich, you chump. The hope of getting wealthy has morphed into something like expectation, often tinged with desperation. "They all think they have a God-given right to be a millionaire," says Lise Buyer, an Internet analyst at Credit Suisse First Boston. "The greed has grown, as it does at the top of any market," agrees Arthur Rock, widely credited with inventing high-tech venture capital. "People want their share, or unfair share."
     Most Valleyites protest, predictably, that they're not in it for the money. And insofar as they have never had much use for mansions and helicopters, the claim is not a wholly disingenuous one. The thing is, money isn't just for buying things; it also functions as a scorecard. As in: If he's a billionaire, then I've got to be worth at least $500 million. So the perpetual refrain--"It's not about the money"--doesn't really carry much moral suasion. "We used to be able to say it with a very straight face," says Randy Komisar, the former head of LucasArts Entertainment and a self-styled "virtual CEO" who has helped run such companies as WebTV and TiVo. "Nowadays, it sounds stupid."

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