Part II – The Entrepreneurial Perspective Chapter 4 – Understanding the Entrepreneurial Perspective in Individuals Chapter 5 – Developing Creativity and Understanding Innovation Chapter 6 – Ethical and Social Responsibility Challenges for Entrepreneurs Copyright (c) 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Chapter 6 – Ethical and Social Responsibility Challenges for Entrepreneurs

Defining Ethics Ethics provide the basic rules or parameters for conducting any activity in an “acceptable” manner.

Classifying Decisions Using a Conceptual Framework Ethical Quadrant II: Ethical and Illegal Quadrant I: Ethical and Legal Codification Manifestation Corporate Decisions Illegal Legal Quadrant IV: Unethical and Illegal Quadrant III: Unethical and Legal Unethical

Ethics and Laws

Managerial Rationalizations The four rationalizations are believing: That the activity is not “really” illegal or immoral; That it is in the individual’s or the corporation’s best interest; That it will never be found out; and That because it helps the company, the company will condone it.

Types of Morally Questionable Acts Direct Effect Examples Nonrole Against the firm Expense account Cheating Role Failure Against the firm Superficial performance appraisal Role Distortion For the firm Bribery Role Assertion For the firm Not withdrawing product line in face of initial allegations of inadequate safety

Major Problems Regarding Laws Reflecting Ethical Standards The moral standards of members of a society may be based on a lack of information relative to issues of corporate conduct. The moral standards of members of a society may be diluted by the formation of small groups. The moral standards of members of society may be misrepresented in the consensus of large organizations. The moral standards of members of a society may be misrepresented in the formulation of the laws. The legal requirements formed through the political process are often incomplete or imprecise and have to be supplemented by judicial court decisions or administrative agency actions.

Economic Trade-Offs We cannot blame single individuals for the ethical problems of free enterprise. Rather, we must understand the total, systematic impact that free enterprise has on the common good.

Establishing a Strategy for Ethical Responsibility

Ethical Practices and Codes of Conduct A code of conduct is a statement of ethical practices or guidelines to which an enterprise adheres.

Approaches to Managerial Ethics Immoral Management Amoral Management Moral Management Managerial decisions, actions and behavior imply a positive and active oppositions to what is moral (ethical). Decisions are discordant with accepted ethical principles. An active negation of what is moral is implied. Management is neither moral or immoral, but decisions lie outside the sphere to which moral judgments apply. Managerial activity is outside or beyond the moral order of a particular code. A lack of ethical perception and moral awareness may be implied. Managerial activity conforms to a standard of ethical, or right, behavior. Managers conform to accepted professional standards of conduct. Ethical Leadership is common- place on the part of management.

A Holistic Approach Principle 1: Hire the right people Principle 2: Set standards more than rules Principle 3: Don’t let yourself get isolated Principle 4: The most important principle is to let your ethical example at all times be absolutely impeccable

Ethics and Business Decisions

Four Main Themes of Ethical Dilemmas for Entrepreneurs Conflict of Interests Personality Traits Social Responsibility to Stakeholders Small-Business Ethical Dilemmas Level of Openness

Complexity of Decisions First, ethical decisions have extended consequences Second, business decisions involving ethical questions have multiple alternatives Third, ethical business often have mixed outcomes Fourth, most business decisions have uncertain ethical consequences Finally, most ethical business decisions have personal implications

The Social Responsibility Challenge Some firms simply react to social issues through obedience to the laws – social obligation; others respond more actively; accepting responsibility for various programs – social responsibility; still others are highly proactive and are even willing to be evaluated by the public for various activities – social responsiveness.

The Opportunity for Ethical Leadership by Entrepreneurs An owner has the unique opportunity to display honesty, integrity, and ethics in all key decisions. The owner’s actions serve as a model for other employees to follow.