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Chapter Ten
Ethical Decision Making
and the Entrepreneur
If you gain financial success at the expense of your integrity, you are not a success
at all.
John Cullinane
Founder of Cullinet, Inc., and a 1984 Inductee, Babson Academy of Distinguished Entrepreneurs
Results Expected
The fine line between success and failure in many a venture often boils down to
the ethics and integrity of the founders and team. Careers and ventures have
blossomed and crumbled because of the stellar or pitiful ethical decisions of
founders. No subject in this entire book is more important, or more difficult to
master, than this one.
Upon completion of this chapter, you will be able to
1. Discuss some of the history, philosophy, and research about the nature of business
ethics and the context for thinking about ethical behavior.
2. Relate to the importance of ethical awareness and high standards in an entrepreneurial career.
3. Examine decisions involving ethical issues and your own decisions and reasoning in
ethical situations.
4. Discuss with others the ethical implications of the decisions you made, and identify
how they might affect you, your partners, your customers, and your competitors in
the contexts described.
5. Describe some practical guidelines, tips, and advice for confronting and making
sound ethical decisions.
The authors are most grateful to Professors James Klingler and William Bregman, Center for Entrepreneurship at Villanova University, Villanova, PA, for their
contributions to our thinking on this challenging and important subject. We have included their insightful and practical work throughout this revised chapter.
Their work has influenced how we now think about and present this material.
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Overview of Ethics
The vast majority of successful entrepreneurs believe
that high ethical standards and integrity are exceptionally important to long-term success. For example, Jeffry Timmons and his colleague Howard H.
Stevenson conducted a study among 128 presidents/
founders attending the Harvard Business School’s
Owner/President Management (OPM) program in
1983.1 Their firms typically had sales of $40 million,
and sales ranged from $5 million to $200 million.
These entrepreneurs were also very experienced,
with their average age in the mid-40s, and about
half had founded their companies. They were asked
to name the most critical concepts, skills, and knowhow for success at their companies at the time and
what they would be in five years. The answer to this
question was startling enough that the Sunday New
York Times reported the findings: 72 percent of the
presidents responding stated that high ethical standards were the single most important factor in longterm success.2 A May 2003 study by the Aspen Institute
found that MBA students are concerned that their
schools are not doing enough to prepare them for
ethical dilemmas they may face in the business
world. Seventeen hundred MBA students from the
United States, Canada, and Britain were surveyed,
and the results, plus student reactions, are addressed in the May 21, 2003, issue of Chronicle of
Higher Education. Their concern and awareness are
not surprising given the recent spate of corporate
scandals. Ethical lapses like those of Enron executives, for example, erode the confidence in business
activity at all levels. The trial ended in May 2006
with guilty verdicts for former top executives Kenneth
Lay and Jeffrey Skilling.
Conventional ethical disciplines have been accused of dealing with the business realm by narrowly defining the scope of inquiry so as to be able
to offer a definitive answer. What is ethical is not
always obvious; rather, situations involving ethical
issues are often ambiguous. Today, as throughout
much of the last century, students, businesspeople,
and others have received many conflicting signals,
as “first artists and intellectuals, then broader segments of the society, challenged every convention,
every prohibition, every regulation that cramped
the human spirit or blocked its appetites and
ambitions.”3
1
This discussion has also generated much controversy. For example, a provocative and controversial
article published in the Harvard Business Review asserted that the ethics of business were not those of society but rather those of the poker game.4 The author
of the article argued, “Most businessmen are not indifferent to ethics in their private lives, everyone will
agree. My point is that in their office lives they cease
to be private citizens; they become game players who
must be guided by a somewhat different set of ethical
standards.” The author further argued that personal
ethics and business ethics are often not in harmony,
and by either negotiation or compromise, a resolution
must be reached. The article provoked a storm of response. The question remains: How are businesspeople supposed to operate in this capitalist system?
In addition, the law, which you might expect to
be black and white, is full of thorny issues. Laws have
not only authority but also limitations. Laws are made
with forethought and with the deliberate purpose of
ensuring justice. They are, therefore, ethical in intent
and deserve respect. However, laws are made in legislatures, not in heaven. They do not anticipate new
conditions; they do not always have the effect they
were intended to have; they sometimes conflict with
one another; and they are, as they stand, incapable of
making judgments where multiple ethical considerations hang in the balance or seem actually to war with
one another. Thus, from the beginnings of recorded
history in Egypt and the Middle East, a code of laws
was always accompanied by a human interpreter of
laws, a judge, to decide when breaking the letter of
the law did not violate the spirit or situation that
the law was intended to cover. Great moments in
history, religion, philosophy, and literature focus on
the legal/ethical dilemma, and debating teams would
wither away if the dilemma were to disappear.
Ethical Stereotypes
Now, as in the past, the United States is viewed as
providing an inviting and nurturing climate for those
wishing to start their own enterprises and reap the rewards. To some extent, this is because the federal
government has encouraged, to a greater degree than
in most other countries, an atmosphere under which
free market forces, private initiative, and individual
responsibility and freedom can flourish.
J. A. Timmons and H. H. Stevenson, “Entrepreneurship Education in the 1980s,” presented at the 75th Anniversary Entrepreneurship Symposium, Harvard
Business School, Boston, 1983. Proceedings, pp. 115–34.
2
For an overview of the philosophical underpinnings of ethics and a decision-making framework, see “A Framework for Ethical Decision Making,” J. L. Livingstone et al., Babson College Case Development Center, 2003.
3
D. Bok, “Ethics, the University, & Society,” Harvard Magazine, May–June 1988, p. 39.
4
Reprinted by permission of Harvard Business Review. An excerpt from “Is Business Bluffing Ethical?” by A. Z. Carr, January–February 1968, pp. 145–52.
Copyright © 1967 by the President and Fellows of Harvard College.
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These laws, enacted in response to society’s changing perceptions of what constitutes ethical business
practices, have had the equally desirable effect of encouraging those in many industries to develop codes
of ethics—in large part because they wished to have
the freedom to set their own rules rather than to have
rules imposed on them by legislatures.
As the ethical climate of business has changed, so
has the image of the entrepreneur. Horatio Alger
personifies the good stereotype. Entrepreneurs doing business in the unfettered economic climate of
the 19th century—the era of the robber barons,
where acts of industrial sabotage were common—
represent the ruthless stereotype. The battles of
James Hill and Edward Harriman over the rights of
railroads, the alleged sabotage by John D. Rockefeller of his competitors’ oil refineries, the exploitation of child labor in New England’s textile mills and
of black labor in the Southern cotton plantations, and
the promoting of “snake oil” and Lydia Pinkham’s
tonics leave an unsavory aftertaste for today’s more
ethically conscious entrepreneurs.
Yet thoughtful historians of American entrepreneurship will also recall that regardless of the standards by which they are judged or of the motivations
attributed to them, certain American entrepreneurs
gave back to society such institutions as the Morgan
Library and the Rockefeller Foundation. The extraordinary legacy of Andrew Carnegie is another example. (Scholars are much more inclined to examine
and dissect the ethical behavior of the business sector, rather than that of the clergy, or even of academia
itself. In many comparisons, the behavior of the business sector would look quite pure.)
Carnegie’s case is also interesting because he described the total change of attitude that came over
him after he had amassed his fortune. Carnegie, the
son of a Scottish weaver, created a personal fortune of
$300 million in the production of crude steel between 1873 and 1901. (That’s $130 billion in today’s
dollars!) Carnegie believed that competition “insures
the survival of the fittest in every department.”
Carnegie also felt that “the fact that this talent for organization and management is rare among men is
proved by the fact that it invariably secures enormous
rewards for its possessor.”5 So apparently satisfied
was Carnegie with the correctness of his view, he did
not try to reconcile it with the fact that British steel
rails were effectively excluded by a protective tariff
equaling over half the production price of each ton of
steel rails.6 That Carnegie’s mind was not easy over
5
his fortune, however, is evident from his statement, “I
would as soon give my son a curse as the almighty
dollar.”7 After 1901, when he sold Carnegie Steel to
United States Steel under pressure from a group
headed by J. P. Morgan, Carnegie personally supervised donations in the United States and Great
Britain of more than $300 million. Among his gifts to
humanity were over 2,800 libraries, an Endowment
for International Peace, and the Carnegie Institute of
Pittsburgh.
From today’s perspective, these entrepreneurs
might be described as acting in enlightened selfinterest. However, when the same sort of entrepreneurial generosity is demonstrated today by such
people as Armand Hammer of Occidental Petroleum, Ted Turner of CNN fame, and Bill Gates of
Microsoft, we are more likely to speak of their acts as
philanthropy than as fulfilling their social contract.
A touch of suspicion still tinges entrepreneurial
activity, and the word entrepreneur may still connote to some a person who belongs to a ruthless,
scheming group located a good deal lower than the
angels. In 1975 Time suggested that a businessman
might make the best-qualified candidate for U.S.
president but noted the “deep-rooted American
suspicion of businessmen’s motives.”8 Quoting John
T. Conner, chair of Allied Chemical and former
head of Merck and Company, Time’s editors added,
“Anyone with previous business experience becomes immediately suspect. Certain segments think
he can’t make a decision in the public interest.”9
However, in 1988 the prophecy of Time was fulfilled
when George Bush, an oil entrepreneur, was
elected president of the United States. By the turn
of the century, proven entrepreneurs like New York’s
Mayor Michael Bloomberg were seen as innovators
who could bring a fresh new style of leadership to
government.
Should Ethics Be Taught?
Just as the 1990s ushered in a new era of worldwide
entrepreneurship, Andrew Stark asserts that the
world of business ethics has redefined itself:
Advocates of the new business ethics can be identified by
their acceptance of two fundamental principles. While
they agree with their colleagues that ethics and interest
can conflict, they take that observation as the starting
point, not the ending point, of an ethicist’s analytical
“Introduction to Contemporary Civilization in the West,” The Gospel of Wealth (New York: Century, 1900), p. 620.
W. E. Woodward, A New American History (Garden City, NY: Garden City Publishing, 1938), p. 704.
Ibid., p. 622.
8
“Time Essay: New Places to Look for Presidents,” Time, December 15, 1975, p. 19.
9
Ibid.
6
7
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task. . . . Second, the new perspective reflects an awareness
and acceptance of the messy work of mixed motives.10
The challenge facing this new group of business
ethicists is to bridge the gap between the moral
philosophers and the managers. The business ethicists talk of “moderation, pragmatism, minimalism”11
in their attempt to “converse with real managers in a
language relevant to the world they inhabit and the
problems they face.”12 With this focus on the practical side of decision making, courses on ethics can be
useful to entrepreneurs and all managers.
Ethics Can and Should Be Taught
In an article that examines the ancient tradition of
moral education, the decline of moral instruction
beginning in the 19th century, and the renaissance of
interest in ethics in the 1960s, Derek Bok, former
president of Harvard University, argues that ethics
can and should be taught by educational institutions
and that this teaching is both necessary and of value:
Precisely because its community is so diverse, set in a
society so divided and confused over its values, a university that pays little attention to moral development
may find that many of its students grow bewildered,
convinced that ethical dilemmas are simply matters of
personal opinion beyond external judgment or careful
analysis.
Nothing could be more unfortunate or more unnecessary. Although moral issues sometimes lack convincing answers, that is often not the case. Besides,
universities should be the last institutions to discourage
belief in the value of reasoned argument and carefully
considered evidence in analyzing even the hardest of
human problems.13
John Shad, a former chairman of the New York
Stock Exchange, gave more than $20 million to the
Harvard Business School to help develop a way to
include ethics in the MBA curriculum. Since the fall
of 1988, first-year students at the Harvard Business
School have been required to attend a three-week,
nongraded ethics module called “Decision Making
and Ethical Values.” The cases discussed range from
insider trading at Salomon Brothers to discrimination in employee promotions to locating a U.S. manufacturing unit in Mexico. Thomas R. Piper, associate
dean, emphasizes that the role of the course is “not
converting sinners . . . but we’re taking young people who have a sense of integrity and trying to get
10
them to connect ethics with business decisions.”14 J.
Gregory Dees, another ethics professor at Harvard,
now at Duke University, stresses that the “primary
objective of the course is to get people thinking
about issues that are easy to avoid. . . . What we want
people to leave DMEV with is a commitment to
raising these issues in other settings, other courses,
and on the job, with [an acceptable] comfort level in
doing so.”15
Since John Shad made his contribution, three
second-year electives (“Moral Dilemmas of Management,” “Managing Information in a Competitive
Context,” and “Profits, Markets, and Values”) have
been added to Harvard’s ethics program. The Wharton School has a similar course required of first-year
MBA students. “Leadership Skills” is a yearlong,
graded course with a four-week ethics module. The
Wharton faculty hope to introduce the core literature
of business ethics and corporate responsibility, to expose students to discussions, and to stimulate the students to address these moral issues in their other
courses. These two programs are part of a larger effort to incorporate ethics:
Over 500 business-ethics courses are currently taught
on American campuses; fully 90 percent of the nation’s
business schools now provide some kind of training in
the area. There are more than 25 textbooks in the field
and three academic journals dedicated to the topic. At
least 16 business-ethics research centers are now in operation, and endowed chairs in business ethics have
been established at Georgetown, Virginia, Minnesota,
and a number of other prominent business schools.16
In addition, we are now seeing the emergence of numerous courses on socially responsible business and
entrepreneurship, and on environmentally sustainable and responsible businesses.
The Entrepreneur’s Competitive Edge:
The Art of Self-Assessment
“It ain’t what you don’t know that hurts you.
It’s what you know that ain’t true!”
Mark Twain
As we saw in Chapters 2 and 9, one of the core principles of this book is the importance of self-assessment
and self-awareness. We are more persuaded than ever
that entrepreneurs who truly know themselves make
the best decisions. This manifests itself in a number of
A. Stark, “What’s the Matter with Business Ethics?” Harvard Business Review, May–June 1993, p. 46.
Ibid., p. 48.
12
Ibid.
13
D. Bok, “Is Dishonesty Good for Business?” Business & Society Review, Summer 1979, p. 50.
14
J. A. Byrne, “Can Ethics Be Taught? Harvard Gives It the Old College Try,” BusinessWeek, April 6, 1992, p. 34.
15
C. Nayak, “Why Ethics DMEV Is under the Microscope,” The Harbus, 1989.
16
A. Stark, “What’s the Matter with Business Ethics?” Harvard Business Review, May–June 1993, p. 38.
11
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ways. They do a better job of knowing what they do
and don’t know—and thus who should be added to
their team and brain trust. And their honesty and
forthrightness about their own capabilities and shortcomings instill trust and confidence; people see that
they are not full of puffery and exaggeration. In addition, they must be acutely aware of the environment in
which their decisions are made. Often in entrepreneurship, particularly in the launch and growth stages
of a new venture, the environment is chaotic, unpredictable, and frequently unforgiving.
Despite this uncertainty, new venture decisions
must be made whether or not the correct solution is
evident. Plans must go forward. Serious mistakes, especially ethical ones, are rarely made during quiet
and orderly times. Successful entrepreneurs make
better decisions under pressure and in chaotic environments than those who fail. We believe that the
odds of making the right choices under pressure will
be greatly enhanced if you keep in mind that business
decisions, even ethical ones, need to be made on a
conscious level with your head, not your heart.
Take Time to Reflect Forewarned is forearmed. To make good decisions you must identify
and understand yourself and the scope and the effects of your own self-interest. Knowing your biases
and weaknesses offers an opportunity for personal
development or to proactively compensate for them.
Failing to recognize these can result in poor choices.
The time to work on this is not when you face a
tough decision in the midst of chaos, but in periods of
calm reflection. During these times you can consider
your stakeholders, your personal motivations, and the
impact those can have on your decision making. Because your judgment will be less clouded prior to
launch, the planning process for your new venture
should include a good bit of introspection.
Recognize Self-Interest Our perceptions are
filtered by who we are: our experiences, our knowledge, our biases, our beliefs—all the things that make
us unique. Our self-interest, which compels us to
seek pleasure and benefit and avoid pain and loss, influences and colors our perceptions. When someone
says, “You’re kidding yourself,” that ought to be a red
flag that your self-interest may be clouding your perception of reality.
Henry Brooks Adams, a historian and author as
well as the great-great-grandson of John Adams and
the grandson of John Quincy Adams, summed up the
17
18
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peril faced by a person who overwhelmingly pursues
his or her own self-interest when he wrote, “Never
esteem anything as of advantage to you that will make
you break your word or lose your self-respect.” The
pursuit of self-interest without the realization of the
pitfalls it presents can be costly and even dangerous.
Here are some major influencers to consider:
Emotion: What you love, hate, or fear will influence your perception and therefore your decisions. The people whom you feel most strongly
about can have a tremendous influence on your
decisions. Like divorces, partnership breakups
can become so emotionally charged with selfinterest that decisions made have no relation to
the best outcome for anyone involved.
Motivation: As we’ve noted in earlier chapters,
contemplating a new venture involves an honest
assessment of the motivating factors driving the
decision. Entrepreneur and investor Khalil
Tuzman, in his “Entrepreneur’s Survival Kit,”
lists five individual motivators: to attain wealth,
to achieve recognition or fame, to feel courageous, to be healthy, and to find contentment. If
the motivation is to win at any cost, for example,
fair play and ethics will have far less influence
over your decisions than they should.
Stakeholders: Who will be affected by your decisions and how? Recognize that the closer they are
to you, the more effect they will have on your decision making. If an entrepreneur’s family welfare
is at stake because she can’t pay the mortgage, she
may be tempted to pursue unethical solutions.
The Usefulness of Academic Ethics
The study of ethics does seem to make students more
aware of the pervasiveness of ethical situations in
business settings, bring perspective to ethical situations from a distance, and provide a framework for
understanding ethical problems when they arise.
Further, the study of ethics has been shown to affect,
to some degree, both beliefs and behavior. For example, in a study of whether ethics courses affect student
values, value changes in business school students who
had taken a course in business ethics and those who
did not were examined closely and were plotted
across the multiple stages.17
The study used a sequence of stages, called the
Kohlberg construct, developed by Kohlberg in
1967.18 These stages are presented in Exhibit 10.1. In
D. P. Boyd, “Enhancing Ethical Development by an Intervention Program,” unpublished manuscript, Northeastern University, 1980.
Lawrence Kohlberg was a professor at Harvard University. He became famous for his work there as a developmental psychologist and then moved to the field
of moral education. His work was based on theories that human beings develop philosophically and psychologically in a progressive fashion. Kohlberg
believed and demonstrated in several published studies that people progressed in their moral reasoning (i.e., in their bases for ethical behavior) through a
series of six identifiable stages.
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EXHIBIT 10.1
Classification of Moral Judgment
into Stages of Development
Stage
Orientation
Theme
1
2
3
4
5
6
Punishment and obedience
Instrumental relativism
Interpersonal concordance
Law and order
Legitimate social contract
Universal ethical principle
Morality of obedience
Simple exchange
Reciprocal role taking
Formal justice
Procedural justice
Individual conscience
Source: Adapted from Kohlberg (1967).
the Kohlberg construct, being moral in Stage 1 is synonymous with being obedient, and the motivation is to
avoid condemnation. In Stage 2, the individual seeks
advantage. Gain is the primary purpose, and interaction does not result in binding personal relationships.
The orientation of Stage 3 is toward pleasing others and
winning approval. Proper roles are defined by stereotyped images of majority behavior. Such reciprocity is
confined to primary group relations. In Stage 4, cooperation is viewed in the context of society as a whole.
External laws coordinate moral schemes, and the individual feels committed to the social order. We thus subscribe to formal punishment by police or the courts. In
Stage 5, there is acknowledgment that reciprocity can
be inequitable. New laws and social arrangements now
may be invoked as corrective mechanisms. All citizens
are assured of fundamental safety and equality. Cognitive structures at the Stage 6 level automatically reject
credos and actions that the individual considers morally
reprehensible, and the referent is a person’s own moral
framework, rather than stereotyped group behavior.
Because most people endorse a law does not guarantee
its moral validity. When confronting social dilemmas,
the individual is guided by internal principles that may
transcend the legal system. Although these convictions
are personal, they are also universal because they have
worth and utility apart from the individual espousing
them. Kohlberg’s final stage thus represents more than
mere conformity with state, teacher, or institutional criteria. Rather, it indicates one’s capacity for decision
making and problem solving in the context of personal
ethical standards. In the study, those who took a course
in business ethics showed a progression up the ethical
scale, while those who had not taken a course did not
progress.
Foundations for Ethical
Decision Making
Some may find it surprising to learn that there is no
perfect approach to dealing with ethically charged
situations. In fact, people who subscribe to a “one
best” approach can find themselves making decisions
that, after the fact, others view as unethical. Similarly,
lacking an understanding of the different approaches
may lead to missteps because the decision maker fails
to recognize the ethical implications of a particular
situation.
When considering what to do in a situation with
ethical overtones, it is useful to be familiar with different approaches to ethics. These varied approaches
become ethical screens—similar to the opportunity
screens presented in Chapter 6. Taking a multifaceted
approach can prevent someone from unknowingly
making an ethical mistake. We will briefly consider
three widely used approaches.
Aristotle, the Greek philosopher, provided one of
the oldest approaches to ethics. To him it seemed
that the aim of each person should be to perfect his
or her inherent human nature, and if successful, become a person of virtue. The question then becomes,
“What is virtuous, and how does one learn what a virtuous person would do in a given situation?” By striving to be virtuous, and by emulating what people who
are widely considered to be virtuous do in similar situations, we can, over time, develop habits of virtue.
In modern terms, this is akin to choosing to observe
and emulate exemplary role models.
Two issues arising from this approach can lead an
entrepreneur to make poor decisions. The first is
choosing the wrong person to emulate. An entrepreneur imitating Jeff Skilling, the once-applauded Enron CEO now serving a 25-year prison sentence for
fraud and abuse of his corporate power, could act in
ways that would be widely viewed as unethical.
The second is that neither the actions actually
taken nor the consequences of the actions are directly addressed—only that the “court of opinion”
holds the actions to have been virtuous.
A second approach to ethics focuses on the consequences or outcomes of actions. This approach is
called utilitarianism, and its most often cited proponent is John Stewart Mill, a 19th-century English
philosopher. It holds that the ethical person will always choose actions that will provide for the greatest
good (or least bad) for the greatest number of people.
When considering what action to take, an ethical entrepreneur acting from a utilitarian perspective
would mentally calculate the impact of the action on
each stakeholder. Therefore, it is not the action that is
being judged as ethical or unethical, but rather the
collective impact of that action. A familiar way of expressing this is the saying that “the ends (consequences) justify the means (actions taken).”
This is probably one of the most widely used approaches in business and is the only system many
people consider. It is also known as Machiavellianism
after the author of the famous book The Prince. The
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challenge with this approach is that you can hit a wall
when conflicts and your own self-interest collide. For
example, what is the ethical decision in this situation.
A person comes to your door armed with a gun. He
asks for your spouse and announces that he has come
to kill that person. In all civilized societies, it would
be illegal, immoral, and unethical for you to kill this
person outside your home with no provocation other
than his words. So what do you do?
A number of issues can make the utilitarian approach difficult to adhere to or can lead entrepreneurs to take actions that may be considered unethical. First, it permits decisions that may hurt some
stakeholders, as long as the majority benefits from
the action. Second, a narrow view of who the stakeholders are may lead to unethical decisions because
we may fail to consider a stakeholder such as the environment. Third, the proximity of stakeholders, or
the degree to which they demand attention, may
cause the decision maker to ignore (or forget) them.
Fourth, there is a thin line between seeking the
greatest good for the greatest number and seeking
the greatest good for yourself. Self-interest can justify
many deplorable actions because they maximize personal outcomes to the exclusion of all else. The last
important issue stems from the fact that people are
judged as ethical or unethical based on the actions
they take, not by how they calculate the utility of the
outcomes. We must have a means of considering the
action apart from the outcomes. That leads into our
third approach, deontology.
Deontology means duty—one’s duty to act. According to Immanuel Kant, the 18th-century German philosopher, deontology focuses on the precepts that should determine action. This approach is
pursued without concern for the outcomes of actions, but according to whether the action is something that an ethical person would do. Actions, then,
are undertaken because they are right in themselves,
whether or not the outcomes benefit or harm the
person taking the actions. People therefore should
act in ways that one would hope would become the
universal laws of society. In situations where one’s
duty to society conflicts with one’s self-interest, one
must act in accordance with the duty to society regardless of the consequences. For example, if lying is
not what you would want to have as a universal law in
society, then you should never lie, even if lying
would benefit you personally or benefit your stakeholders.
There are difficulties with blind adherence to a
deontological viewpoint. First, it is difficult for a person to take actions that violate self-interest—even
when the person taking the action is not an egoist and
is trying to truly do the greatest good for the greatest
number. Second, unlike the virtue approach, the
371
court of public opinion is not considered; one takes
the action based on principle, not according to what
others think. Third, deontology does not deal well
with conflicts between actions that are each considered ethical. For example, consider the quandary of
an entrepreneur caught between the desire to be
with her ailing parents and the desire to go to Africa
and build a venture that could bring potable water to
thousands of villages.
Applying the Foundations
So how can we use these approaches? We suggest
that you use them as decision-making screens to
view the outcome and impact of any action you
might take. A good place to start would be the most
widely used approach, utilitarianism. Carefully enumerate the stakeholders, being sure to include
everyone, not just the convenient ones or the ones
making the most noise. When you have decided on
an action, apply the Aristotelian approach by asking,
“What would a really ethical entrepreneur in this situation do?” You might ask people in your network
and brain trust to tell you what they have done in
similar situations. Finally, look at the action you are
taking alone—separate from the consequences. Is
this action pure? That is, is it something that you
would be proud to have as the headline your mother
reads when she Googles you?
We also urge you to consider one of Ewing Marion
Kauffman’s key principles: Treat other people as you
would want to be treated. This simple but powerful
addition to your decision making can be a valuable
aid. How many people do you know who would want
to be cheated, lied to, deceived, or stolen from?
Will using these screens guarantee an ethical decision? Certainly not! But considering different approaches to the same issue will help prevent ethical
myopia—a narrowly defined ethical perspective that
can lead to trouble. Finally, consider how a given
stakeholder might accuse you of taking an unethical
action. Remember: Entrepreneurship involves risk
and making tough calls—often ethically charged
ones—on the fly. It is always best to approach those
challenges knowingly, with your ethical eyes wide
open.
Integrity as Governing Ethic
Harvard Business School Professor Lynn Paine distinguishes among avoiding legal sanctions, compliance, and the more robust standard of integrity:
From the perspective of integrity, the task of ethics management is to define and give life to an organization’s
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EXHIBIT 10.2
Ethical Decisions Matrix
Possible Consequences of Each Alternative on Stakeholders
Stakeholders
Decision
Alternative 1
Decision
Alternative 2
Decision
Alternative 3
Decision
Alternative 4
Decision
Alternative 5
1.
2.
3.
4.
5.
6.
7.
8.
Source: J. L. Livingstone et al., Framework for Ethical Decision Making, Babson College, 2003.
guiding values, to create an environment that supports
ethically sound behavior, and to instill a sense of shared
accountability among employees.19
Paine goes on to characterize the hallmarks of an effective integrity strategy (see Exhibit 10.2) and the
strategies for ethics management (see Exhibit 10.3).
Clearly the call for ethical strategies and practices,
first made in our original 1977 edition—which was
the first text to do so—is being heard. That is good
news for our society, our economy, and you!
EXHIBIT 10.3
Strategies for Ethics Management
Characteristics of Compliance Strategy
Characteristics of Integrity Strategy
Ethos
Objective
Leadership
Conformity with externally imposed standards
Prevent criminal misconduct
Lawyer driven
Ethos
Objective
Leadership
Methods
Education, reduced discretion, auditing and
controls, penalties
Behavioral
Autonomous beings guided by material
Assumptions self-interest
Self-governance according to chosen standards
Stable responsible conduct
Management driven with aid of lawyers, HR,
others
Methods
Education, leadership, accountability,
organizational systems and decision processes,
auditing and controls, penalties
Behavioral
Social beings guided by material self-interest,
Assumptions values, ideals, peers
Implementation of Compliance Strategy
Implementation of Integrity Strategy
Standards
Criminal and regulatory law
Standards
Staffing
Activities
Lawyers
Develop compliance standards, train, and
communicate
Staffing
Activities
Education
Compliance standards and system
Education
Company values and aspirations, social
obligations, including law
Executives and managers with lawyers, others
Lead development of company values and
standards
Train and communicate
Integrate into company systems
Provide guidance and consultation
Assess values performance
Identify and resolve problems
Oversee compliance activities
Decision making and values
Compliance standards and system
Source: Reprinted by permission of Harvard Business Review. From “Managing for Organizational Integrity,” by L. S. Paine, March–April 1994,
p. 113. Copyright ©1994 by the Harvard Business School Publishing Corporation; all rights reserved.
19
L. S. Paine, “Managing for Organizational Integrity,” Harvard Business Review, March–April 1994, pp. 105–17.
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Entrepreneurs’ Perspectives
Most entrepreneurs also believe ethics should be
taught. In the research project previously mentioned,
entrepreneurs and chief executive officers attending
the Owner/President Management (OPM) program
at the Harvard Business School were asked, Is there
a role for ethics in business education for entrepreneurs? Of those responding, 72 percent said ethics
can and should be taught as part of the curriculum.
(Only 20 percent said it should not, and two respondents were not sure.)
The most prominently cited reason for including
ethics was that ethical behavior is at the core of longterm business success because it provides the glue
that binds enduring successful business and personal
relationships together. In addition, the responses reflected a serious and thoughtful awareness of the
fragile but vital role of ethics in entrepreneurial attainment and of the long-term consequences of ethical behavior for a business. Typical comments were
these:
If the free enterprise system is to survive, the
business schools better start paying attention to
teaching ethics. They should know that business is built on trust, which depends on honesty
and sincerity. In a small company, lack of integrity is quickly exposed.
If our society is going to move forward, it won’t
be based on how much money is accumulated
in any one person or group. Our society will
move forward when all people are treated
fairly—that’s my simple definition of ethics. I
know of several managers, presidents, and the
like with whom you would not want to get between them and their wallets or ambitions.
In my experience the business world is by and
large the most ethical and law-abiding part of
our society.
Ethics should be addressed, considered, and
thoroughly examined; it should be an inherent
part of each class and course . . .; instead of crusading with ethics, it is much more effective to
make high ethics an inherent part of business—
and it is.
However, these views were not universally held. One
entrepreneur who helped to found a large company
with international operations warned, “For God’s
sake, don’t forget that 90 percent of the businessman’s efforts consist of just plain hard work.”
There is also some cynicism. The 40-year-old head
of a real estate and construction firm in the Northeast
with 300 employees and $75 million in annual sales
said, “There is so much hypocrisy in today’s world
that even totally ethical behavior is questioned since
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many people think it is some new negotiating technique.”
It would be unfortunate if the entrepreneur did
not realize his or her potential for combining action
with ethical purpose because of the suspicion that the
two are unrelated or inimical. There is no reason they
need be considered generically opposed. Nevertheless, in analyzing ethics, the individual can expect no
substitute for his or her own effort and intelligence.
The Fog of War and Entrepreneurship:
A Unique Context
The environment around a new venture is often
chaotic. Lessons can be learned from an even more
chaotic environment: combat. There is a concept called
“the fog of war” that goes back to the 19th century,
when Prussian general Carl von Clausewitz wrote,
War is the realm of uncertainty; three-quarters of the
factors on which action is based are wrapped in a fog of
greater or lesser uncertainty.
When bullets are flying and lives are at stake, critical
decisions must be made on the fly—without the benefit of a perfect understanding of the whole picture.
In the same way, the fog of the start-up battle that a
typical entrepreneur faces could include intense
pressures from outside influences like the following:
Your spouse says you’re not home enough.
Your Aunt Tillie, your father, and your mother-inlaw have each put in $50,000 . . . which is gone.
Everything takes too long and costs too much.
Your business isn’t working as it was supposed to.
You are doing nothing but damage control.
You have slowed down payments to creditors,
who are now screaming and making threats.
You have maxed out your refinanced line of
credit and your credit cards, and you have discounted receivables and inventories to get the
cash in sooner. Still, you figure you have just 18
business days of cash left.
Investors will put in money, but they want two
more seats on the board and a much larger percentage of ownership.
The bank reminds you that you and your
spouse have signed personal guarantees.
The 80-ton dinosaur in your industry just
moved into your market.
The malcontent troublemaker you fired is
suing you.
Now, in the midst of these sorts of pressures, make a
decision that might have serious financial and ethical
consequences that could follow you the rest of your life!
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Action under Pressure
An entrepreneur will have to act on issues under pressure of time and when struggling for survival. In addition, the entrepreneur will most likely decide ethical
questions that involve obligations on many fronts—to
customers, employees, stockholders, family, partners,
self, or a combination of these. As you will see in the
ethically charged situations presented at the end of the
chapter, walking the tightrope and balancing common
sense with an ethical framework can be precarious.
To cope with the inevitable conflicts, an entrepreneur should develop an awareness of his or her own
explicit and implicit ethical beliefs, those of his or her
team and investors, and those of the milieu within
which the company competes for survival. As the successful entrepreneurs quoted earlier believe, in the
long run, succumbing to the temptations of situational
ethics will, in all likelihood, result in a tumble into the
quicksand, not a safety net—just ask Steve Madden or
executives at Enron, Tyco, and Arthur Anderson.
An appreciation of this state of affairs is succinctly
stated by Fred T. Allen, chairman and president of
Pitney-Bowes:
As businessmen we must learn to weigh short-term interests against long-term possibilities. We must learn to
sacrifice what is immediate, what is expedient, if the
moral price is too high. What we stand to gain is precious little compared to what we can ultimately lose.20
Advice and Tips from the Trenches
Many of the lessons learned in the military and on the
battlefield can be instructive to entrepreneurs struggling with the chaos and uncertainties that go with
the territory. Consider the following.
Experience Is Critical Military troops are not
sent into combat on the day they enlist. They receive
relevant training and engage in stressful and chaotic
simulations that are as close as possible to the real
EXHIBIT 10.4
Selected Ethical Dilemmas of Entrepreneurial Management
Dilemma: Elements
Issues That May Arise
Promoter:
Entrepreneurial euphoria
Impression management
Pragmatic versus moral considerations
What does honesty mean when promoting an innovation?
Does it require complete disclosure of the risks and uncertainties?
Does it require a dispassionate analysis of the situation, with equal
time given to the downside as well as the upside?
What sorts of influence tactics cross the line from encouragement
and inducement to manipulation and coercion?
Tension between perceived obligations and moral expectations.
Changes in roles and relationships: pre- versus post-venture status.
Decisions based on affiliative concerns rather than on task-based
concerns.
Transition from a trust-based work environment to one that is more
controlled.
Side effects and negative externalities force a social reconsideration
of norms and values.
Heightened concern about the future impact of unknown harms.
Who is responsible for the assessment of risk? Inventor?
Government? Market?
Breaking down traditions and creating new models.
Is there a fair way to divide profits when they are the result of
cooperative efforts?
Should the entrepreneur take all the gains that are not explicitly
contracted away?
Managing an intimate connection between personal choices and
professional decisions.
Coping with ethical pressures with creative solutions and integrity.
Seeking industry recognition while not giving in to peer pressure to
conform.
Relationship:
Conflicts of interest and roles
Transactional ethics
Guerrilla tactics
Innovator:
“Frankenstein’s problem”
New types of ethical problems
Ethic of change
Other dilemmas:
Finders–keepers ethic
Conflict between personal values and business goals
Unsavory business practices
Source: Adapted from J. G. Dees and J. A. Starr, “Entrepreneurship through an Ethical Lens,” in The State of the Art of Entrepreneurship, ed. D. L.
Sexton and J. D. Kasarda (Boston: PWS-Kent, 1992), p. 96.
20
“Letter to Editor,” The Wall Street Journal, October 17, 1975.
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thing. In a new venture, an entrepreneur who has
done it before has experience to help with chaos. In
areas where they lack direct experience, entrepreneurs can compensate with a key hire, team member,
mentor, consultant, board member, or professional.
Have a Plan B Although designing “what if”
scenarios is most often associated with the quantitative side of running a proactive business (costs, pricing, margins, and the like), thinking through contingency plans, particularly during the launch and
growth stages, is an excellent way to avoid rash or ethically questionable decisions in the heat of a challenge. One technique to facilitate scenario dialog and
planning is to have a brown-bag lunch with your partners and pose some tough ethical dilemmas you may
face; what would each of you do?
Develop and Use Objective Standards
When faced with decisions on the fly—especially
ones involving ethical issues—it can be helpful to
have a clear and objective means to assess the situation. For example, at Everon IT, a remote IT services
venture in based in Boston, critical metrics for incoming, outgoing, and ongoing calls are projected
large on the facing wall of the service area. Other
walls feature motivational posters, challenge goals,
employee accolades, and descriptions of goal-related
rewards ranging from dinners for all to lavish vacation
retreats. With everyone pulling together to meet and
beat well-defined milestones, the office is charged
with a sense of mission and purpose.
Find a Pessimist You Can Trust Every lead
entrepreneur should have a trusted, no-nonsense advisor in the brain trust who can provide brutally honest assessments when things seem to be off base.
When these cautious, somewhat pessimistic advisors
express their approval of a given decision or strategy,
that validation can be a real confidence booster.
Don’t Forget the Mirror and Those Internet
Headlines Looking in the mirror can be a powerful, challenging exercise. You’ve just read the morning headlines all over the Internet that describe in intimate detail all of your actions and behaviors concerning
a recent decision that—most unexpectedly—became
highly visible and public. Is this the person you want
to be known as? Is this a person the people you love
and respect the most would admire and support? Is
this a person you want your best friends and your
family to know about? If you aren’t fully comfortable
with your answers to these questions and what you
see in the mirror as a result of an ethical decision you
have to make, then you don’t have an acceptable answer yet. Don’t give up—but clean it up!
21
D. McClelland, Achieving Society (New York: Van Nostrand, 1961), p. 331.
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Thorny Issues for Entrepreneurs
Although the majority of entrepreneurs take ethics
seriously, researchers in this area are still responding
to David McClelland’s call for inquiry: “We do not
know at the present time what makes an entrepreneur more or less ethical in his dealings, but obviously there are few problems of greater importance
for future research.”21 One article outlined the topics
for research (see Exhibit 10.4). Clearly an opportunity for further research still exists.
Different Views
Different reactions to what is ethical may explain why
some aspects of venture creation go wrong, both during
start-up and in the heat of the battle, for no apparent
reason. Innumerable examples can be cited to illustrate
that broken partnerships often can be traced to apparent differences in the personal ethics among the members of a management team. So too with investors.
While the experienced venture capital investor seeks
entrepreneurs with a reputation for integrity, honesty,
and ethical behavior, the definition is necessarily subjective and depends in part on the beliefs of the investor and in part on the prevailing ethical climate in
the industry sector in which the venture is involved.
Problems of Law
For entrepreneurs, situations where one law directly
conflicts with another are increasingly frequent. For
example, a small-business investment company in New
York City got in serious financial trouble. The Small
Business Administration stated the company should
begin to liquidate its investments because it would otherwise be in defiance of its agreement with the SBA.
However, the Securities and Exchange Commission
stated that this liquidation would constitute unfair
treatment of stockholders, due to resulting imbalance
in their portfolios. After a year and a half of agonizing
negotiation, the company was able to satisfy all the parties, but compromises had to be made on both sides.
Another example of conflicting legal demands involves conflicts between procedures of the civil service
commission code and the Fair Employment Practice
Acts (dating from FDR). The code states that hiring
will include adherence to certain standards, a principle
that was introduced in the 20th century to curb the patronage abuses in public service. Recently, however,
the problem of encouraging and aiding minorities has
led to the Civil Service Commission Fair Employment
Practice Acts, which require the same public agencies
that are guided by CSC standards to hire without prejudice, and without the requirement that a given test
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shall serve as the criterion of selection. Both these laws
are based on valid ethical intent, but the resolution of
such conflicts is no simple matter.
Further, unlike the international laws governing commercial airline transportation, there is no international
code of business ethics. When doing business abroad,
entrepreneurs may find that those with whom they
do business have little in common with them—no
common language, no common historical context for
conducting business, and no common set of ethical
beliefs about right and wrong and everything in between. For example, in the United States, bribing a
high official to obtain a favor is considered both ethically and legally unacceptable; in parts of the Middle
East, it is the only way to get things done. What we
see as a bribe, those in parts of the Middle East see as
a tip, like what you might give the headwaiter at a
fancy restaurant in New York for a good table.
“When in Rome” is one approach to this problem.
Consulting a lawyer with expertise in international
business before doing anything is another. Assuming
that the object of an entrepreneur’s international business venture is to make money, he or she needs to figure out some way that is legally tolerable under the laws
that do apply and that is ethically tolerable personally.
Examples of the Ends-and-Means Issue
A central question in any ethical discussion concerns
the extent to which a noble end may justify ignoble
means—or whether using unethical means for assumed ethical ends may subvert the aim in some way.
As an example of a noble end, consider the case of a
university agricultural extension service whose goal
was to help small farmers increase their crop productivity. The end was economically constructive and
profit oriented only in the sense that the farmers
might prosper from better crop yields. However, to
continue being funded, the extension service was required to predict the annual increases in crop yield it
could achieve—estimates it could not provide at the
required level of specificity. Further, unless it could
show substantial increases in crop yields, its funding
might be heavily reduced. In this case, the extension
service decided, if need be, to fudge the figures because it was felt that even though the presentation of
overly optimistic predictions was unethical, the objectives of those running the organization were highly
ethical and even the unethical aspects could be condoned within the context of the inability of the various
groups involved to speak each other’s language clearly.
The funding source finally backed down in its demand, ameliorating the immediate problem. But if it
had not, the danger existed that the individuals in this
organization, altruistic though their intentions were,
would begin to think that falsification was the norm
and would forget that actions that run contrary to ethical feelings gradually build a debilitating cynicism.
Another example is given in the case of a merger of
a small rental service business with a midsize conglomerate, where a law’s intent was in direct opposition to
what would occur if the law was literally enforced. In
this case, a partner in the rental firm became involved
in a severe automobile accident and suffered multiple
injuries shortly before the merger and was seemingly
unable to return to work. The partner also knew that
the outlook for his health in the immediate future was
unpredictable. For the sake of his family, he was eager
to seek some of the stock acquired in the merger and
make a large portion of his assets liquid. However, federal law does not allow quick profit taking from mergers and therefore did not allow such a sale. The partner
consulted the president and officers of the larger company, and they acquiesced in his plans to sell portions of
his stock and stated their conviction that no adverse effect on the stock would result. Still unsure, the partner
then checked with his lawyer and found that the federal
law in question had almost never been prosecuted.
Having ascertained the risk and having probed the rationale of the law as it applied to his case, the partner
sold some of the stock acquired in the merger to provide security for his family in the possible event of his
incapacitation or death. Although he subsequently recovered completely, this could not have been foreseen.
In this instance, the partner decided that a consideration of the intrinsic purpose of the law allowed him to
act as he did. In addition, he made as thorough a check
as possible of the risks involved in his action. He was
not satisfied with the decision he made, but he believed
it was the best he could do at the time. We can see in
this example the enormous ethical tugs-of-war that go
with the territory of entrepreneurship.
An Example of Integrity
The complicated nature of entrepreneurial decisions
also is illustrated in the following example. At age 27,
an entrepreneur joined a new computer software
firm with sales of $1.5 million as vice president of international marketing of a new division. His principal
goal was to establish profitable distribution for the
company’s products in the major industrialized nations. Stock incentives and a highly leveraged bonus
plan placed clear emphasis on profitability rather
than on volume. In one European country, the choice
of distributors was narrowed to 1 from a field of more
than 20. The potential distributor was a top firm, with
an excellent track record and management, and the
chemistry was right. In fact, the distributor was so eager to do business with the entrepreneur’s company
that it was willing to accept a 10 percent commission
rather than the normal 15 percent royalty. The other
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terms of the deal were acceptable to both parties. In
this actual case, the young vice president decided to
give the distributor the full 15 percent commission,
even though it would have settled for less. This
approach was apparently quite successful because, in
five years, this international division grew from zero
to $18 million in very profitable sales, and a large firm
acquired the venture for $80 million. In describing
his reasoning, the entrepreneur said his main goal
377
was to create a sense of long-term integrity. He said
further,
I knew what it would take for them to succeed in gaining the kind of market penetration we were after. I also
knew that the economics of their business definitely
needed the larger margins from the 15 percent, rather
than the smaller royalty. So I figured that if I offered
them the full royalty, they would realize I was on their
side, and that would create such goodwill that when we
Code of Ethical Responsibility
Ethical Performance: Everyone’s Responsibility
As an employee or independent contractor of The MENTOR Network, you have an obligation to be honest in
all of your dealings with the individuals we serve, their families, fellow employees, independent contractors,
vendors, and third parties. You must know and comply with applicable laws, regulations, licensing requirements,
contractual obligations, and all company policies and procedures. Maintaining ethical standards is everyone’s
responsibility. If you know of a problem, you cannot remain silent. Step forward and be part of the solution.
For those employees and independent contractors involved in the coordination of services for individuals in
care, the company expects you to
■
Conduct yourself according to professional and ethical standards.
■
Take responsibility for identifying, developing, and fully utilizing knowledge and abilities for professional practice.
■
Obtain training/education and supervision to assure competent services.
■
Not misrepresent professional qualifications, education, experience, or affiliations, and maintain the credentials
required in order to deliver the type and intensity of services provided.
■
Be aware of your own values and their implications for practice.
■
Solicit collaborative participation by professionals, the individuals served, and family and community members
to share responsibility for consumer outcomes.
■
Work to increase public awareness and education of the human service industry.
■
Advocate for adequate resources.
■
Work to ensure the efficiency and effectiveness of services provided.
■
Maintain boundaries between professional and personal relationships with individuals served.
■
Report ethical violations to appropriate parties.
Ethical Performance: Leadership/Supervisory Responsibility
Leadership requires setting a personal example of high ethical standards in the performance of your job. Managers set the tone for the company. Managers are responsible for making sure that all employees, independent
contractors, and vendors receive a copy of the code and assisting them in applying the code’s ethical standards.
Conclusion
The company depends on everyone we work with to safeguard our standards and ethics. Although ethical
requirements are sometimes unclear, the following questions will provide a good guideline for those in doubt
about their conduct:
■
Will my actions be ethical in every respect?
■
Will my actions fully comply with the law and company standards?
■
Will my actions be questioned by supervisors, associates, family, or the general public?
■
How would I feel if my actions were reported in the newspaper?
■
How would I feel if another employee, contractor, customer, or vendor acted in the same way?
■
Will my actions have the appearance of impropriety?
Source: The MENTOR Network (www.TheMentorNetwork.com). Founded in 1980, The MENTOR Network is a national network of local human
services providers offering an array of quality, community-based services to adults and children with developmental disabilities or acquired brain injury;
to children and adolescents with emotional, behavioral, and medically complex challenges; and to elders in need of home care.
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did have some serious problems down the road—and
you always have them—then we would be able to work
together to solve them. And that’s exactly what happened. If I had exploited their eagerness to be our distributor, then it only would have come back to haunt me
later on.
Ethics Exercise Revisited
The following statements are often made, even by
practicing entrepreneurs: How can we think about
ethics when we haven’t enough time even to think
about running our venture? Entrepreneurs are doers, not thinkers—and ethics is too abstract a concept to have any bearing on business realities. When
you’re struggling to survive, you’re not worried
about the means you use—you’re fighting for one
thing: survival.
However, the contemplation of ethical behavior is
not unlike poetry—emotion recollected in tranquility. This chapter is intended to provide one such tranquil opportunity.
Through the decisions actually made, or not made,
an individual could become more aware of his or her
own value system and how making ethical decisions
can be affected by the climate in which these decisions are made. We urge you to fully engage in the
Ethical Decisions exercise. These three vignettes pose
practical and not infrequent ethical dilemmas based
on actual occurrences. One excellent way to do this is
to take two or three friends to lunch—particularly
those you imagine might make excellent venture
partners. Over lunch, discuss in detail each of the
vignettes—what you would and should do. Try to apply the ideas from the chapter. At the end, see if you
can reach conclusions about what you have learned
and what you plan to do differently.
Chapter Summary
The vast majority of CEOs, investors, and entrepreneurs believe that a high ethical standard is the single
most important factor in long-term success.
Historically, ethical stereotypes of businesspeople
ranged widely, and today the old perceptions have
given way to a more aware and accepting notion of
the messy work of ethical decisions.
Ethical issues and discussion are now a part of curricula at many of the top business school programs in
the United States and abroad.
Entrepreneurs can rarely, if ever, finish a day without
facing at least one or two ethical issues.
To make effective and ethical decisions you must understand yourself and be able to identify the scope
and effects of your self-interest.
Numerous ethical dilemmas challenge entrepreneurs
at the most crucial moments of survival, like a precarious walk on a tightrope.
Study Questions
1. What conclusions and insights emerged from the
ethics exercise?
2. Why have ethical stereotypes emerged, and how have
they changed?
3. Why is ethics so important to entrepreneurial and
other success?
4. Why do many entrepreneurs and CEOs believe
ethics can and should be taught?
5. What are the most thorny ethical dilemmas that entrepreneurs face, and why?
6. Describe an actual example of how and why taking a
high ethical ground results in a good decision for
business.
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Internet Resources for Chapter 10
http://www.managementhelp.org/ethics/ethics.htm A
range of papers and articles on ethics from the Free
Management Library.
http://www.pdcnet.org/beq.html Business Ethics
Quarterly publishes scholarly articles from a variety of
disciplinary orientations that focus on the general subject
of the application of ethics to the international business
community.
http://www.business-ethics.org An international institute
fostering global business practices to promote equitable
economic development, resource sustainability, and just
forms of government.
http://www.business-ethics.com/ Business Ethics is an
online publication that offers information, opinion, and
analysis of critical issues in the field of corporate
responsibility.
MIND STRETCHERS
Have You Considered?
1. How would you define your own ethics?
2. What was the toughest ethical decision you have
faced? How did you handle it, and why? What did
you learn?
3. How do you personally determine whether someone
is ethical?
4. How would you describe the ethics of the president of
the United States? Why? Would these ethics be acceptable to you in an investor, a partner, or a spouse?
5. When you look in the mirror, do you see someone
with a commitment to pursuing high ethical standards? Are there limits to those standards?
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Exercise 1
Ethics
In this exercise, decisions will be made in ethically ambiguous situations and then analyzed. As in the real world,
all the background information on each situation will not be
available, and assumptions will need to be made.
It is recommended that the exercise be completed before
reading the following material, and then revisited after you
have completed the chapter.
Name:
Date:
Part I
STEP 1
Make decisions in the following situations.
You will not have all the background information about
each situation; instead you should make whatever assumptions you feel you would make if you were actually confronted with the decision choices described. Select the
decision choice that most closely represents the decision you
feel you would make personally. You should choose decision choices even though you can envision other creative
solutions that were not included in the exercise.
Situation 1. You are taking a very difficult chemistry
course, which you must pass to maintain your scholarship
and to avoid damaging your application for graduate school.
Chemistry is not your strong suit, and because of a just-belowfailing average in the course, you must receive a grade of 90
or better on the final exam, which is two days away. A janitor who is aware of your plight informs you that he found the
master copy of the chemistry final in a trash barrel and saved
it. He will make it available to you for a price, which is high
but which you could afford. What would you do?
(a)
I would tell the janitor thanks, but no thanks.
(b)
I would report the janitor to the proper officials.
(c)
I would buy the exam and keep it to myself.
(d)
I would not buy the exam myself, but I would
let some of my friends, who are also flunking
the course, know that it is available.
Situation 2. You have been working on some complex
analytical data for two days now. It seems that each time
you think you have them completed, your boss shows up
with a new assumption or another what-if question. If you
only had a copy of a new software program for your personal computer, you could plug in the new assumptions
and revise the estimates with ease. Then a colleague offers
to let you make a copy of some software that is copyrighted. What would you do?
(a)
I would readily accept my friend’s generous
offer and make a copy of the software.
(b)
I would decline to copy it and plug away
manually on the numbers.
(c)
I would decide to go buy a copy of the software myself for $300 and hope I would be
reimbursed by the company in a month or two.
(d)
I would request another extension on an
already overdue project date.
Situation 3. Your small manufacturing company is in
serious financial difficulty. A large order of your products
is ready to be delivered to a key customer, when you discover that the product is simply not right. It will not meet
all performance specifications, will cause problems for
your customer, and will require rework in the field; but
this, you know, will not become evident until after the customer has received and paid for the order. If you do not
ship the order and receive the payment as expected, your
business may be forced into bankruptcy. And if you delay
the shipment or inform the customer of these problems,
you may lose the order and also go bankrupt. What
would you do?
(a)
I would not ship the order and place my firm
in voluntary bankruptcy.
(b)
I would inform the customer and declare
voluntary bankruptcy.
(c)
I would ship the order and inform the customer
after I received payment.
(d)
I would ship the order and not inform the
customer.
Situation 4. You are the cofounder and president of a
new venture, manufacturing products for the recreational
market. Five months after launching the business, one of
your suppliers informs you it can no longer supply you with
a critical raw material because you are not a large-quantity
user. Without the raw material your business cannot continue. What would you do?
(a)
I would grossly overstate my requirements to
another supplier to make the supplier think I
am a much larger potential customer in order
to secure the raw material from that supplier,
even though this would mean the supplier will
no longer be able to supply another, noncompeting small manufacturer who may thus be
forced out of business.
(b)
I would steal raw material from another firm
(noncompeting) where I am aware of a sizable stockpile.
(c)
I would pay off the supplier because I have
reason to believe that the supplier could
be persuaded to meet my needs with a sizable
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under-the-table payoff that my company could
afford.
(d)
I would declare voluntary bankruptcy.
Situation 5. You are on a marketing trip for your new
venture, calling on the purchasing agent of a major
prospective client. Your company is manufacturing an electronic system that you hope the purchasing agent will buy.
During your conversation, you notice on the cluttered desk
of the purchasing agent several copies of a cost proposal
for a system from one of your direct competitors. This purchasing agent has previously reported mislaying several of
your own company’s proposals and has asked for addi-
381
tional copies. The purchasing agent leaves the room momentarily to get you a cup of coffee, leaving you alone with
your competitor’s proposals less than an arm’s length
away. What would you do?
(a)
I would do nothing but await the man’s return.
(b)
I would sneak a quick peek at the proposal,
looking for bottom-line numbers.
(c)
I would put the copy of the proposal in my
briefcase.
(d)
I would wait until the man returns and ask his
permission to see the copy.
Part II
STEP 1
Based on the criteria you used, place your answers to each of the situations just described along the continuum of behavior
shown here:
Duty
Situation
1
Situation
2
Situation
3
Situation
4
Situation
5
Contractual
Utilitarian
Situational
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Part III
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STEP 2
After separating into teams of five to six people, record the answers made by each individual member of your team on the
form here. Record the answers of each team member in each box and the team’s solution in the column on the far right:
Member Name:
Team Answer
Situation
1
Situation
2
Situation
3
Situation
4
Situation
5
STEP 3
Reach a consensus decision in each situation (if possible) and record the consensus that your team has reached in the previous chart. Allow 20 to 30 minutes.
STEP 4
Report to the entire group your team’s conclusions and discuss with them how the consensus, if any, was reached. The discussion should focus on the following questions:
Was a consensus reached by the group?
Was this consensus difficult or easy to achieve? Why?
What kinds of ethical issues emerged?
How were conflicts, if any, resolved? Or were they left unresolved?
What creative solutions did you find to solve the difficult problems without compromising your integrity?
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383
STEP 5
Discuss with the group the following issues:
What role do ethical issues play? How important are they in the formation of a new venture management team?
What role do ethical issues play and how important are they in obtaining venture capital? That is, how do investors feel
about ethics and how important are they to them?
What feelings bother participants most about the discussion and consensus reached? For example, if a participant believes that his or her own conduct was considered ethically less than perfect, does he or she feel a loss of self-respect or
a sense of inferiority? Does he or she fear others’ judgment, and so on?
What does it mean to do the right thing?
STEP 6
Define each group member’s general ethical position and note whether his or her ethical position is similar to or different
from yours:
Member
Different/
Similar
Position
STEP 7
Decide whom you would and would not want as business partners based on their ethical positions:
Would Want
Would Not Want
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Exercise 2
Ethical Decisions—What
Would You Do?
Here are three interesting real-life ethical decision situations
for your consideration.
Rim Job
Jeremy, a successful entrepreneur in the automotive industry,
is a certified car fanatic who is passionate about having the
latest, hottest look for his street rod. A line of new wheel rims
is all the rage, and after checking the prices ($1,500 each),
he decides to contact the manufacturer directly and see if he
can make a better deal. He is told that they are sold only
through speed shops and custom shops, and that his area
does not have a sales representative. If he would agree to
become a representative and get $10,000 worth of wholesale orders, the manufacturer would sell him a set of the rims
at cost, in addition to paying him his commission. Jeremy
agrees. Now he knows how he’ll get his new rims.
First Jeremy goes to the biggest and best speed shop
nearby and asks for the rims by name. The owner says he
has never heard of them. Jeremy, after telling the owner that
they are really a popular product and that he is the sales rep,
leaves some literature and says he will call again. Meanwhile he hires four male students from a local college to each
go into the shop once in the next two weeks and to ask for
the rims by name. They are to indicate that they would buy
them if they were available. For this he pays each student
$100. He then returns after three weeks, and the owner reports that the rims must be as hot as Jeremy says—kids have
been asking for them. He orders $15,000 worth of rims to
be delivered over six months. Jeremy is able to buy a set of
rims from the manufacturer for $335 each and receives a
$380 sales commission on the total sale. The speed shop
owner sells $30,000 worth of the rims and reorders after
four months. Jeremy remains the sales representative collecting commissions, but he does not actively promote the rims.
Were Jeremy’s actions ethical? Why or why not? What
should he have done?
Empty Suits
Fred was excited to make his pitch to some angel investors; but he felt a bit uneasy because although he’d
used the terms team and we throughout his business
plan, he was the only one involved in his venture. He had
not yet been able to attract any members to his team, but
he had had several conversations with prospects. His
personal contact in the angel group told him that his venture was likely to be funded, but there would be considerable focus on his team; a lot was riding on the meeting. For the presentation to the group he had four of his
best friends, not at all connected to the business, dress in
their best business suits, accompany him to the presentation, take seats in the back of the room, and say nothing.
He hoped to make the impression that he had a team. He
did a great job in the meeting, and his “team” filed out
after him.
Was Fred being ethical? Why or why not? How should
he have handled the situation?
A Moving Disclosure
Susan has been wrestling with moving her patio furniture
manufacturing plant to Georgia from upstate Michigan,
where her mother and father founded the company 58
years ago. Everything about her business will be easier
there: closer to her markets, lower labor costs, lower raw
materials costs, lower shipping costs, no problems with
weather, and access to a labor pool that better fits her business. She finally makes the decision to move, but the site
she has chosen will not be available for six months. Even
though her company is a public company (she owns 35
percent) and her board is pushing her to maintain high production levels in Michigan as long as possible, she decides
that in deference to her parents and their legacy in the community, she must tell her employees. Four days after signing
the lease for the new site in Georgia, she holds a meeting
on the shop floor and tells her employees. That afternoon
she holds a press conference.
Was Susan ethical? Why or why not?
What are the implications and lessons from your discussion
of the three cases? What role do ethical issues play in forming a team, selecting advisors and investors, and other entrepreneurial activities?