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Section 1: The Challenge of Entrepreneurship

2
Ethics and Social
Responsibility: Doing
the Right Thing

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WHY DO YOU DO WHAT YOU DO
WHY DO YOU THINK WHAT YOU THINK
WHY DO YOU FEEL WHAT YOU FEEL
 Philosophy
In ancient Greek, the word “philosophy” meant
“love of knowledge” (philo “loving” + sophia
“knowledge, wisdom”) and was originally used to
describe the quest for knowledge.
A philosopher was merely one who quested for
knowledge or wisdom. Over time, however, the
quest for knowledge was divided into areas of
speciality due to the explosion of new knowledge
and new techniques discovered.

Branches of Philosophy?
1) Metaphysics
 ( existence )
2) Epistemology
 (knowledge)
3) Logic
 (Right reasoning and argumentation )
4) Ethics
 ( Right and Wrong )
Kohlberg’s Theories of
Moral Development
 Heinz’s Dilemma

 In Europe, a woman was near death from a special kind

of cancer. There was one drug that the doctors thought
might save her. It was a form of radium that a druggist in
the same town had recently discovered. The drug was
expensive to make, but the druggist was charging ten
times what the drug cost him to make. He paid $200 for
the radium and charged $2,000 for a small dose of the
drug. The sick woman's husband, Heinz, went to
everyone he knew to borrow the money, but he could
only get together about $ 1,000 which is half of what it
cost. He told the druggist that his wife was dying and
asked him to sell it cheaper or let him pay later. But the
druggist said: "No, I discovered the drug and I'm going to
make money from it." So Heinz got desperate and broke
LEVEL 1 (Pre-Conventional) – FOCUS
ON THE SELF

Stage 1: Punishment and Obedience

Childlike obedience & avoiding
Punishment

Stage 2: Personal Usefulness

Make decisions to get reward
LEVEL 2 (Conventional) – FOCUS ON
OTHERS

• Stage 3: Conforming to the

Will of the Group
• Copy others; follow the
crowd ; don't rock the
boat; comply with
expectations of others
• Stage 4: Authority and Social
Order (Law and Order)
• Must follow rules for the
good of society
 LEVEL 3 (Post-Conventional) –
FOCUS ON PRINCIPLES

Stage 5: Social Contract and

Human Rights
Law should serve society –
just because law says its
wrong it may not be

Stage 6: Universal Ethical

Principles (Personal
Conscience)
Free from external
Kohlberg’s Levels

Morality of abstract
Post principles: to affirm
conventional agreed-upon rights and
level personal ethical principles

Conventional Morality of law and

level social rules: to gain
approval or avoid
disapproval

Pre conventional Morality of self-interest:

level to avoid punishment
or gain concrete rewards
Mind Map

14
 Learning Objectives
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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 Learning Objectives
(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

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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Key Stakeholders

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Ethics and Social Responsibility

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

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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Three Levels of Ethical Standards

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Moral Management

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Benefits of Moral Management

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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Why Be Ethical?

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 Establishing an
Ethical Framework
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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 Establishing an
Ethical Framework
(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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Why Ethical Lapses Occur

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Causes of Ethical Lapses

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

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Features of Ethical Cultures

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Establishing and Maintaining Ethical
Standards

 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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 Principles to Guide
Ethical Behavior

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

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Maintaining Ethical Standards

 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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Maintaining Ethical Standards
(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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Maintaining Ethical Standards
(continued)

 Conduct ethics training.

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

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 Social Entrepreneurship

 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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 Social Responsibility

 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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Why Be Socially Responsible?

 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.

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Being Socially Responsible

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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 Business’s Responsibility
to the Environment

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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 Business’s Responsibility
to Employees
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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 Managing Diversity
Use a “SPLENDID” approach:
Study
Plan
Lead
Encourage
Notice
Discussion
Inclusion
Dedication

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 Drug Testing
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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 Privacy

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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 Business’s Responsibility
to Customers

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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 Business’s Responsibility
to Investors

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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 Business’s Responsibility
to the Community

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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 Conclusion

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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