Entrepreneurial Integrity and Ethics PART 1 Entrepreneurship: A World of Opportunity

Looking Ahead After studying this chapter, you should be able to: Define integrity and understand its importance to small businesses. Explain how integrity applies to various stakeholder groups, including owners, customers, employees, the community, and the government. Identify challenges to integrity that arise in small businesses and explain the benefits of integrity to small firms. Explain the impact of the Internet and globalization on the integrity of small businesses. Describe practical approaches for building a business with integrity. Describe social entrepreneurship and the costs and opportunities of environmentalism for small businesses.

Integrity and Entrepreneurship What Is Integrity? An uncompromising adherence to doing what is right and proper Honesty, reliability, and fairness in business practices An essential element of successful business relationships Is as much about what to do as it is who to be. Doing the Right Thing Ethical issues—questions of right and wrong Legal and ethical considerations Conflicts of self-interest

Exhibit 2.1 Difficult Ethical Issues Facing Small Firms Relationships with customers, clients, and competitors (relationships with outside parties in the marketplace) Human resource decisions (decisions relating to employment and promotion) Employee obligations to employer (employee responsibilities and actions that in some way conflict with the best interests of the employer) Management processes and relationships (superior–subordinate relationships) Governmental obligations and relationships (compliance with governmental requirements and reporting to government agencies) Relationships with suppliers (practices and deceptions that tend to defraud suppliers) Environmental and social responsibilities (business obligations to the environment and society) Source: Leslie E. Palich, Justin G. Longenecker, Carlos W. Moore, and J. William Petty, “Integrity and Small Business: A Framework and Empirical Analysis,” proceedings of the forty-ninth World Conference of the International Council for Small Business, Johannesburg, South Africa, June 2004.

Exhibit 2.2 Juggling the Interests of Stakeholder Groups and the Government

A Framework for Integrity Promoting the Owners’ Interests Respecting Customers Managerial Integrity Valuing Employees

Kinds of Ethical Issues Ethical Issues in Business Operations Income and expense reporting (tax fraud) “Truth in advertising”—persuasion and deception Bribing customers and rigging bids Direct selling—pyramid schemes, bait-and-switch selling Effects of owners’ ethics on their employees Accurately reporting financial information

Kinds of Ethical Issues (cont’d) Ethical Issues and Employees “To do an honest day’s work” Fraudulent workers’ compensation claims Theft of company property and embezzlement of funds Violation of personal ethics to make a sale

Social Responsibilities and Small Business Social Responsibility The firm’s ethical obligations as a good citizen to its community. Regarded as the price of freedom to operate in a free economic system. Frequently takes the form of personal contributions, volunteerism and the contribution of services by the firm and its employees.

Social Responsibilities of Small Firms Environmental Protection Obligations to Stakeholders Consumerism Social Responsibilities of Small Firms Contributions to Community Organizations Support of Education Response to Community Needs Compliance with Government Regulations

The Challenges and Benefits of Acting Ethically The Vulnerability of Small Companies Limited resources tempt small firms to cut ethical corners if an issue affects profits. The Integrity Edge Exhibiting integrity in business may actually boost a firm’s performance. Greatest benefit of integrity is the trust it generates.

Integrity in an Expanding Economy Internet Ethics Risks of buying and selling on the Internet Maintenance of personal privacy “Cookies” to profile customers’ usage of the Web Monitoring employees’ e-mail and Internet access. Protection of intellectual property rights Misappropriation of content providers’ original intellectual creations, including inventions, literary creations, and works of art, that are protected by patents or copyrights

Integrity in an Expanding Economy cont’d) International Issues of Integrity Illegal immigrants and forced labor Outsourcing into “cheap” labor markets Application of Federal Corrupt Practices Act Bribery versus customary local business practices

Integrity in an Expanding Economy cont’d) International Issues of Integrity Ethical imperialism The belief that the ethical standards of one’s own country are superior and can be applied universally. Ethical relativism The belief that ethical standards are subject to local interpretation. “When in Rome, do as the Romans do”

Building a Business with Integrity The Foundation of Integrity Underlying values: unarticulated ethical beliefs that provide a foundation for ethical behavior in a firm. Are based on personal views of the universe and mankind. Strongly held views can lead to tough choices. Ethics of the firm affect how outsiders view of the firm and their decisions about the firm.

Building a Business with Integrity (cont’d) Leading with Integrity Owner/leaders and their ethics have more direct and pronounced effects in small firms. Owner/leaders can insist that ethical principles be followed by employees.

Building a Business with Integrity (cont’d) A Supportive Organizational Culture Building an ethical culture requires: Full commitment to ethical conduct by the firm Strong, ethical managerial leadership Code of ethics Firm’s official standards of employee behavior. The foundation for ethical conduct by employees Clarifies the rules and gives guidance to employees

Fundamental Principles for Ethical Policy Making Purpose Perspective Pride Persistence Patience

Better Business Bureaus (BBB) A BBB encourages ethical practices by: Providing consumers with free information to help them make informed decisions when dealing with a company Creating an incentive for businesses to adhere to proper business practices and earnestly address customer complaints Resolving questions or disputes concerning purchases through mediation or arbitration.

Exhibit 2.3 The Ethical Code of The Dwyer Group CODE OF VALUES We believe . . . . . . in superior service to our customers, to our community, and to each other as members of The Dwyer Group family. . . . in counting our blessings every day in every way. . . . success is the result of clear, cooperative, positive thinking. . . . that loyalty adds meaning to our lives. . . . management should seek out and recognize what people are doing right, and treat every associate with respect. . . . challenges should be used as learning experiences. . . . our Creator put us on this earth to succeed. We will accept our daily successes humbly, knowing that a higher power is guiding us. . . . in the untapped potential of every human being. Every person we help achieve their potential fulfills our mission. . . . we must re-earn our positions every day in every way. . . . in building our country through the free enterprise system. We demonstrate this belief by continually attracting strong people in The Dwyer Group. We live our Code of Values by . . .

An Ethical Decision-Making Process 1 2 Define the problem 3 Identify alternative solutions to the problem 4 Evaluate the identified alternatives 5 Make the decision 6 Implement the decision. Evaluate the decision.

Social Entrepreneurship: A Fast-Emerging Trend Entrepreneurial activity with an embedded social purpose (goal) of finding innovative solutions to social needs, problems, and opportunities. Triple Bottom Line People Profits Planet (environment)

Environmentalism—Cost or Opportunity The Burden of Environmentalism Environmentalism is the effort to protect and preserve the environment. Adverse impact of environmentalism Cost of updating and modifying facilities Compliance with government regulations Potential of environmentalism Enhances firm’s image with customers. Improves firm’s image in the community. Provides business opportunities (e.g., recycling).

Key Terms integrity ethical issues stakeholders social responsibilities intellectual property ethical imperialism ethical relativism underlying values code of ethics social entrepreneurship environmentalism