1. part 6 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Social and Ethical Issues 21 Small Business Management 12e

2. Copyright © by South-Western College Publishing. All rights reserved. 21–2 Looking Ahead After studying this chapter, you should be able to: 1. Identify the kinds of ethical issues in small businesses and explain the special vulnerability of small firms. 2. Describe practical approaches for building an ethical business. 3. Explain the impact of social responsibilities on small business. 4. Describe the special challenges of environmentalism and consumerism.

3. Copyright © by South-Western College Publishing. All rights reserved. 21–3 Ethics and Small Business Doing the Right Thing –Ethical issues—questions of right and wrong Kinds of Ethical Issues –Ethical issues in business operations  Income and expense reporting (income 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

4. Copyright © by South-Western College Publishing. All rights reserved. 21–4 Ethics and Small Business (cont’d) 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

5. Copyright © by South-Western College Publishing. All rights reserved. 21–5 Ethics and Small Business (cont’d) Internet ethics –Risks of buying and selling on the Internet –Maintenance of personal privacy  Monitoring employees’ e-mail and Internet access at work. –Protection of intellectual property  Original intellectual creations, including inventions, literary creations, and works of art, that are protected by patents or copyrights.

6. Copyright © by South-Western College Publishing. All rights reserved. 21–6 Ethics and Small Business (cont’d) International Ethical Perspectives –Bribery versus customary local business practices –Ethical imperialism  The belief that the ethical standards of one’s own country can be applied universally. –Ethical relativism  The belief that ethical standards are subject to local interpretation.  “When in Rome, do as the Romans do”

7. Copyright © by South-Western College Publishing. All rights reserved. 21–7 Difficult Ethical Issues Facing Small Firms Source: Justin Longenecker, Joseph A. McKinney, and Carlos W. Moore, “Ethical Attitudes, Issues, and Pressures in Small Business,” paper presented at the International Council for Small Business Conference, Sydney, Australia, June 1995.

8. Copyright © by South-Western College Publishing. All rights reserved. 21–8 Building an Ethical Business Strong 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 affects how outsiders view of the firm and their decisions about the firm.

9. Copyright © by South-Western College Publishing. All rights reserved. 21–9 Building an Ethical Business (cont’d) Ethical Leadership –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.

10. Copyright © by South-Western College Publishing. All rights reserved. 21–10 Building an Ethical Business (cont’d) A Supportive Culture –Building an ethical culture requires  Full commitment to ethical conduct by the firm  Strong, ethical managerial leadership –Code of ethics  Official standards of employee behavior set by the firm.  Foundation for ethical conduct by employees  Clarifies the rules and gives guidance to employees

11. Copyright © by South-Western College Publishing. All rights reserved. 21–11 Building an Ethical Business (cont’d) Better Business Bureau –Provides free buying guidelines and information about companies to consumers. –Attempts to resolve questions or disputes concerning purchases. –Bait advertising  An insincere offer to sell a product or service at a very low price, used to lure customers in so that they can be switched later to a more expensive product.

12. Copyright © by South-Western College Publishing. All rights reserved. 21–12 Social Responsibilities and Small Business Social Responsibility –The role of a small business as a good citizen in its community in meeting its ethical obligations to customers, employees, and the general 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.

13. Copyright © by South-Western College Publishing. All rights reserved. 21–13 Social Responsibilities of Small Firms Social Responsibilities Consumerism Support of Education Compliance with Government Regulations Response to Community Needs Contributions to Community Organizations Obligations to Stakeholders Environmental Protection

14. Copyright © by South-Western College Publishing. All rights reserved. 21–14 Challenges of Environmentalism Environmental Issues –Environmentalism  The effort to protect and preserve the environment Positive impact of environmentalism –Builds customer loyalty –Improves firm’s image in the community –Provides business opportunities Negative impact of environmentalism –Entails cost of modifying facilities –Adds government regulation –Increases likelihood of lawsuits

15. Copyright © by South-Western College Publishing. All rights reserved. 21–15 Challenges of Consumerism Consumerism –A movement that stresses the needs of consumers and the importance of serving them honestly and well. Consumer Issues and Regulatory Legislation –No longer “Buyer Beware”  Product features: safety, reliability, durability  Product marketing: Truth-in-advertising, written warranties (Magnuson-Moss Warranty Act)