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Section 1: The Challenge of Entrepreneurship

2
Ethics and Social
Responsibility: Doing
the Right Thing

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❖Define business ethics and describe the three levels
of ethical standards.
❖Determine who is responsible for ethical behavior
and why ethical lapses occur.
❖Explain how to establish and maintain high ethical
standards.
❖Explain the difference between social entrepreneurs
and traditional entrepreneurs.
❖Define social responsibility.

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 (continued)

❖Understand the nature of business’s

responsibility to the environment.
❖Describe business’s responsibility to employees.
❖Discuss business’s responsibility to customers.
❖Describe business’s responsibility to investors.
❖Describe business’s responsibility to the
community.

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❖Ethical behavior: doing what is “right” as
opposed to what is “wrong.”
❖Reflects entrepreneur’s personal values and
beliefs
❖It is important to consider the perspectives of
different stakeholders: the various groups and
individuals who affect and are affected by a
business.

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❖Ethics: a branch of philosophy that studies
and creates theories about the basic nature of
right and wrong, duty, obligation, and virtue.

❖Social responsibility: how an

organization responds to the needs of the
many elements in society.

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❖Business ethics: the fundamental moral
values and behavioral standards that form
the foundation for the people of an
organization as they make decisions and
interact with stakeholders.

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1. Companies avoid the damaging fallout from
unethical behavior on their reputation.
2. Dealing with stakeholders is much easier if a
company has a solid ethical foundation on
which to build.
3. It is easier to attract and retain quality
workers.
4. It has a positive impact on a company’s
bottom line.
5. It has an impact on a company’s ability to
provide value for its customers.

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Step 1: Identify the personal moral and ethical
principles that shape all business decisions.
Step 2: Recognize the ethical dimensions involved in
the dilemma or decision.
Step 3: Identify the key stakeholders involved and
determine how the decision will affect them.
❖Triple bottom line (3BL): measuring business
performance using profitability, commitment to
ethics and social responsibility, and its impact on
the environment (“profit, people, and planet”).

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 (continued)

Step 4: Generate alternative choices and

distinguish between ethical and
unethical responses.
Step 5: Choose the “best” ethical response and
implement it.

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❖An unethical employee
❖An unethical organizational culture
❖Moral blindness
❖Competitive pressures
❖Opportunity pressures
❖Globalization of business

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❖Ethical tests for judging behavior:
❖The utilitarian principle
❖Kant’s categorical imperative
❖The professional ethic
❖The Golden Rule
❖The television test
❖The family test

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❖ Honesty
❖ Integrity
❖ Promise-keeping
❖ Fidelity
❖ Fairness
❖ Caring for others
❖ Respect for others
❖ Responsible citizenship
❖ Pursuit of excellence
❖ Accountability

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❖ Set the tone.
❖ Create a company credo:
❖ A statement that defines the values
underlying the entire company and its ethical
responsibilities to its stakeholders.
❖ Establish high standards of behavior.
❖ Involve employees in establishing ethical
standards.
❖ Create a culture that emphasizes two-way
communication.

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 (continued)
❖ Eliminate “undiscussables.”
❖ Develop a code of ethics:
❖ A written statement of the standards of
behavior and ethical principles a company
expects from its employees.
❖ Enforce the code of ethics through policies.
❖ Recruit and promote ethical employees.
❖ Ethical commitment.
❖ Ethical consciousness.
❖ Ethical competency.

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 (continued)

❖Conduct ethics training.

❖Reward ethical conduct.
❖Separate related job duties.
❖Perform periodic ethical audits.

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❖Social entrepreneurs:
❖Seek solutions for social problems that
are met by neither the market nor the
government.
❖Focus on creating social benefit rather
than commercial success.
❖Tackle social problems by taking full
advantage of natural market forces.

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❖ Companies must go beyond “doing well” –
simply earning a profit – to “doing good” –
living up to their social responsibility.
❖ Surveys show:
❖ 55% of small businesses’ mission statements
include references to achieving social goals.
❖ 90% of small business owners give to charity
and 70% donate both money and time to local
causes.

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❖Research shows:
❖75% of consumers say social responsibility
is important in their purchasing decisions.
❖There is a positive correlation between
ethical, socially responsible behavior and
profitability.
❖But it can be difficult to define just what
socially responsible behavior is!

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❖Encourage recycling.
❖Support local fundraisers.
❖Join in community service.
❖Reduce energy usage.
❖Create a grant program.
❖Support local causes.
❖Partner with local school.

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❖Socially responsible business owners
focus on the three Rs:
1. Reduce the amount of energy and materials
used in your company.
2. Reuse whatever you can.
3. Recycle the materials you must dispose of.

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❖Recognize the value of employees:
❖Listen to them and respect their opinions.
❖Ask for their input and involve them in the
decision-making process.
❖Provide regular feedback – positive and negative.
❖Tell them the truth – always.
❖Let them know exactly what’s expected of them.
❖Reward them for performing their jobs well.
❖Trust them – create an environment of respect and
teamwork.
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❖Use a “SPLENDID” approach:
❖Study
❖Plan
❖Lead
❖Encourage
❖Notice
❖Discussion
❖Inclusion
❖Dedication

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❖Business owners need to:
❖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.

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❖An effective, proactive drug program should include:
❖A written substance abuse policy.
❖Training for supervisors to detect substance-
abusing workers.
❖An employee education program.
❖A drug-testing program, when necessary.
❖An employee assistance program (EAP):
❖A company-provided benefit designed to help
reduce workplace problems such as alcoholism,
drug addiction, a gambling habit, and other
conflicts and to deal with them when they arise.

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❖Sexual harassment: any unwelcome sexual
advance, request for sexual favors, and other
verbal or physical sexual conduct made explicitly
or implicitly as a condition of employment.

❖Small businesses are especially vulnerable

because they lack the policies, procedures, and
training to prevent it.

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❖Behaviors that can result in sexual harassment
charges:
❖Quid pro quo harassment
❖Hostile environment
❖Harassment by nonemployees

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❖Education:
❖Training programs can raise awareness of
what constitutes harassment.
❖Policy:
❖Implement a meaningful and enforceable
policy against harassment.
❖Procedure:
❖Provide a channel for employees to express
their complaints.

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❖Business owners should:
❖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.

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❖Businesses should build long-term relationships
with their customers.
❖Abide by the Consumer Bill of Rights.
❖Right to safety.
❖Right to know.
❖Right to be heard.
❖Right to education.
❖Right to choice.

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❖Businesses have a responsibility to:
❖Provide investors with an attractive return
on their investment.
❖Meet ethical and social goals.
❖Report their financial performance in an
accurate and timely fashion to their
investors.

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❖Businesses have a responsibility to:
❖Provide jobs and create wealth.
❖Contribute to the community in other ways.
❖Act as volunteers for community groups.
❖Participate in projects to help the elderly or
poor.
❖Adopt a highway to promote a clean
community.
❖Volunteer in school programs.

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❖Businesses must do more than earn profit; they
must act ethically and in a socially responsible
way.
❖But, there is no universal definition of ethical
behavior.
❖Business owners need to commit to following the
highest ethical standards if they expect their
employees to do so.

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