We Don't Need No Steenking Ethics!
Maintaining Integrity in the face of Enron
by PAUL D. LEHRMAN
One of the things I like the most about the pro audio business is that almost everybody I know is in it because they want to be in it. No one gets into pro audiowhether it's designing and building tools, running a studio, mixing concerts or even working 90 hours a week on original musicbecause they think it's going to make them filthy rich. Sure, it's possible (although not so easy these days) to make a good living, but the material rewards at even the highest levels in our industry pale compared to the fortunes to be made in sectors like financial services, energy or telecommunications. Well, at least there were fortunes to be made in those sectors.
But because our sphere lacks the lure of obscene amounts of lucre, we are not a particularly attractive target for the pirates and thieves who've been romping through much of the rest of the business world recently. Sure, we've got our screw-ups, our minor-league ripoff artists and our occasional cowboys who think the rules of business and commerce don't apply to them, but they tend to get shut down pretty quickly before they can do too much damage. Even if they do manage to wreak some havoc, the scale of their efforts pales next to those captains of industry who have been making off with billions, while tossing the life savings and pension funds of thousands of stockholders and ex-employees into oblivion.
Which brings me to the issue of corporate ethics and the pro audio industry. Do we have any? Do we need any? What is "corporate ethics," anyway?
To many ears, the term itself is an oxymoron, like "military intelligence," "airline food" or "creation science." Corporations don't have ethics. Unlike people, who develop a complex set of morals based on factors like the welfare of the family and the group, the need for meaningful work and self-expression, and the need to eat, stay healthy, stay warm and reproduce, corporations are pretty simple entities. Because they do not have any moral imperatives, they cannot be immoral. Instead, they are amoral. They exist for one purpose: to maximize return for their owners.
So, it's the owners who can be either ethical or unethical. But who are the owners of a company? Are they the board of directors, the venture capitalists, the managers of large mutual funds, the proverbial stock-owning widows and orphans, or the employees who have been paid off in stock options in lieu of realistic salaries? And should the owners' goal be to run a growing company with potential for healthy profits and dividends, or to drive the stock price up as high as possible, as quickly as possible? If everyone involved can get rich by doing the latter, is that unethical?
The implosion of the high-tech sector, and the energy, telecom and financial services industries that followed (and the others to come) can be attributed to a decline in the personal ethics of the major players, but only partly. After all, pirates and thieves have been running commercial enterprises since Biblical times and before. Even among otherwise honorable people, niceties like ethics tend to go by the wayside when millions of would-be entrepreneurs are chasing trillions in seemingly unfettered venture capital, which is as good a definition as any of the past decade.
But this is nothing new. You may not remember the Roaring '20s or the Teapot Dome scandal, but your grandfather might. Or think back to the Go-Go '80s. Michael Milken, anyone? In fact, let's go back to the '80s and see where at least part of our current troubles began. Over the past 20 years, we have witnessed the steady erosion of meaningful business regulation. When powerful amoral forces are at work, the rule of law is all that we, as a society, have to keep ourselves from descending into chaos. The Roosevelts, Teddy and Franklin, recognized corporations' tendencies to consolidate and abuse their power, so they put into place measureslike antitrust laws and government-operated service agenciesto curb them. But since the 1980s, those efforts have been methodically undermined by the Congress and the presidents, both Republican and Democrat. In the name of the almighty free market, the U.S. government and several of its allies in Europewho, given the right circumstances, could be bought and sold like any other commodityabandoned their reponsibility to keep capitalism from going totally nuts.
Which is why hearing the present administration in Washington talk about corporate ethics (or "malfee-ance," as George II insists on calling it) is about as absurd as Bill Clinton preaching abstinence or Saddam Hussein extolling religious tolerance.
"Okay, wiseguy," you're no doubt asking, "what does this month's rant have to do with us?" Well, for one thing, the recession that has followed the high-tech meltdown (and which I'll bet is going to last a lot longer than the government and the pundits are telling us) is hitting a lot of us pretty hard already. Advertising production in many markets is way down, the TV networks are looking to cut costs wherever they can (and you know when that happens, audio always goes first), performing arts organizations are cutting back on their support and production budgets, and record companies are canceling contracts left, right and center.
But the silver lining in this cloud is that the Enron/Global Crossing/WorldCom/Arthur Andersen/Martha Stewart/insert your favorite company here debacles have awakened in many sectors the long-dormant understanding that when people in business don't act ethically, other people get hurt. In other words, for the first time in decades, corporate behavior throughout the business world is being judged critically. And that's a good thing.
Now, in our sphere there haven't been any real villains whose actions have wrecked lives on the scale of Ken Lay and his good-ole-boys. Outside of the odd drug conviction, I know of no pro audio-manufacturing or recording studio executive who has done anything to earn a long-term stay in a government-owned residential facility. But if we are going to remain a healthy industry, whose members genuinely like what they do and like each other, then we too have to be on the lookout for scams, bad practices and bad products. The new business climate permits thisin fact, it demands it.
So here are a few ethical guidelines you might consider when it comes to running your operation and when dealing with others. If it looks like I'm picking primarily on manufacturers in the following examples, it's because their actions tend to affect a larger number of people. But these issues apply just as well to studios, post houses, dealers, tour companies, and even independent engineers and producers. (We're leaving the record companies out of this because, well, they're beyond help.) Some of the situations I'm going to describe have really happened, while some are fictionand no, I'm not going to tell you which is which.
Thou shalt not steal, either from your competitors or your friends.
Imagine a company, let's call it company A, that specializes in cheap knock-offs of popular products made by other companies. Company A slavishly copies the design and functionality of the other products, but uses cheaper components and manufacturing processes, and because it doesn't pay for all of that nasty R&D, it can sell the stuff for 40% less than the competition. Is company A violating the law? If there are patents involved, yes, but sometimes it's just too expensive for a company victimized this way to go after the perpetratorespecially if company A is in a different country. Should you buy this company's products? If you're looking to save a few bucks today, go ahead, but if you care about supporting companies that prepare for the future by doing real R&D, then perhaps you should go elsewhere.
Here's another scenario: Imagine two companies, one that makes software (company S) and the other hardware (company H), co-developing a system that takes advantage of each of their strengthssay, a control surface that talks directly to a complex audio editing and mixing program. Company S announces the fruit of its labors to the world and sells the product, manufactured by company H, under its own brand. Company H, meanwhile, unbeknownst to its ostensible partner, comes out with a product under its brand that uses the same technology, only it's not compatible with the products made by company S. Instead, it's designed to work with the products from company S' competition! Company H makes three times as much money because it can now sell to everybody, and company S loses the competitive advantage it thought it had. The downside? Nobody will trust company H in a co-development deal ever again.
Want another one? How about the "entrepreneurial" assistant engineer who decides to go into business for himself? After the first mix session of a hot singer, the chief engineer asks the assistant to run off a couple of CDs that the client and the producer can take home. Alone in the machine room, the assistant makes an extra one for himself, and then at his home makes four more dubs. He goes online and contacts buddies in China, Korea, Indonesia and Brazil, offering a copy to each of them for $100k cash, or the equivalent in local commodities. His buddies, in turn, bootleg enough copies to flood their markets before the record is even finished. And then, so that he can feel like an underground hero here at home, the assistant makes a high-bit-rate MP3 out of the rough mix and posts it anonymously on Morpheus. Did I just hear a golden-egg-bearing goose being choked to death?
Thou shalt not dump product on the market without considering any of the consequences.
A high-end console manufacturer, so that it can inflate its sales numbers and get some good PR (like glamour shots in Mix), gives a couple of high-profile studios its newest megabuck model for free. Great for them, but then what does that do for the rest of us who are struggling to make the payments on our last console? Even the most successful operations aren't above taking free stuff, but now our clients want what they haveonly we have to pay for it, in more ways than one. And we'll remember this the next time we're in the market for a new board.
A variation on this is a manufacturer that convinces a number of studio owners that if they buy its newest right now, they can double their hourly rates. Of course, it's not true, but the studios want to believe, and soon they find themselves stuck with an expensive piece of gear that they can't pay for. They default on the payments, the gear is repossessed and the manufacturer (which has been collecting finance charges all along) can sell it all over again.
Thou shalt not ship crap. And if thou dost ship crap, thou must taketh responsibility for it.
I used to enjoy being a beta testerheck, I used to volunteer for it in exchange for being the first on my block to have some cool new toy or otherbut there comes a point where the time you spend tracking down someone else's mistakes just isn't worth it. How tired are you of bug-hunting in stuff you thought was all finished? At least in the old days, beta testers used to get the product for free. Now, you can pay full list price and still get something that doesn't work. Yes, it's often worthwhile to stick with a company while it straightens out the glitches. (Anybody remember Pro Tools 1.0?) But some companies have been able to keep this up for years. Nevertheless, we keep buying the stuff, but maybe we shouldn't.
A sin even worse than shipping products that aren't ready is not admitting that there might be problems. Hiding information from users and from dealers (who are still supposed to be the first line of support for beleaguered customers) is simply not a supportable practice, especially now that manufacturers and users can have instant access to each other on the Internet. If one user discovers a bug and the developer can't fix it immediately, maybe another user will find a workaround. But if those two people don't know about each other because the developer decides to hush up the problem, it will linger and perhaps never be solved.
Thou shalt not pre-announce products when you have no idea when they will ship.
Every time a radical new technology is introduced, sales of older equipment suffer. That's only to be expected in a technology-driven industry. But when a new technology is introduced with great hype and fanfare and it isn't ready yet, everybody suffers. Case in point: When the ADAT was first announced, reel-to-reel sales plummeted. But it was well over a year before the first ADATs shipped, and those were plagued with problems, so much so that a studio that wanted to advertise itself as "16-track" needed to have at least three or four of the 8-track machines on hand. Not only did this make life difficult for the older tape deck manufacturers, it also put the squeeze on a lot of studios that were left for months in limbo. Their customers were demanding this new digital multitrack technology they'd heard all about, but the studios couldn't deliver. A similar thing is happening now with hard disk multitrack recorders: They're new, they're hot, many of them are not at all ready for prime time, but they're killing MDM sales.
A corollary to this is
Thou shalt not make pre-emptive product announcements.
The Grand Prize winner in this category is not one of us; it is, of course, Microsoft. As soon as any other company comes out with an innovative software product, Microsoft announces that it, too, is coming out with an equivalent product, only it will be cheaper and will link seamlessly to all of its other products. But sometimes it takes years for this to happen, during which time the original company, its sales blunted due to the "imminent" competition from Microsoft, fades away or merges with another company and heads in a different direction, orand this has happened more times than you can imaginegets bought by Microsoft. Then, Gates and his gang come out with the original product (or something very similar), jazzed up with new packaging and a higher price tag (because there is no longer any competition that they need to undersell), and another monopoly is born.
But our industry suffers from creeping, premature me-too-ism as well, even if it's not executed quite so ruthlessly. It seems that every interesting product announcement is followed by a string of similar announcements from competing companies, whether or not said companies had any plans at all, prior to the first announcement, of proceeding in that direction. It's dishonest, it's anti-competitive and, ultimately, it's destructive.
Here's a true story, which makes a good ending to this diatribe. It shows what can happen when the pressure to keep up with announced, if illusory, specs and features results in some pretty bizarre corporate behavior.
A few years ago, a well-established manufacturer (call it "company C") decided not to ship a long-anticipated producta low-priced digital mixing consoleeven though it had already fabricated thousands of units. Why? Well, in between the product's initial announcement and its release date, all of company C's competitors had announced similar products. Furthermore, all of the competition's spec sheets included a feature company C had left out: moving faders. Why leave them out? Because at the time company C's engineers were designing the console, which was long before it was even announced, moving faders were just too expensive.
Deciding that its product was going to be a dud, even though the competition's products were still far away, company C canceled the marketing and distribution plans. At that point, it could have sold its existing inventory off at cost through its dealer network, or perhaps it could have donated them to educational or religious organizations. But, for reasons I still don't quite understand, company C opted not to do either of those. Where did the units end up? The company bulldozed them into a landfill.
Paul Lehrman has nothing to be ashamed of, at least not that he can recall at this point in time.