पाठशाला Pathshala · मन Man, The founder · Lesson 22 · Build
Ethics: the shortcuts you will be offered
The bribe, the fake number and the vendor kickback arrive on a bad day, under pressure, from someone who sounds reasonable. Decide how you will answer them in advance, in writing, while the day is calm.
Pathshala, The Founder Library · 11 October 2026 · 7 min read
Nobody starts a company intending to pay a bribe, fake a number or take a cut. The shortcut arrives later, on a bad day, offered by someone who sounds reasonable, and it is usually small. The founders who refuse it well are the ones who decided their answer before the day came.
This lesson is about deciding in advance. It names the three shortcuts almost every founder in India meets in the first five years, explains why each is more expensive than it looks, and ends with a one-page code to write now and a tree to walk when the offer is in front of you. It is not a sermon. It is the same discipline as any other operating decision: a rule made on a calm day, with the reasoning written down, so that a stressed founder on a hard day does not have to invent it.
Why the answer has to be decided before the question
Shortcuts are offered at the worst possible moment by design. The licence is stuck the week before launch. The investor wants the monthly number to clear a threshold by Friday. The vendor’s quote is the cheapest and the person recommending it is the founder’s most trusted early hire. Under that pressure, each compromise looks like a one-off and each refusal looks like it will cost the company something real. Founders who reason it out in the moment tend to reason their way to yes.
There is a second reason. Whatever a founder does the first time, the team learns. Ben Horowitz’s argument in What You Do Is Who You Are is that culture is action rather than words, and that vague instructions such as “do the right thing” do not tell people what to do in a complicated situation; ethics have to be stated explicitly, with rules and reasons. A company’s ethics are not the values on the wall. They are what happened the first time a shortcut was on the table, and who saw it. The [lesson on culture](/library/culture-is-what-you-tolerate) makes the same point about everything else.
The bribe
It is rarely called a bribe. It is a facilitation fee, a consultant who knows the office, a gift at Diwali for the person who signs, an inspector who suggests the file could move faster. The amounts are often small compared with the cost of a month’s delay, which is exactly the argument that makes them dangerous.
The law changed in 2018. The amendment to the Prevention of Corruption Act, passed by Parliament in July 2018, made giving a bribe to a public servant an offence in its own right rather than only an abetment, brought commercial organisations within the Act for undue advantage offered to obtain or keep business, and made the directors or managers with whose consent it happened punishable. In PRS Legislative Research’s summary of the bill, giving a bribe carries the same punishment as taking one. There is also a narrow and useful protection: a person who is compelled to give and reports it to law enforcement in the manner the Act sets out is treated differently from one who pays quietly.
The practical answer is the same every time. Decline without accusing anyone; a calm “we do not make payments outside the official fee” is enough. Write down the date, the person and the request. Tell a co-founder that day. Then push the file through the official channel in writing, escalating to the next level with the reference number, because delays that are written down tend to move. It will sometimes cost weeks. A company that pays once is a company that will be asked again, by everyone in the chain.
The fake number
The fake number begins as a definition. Gross merchandise value shown as revenue. Signed contracts shown as live customers. A pilot shown as an annual contract. Then it becomes a habit, because the next month’s update has to grow from last month’s, and the gap between the reported number and the real one widens. Eventually a due diligence, an audit or a departing employee closes it, all at once.
Being private does not protect a company. When the US Securities and Exchange Commission charged Theranos and its founder in March 2018, it alleged that the company had raised more than $700 million through a years-long fraud, including projecting more than $100 million of revenue for 2014 when operations generated a little more than $100,000, and its enforcement co-director said the charges made clear there is no exemption from the anti-fraud provisions for a company that is private, early or much admired. Indian law reaches the same conduct through company, tax and criminal statutes; the lesson does not depend on the jurisdiction.
The honest version of every metric is available and usually defensible. Report the number with its definition beside it, as the [lesson on vanity metrics](/library/vanity-metrics-numbers-that-lie-to-founders) recommends. Keep the definitions fixed from month to month. And when a number already sent turns out to be wrong, correct it in writing before the next update goes out. Investors forgive a corrected error. They do not forgive one they find.
A company’s ethics are not the values on the wall. They are what happened the first time a shortcut was on the table, and who saw it.
The vendor kickback
The third shortcut is offered to the people who buy on the company’s behalf, and sometimes to the founder. A vendor offers a commission to whoever chooses them. A relative’s firm gets the packaging contract without a comparison. A contractor inflates an invoice and splits the difference. Each is small and each is a transfer from the company to an individual, paid for by every other shareholder.
Pressure is a common thread in fraud generally. The Association of Certified Fraud Examiners’ Occupational Fraud 2026 report, its fourteenth, studied 2,402 cases from 143 countries and territories; among the behavioural red flags it lists, cases where the perpetrator was under excessive pressure from within the organisation had a median loss of $532,000. A founder who sets targets nobody can meet honestly is creating the condition, whatever they intend. The controls are dull and they work: two quotes for any purchase above a set amount, conflicts declared in writing and decided by someone without the interest, and approval separated from payment. The [lesson on internal controls](/library/internal-controls-and-fraud-you-did-not-expect) sets them out.
Walking the offer when it arrives
When a shortcut is actually in front of you, the job is to slow the moment down. The tree below asks the questions in the order that matters: whether value is going to someone who decides on your behalf, whether a number someone relies on is changing, and whether someone gains personally from a decision they influence. Walk it once now with an imaginary offer, so that the real one finds the answer already written.
The last branch is the one founders use most, because most shortcuts are not crimes. They sit in the grey: a customer reference described a little generously, a competitor’s former employee who offers a document they should not have, a discount offered to one investor and not the others. The test of describing it accurately to the team, the investors and a journalist is old and still the best available. If you would not describe it, do not do it.
What saying no costs, and how to pay it
Refusing has a price, and pretending otherwise does founders no favours. A licence takes six more weeks. A round closes at a lower valuation because the honest number is lower. A vendor relationship ends awkwardly. Plan for the cost the way you would plan for any other delay: build slack into timelines that depend on approvals, tell investors the honest number early, and keep the paperwork that shows you followed the official route. The founders who hold the line are not braver than the others. They decided early that some costs are part of running a company, and budgeted for them.
The one-page code and the yearly reread
This week, write one page. Name the three shortcuts. For each, write what the company does instead, in one or two sentences: we decline and record any request for payment outside an official fee; we report every metric with its definition and correct errors in writing; we declare conflicts and compare quotes above a stated amount. Name who to tell when an offer is made, and promise that nobody is penalised for reporting one. Share it with every new hire on their first day and with the board. Once a year, at the same meeting as the annual plan, reread it, add any shortcut you were offered that is not on it, and tell the team one story of a time it was tested. The first time a shortcut is refused, say so publicly inside the company. That is the moment the page becomes the culture.
Nothing here is legal advice. The position under the Prevention of Corruption Act was checked in October 2026; take specific questions to a lawyer.
Sources
- PRS Legislative Research, The Prevention of Corruption (Amendment) Bill, 2013 — Bribe-giving made a direct offence; commercial organisations covered; punishment for giving the same as for taking. Passed by Rajya Sabha 19 July 2018 and Lok Sabha 24 July 2018.
- US Securities and Exchange Commission, Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud, press release 2018-41, 14 March 2018 — More than $700 million raised; 2014 revenue projected above $100 million against a little more than $100,000 generated.
- Association of Certified Fraud Examiners, Occupational Fraud 2026: A Report to the Nations — 2,402 cases from 143 countries and territories; median loss of $532,000 where the perpetrator faced excessive pressure from within the organisation.
- Computer History Museum, What You Do Is Who You Are: Exploring Culture with Ben Horowitz, December 2019