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In this chapter, you will:
1. Define business ethics and describe the three levels of ethical standards.
2. Determine who is responsible for ethical behavior and why ethical lapses occur.
3. Explain how to establish and maintain high ethical standards.
In addition, you will:
4. Explain the difference between social entrepreneurs and traditional entrepreneurs.
5. Define social responsibility.
6. Understand the nature of business’s responsibility to the environment.
7. Describe business’s responsibility to employees.
8. Discuss business’s responsibility to customers.
9. Describe business’s responsibility to investors.
10. Describe business’s responsibility to the community.
Ethical behavior involves doing what is “right” as opposed to what is “wrong.” When thinking about ethical behavior, it’s important to consider the perspectives of different stakeholders.
This figure shows different stakeholders in an organization.
Ethics and social responsibility set behavioral boundaries for business owners.
While maintaining an ethical perspective is essential to creating and protecting a company’s reputation, it’s not easy! Ethical dilemmas lurk in the decisions that entrepreneurs make every day.
This figure shows the three levels of ethical standards: the law; organizational policies and procedures; and morality.
This table shows the three ethical styles of management: immoral, amoral, and moral management.
Keep in mind that an entrepreneur who practices ethical behavior establishes the moral tone for the entire organization.
Entrepreneurs must recognize that ethical behavior is an investment in the company’s future rather than merely a cost of doing business.
The top five reasons to be ethical are:
To protect the brand and company’s reputation;
Because it’s the right thing to do;
To maintain customer loyalty and trust;
To maintain the confidence of investors;
To earn public acceptance and recognition.
What drives business ethics?
Corporate scandals
Competition
Investor demands
Customer pressure
Globalization
To cope successfully with the many ethical decisions they face, entrepreneurs must develop a workable ethical framework to guide themselves and the organization.
The final choice must be consistent with the company’s goals, culture, and value system as well as those of the individual decision makers.
This figure highlights the primary causes of misconduct in business.
We can explore the primary causes of ethical lapses in more detail.
Research shows that in organizations with ethical cultures:
Leaders support and model ethical behavior.
There are consistent communications come from all company leaders.
Ethics is integrated into the organization’s goals, business processes, and strategies.
Ethics is part of the performance management system.
Ethics is part of the company’s selection criteria and selection process.
In addition:
The needs of the various stakeholder are balanced when making decisions.
A strong set of core values supports the vision and mission of the company.
The company maintains a long-term perspective on all decisions.
These tests can help employees identify the moral implications of the decisions they face.
The study of history, philosophy, and religion reveals a strong consensus about certain universal and timeless values that are central to leading an ethical life.
To create an environment that encourages ethical behavior, entrepreneurs must make building an intentional culture that is based on a strong ethical foundation a core responsibility as leaders of their businesses.
To maintain ethical standards, entrepreneurs should:
Set the tone
Create a company credo
Establish high standards of behavior
Involve employees in establishing ethical standards
Create a culture that emphasizes two-way communication
In addition, firms should:
Eliminate “undiscussables”
Develop a code of ethics
Enforce the code of ethics through policies
Recruit and promote ethical employees
Finally, entrepreneurs should:
Conduct ethics training
Reward ethical conduct
Separate related job duties
Perform periodic ethical audits
Whereas traditional entrepreneurs seek opportunities to create market value, there is a growing trend to use entrepreneurship to pursue opportunities to create social value.
Society is constantly redefining its expectations of business and now holds companies of all sizes to high standards of ethics and social responsibility.
When customers shop for “value,” they no longer consider only the price–performance relationship of the product or service; they also consider the company’s stance on social responsibility.
These are some simple ways small businesses can be socially responsible.
Due to a strong personal belief in environmental protection, many entrepreneurs seek to start ventures that have a positive impact on the environment or take steps to operate their businesses in ways that help protect the environment. Focusing on the three Rs is one way to accomplish this.
Remember that employees produce the winning competitive edge for entrepreneurs so it’s important to treat them well.
The Diversity Index measures the probability that two people chosen at random from the same area belong to different race or ethnic groups.
This figure shows the projected composition of the U.S. workforce for 2020.
How can entrepreneurs achieve unity through diversity? The only way is by managing diversity in the workforce. Try using a SPLENDID approach.
Managing a culturally diverse workforce successfully requires a business owner to do the following:
Assess diversity needs
Learn to recognize and correct their own biases and stereotypes
Avoid making invalid assumptions
Push for diversity in their management teams
Concentrate on communication
Make diversity a core value in the organization
Continue to adjust the company to their workers
Substance abuse has infiltrated the workplace making it important even for entrepreneurs to have an effective, proactive drug program.
Sexual harassment is a violation of Title VII of the Civil Rights Act of 1964 and is considered to be a form of sex discrimination. Studies show that sexual harassment occurs in businesses of all sizes, but small businesses are especially vulnerable because they typically lack the policies, procedures, and training to prevent it.
Most sexual harassment charges arise from claims of a hostile environment.
A company’s best weapons against sexual harassment are education, policy, and procedures.
To avoid ethical and legal problems, business owners should follow these guidelines:
Establish a clear policy for monitoring employees’ communications
Create guidelines for the proper use of the company’s communication technology and communicate them to everyone
Monitor in moderation
Companies have the responsibility to provide their customers with safe, quality products and services.
Although earning a profit may be a company’s first responsibility, it is not its only responsibility; meeting its ethical and social responsibility goals is also a key to success. Investors today want to know that entrepreneurs are making ethical decisions and acting in a socially responsible manner.
As corporate citizens, businesses have a responsibility to the communities in which they operate. Indeed, consumers expect companies to be socially responsible and to be good corporate citizens.
Businesses must do more than merely earn profits; they must act ethically and in a socially responsible manner. Establishing and maintaining high ethical and socially responsible standards must be a top concern of every business owner. Finally, business owners and managers must recognize the key role they play in influencing their employees’ ethical and socially responsible behavior.
