©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. INCORPORATING ETHICS AND SOCIAL RESPONSIBILITY INTO THE BUSINESS 11

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives  Explain the role of ethics in entrepreneurship.  Discuss how entrepreneurs can demonstrate social responsibility.  Describe how an entrepreneur’s vision and values contribute to the culture of the new venture.  Discuss the relationship of core values to success.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethics  The moral code by which we live and conduct business.  Derives from the cultural, social, political, and ethnic norms with which we were raised as children.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethics (cont’d)  Ethical decision making, 4 categories: 1.Individual values 2.Organizational values 3.Customer satisfaction 4.External accountability

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethics (cont’d)  Categories of perspectives about ethical dilemma: Ideals Looking at the dilemma from an Aristotelian perspective about one’s virtues, integrity, and values Obligations One’s duty, rights, or what is lawful or just Utility Analyzes costs and benefits of potential alternative consequences of action or inaction

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethics (cont’d)  Approaches to avoiding ethical issues: 1. Dogmatism: “I simply will never lie or cheat or steal.” 2. Egoism: “Everyone needs to lookout for himself.” 3. Relativism or Situational: “When in Rome, do what the Romans do.” 4. Subjectivism: “Ethics is a point of view.”

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethics (cont’d)  Four most common types of ethical dilemmas: Conflicts of interest: Occurs when a person’s private or personal interests clash with professional obligations. Survival tactics: What an entrepreneur does today out of desperation will follow him for the rest of his business career. Stakeholder pressure: All stakeholders want what is owed them when it is owed them. Pushing the legal limit: Entrepreneurs who regularly play too close to the edge of legality eventually get caught and the price is often their businesses and their reputations.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning from Real-Life Dilemmas  There is no better way to understand the role of ethics in any business than to encounter real-world dilemmas and determine how they might be resolved.  Small businesses are as guilty as multinational corporations when it comes to ethical missteps.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Importance of Developing a Code of Ethics  Code of ethics: Set of ethical standards by which a company functions.  When a code of ethics is spelled out and written down, people in the organization take it more seriously.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Process of Developing a Code of Ethics  Guidelines from The Josephson Institute of Ethics: Trustworthiness Respect Responsibility Fairness Caring Citizenship

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Characteristics of an Effective Code  Clear and easy to understand  Make all employees aware  Share with customers  Clear channel for reporting unethical behavior  Means for rewarding ethical behavior

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Social Responsibility  Social responsibility is operating a business in a way that exceeds the ethical, legal, commercial and public expectations that society has of the business.  Socially responsible businesses start with a social mission, which must be achievable.  Majority of social ventures are nonprofits that must seek their funding from philanthropists or grants.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Effective Ways to Become Socially Responsible  First, company must set a goal.  Second, company must get employees and customers (if appropriate) involved.  Ways to establish positive relationships in the community: Donate products, services, or revenues Donate expertise Contribute to the community

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Vision and Values  Core values: The fundamental beliefs that a company holds about what is important in business and in life in general. Based on the founder’s personal values and beliefs. They tell the world who the company is and what it stands for.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Vision and Values (cont’d)  Purpose The company’s fundamental reason to be in business  Mission The company’s mission brings everyone together to achieve a common objective. The mission statement communicates the mission.

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Strategies and Tactics  Strategies: Plans for achieving company goals and accomplishing the mission  Tactics: The means to execute the strategies

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Components of Vision Figure 11.2

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Core Values and Success  Constants of success: Purpose Failure Sense of satisfaction with work No free lunch

©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. New Venture Action Plan Identify the core values held by the founding team. Develop an initial code of ethics for the business. List possible ways your business can be socially responsible. Define what success means to you.