1. PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. Part 1 Entrepreneurship: A World of Opportunity Entrepreneurial Integrity: A Gateway to Small Business Opportunity

2. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–22–2 Looking Ahead After studying this chapter, you should be able to: 1. Define integrity and understand its importance to small businesses. 2. Explain how integrity applies to various stakeholder groups, including owners, customers, employees, and the community. 3. Identify challenges to integrity that arise in small businesses and explain the benefits of integrity to small firms. 4. Explain the impact of the Internet and globalization on the integrity of small businesses.

3. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–32–3 Looking Ahead (cont’d.) 5. Describe practical approaches for building a business with integrity. 6. Describe the costs and opportunities of environmentalism to small businesses.

4. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–42–4 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 Integrity is as much about what to do and it is who to be. Doing the Right Thing –Ethical issues—questions of right and wrong Legal and ethical considerations Conflicts of self-interest

5. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–52–5 Difficult Ethical Issues Facing Small Firms Ethical Issues Affecting Small Businesses Human Resource Decisions Employee Obligations Managerial Processes and Relationships Regulatory Compliance Relationships with Suppliers Environmental and Social Responsibilities Customer Relationships 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 49th World Conference of the International Council for Small Business, Johannesburg, South Africa, June 2004.

6. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–62–6 Juggling the Interests of Stakeholder Groups and the Government Exhibit 2.3

7. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–72–7 A Framework for Integrity Personal Integrity of the Owner –Social responsibility for all stakeholders versus a narrow focus on using the firm’s resources only for honest profit making (Milton Friedman). Respecting Customers –Service orientation and respect in the treatment of customers is both ethical and profitable. Valuing Employees –Fair and honest treatment of employees is a sign of managerial integrity.

8. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–82–8 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

9. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–92–9 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

10. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–10 Social Responsibilities and Small Business Social Responsibility –The role of a small business as a good citizen in its community is 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.

11. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–11 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

12. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–12 The Challenges and Benefits of Acting Ethically The Vulnerability of Small Companies –The limited resources of small firms tempt them to cut ethical corners if an issue directly affects profits. The Integrity Edge –Exhibiting integrity in business may actually boost a firm’s performance. –The greatest benefit of integrity is the trust it generates.

13. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–13 Ethics and Small Business (cont’d.) Internet Ethics –Risks of buying and selling on the Internet –Maintenance of personal privacy The use of “cookies” to profile customers’ usage of the Web Monitoring employees’ e-mail and Internet access at work –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

14. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–14 Ethics and Small Business (cont’d.) International Ethical Perspectives –Illegal immigrants and forced labor in sweatshops Outsourcing into “cheap” labor markets –Application of Federal Corrupt Practices Act Bribery versus customary local business practices –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. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–15 Building a Business with Integrity A Strong Foundation –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 the firm and their decisions about the firm

16. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–16 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. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–17 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 Official standards of employee behavior set by the firm The foundation for ethical conduct by employees Clarifies the rules and gives guidance to employees

18. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–18 Building a Business with Integrity (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

19. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–19 Environmentalism—Cost or Opportunity The Burden of Environmentalism –Environmentalism is the effort to protect and preserve the environment. Potential of Environmentalism –Enhances firm’s image with customers –Improves firm’s image in the community –Provides business opportunities (e.g., recycling) Adverse impact of environmentalism –Cost of updating and modifying facilities –Government regulations and lawsuits

20. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 2–20 Key Terms integrity ethical issues stakeholders social responsibilities intellectual property ethical imperialism ethical relativism underlying values code of ethics bait advertising environmentalism