Entrepreneurial Integrity and Ethics

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Nov 20, 2013 (3 years and 11 months ago)

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© 2008 Cengage Learning. All rights reserved.

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CHAPTER 2

Entrepreneurial Integrity and Ethics

Entrepreneurship: A World of Opportunity

Part 1

© 2008 Cengage Learning. All rights reserved.

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Looking

AHEAD

1.
Define integrity and understand its importance to small
businesses.

2.
Explain how integrity applies to various stakeholder groups,
including owners, customers, employees, the community, and
the government.

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.

5.
Describe practical approaches for building a business with
integrity.

6.
Describe social entrepreneurship and the costs and
opportunities of environmentalism to small businesses.

After you have read this chapter, you should be able to:

© 2008 Cengage Learning. All rights reserved.

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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

© 2008 Cengage Learning. All rights reserved.

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Dialogue from The Producers

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Bloom:

You raised two thousand more than you needed to produce your last play.

Bialystock:

So what? What did it get me? I’m wearing a cardboard belt.

Bloom:

Ahhhhhh! But that’s where you made your error. You didn’t go all the way. You see, if you were really a bold criminal, yo
u could
have raised a million.

Bialystock:

But the play only cost $60,000 to produce.

Bloom:

Exactly, and how long did it run?

Bialystock:

One night.

Bloom:

See? You could have raised a million dollars, put on a sixty thousand dollar fl op and kept the rest.

Bialystock:

But what if the play was a hit?

Bloom:

Oh, you’d go to jail. If the play were a hit, you’d have to pay off the backers, and with so many backers there could nev
er be
enough profits to go around, get it?

Bialystock:

Aha, aha, aha, aha, aha, aha!! So, in order for the scheme to work, we’d have to fi nd a sure fi re fl op.

Bloom:

What scheme?

Bialystock:

What scheme? Your scheme, you bloody little genius.

Bloom:

Oh, no. No. No. I meant no scheme. I merely posed a little, academic accounting theory. It’s just a thought.

Bialystock: Bloom, worlds are turned on such thoughts!

Bialystock:

Don’t you see, Bloom? Darling, Bloom, glorious Bloom, it’s so simple. Step one: We find the worst play in the world

a sure flop.
Step two: I raise a million dollars

there’s a lot of little old ladies in this world. Step three: You go back to work on the boo
ks.
Phoney lists of backers

one for the government, one for us. You can do it, Bloom, you’re a wizard. Step four: We open on
Broadway and before you can say “step five” we close on Broadway. Step six: We take our million dollars and fly to Rio de
Janiero....

Bloom:

But if we’re caught, we’ll go to prison.

Bialystock: You think you’re not in prison now? Living in a grey little room. Going to a grey little job. Leading a grey litt
le
life.

Bloom:

You’re right. You’re absolutely right. I’m a nothing. I spend my life counting other people’s money

people I’m smarter th
an,
better than. Where’s my share? Where’s Leo Bloom’s share? I want, I want, I want, I want everything I’ve ever seen in the mov
ies
!
. . . Hey, we’re going up.

Bialystock:

You bet your boots, Leo. It’s Bialystock and Bloom

on the rise. Upward and onward. Say, you’ll join me. Nothing can
stop us.

Bloom:

I’ll do it! By God, I’ll do it!

Source:
http://www.awesomefilm.com/script/producers.html

© 2008 Cengage Learning. All rights reserved.

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Difficult Ethical Issues Facing Small Firms

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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 an
d E
mpirical Analysis,”
proceedings of the forty
-
ninth World Conference of the International Council for Small Business, Johannesburg, South Africa, Jun
e 2004.

© 2008 Cengage Learning. All rights reserved.

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Juggling the Interests of Stakeholder Groups and the Government

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3

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A Framework for Integrity

Managerial

Integrity

Promoting the
Owners’ Interests

Valuing Employees

Respecting
Customers

© 2008 Cengage Learning. All rights reserved.

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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

© 2008 Cengage Learning. All rights reserved.

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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


© 2008 Cengage Learning. All rights reserved.

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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.



© 2008 Cengage Learning. All rights reserved.

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Social Responsibilities of Small Firms

Environmental

Protection

Consumerism

Support of
Education

Compliance with
Government
Regulations

Response to
Community
Needs

Contributions to
Community
Organizations

Obligations to
Stakeholders

Social
Responsibilities
of

Small Firms

© 2008 Cengage Learning. All rights reserved.

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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.

© 2008 Cengage Learning. All rights reserved.

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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’ 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.

© 2008 Cengage Learning. All rights reserved.

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Integrity in an Expanding Economy (cont’d)


International Issues of Integrity


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”

© 2008 Cengage Learning. All rights reserved.

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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 of the
firm and their decisions about the firm.

© 2008 Cengage Learning. All rights reserved.

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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.

© 2008 Cengage Learning. All rights reserved.

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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

© 2008 Cengage Learning. All rights reserved.

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Fundamental Principles for Ethical Policy Making

Purpose

Pride

Persistence

Patience

Perspective

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The Ethical Code of The Dwyer Group

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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 . . .

Source:
Reprinted with permission of The Dwyer Group, Waco, Texas.

© 2008 Cengage Learning. All rights reserved.

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Building a Business with Integrity (cont’d)

1

Make the decision.

Identify alternative solutions to the problem.

An Ethical Decision
-
Making Process

Define the problem.

Evaluate the identified alternatives.

2

3

4

Implement the decision.

5

Evaluate the decision.

6

© 2008 Cengage Learning. All rights reserved.

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Social Entrepreneurship:

A Fast
-
Emerging Trend


Social Entrepreneurship


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)

© 2008 Cengage Learning. All rights reserved.

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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).

© 2008 Cengage Learning. All rights reserved.

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Key

TERMS


integrity


ethical issues


stakeholders


social responsibilities


intellectual property


ethical imperialism


ethical relativism


underlying values


code of ethics


social entrepreneurship


environmentalism