“We understood that if we offered bribes, we could survive. But if we didn’t, our company would likely die,” said Alibaba founder Jack Ma
As the internet bubble burst in 2002, Alibaba faced a tough decision.
It set a goal of making $1 in profit. It would die if the goal wasn’t achieved. At the time, in order to make money, it offered web design services to clients. And in order to snag clients, it would have to offer bribes.
Alibaba held an all-day meeting to discuss this. “We understood that if we offered bribes, we could survive. But if we didn’t, our company would likely die,” said Alibaba founder Jack Ma in a recorded speech to the Honour International Symposium in Singapore.
“We met until 4pm and finally decided: we will never offer bribes. We would rather close down the company than operate without integrity.”
It worked out nonetheless, and they made a profit that year.
However, by the end of 2002, they faced another big decision.
At the year-end review, they discovered that two employees accounted for over 60 percent of the entire group’s sales. It was too good to be true: they had achieved that by giving kickbacks.
Ma faced a dilemma. “If we fire them immediately, the company will not have profit. If we do not kick these two employees out, then what does this signify about us? It would imply that our words are empty.”
“So we finally decided to let these two employees go.”
Integrity leads to success
Integrity is embedded into Alibaba’s culture and everyday practices from day one. In fact, Ma argued this is critical to its success.
“When Alibaba was founded, we were in a very difficult situation. We had nothing. Nobody believed in what we did. Everyone said we were lunatics or cheats,” recalled Ma.
What grew the company was not money or talent but its values: customers-first, team spirit, and integrity. Being transparent with customers helped convert them into long-term clients.
Alibaba started charging annual fees to help Chinese companies with their overseas orders. However, the companies’ transaction value did not exceed the annual fees after a year.
“Our staff felt heartbroken and felt like they’ve let their clients down. During the end-of-year visit, the staff spoke to them with honesty: ‘ecommerce will have a great future, but the results may not be instant. Perhaps you can get a refund and not sign up next year,’” said Ma.
The clients reacted positively. They understood that it takes time for people to warm up to ecommerce. Many of them are still Alibaba’s customers today.
Since then, the rule “do not bribe” has been set in stone in Alibaba’s code of conduct for staff. There’s no compromise – break the rule and you’re expelled immediately.
As Alibaba grew successful, bribes flowed the other way. The company set new rules forbidding staff from taking kickbacks.
It even states explicitly in its contracts with businesses that Alibaba employees cannot ask for bribes, nor can they be offered bribes.
“Our employees are not allowed to accept free car rides or meals. Small gifts, even a piece of candy, are sent back. If not, the employee’s value score will be very low, and he or she could even be subject to penalties,” said Ma.
He once even expelled an instructor at a salesperson training session for preaching the wrong values.
“The training instructor was speaking about how to sell hair combs to monks. After five minutes, I got extremely angry and expelled the instructor. I thought the instructor was a cheat. Monks do not need combs in the first place,” he said.
Ma added that good leaders don’t make decisions based on money, but on values. That’s because decisions based on money are often not strategic.
“I’ve always believed that a good director of finance would not make a good chairman because a good financial director always thinks about money. People that have money fully occupying their minds have difficulties in doing good things and have difficulty being good friends.”
As Alibaba expands beyond China though, its values are increasingly under scrutiny.
It’s been criticized for not doing enough to combat the sale of fake goods on its platforms.
Ma controversially said: “The problem is that fake products today are of better quality and better price than the real names. They are exactly the same factories, exactly the same raw materials, but they do not use the names.”
Some took it as Ma trying to dodge responsibility for allowing fake goods.
Another area of contention: press freedom. It bought Hong Kong’s South China Morning Post, setting off accusations that it was meddling in politics and would curtail freedom at the paper.
Ma however has asserted that such things will not happen.
And recently, U.S. regulators began probing Alibaba’s accounting practices after questions were raised about its growth rates and potential conflicts of interest.
While Ma may have succeeded in instituting integrity in Alibaba, things get murkier as it enters international waters, where its own yardsticks may not satisfy global standards.
While Ma may be lionized at home, that may not hold true elsewhere.
Here is the full speech in Mandarin with English subtitles:
This post was originally published on Tech in Asia.