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

2. 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.

3. 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

4. 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.

5. Exhibit 2.2 Juggling the Interests of Stakeholder Groups and the Government

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

7. 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

8. 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

9. 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.

10. 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

11. 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.

12. 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’ 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

13. 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

14. 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”

15. 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.

16. 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.

17. 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

18. Fundamental Principles for Ethical Policy Making
Purpose
Perspective
Pride
Persistence
Patience

19. 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.

20. 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 . . .

21. An Ethical Decision-Making Process1 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.

22. 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)

23. 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).

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