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Transcript for Season 3, Episode 2: "Ethics in Entrepreneurship with Erik Cheung"

Recorded on October 31, 2022

MAJ. CATHERINE ROY, COMMUNICATIONS AND MARKETING MANAGER: In late 2015, the Wall Street Journal published a series of articles that shed an unfavorable light on the multibillion-dollar tech startup company Theranos and Silicon Valley's next Steve Jobs, Elizabeth Holmes. Theranos had promised greater accessibility to patients' blood testing results from a nanotube sample rather than several huge vials which promised to revolutionize the blood testing industry. Reporter And now bestselling author John Kerry Rue details the rise and fall of both Theranos and Holmes in his book "Bad Blood: Secrets and Lies in a Silicon Valley Startup," a past via my leadership book club selection. Today's VMI Leader Journey podcast guest is Erika Cheung, a former medical researcher hired fresh out of UC Berkeley to work at the budding tech firm. Not long into her employment, however, she became a whistleblower in the case against Theranos and was one of about 150 individuals interviewed by Carreyrou for his book.

Cheung was also a guest speaker during our 2022 leadership and ethics conference titled Principled Dissent Navigating Moral Challenges, where she shared her story of exercising moral courage. Cheung brought her concerns regarding violations of basic lab protocols and the unreliability of the test results from the Edison mini-lab units, which were actively processing patient samples, to the COO. He responded by telling Cheung she had better do the job she was hired to do and nothing more.

Cheung says that in the medical field, do no harm is a moral guideline that should not be crossed. So when she could not influence the necessary corrective actions from within the Theranos organization, it was clear to her that it would be best to separate herself from the company and then report her concerns to the necessary outside regulatory bodies.

She and others who contributed their stories to Carreyrou were threatened directly and subjected to intimidation tactics by company officials and their attorneys. Her talk, an exclusive presentation shared with our conference audience, was an essential part of our conference's developmental learning arc on the how and when of principled dissent. Cheung and I focus on how these and other lessons learned came to form her nonprofit Ethics in Entrepreneurship.

With so many VMI cadets and graduates who are entrepreneurs, many in technology or consulting fields, we thought this would be a great interview to share with our audience. If you enjoy this episode, don't forget to like, subscribe and share within your network to help us grow our listenership. I'm your host, Major Catherine Roy, marketing manager at the Center.

And this podcast is an outreach program of the VMI Center for Leadership and Ethics. We educate, engage and inspire listeners like you. Thank you for joining us for today's episode titled Ethics in Entrepreneurship with Erika Cheung.

Welcome, Ms. Erika Cheung to the VMI Leader Journey podcast. And it's a pleasure to have had you here today. We are October 31st, and you've just spoken at our annual VMI Leadership Conference. It's our 13th Leadership Conference titled Principled Dissent Navigating Moral Challenges. So if you could please just introduce yourself to our audience and then let's hear a little bit about the Theranos story as to why you were here today.

ERIKA CHEUNG, CEO, ETHICS IN ENTREPRENEURSHIP: Yeah, definitely. And thanks for having me. What's been fascinating for me on this side as well is the fact that I didn't know what intelligent disobedience and principled dissent really meant or how that was orchestrated until I came here. So it's been a joy. But essentially, I'm Erika Cheung I started off my career after I went to UC Berkeley and studied molecular and cell biology in linguistics, working for one of the, at the time, hottest biotechnology startups in the Silicon Valley called Theranos.

And starting off my career there, I was a medical researcher in their research and development lab. I came in there as a bottom of the totem pole entry level lab associate working in their research and development lab. And then I was in charge of taking the technology that we were developing and integrating it into their clinical lab where they were actively processing patient samples.

And through that experience and through that process, I sort of noticed something that was wrong and ended up whistleblowing on that case. Since that experience, I worked in the biotechnology sector a little bit more, and then I moved to Hong Kong, where I helped launch a early stage technology accelerator, where we did tech investments focused on companies all around the world, but specifically ones that targeted the Pan Asia markets.

And now after taking kind of these two experiences, I run a nonprofit focused on ethics. So it's called Ethics in Entrepreneurship, where we're trying to embed ethical questioning culture in systems and startups and startup ecosystems, and to really help people align their ethical intentions with their actions through a number of different nonprofit programs.

ROY: That sounds very exciting. How many years would you say since you left? Well, what year did you leave Theranos? And then what year did you start your own enterprise?

CHEUNG: So I left Theranos back in 2014. So I started my own enterprise back in 2019. So it was quite a few years afterwards. So five years.

ROY: Okay, so and so you left Theranos, and then you were in Hong Kong for how many years?

CHEUNG: I was in Hong Kong for three and a half years. Okay. And then before that, I worked also for a biotechnology firm, a contract research organization that did antibody development for diagnostics for therapeutics, and continue my career in biotechnology. But then once I moved to Hong Kong, I basically had a decision. I went to another career fair, funny enough, and I was either going to work for a generic diagnostic company or this technology accelerator that was just launching and doing early-stage tech investments.

And I decided to do the technology accelerator because it was really fascinated by, you know, why do certain companies and products get funded versus others don't. And I think coming out of there was the experience and one and seeing how much funds that they had raised based on the technology products that it wasn't even in formation. I knew of many scientists and many other products that were formed, but still having a lot of issues access, accessing capital.

So I wanted to kind of get more insight into how some of these investors make those decisions on what they fund versus what they decide not to fund. And so I took the job basically helping launch technology accelerator, these investment firms.

ROY: And so then once you kind of got your chops in on that investing side, kind of on the other side of the equation, really, you know, you were the beneficiary of someone who had raised capital in the startup company and then you looked at the other side. What was it about that that you took with you to you know what? What was that thought process like?

CHEUNG: Yeah, I think I never really wanted to start my own thing, to be honest, because I knew how much work it was. It was more about the opportunities in order to get certain work done. And so I think coming out of Theranos, which was this giant ethical collapse, right, a lot of people think it was this big product failure.

CHEUNG: But for me, it was really a leadership failure, an ethics failure in many instances, sort of seeing that side of things of like how bad things can get and the fact that that was probably a signal that there are other issues kind of going on within startups and the technology sector that kind of need to be addressed. In addition to working at the accelerator was I was helping a lot of these founders who were trying to build their businesses.

They were good people with good intentions, but with all the pressures of trying to build a new enterprise sometimes would kind of cross these ethical lines. And how do you provide tools and resources for them to kind of make good decisions in that regard?

ROY: And that did you find that a lot of people had like you could be a great subject matter expert, but maybe you don't know the business side of things. You know how to raise capital properly, the accounting background and all that stuff. Was that a big problem that maybe caused people to cross the ethical line or what were you seeing?

CHEUNG: I was seeing all sorts of things, right. So I think it is exactly true that like in terms of business owners, they have so many priorities on their plate. And not only that, but they're low-resourced. So they have to kind of wear multiple hats and they have to become experts in things that they're frankly not experts on, and nor would you expect them to be, because.

ROY: In a wide range of things.

CHEUNG: Exactly. We only have so much time. We only have so many things that we can really command over because we all have limited time at the end of the day. And, and so it was really trying to figure out, well, how can you develop maybe some of these plug and play resources for these founders to engage in? Okay, if I want to fundraise, how can I do this in a way that I'm not going to commit fraud or where I'm not crossing ethical lines? If I'm developing a business model, what are the considerations I have to take in the way I generate my business model? How do I develop a strong culture in my organization in really doing a lot of that front work for them to be able to kind of just give them some infrastructure at the onset to hopefully help at the early stages, sort of craft their commitment to doing business ethically, to developing strong leadership, to developing products that we're really conscientious of, not only their ability to make money, but all the stakeholders that that may have engaged with? And so I was thinking about a lot of these different questions and seeing that there was a big need, having worked with so many different founders in the accelerator that I decided to launch the nonprofit because I was like, okay, a lot of people don't seem to be focusing on this problem and this challenge.

And so maybe, maybe this is a good opportunity to step in and say, hey, I want to help out these business leaders. I want to help out these tech workers and these investors sort of think about some of these issues and really give them practical tools that they can leverage to to start implementing those concepts and even demystifying the word ethics because it's so broad, and it keeps broadening, right?

ROY: Would you say that your company was an extension of their business office? So, they had they could focus more on being the subject matter expert. But you were coming along and saying, here's how you set up your banking, here's how you set up your paperwork, etc..

CHEUNG: Yeah. So right now what we've been doing, so I've been working on two different projects. So it's kind of like an extension more so than it is incorporated in that. So the first thing that we're doing is kind of like I was saying, let's make the word ethics in business more accessible. Because before when you had an ethics department for business, it was legal, it was regulation, it was compliance.

ROY: Scary.

CHEUNG: Yeah, which was all scary. So that's in itself a whole world that you need to contend with as a business leader. But then I was seeing that it was actually morphing into more. So it was, Can I get my company culture to align with its values and that that's put into practice? Am I developing products that might have unintended consequences, and do I know how to grapple with those unintended consequences?

And then it was opening the doors to all sorts of moral justice issues and social justice issues.

ROY: Wow.

CHEUNG: Which you hadn't seen. Right now, companies are having to respond to a wealth of different social justice. Questions that they've never had to do.

ROY: Goes back to the unintended consequences, too, sometimes.

CHEUNG: Right. And it's also the demands on that society kind of place on these, these business leaders. So what we were trying to do is say, okay, this is getting progressively more complex. Who are the people? Not necessarily just talking about the issues that you're seeing, but really are trying to resolve them and to come up for ways to cooperate with companies, to come up with certain solutions.

ROY: So do you point people in the right direction to say, you know, we've maybe, maybe you did the front end work of saying this or that organization is the right connection to have for this for solving this kind of.

CHEUNG: So that's the first thing that we've been doing is essentially aggregating all of these different consultants in all of these different organizations that go in and implement ethics into organizations. So what I call our first phase of developing programing is like building an army of ethics, implementers, people who are really focused on what are some of the solutions to a lot of these issues that we see.

And so we're building out a coalition of a lot of these different organizations who engage in that work. And then on one side, having a certain service to sort of enable companies to figure out, okay, if you have a commitment to ethics, what does that mean for your specific business and what does that look like? Is it the organizational culture piece?

Is it thinking about certain risks associated with a product? Is it the way that you generate your governance structure? And if so, seeing that this is the type of work you you need to do, you need people to come in and help you. Here is this referral network of all of these different consultants. I'd be able to guide you and help you do that work.

And so that's been our big push. And our first initiative is aggregating these people in a setting that up and in addition on the back end is setting up for that professional association for these individuals so they can collaborate, so they can work together because it's actually the case that the people working on these issues specifically for ethics and technology, it's a fairly new field for some of these things.

They they're really small consultancy firms that are dealing with these projects. So giving them a means to connect with one another, to collaborate on projects has been a big push of ours, is to sort of build this community of people who we can help them get access to new clients and new work to provide services in addition to helping them support one another in developing what are the best tools to use for some of these issues?

What are the best practices? If I need a multi-disciplinary team for one of my projects, can I find other people and source other people who can kind of work together with me to come up with an effective product? And so that's been our first thing.

ROY: And you say this is part of an association that you're creating or have created?

CHEUNG: This is our program, one of our first programs in the nonprofit.

ROY: That was there, like a membership fee to join, or is it just by being a client of yours they have access?

CHEUNG: So we're starting off small and I mean, eventually, maybe it could have a membership fee, but for right now, it's basically the shared work between a small quorum of, of individuals and firms.

ROY: And then we'll tie in maybe some of the lessons learned through Theranos. Would you say that either just going through this case or just the process of bringing light to the ethical dilemma? Was that an ethical dilemma, moral temptation, maybe that they were facing, knowing that what they were doing was wrong, but being tempted to to do what was wrong for the sake of, you know, personal gain or profit. Did that teach you some things regarding governance for example, that you brought into what you were doing?

CHEUNG: Yeah. So one of the things that I had a very revelatory moment was reading this book called The Seven Signs of Ethical Collapse, and I frequently bring it up. Marianne Jennings was the author of this book in a lot of my talks, and she basically came up with this book that dissected all of the issues that were prevalent in these major corporate scandals.

And what did they all have in common?

ROY: And had you read that before working at Theramo... Theranos or after?

CHEUNG: It was after, after. And so it was a really.

ROY: Little hindsight in some sense-making.

CHEUNG: Yeah, hindsight and sense-making of like how, how do things like this happen, how do things like this happen? And I think after reading that book and seeing her seven signs and the fact that all of them happen at Theranos and this is pre-Theranos time that she produced this book. Right. It was very eye-opening. And one of the things that, you know, there's seven signs.

So one of those pressure to maintain numbers. So at Theranos, we had a pressure to maintain numbers in the sense that we had launched that essentially because Theranos had received that deal with Walgreens.

ROY: Right.

CHEUNG: The pressure to push out testing patients early and quickly was more intense.

ROY: Right.

CHEUNG: And I think led to a lot of the...

ROY: Well, you had a deliverable, not only the partnership was there, but then I'm sure there was some kind of timeline in some of the project management stuff of, you know, okay, so when is this going to be in the store? You know, the ribbon cutting ceremony happens, and now it's got to be there.

CHEUNG: Exactly. You have stores opening all across Arizona.

ROY: They had investors, I'm sure, too.

CHEUNG: There was a lot of money involved. There was a lot of publicity around it. So it's just very difficult when you have those types of pressures put upon you to make clear, rational decisions. And you see a lot of companies run into this, I'm going to run out of money or I have certain expectations placed upon me within a certain quarter versus the longevity of the company.

So I was noticing that, you know, this is very common for for startups to sort of work by these, these, these cycles. And another thing is like a weak board, the fact that if you don't have the right governance structures, it is very difficult to have people asking you the hard questions to sort of steer the company in a direction that protects the interest of all the people that you engage with.

ROY: Was that is that another one of the seven signs that weak... and to be clear and to be fair to weak, let's define weak board. You're talking about people with a lack of specific subject matter and technical expertise to be asking the challenging devil's advocate kind of questions.

CHEUNG: Exactly. Exactly. So you want a case that there is subject matter expertise, but what you are seeing, at least with some of these startups in a lot of startups in the Silicon Valley is they were fundraising boards. They were essentially very marketable people.

ROY: They were skilled at getting people to open up their wallets.

CHEUNG: Yeah, exactly. Exactly.

ROY: You do need that, I think, for a season. But then that season needs to end.

CHEUNG: Exactly. And you have to get back to the fundamentals of why does a board exist and a board exists to essentially look over and to protect the interests of the investors, to protect the interests of the organization and the employees. And it is really a group of people to steer the business in the right direction and to hold the executives accountable for the way that they run that business.

And you are seeing that that's not what it was being used as anymore. It was more like you need a board to run a company and we need money and so we're going to just put whoever on there looks the most attractive to help us bring in money. I think another thing that was really interesting in her book, The Seven Signs, was this’ young-uns’ employees and a larger-than-life CEO.

ROY: So, big personality.

CHEUNG: Big personality to sort of carry forward a big vision or mission and to get a lot of young people to sort of buy into the story of that person, but not necessarily have the expertise to know how things should be run. And I was noticing also in the Valley, like there was an immense amount of ageism that was occurring where people didn't want people who had a lot of expertise or experience in a particular industry because you needed the young, gritty go getters to come in and work long hours to be able to push for these companies.

And that was proving to actually be detrimental and an issue because you had a situation case of Theranos, like if you had lots of seasoned people working at the operational floor, they would have been instantly.

ROY: Right.

CHEUNG: Cut it off.

ROY: Right. Yeah. The processes were not being followed. Yeah, there's a, I think it goes back to, you know, what industry are you working in, what rules can you break? So having a lot of people in there that maybe aren't so seasoned in standard operating procedures could be useful because they have they are going to have out-of-the-box thinking because they don't even know what the box looks like.

But at the same time, where you've got people's lives on the line, you know, we're not writing a lot. We're not writing a line of code and trying to break it. We're actually playing with people's lives where they may need to be hospitalized or they it's either the result of a test is going to determine the diagnosis and medications.

So the stakes were very, very different. You couldn't you couldn't just be so cavalier about that.

CHEUNG: Right. And you have to understand that when you're building a business, what are the boundary conditions? Where are the lines that you don't cross in certain ways? And I think it's a fundamentally well-understood concept, an idea that you, especially in health care, do not cause harm. Right. You do not cause harm specifically in a circumstance in a situation where there's no consent.

Right, where people are buying into one impression. And that's not actually what's happening. Right. When people and patients come to you and think that you're going to give them accurate results about their health status, you need to maintain that trust. You need to maintain that commitment in that agreement that this is what we're going to provide for them.

And if you're not able to do that, you need to tell them. Right, that, that there's concerns and different things going on. And so.

ROY: If you can quickly kind of go on, what are some of the other highlights from the Seven Signs of Ethical...

CHEUNG: Collapse?

ROY: Collapse, yeah, yeah.

CHEUNG: So there's pressure to maintain numbers, young-un employee group, and a larger-than-life CEO. There is a weak board, which we defined. There is essentially conflicts of interest which we had experienced out at Theranos quite strongly. There are innovation like no other, which is the idea that we are in a category of our own. The rules do not apply to us because we are so different and outside of the bounds of anyone's expectations that the laws, the rules, the principles, they just don't apply to us.

ROY: Right.

CHEUNG: Next one is, essentially, goodness in some areas, atoning for evil and others.

ROY: Oh yeah.

CHEUNG: And moral licensing, right? The ability to say, hey, look at all this charity work that we're doing over here. Look at all these good things that we're doing to sort of create a mirage of..

ROY: Virtue signaling?

CHEUNG: A little bit of virtue signaling and a little bit of preventing people to really ask, okay, at the fundamental of doing your business, are you adhering to those basic commitments that you've already set out to do?

ROY: And then back to your purpose and mission?

CHEUNG: Yeah. And the key objectives of just running a business. Right. And I found that one really interesting in the Theranos case like was that it's sort of a strange cycle because it was health care and it was benevolent and because it had the vision of making health care more accessible, of doing and thinking about medical diagnostics in this radically different way that you may have prevented disease did this sort of.

ROY: Well, and putting the individual a little more in control of their health.

CHEUNG: Yeah.

ROY: And its results and being able to monitor and monitor it may be more economically feasible for the individual, you know, making that accessible to the individual so they can be proactive. I'm sure that's, that's an attractive message.

CHEUNG: It is an attractive message. And it's so attractive and it seems so good on the surface. It seems so good. Right? It's just like, wow, this is amazing. Yeah. Who wouldn't want this? What would a beautiful person who wants to set out and kind of accomplish this for society? Right. And that was sort of wrapped up. But in, in Theranos saga, but that's not actually what was going on. That wasn't what they were doing on a day to day. And so I think you have to sometimes be careful where we can morally license in, in a way we can say, well, look at all this great stuff that I'm doing over here, at least at, least that I'm intending to do.

And how is that maybe covering up for the day-to-day things.

ROY: That happens on a regular basis. Again, going back to our conference theme of principle, dissent, and Ira Chaleff’s work, you know, he talks about, you know, the weighing the, the good, you know, I am a volunteer with this Cub Scout group or I'm you know, I'm living this austere life as a pastor or a priest or what have you. So, that gives me license to indulge some of my, you know, things that please me. And, you know, don't worry about what's going on over here. I'm doing this good thing, and you should just focus on that. Our closing speaker, Rachel Denhollander, is going to talk a little bit about that too. Dr. Larry Nassar was very much of that example where he was doing all this charity work and all these wonderful good things, but doing something very insidious at the same time.

And so I guess he just thought people would give him a pass. And and she wrote something very interesting, her book, where she says Doing good things does not mean you didn't do the bad things. And so accountability, that's another thing that we're trying to bring out in this conference, is even if you get a bad order, even if somebody tell, you know, you were told, just shut up in color, do do the job we paid you to do and don't ask any questions.

And that was a choice that you made to say, no, that's not that's not good enough. And I'm very interested in hearing a little bit more about how you how you're starting these companies, and I think it's a great thing, with that ethical aspect purposefully done from the from the get go. I'm a big fan of Denise Lee Yohn.

I don't know if you know her work as she did a book called What Great Brands Do. And then her follow up book was Brand Fusion. And it's a lot about aligning your values into your company mission. Even if you're a mature company, can you just focus on your mission, look at your values, and now let's restructure everything in our organization to align to facilitate these things happening.

So if your [mission is] do no harm and you're in health care, have we set up the right committees, the right employee structure, the right employee onboarding and the right oversight to make sure that do no harm is exactly what we're doing,

CHEUNG: Right. Yeah, that's kind of where we start too. It does sort of fundamentally come from those values. And then also, I think these boundary conditions of saying these are the lines that we're not going to cross and we're going to have to understand that. We're going to have to work within those lines. You just happening.

ROY: You talked about that, too. There was a couple of young ladies that came to talk to you or maybe was a question from the audience. And they were asking you, how do you do that on an individual [level]? And I think that, you know, knowing your personal values and sometimes that's just a conversation with yourself. What show me a list of values and let me evaluate, you know, let me rank order them.

Right? So if you rank order your top five values, now, I understand a little bit more about what's important to me. And then do I behave in a way that's consistent with my values? Do I pursue job opportunities or academic opportunities or relationship opportunities that align with my values? And if I'm not, why not do I need to reevaluate my values or maybe I need to stop this or that behavior?

Another thing that I liked that you said was, you know, it's not about taking the personal out of the accountability. Yes, I'm personally accountable, but I'm not bringing up this difficult conversation because I'm attacking you. I'm saying, here's our mission. Let's focus on our mission. And what are the boundaries you're not willing to cross? Because this is my line. Where's your line?

CHEUNG: Right. And I think when you part of the reason that that's important, there are different approaches that people can take when they sort of bring up something that's difficult or when they see something wrong and they think something should be done about it, about what approach is going to happen. I find that, again, this notion of if it's already a particularly sensitive issue of creating that psychological safety for people, like being very grounded on this is what happened, this is what we want to happen.

There's a clear difference here between these two things. We're not saying anything about, you know.

ROY: Not attacking you.

CHEUNG: I'm not blaming anyone. I'm not blaming anyone. You know, I really I'm here in good faith to resolve what's kind of going on.

ROY: And have you had to have those kind of conversations with some of the entrepreneurs that you've worked with?

CHEUNG: Yes. Yes, all the time. So one of the in a sort of other field of why I decided to start the nonprofit was I was in Hong Kong when initial coin offerings were really popular in the cryptocurrency space. So essentially, what they are is like going public on a non-securities backed stock exchange. So you create these tokens that are supposed to buy you a certain percentage in the company, but they're not backed by anything.

And really what I was watching people do is go throughout Asia where there were all these retail investors that were in Hong Kong and South Korea and all these other places and just racketeering. They were just just taking raising tons and tons of money from these ICOs with no product. Like it was just really difficult to sort of watch that.

And because other entrepreneur owners see some of these people getting away with these acts and they're getting all this money, then they start to think, Well, should I be doing this too? Is this now okay that they're doing this? It's like, no, this is not okay. It's not right what they're doing. They shouldn't be. This needs to be stopped.

And it did get stopped after a certain point, but it will really start to influence people because they start to edge what their own values are, what their own boundaries are.

ROY: Tolerate more.

CHEUNG: And they tolerate more. Or that sets an expectation and a precedent that people think that that's the way that you should behave in a way that this is the way that the business world works is you have to be like this.

ROY: And it goes back to culture at that point, right?

CHEUNG: It goes back.

ROY: Within a sector, if not an organization.

CHEUNG: Yeah, I really like in terms of those lines, there's like a good framing that I've really like just like the idea that sometimes you have bad actors, right? And those are need to be addressed in a certain way where you do have situations of just people trying to take advantage of other people. I wouldn't say it's the majority, but it happens right then you have kind of culture issues or organizational what they call I think this book, I forgot the name of it, but like Bad Barrels, right?

Where you essentially have an organization that for some reason decides to push ethical lines and ethical boundaries. And the culture of the organization pushes you in a direction to do things that are outside what you would believe to be right.

ROY: Napster

CHEUNG: Yeah.

ROY: Remember them?

CHEUNG: And then there's like the more they call it Bad Orchard. And so it's where there's systemic issues, right? Where it's a certain environment, whether that's legislation, whether that's a broader societal issue, whether that is that local city issue is producing certain unethical acts at scale. Right. And so it's not just the case of just one of these things.

It could be all of these things at play. But it's almost like you have to both be myopic on the specific incident, but you also have to scale out of here's the problem and where is it being generation generated from? Is it an individual? Is it a person? Is it the team in the organization, in the structures that exist in there, or is it broader?

Is there some sort of bigger systemic issue that's kind of going on sector? Is it the sector or is there something else? And, you know, so so these can be the genesis of these types of things. I think when I was seeing what was going on with the ICO right, this was starting to be a systemic issue where we created this new financial construction.

It didn't have any regulation around it. People didn't know what it was. It was preying on a lot of people's hopes and dreams of getting rich quickly. And it was kind of not clear on on what would happen. So it was starting to really push the the field and the industry in a direction where it was rife with lots and lots of just fraudulent activity.

ROY: And you kind of and you do have these conversations in the public discourse about to regulate, not to regulate, you know. And so we're finding that proper balance of allowing free markets and some buyer beware. But I think that, you know, you do you do have to have some regulation in place because otherwise it I think it just is a breeding ground for more of the bad actors.

CHEUNG: Yeah. And the unfortunate thing is that it deteriorates it, it ruins the situation for everyone. So what we were finding is that because you had these bad actors that were basically racketeering and doing everything else, the good companies were losing out. Right. Because investors didn’t trust them anymore because they got burned in terms of the regulatory environment. Now, all of the regulators are looking at this situation and the public is turning to them.

The retail investors are turning to them like, hey, I lost all this money. Are you going to do something about this? And so then you get sometimes, you know, much needed regulation or sometimes it was just a sort of knee-jerk reaction of, I'm going to write this a bill or a bill or something because I need to do something, even though it might not be the best option in the grand scheme of things.

And then the employees, right? It prevents a lot of people from wanting to go into maybe much-needed spaces because there's still a bad taste in their mouth of the fact that they don't want to have the reputational risk of being in an industry that may have had a scandal or alternatively like it was so traumatic in terms of dealing with a company that went under, not for we ran out of money, we can’t keep going, but we cheated people, we lied to them.

People are upset with us. We're facing federal charges. So that's a very different experience, I think, for an employee to come out of and want to go back.

ROY: Yeah.

CHEUNG: And and so it really just corrupts so many parts of the ecosystem that at least for us in an innovation and technology space is very hard to recover from. And it might work well for places like the Silicon Valley that have a lot of money.

But, you know, I was coming from Hong Kong. I was coming from ecosystems that were much smaller, like Vietnam, that were just trying to launch and get started. And those scandals take a huge toll to where it's very hard for those ecosystems to keep going because they don't have the resources that you would

So so I think that made me realize, like, okay, something needs to be done here. We need to provide other alternatives for people in the way that they think about business. Because actually, when people feel like they're involved in something unethical, it just really, I think, is more difficult for people to recover than a business failure.

ROY: And especially, if you're a young person, I should think, too, if that's your, you know, your first like major job here you are thinking, oh, I've I made it, you know, I graduated. Look at this fancy job, if you will. I'm proud to be working on this mission. So, of course, our, our podcast is made for the listeners of our cadets who attend VMI primarily.

And I always like to keep them in mind in terms of shaping the conversation toward things that would be of interest for them. So, you know, a lot of the cadets who graduate here, they've got a lot of get up and go. They've got a lot of initiative. They're very bright. They're they're very active. They're achievers. If you do a scale, if you look at their values and their personalities, they're very much in that achievement as(pect), you know, area of what type of people.

Are they? So they want to get things done. They want to check off boxes. And so them starting off in a job much like you did working at a place that's entrepreneurial can be very exciting. In addition to maybe reading The Seven Signs of Ethical Collapse, what would be your advice to cadets saying, hey, I'm considering going to work for this startup? What advice would you have for those cadets of things to look out for and maybe how best to manage their time?

CHEUNG: Right, in terms of looking for new innovations or startups like there's lots of interesting spaces to go in. Like I definitely want people to sort of maintain that excitement for these new companies that are burgeoning out because they are solving really interesting problems and going to provide a lot of value, I think, to the world like we've seen it in our day to day life.

I think one, you know, pay attention to the mission of what are they trying to accomplish, try from there to get insight into whether they are fulfilling on that mission. So I always tell people talking to former employees, especially in the age of LinkedIn, is not too difficult to do and will probably give you a lot of

What did their day-to-day look like? What were some of the challenges?

ROY: That day-to-day aspect is an important one. It's interesting to me when we interview for candidates to come and work at the center, I think only one or maybe two candidates in my eight years of being here has actually asked, so what would my day-to-day look like?

CHEUNG: Because that's really where it.

ROY: It’s where the rubber meets the road.

CHEUNG: Exactly. Exactly. It's one of the most important things that you can kind of get clarity on. And it gives you insight to of of, you know, what is the challenges for that person on the every day? You know, even if you look at we're talking about principle dissent in those instances, it's really those day to day interactions that makes it easier or less. Like, it’s very rare that you get a case where you know this a huge problem just like pops into the pipeline and then it like takes everyone by surprise.

It's really like a small thread of minor things in a collection of minor things of sorts of bubble up and sort of feed into one another into a more spectacular instance. And so even asking a current employee, a former employee of what happens when, you know what is a case example where someone made a mistake and how was it managed, you know, or right.

ROY: That’s a great question.

CHEUNG: What are the near misses where something could have gone wrong but it didn't in.

ROY: Employer is ask those questions when they do a hiring panel. Yeah. And so, I think that it is fair for the employee to ask the company.

CHEUNG: I always tell students this because I think they don't realize that like you are just as much in a position of power as these people are. They need you just as much as you need them. And it can be hard to remember that.

ROY: Yeah. Of the mutual conversation.

CHEUNG: A mutual conversation. And it can be hard when you're a recent grad. It's the hiring process. That first job is super difficult. I know I've been there. It's not fun for anyone who's ever done that unless you like have a a lined up job. But you have just as much power to ask these questions and to garner insight and to have these employers share with you kind of what their line of thinking is and how they actually handle certain situations in that circumstance.

And to remember that and if someone's very, very vague or if they're not very clear, take that as a bit of a, well why? You know, is it really the case that they can't share this information because they're trying to protect against competitors or they're hiding something? And, you know, in the Theranos case, it was because they were hiding something.

It wasn't because there was a genuine attempt for people to steal anything from them. It was more to keep secrets.

ROY: Let's keep up the charade.

CHEUNG: Yeah, exactly. So that's what I tell a lot of people to look out for. You got to get to talk to people, see what the experiences that may be competitive or other competitors. What are they saying about their companies? How do they differ from one another? Just of we're lucky enough to live in the Internet age where there's a lot more transparency in terms of the organizations that you could buy into and go to.

And I would hope with people, you know, they do this with new employees where they have like a three-month trial period. Like, it's not bad to really kind of set that up for yourself of like, okay, maybe I can consider this like a three-month trial period, then figure out what's most important to me, and is that actually what's going to happen being in this position?

And that that's pretty helpful to kind of get insight into this.

ROY: And I think do it knowing your values going in. So if you're if you say to yourself, okay, I'm going to give my employer a timeline because you could be in the honeymoon phase and the first 30 days are great. And then suddenly, the will start coming off the bus a little bit. So I think knowing and going back to what are my boundaries, what are my values, and when you start seeing things being violated, really keeping I think you talked about record keeping or keeping track of that, making notes of that so that you go, okay, what is the tipping point?

And and that's a personal decision. But I think it's something that you have to go back to and revisit.

CHEUNG: Why? Why am I here? What was the intentionality behind them? Am I still in alignment with that intentionality, in that purpose that I set out to do this?

ROY: And it requires some courage, because if you're a new graduate, you are at the entry-level. Hopefully, you have the kinds of credentials that would make it easy. Go to something else. But you know, I'm a senior person, seasoned, you know, and going from one job to the next is not necessarily the easiest thing because of ageism or because, you know, I what qualified me to get into the job the industry has grown and so I may not have the right credentials and paperwork anymore that to be able to compete basically.

And so if it comes becomes a little scarier, I think, to say, well, I'm just going to leave this thing and go to something else because you could be, especially if you've been in the job place ten, 20 years, you could be starting over again, either in a new industry or sector or in a new position because you didn't have the same credentials that it takes nowadays.

Not that you're not intelligent, but just the competition market places, just very different. And so, yeah, the, the paycheck and the pressure to, you know, pay your bills, you've got a family to take care of. It becomes more weighty. So counting the cost is very important, I think, at that point.

CHEUNG: Yeah, exactly. And there's lots of values trade-offs too. So mean preparing yourself for those values trade-offs that might happen, right? I always talk to people with this. Like sometimes even the conversation of saying something is so different. If I have if I had a family, if I had kids, and I have the fundamental value of taking care of my family, of being a provider, and I have to trade that off with doing the right thing and speaking up or something else.

And if I could lose my job, you know, that creates a lot of tension at that point. You know, who. Who, how, how, how do I examine this trade-off and how do I reconcile that sometimes is, is very, very difficult. And I, I think that's why I always urge with leaders like you have to create environments where you allow people to speak up, you listen to them, you realize by them doing this is taking a risk in their most likely operating with the best interest in mind for their team, for the company at large, and for the greater public in which you're probably serving.

Because it's it's not easy. It's not easy to sort of make these decisions for someone who's coming forward.

ROY: Yeah. So when I learned how to drive a car, I had a great driving instructor and he said, you have to learn defensive driving techniques. And so as I think about what you're saying and the individual role, you know, what do you do? So if you start off, you know, cadets, I hope you guys pay attention. Take note to this.

If you start off your professional life by understanding that your first duty and obligation is to have a safety net, whether it's if I have to change, I mean, I a friend of mine has a young student who graduated, got involved in a job, and things seem to be going okay. But the company started struggling. They just bit off more than they could chew.

And so they had to cut employees and so they just went on a bit of a witch hunt. It was kind of a nasty thing. And the young person got fired from the job for a minor infraction, really, because they didn't want to say, we've grown too big, too fast and we just couldn't handle. And so we've got to cut back on some salaries.

So for that person, they had a family structure that they could fall back on. And so but if you're married and, you know, what do you have? So as you grow and mature, what, what is your safety net? Savings. You know, the rule of thumb is have six months of your salary set aside and just have gazelle like intensity for putting that money away.

So you have the freedom. That's really what it's about, the freedom to exercise and control your life proactively along your values and, and being able to say that is the boundary line I drew in the sand and I, I'm not going to cross it. And maybe I don't have to do a values trade-off because I've built a safety net of either people or resources that you can count on and fall back on.

So that, that would be my advice to a young person is to make sure that these measures are in place now. So having that safety net, I think, is is very important because it gives you that freedom to, to act on your values.

CHEUNG: Right. Yeah. Definitely having, having a circumstance where you're prepared. Right. Preparedness is always the, the key to to the best possible outcome in terms of any type of crisis that might occur. And we've seen this time and time again.

ROY: I chuckle because, as a mom of three kids, I've watched all the Disney movies, and there's a line in The Incredibles where the little fashion designer Edna Mode goes, “Luck favors the prepared, darling.”

CHEUNG: Yeah, pretty much. Pretty much. It's yeah, it's definitely having that. Like, that's why I kind of like to reason on like, we're all going to make mistakes, we're all going to be in these challenging circumstances. And so being aware of that, being a possibility is also very important. And it's hard sometimes to get people to recognize that that could be a possibility in the good times.

Right, because everyone thinks that it will stay that way, but it has every opportunity to to pass at a certain moment. So being prepared for those moments can really make the difference in terms of how resilient you can be in these times that you'll be tested.

ROY: So as you work with these entrepreneurs real companies, do you, do you have exercises, or do you prepare them to say, you know, how can we help you be resilient?

CHEUNG: Yeah. So we do different things. So a lot of there's, there's stuff we internally develop, and there's stuff that we turn to certain partners. And one of the exercises that we've been doing generated by this organization called Ethics MVP out in Pittsburgh, and essentially one of the things that you'll do is sort of create a library of ethical dilemmas that other companies have made and that you may have made and create a case study repository of that.

Do you have preparedness to understand that this might be the situation in the circumstance that happens? How are you going to make decisions? Do you have a process to do that or even even just to discussion around that? Yeah, in the conversation of yeah, we might get we might get into the circumstance. This might be the situation. Having a gallery of all of those instances is, is very useful.

Or if you encounter a situation where you were in that territory of having to make one of these difficult decisions, do you have a record of that? How how were you able to sort of discuss it, post that? What are, you know, some of the outcomes like it doesn't always have to be the case when you have sort of these ethical dilemmas that you fail, right?

Are you celebrating the case that like we had this dilemma, it was tense and now we resolve the issue, let's celebrate that. Let's just keep track of that or something went wrong to celebrating that. Did we learn from our mistakes? Can we can we push forward so this exercise tends to be really valuable for the founders who just like getting case studies.

And then we also have a number of case studies that people can learn from other people's mistakes and glean wisdom of like how this is possible, this can happen.

ROY: Is that a structured exercise that they go through, or is this like a retreat?

CHEUNG: Is like four shop workshop. Yeah, four-workshop with four, four different exercises in there. So we'll run different founders from different organizations to sort of go through that. And in see, you know, what are their values, how do we build out like that ethical capacity, what are the fundamentals? And it's for very early, early stage.

This is for early stage. It gets a little more complicated the bigger your organization gets because there are more factors and considerations you have to play in there. But that's one way that we kind of build that. Preparedness is running them through the workshop, showing on these case examples, sitting down with the founders saying, you know, winner, when you experience these types of challenges, how are you preparing for these challenges?

Where are the ways in which you might have blind spots who might be a good person to be responsible for paying attention to these? Or how do you rotate that responsibility through different people in your organization?

ROY: Or have a cross-disciplinary group of folks who are looking at it.

CHEUNG: And like a steering committee, have a board member were or have your board members kind of trained on that to be able to negotiate those types of circumstances. So that's kind of how we're doing it. Low touch point. Again, we're very early stages in terms of the nonprofit. So we've been building out a lot of this capacity to be able to do it at a bigger and bigger scale and really just get kind of a lay of the land of what everyone is working on, what's been most effective and what are the best recommended actions you can make really founders in order to incorporate that into their companies and their business.

And it's very specific to what stage they are in terms of maturity, of what type of recommendations that you'll make.

ROY: Well sounds like you're walking the talk.

CHEUNG: Yeah.

ROY: For your own company.

CHEUNG: Yeah. Sometimes. I mean, you try, right? You always try, but it's always a, you know, always, always paying attention like you were saying, always doing that reassessment. What do I value? Why are we here? You know, what are the lines that I'm not going to cross? And how, how do I make sure I live that truth on a day-to-day basis and provide at least for the people who want to also basically act with integrity? The, the resources that they might need to be able to do that.

ROY: So in our department, we do after we host events, will do an after-action review (AAR). We also then, on an annual basis, we have a strategic plan and each on the individual level we've got our, our goals and objectives. Then we review the goals and objectives. How do we do, what adjustments could we make, should we make?

And so where we're trying to do that as well is a Center for Leadership and Ethics is maintain that standard, operate in what we call the bandwidth of excellence, continuous improvement cycles and making sure that we try to align ourselves with the mission of the Institute overall. And that's why we put on events like this and have people like you come and speak to our cadets and our our broader audience.

So, again, thank you for coming and speaking. If cadets are interested, because we have lots of entrepreneurial cadets here, if they wanted to get involved with your organization or check you out, how would they do that?

CHEUNG: So you can find us on ethics in entrepreneurship dot org and we're on social media and everything else. But going to the website works.

ROY: Okay, excellent. And thank you again, Ms. Cheung, for being with us today.

CHEUNG: Thank you so much for having me. It's wonderful.

ROY: You're welcome.

On behalf of the VMI Center for Leadership and Ethics, we thank the following. Mr. Caleb Minus VMI, class of 2020, for the intro and backing music, find more of his musical stylings on his Instagram page at minus official. That's A@MYNUSofficial. Colonel Dave Gray, Ph.D., U.S. Army, retired director of the VMI Center for Leadership and Ethics.

And, of course, as always, our podcast guests find this podcast and other CLE programming information on the VMI Center for Leadership and Ethics website. VMI dot Edu forward slash CLE. Follow the VMI Center for Leadership and Ethics on YouTube, Facebook, Twitter, LinkedIn, or Instagram accounts. The VMI Center for Leadership and Ethics educates, engages, and inspires the VMI Corps Cadets, VMI Staff, Faculty and Alumni, and listeners like you.

Thanks for tuning in.