The release of Johnny Depp’s new movie The Pirates of the Caribbean: Dead Man’s Chest sent me to files to retrieve some old research.  I love pirate stories, so when I discovered each pirate ship had its own Rules of Conduct the lawyer in me just had to dig deeper to learn more about how “honor among thieves” really worked. 

What I discovered was fascinating.

For starters, the Rules of Conduct were not fuzzy mission statements.  They addressed the timeless issues of “corporate” governance, compensation, and, surprisingly, health care.  Each crew member was required to sign them before they came aboard.  If they couldn’t live by the Rules they had to find themselves another ship.  You might say the Rules of Conduct was an “employment contract“ albeit one with a zero tolerance edge that sliced both ways.

The pirate’s “eat what you kill” business model meant if there was no prey there was no pay.  As a result, capturing ships (new markets) was job number one and a captain’s ability to stay in command was only as good as his ability to keep his crew satisfied (managing downward).

The captain’s rule was absolute. But leaders who lost their crew’s confidence could find themselves facing a mutiny. That’s what happened to Captain Charles Vane after his ship Ranger encountered an unidentified vessel on November 23, 1718.  It turned out to a French man-of-war. Vane hoisted the Jolly Roger thinking the French would turn tail and retreat. When they didn’t and lobbed a powerful broadside volley it was Vane who retreated, against the wishes of his crew.  Branded a coward, Vane was cast adrift the next day with some provisions.  It was a modest golden parachute.

With mutiny as the ultimate negative performance review, the pressure to find acquisitions on the horizon was constant. Even Captain Edward Teach (a//k/a Blackbeard) felt the heat.  In one of his diary entries where he wrote: Rogues a-plotting:–Great talk of separation– so I looked sharp for a prize:–Such a day took one, with a great deal of liquor on board, so kept the company hot, damned hot; then all things went well again.  Nothing beats performance! 

Pirates hated bureaucracy. They lived in times of great social and economic repression as witnessed by both the French and American Revolutions.  They had no use for class distinctions and discriminations. That’s why they gave each pirate an equal vote. They embraced participatory management and principles of equity in its purest form.

Pirate compensation was fair.  Everyone received an equal share of plunder except for the officers.  They got more — but not as much as today’s corporate chieftains.  The captain and quartermaster only received a double share and the lesser officers one and a half or one and a quarter share respectively.  

Everyone knew the pay scale.  Crew members took turns distributing the treasure and anyone pulling an Andrew Fastow, defrauding the ship or a shipmate of even one shilling, was dealt with swiftly and harshly. They were marooned.  (And you thought the whistle-blowing provisions and financial transparency of the Sarbanes-Oxley Act were tough.)

Health care was also covered by the Rules.  Anyone losing a limb or permanently disabled on the job could live on board as long as he liked or could receive 800 pieces of eight from the ship’s treasury. Lesser injuries were reimbursed proportionately. Some pirates parlayed their severance pay into legitimate business ventures ashore.

Unfortunately, the management principles in the buccaneer Rules of Conduct are overshadowed by the pirates’ criminal business enterprise.  Yet, they do serve as a reminder about their strategic role in facilitating the pirate business model and the importance of fairness and value of giving employees a voice. 

Ineffective policies are as risky as a flawed business model.  How tight are your company’s policies?  Do they create the right incentives?  Are they clearly communicated?  Enforced? 
 

For more information about how to audit the effectiveness of your compliance program see chapter 5 of The Business Guide to Legal Literacy.

[T]he tragedy of Ken lay is that, right up until the end, he never fully understood what he’d done wrong, or his own considerable culpability in his company’s demise. . . . [S]o much of what Mr. Lay did during his time at the top of Enron amounted to wishful thinking.  And in the end it was his desire to see things as he wished them to be, not as they really were, that was his fatal flaw.  He never really had the judgment a good chairman or chief executive has to have.”

Joe Nocera, “Even at the End, He Didn’t Get It,” New York Times, July 6, 2006.

Good judgment is the culmination of good information, good ethics, and the ability to learn from past mistakes.  Short change any of these elements and the result is suboptimal with decision making biases and it’s like driving safely on the wrong side of the white line.

Well run organizations have systems of checks and balances.  These systems serve as tiny mirrors to help us see around predictable blind spots.  They help us make better decisions and improve our collective judgment.

Ken Lay’s untimely death exposed what one former prosecutor called the “human soul” of the Enron case and reminds us of his family’s deep sense of loss.  At the same time the “human soul” of the cases exposes the depth of decision making blind spots and the dire need to respect the legal playing field upon which the game of business is played.