Part 1
Entrepreneurship: A World of Opportunity
CHAPTER 2
Entrepreneurial
Integrity and
Ethics
Longenecker • Moore • Petty • Palich
© 2008 Cengage Learning.
All rights reserved.
PowerPoint Presentation by Charlie Cook
The University of West Alabama
Looking AHEAD
After you have read 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, 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.
© 2008 Cengage Learning. All rights reserved.
2–2
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.
2–3
2-1
Bloom:
Dialogue from The Producers
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, you 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 never 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 books.
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 little 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 than,
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 movies!
. . . 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.
2–4
2-2
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.
© 2008 Cengage Learning. All rights reserved.
2–5
2-3
Juggling the Interests of Stakeholder Groups and the Government
© 2008 Cengage Learning. All rights reserved.
2–6
A Framework for Integrity
Promoting the
Owners’ Interests
Respecting
Customers
Managerial
Integrity
Valuing Employees
© 2008 Cengage Learning. All rights reserved.
2–7
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.
2–8
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
© 2008 Cengage Learning. All rights reserved.
2–9
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.
2–10
Social Responsibilities of Small Firms
Environmental
Protection
Obligations to
Stakeholders
Contributions to
Community
Organizations
Response to
Community
Needs
© 2008 Cengage Learning. All rights reserved.
Consumerism
Social
Responsibilities
of
Small Firms
Support of
Education
Compliance with
Government
Regulations
2–11
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.
2–12
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’ 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.
2–13
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.
2–14
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.
2–15
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.
2–16
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.
2–17
Fundamental Principles for Ethical Policy Making
Purpose
Perspective
Persistence
© 2008 Cengage Learning. All rights reserved.
Pride
Patience
2–18
2-4
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 . . .
Source: Reprinted with permission of The Dwyer Group, Waco, Texas.
© 2008 Cengage Learning. All rights reserved.
2–19
Building a Business with Integrity (cont’d)
An Ethical Decision-Making Process
1
Define the problem.
2
Identify alternative solutions to the problem.
3
Evaluate the identified alternatives.
4
Make the decision.
5
Implement the decision.
6
Evaluate the decision.
© 2008 Cengage Learning. All rights reserved.
2–20
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.
2–21
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.
2–22
Key TERMS
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© 2008 Cengage Learning. All rights reserved.
integrity
ethical issues
stakeholders
social responsibilities
intellectual property
ethical imperialism
ethical relativism
underlying values
code of ethics
social entrepreneurship
environmentalism
2–23