Lesson 5 – Ethical Issues in Entrepreneurship

EXPLORE

The Importance of Ethics in Business

Entrepreneurs are today urged to look seriously into ethics because more and
more people realized that the saying “We are our brother’s Keeper” is true. Capital and
money in the enterprise become depleted but the character of the entrepreneur outlasts
these material resources.

Ethics is internally imposed by the character of the entrepreneur. Honesty cannot

be imposed from outside the person; honesty is part of the person’s character, carried
over from the person’s upbringing and character development. Without ethics, the person
will fall under the weight of corruption, which in some readings, is termed lack of
conscience or lack of character.

The government can impose laws and organizations can draw up a code of
conduct for the employees. But these are intended for people who violate them. Those
who have integrity obey these laws and ordinances as part of their character, of who they
are.

Reasons Why Ethical Entrepreneurs Are Important for the Right and
Sustainable Development of a Country

We do not only want to grow and develop; but to grow and develop in the right
way, which is the sustainable way. Sustainable development is centered not on science,
not on technology but on man. Human beings (employees, customers, suppliers, the
members of the community where the business is located) need to live healthy, dignified,
and productive lives in harmony with nature.
Thus, an entrepreneur must run his business taking into account his responsibilities not
only towards himself but also towards others and towards the gifts of nature that he often
utilizes for his business. In other words, he must run his business based on high ethical
standards.

Consider an entrepreneur who exploits his employees, overworks them,

underpays them. Will these workers give their best efforts in producing goods and
services? Will they serve customers efficiently and cheerfully? How long will they stay in
their jobs?

Or take a quick-buck operator, a businessperson out to earn a lot of money in one

or two deals by cheating customers through overpricing and deceptive product
information. Do you think such an entrepreneur will thrive in business for long? How can
that be possible when buyers eventually lose their interest due to the poor quality of the

Lesson 5 Ethical Issues in Entrepreneurship

goods being sold, failure to deliver on promises, shoddy service, short-lived demand, and
other negative reasons?

Again, consider an entrepreneur who makes a profit at the expense of

environmental degradation. He may be a fisherman who uses dynamite, a logger who
depletes the forest cover, a manufacturer who has no qualms throwing chemical waste
by the riverside. If the law does not catch up with him, nature has a way of claiming
retribution. Soon, there will be no fish to catch, no trees to cut, and no customers to buy
what they say. Soon, people will be angry with the entrepreneur for the pollution (and
disease) he has caused. Doing business, the ethical way builds consumer loyalty, keeps
good employees and makes them happy and productive, and creates a stable
environment that minimizes unexpected problems.

Defining Ethics

To define ethics, it is important to understand first the closely related concepts of

“values” and “morality” with which ethics is often confused.
Values are the qualities or ideas which each of us cares about, upholds, and considers
important. Examples of an individual’s values are family, money, career, love, friendship.
In the case of a business, these may be efficiency, innovation, accountability, service
excellence and empowerment of workers.
Morality is one’s individual perception of right and wrong, good and evil.
Ethics is a set or system of behavior based on moral ideals. It is a product of society; no
wonder many ethical issues deal with the relationship between the individual and the
group. Some of the most basic ethical concepts include honesty, integrity, justice, equality
and respect.

Business Ethics

Are moral principles applied to business issues and actions? Entrepreneurs have
considerable influence on their company’s business ethics. Like operating a business,
itself, this is both an opportunity and a responsibility.

Why Ethical Business is Good Business

Build consumer loyalty – Consumers are getting increasingly educated and aware of
their rights. They may let a company take advantage of them once, but will not tolerate
being treated shoddily and unfairly again. They would write letters, e-mail, make phone
calls, complain to the DTI (Department of Trade and Industry), post their bad experience
on Facebook and other social media. Conversely, a good experience with a business can
easily spread by word of mouth and online. Remember that companies need a broad
base of loyal customers, repeat customers attracted to the business because they have
been served efficiently and given a good deal, for what they pay. A reputation for doing
ethical business will help build this large and loyal customer base.

Lesson 5 Ethical Issues in Entrepreneurship

Keep good employees — Employees, the efficient and talented ones, will stay long with
a company only if they believe in it, are proud of it, and are happy in it. They would want
to be compensated fairly for the work and commitment they put in. They would want their
managers to be transparent and truthful about what is going on in the business that would
affect them. They would want to stick with a company with a prestigious name.
Entrepreneurs who observe good ethical practices have a better chance of retaining the
most talented and hard-working people.

Improve productivity in the workplace – When employees are well compensated and
happy and proud to belong to a company, morale in the workplace rises. People are
motivated to do their best and to cooperate willingly in all the company's productivity
programs. Only happy employees can make customers happy — an application of the
principle “You cannot give What you do not have.”

Avoid legal problems — In its eagerness to make a profit, a business may ignore
worker safety, underpay their employees or refuse to awe them legally mandated
benefits. Or it may violate environmental regulations such as having a proper waste
disposal system. Or possibly ignore proper labeling and packaging laws. Or install
“jumpers” to reduce their utility costs. The penalty for these violations may be severe,
including fees, fines and sanctions and even imprisonment, not to mention a severely
blemished reputation that would be very hard to erase from the public’s mind.

Establishing an Ethical Workplace

Universal values establish a strong foundation for society. Universal values are
also a good basis for running your business. Deciding how to apply these values will be
as important as any other planning you do.
Creating Transparency
Have you heard the expression “The buck stops here”? It describes a management
style that assumes it has the authority to make decisions and takes responsibility for those
decisions. That’s the idea behind transparency, or openness and accountability in
business decisions and actions. Letting people see what a company is doing, and why,
is a strong deterrent to unethical behavior. For example, when transparency is practiced,
employees know how their retirement fund is being invested. Consumers know that
wrongdoers are punished.
Communication is essential to transparency. Companies have traditionally
communicated through memos to employees and press releases and press conferences
for the public. More and more, they’re using social media as well. Social media are
interactive electronic forms of communication. Blogs and message boards, where people
carry on public conversations, are two popular examples.
Responding to Whistle-Blowers
A whistle-blower is a term for someone who reports illegal or unethical conduct to
superiors or to the public. In some cases, these actions are protected by law.
Management’s response to whistleblowing, beyond these legal requirements, sends a

Lesson 5 Ethical Issues in Entrepreneurship

message about its commitment to business ethics. Does a company encourage
employees to speak up when a job or situation troubles them? Does it discourage
employees who pressure whistle-blowers to keep silent? Finally, does it take these
reports seriously and act to correct unethical practices?
Writing a Code of Ethics
A code of ethics describes a business’s moral philosophy and gives concrete
guidelines for carrying it out. Writing a code and distributing a copy to every employee is
a wise move for several reasons. First, writing a code of ethics forces you to clarify your
own values and principles. Before you can write such a code, you will have to ask yourself
what you believe is important. Answering those questions helps you understand the
concepts in more concrete terms. Everyone says they value honesty, for instance, but
what does that word mean to you exactly?
Having a code will also help prevent and resolve problems. When a question arises
about whether an action is ethical, you and others can see how it compares to the code.
Finally, a written code provides some protection against claims of unfairness.
Employees know from their first day what behavior is encouraged and what could result
in dismissal. Suppliers can see your reasons for choosing another business over their
own. The code shows that you don’t knowingly tolerate unethical behavior.

Ethical Issues for Entrepreneurs

Intellectual Property
When music downloads first became available, many music fans started filling their
MP3 players and swapping songs with friends. They were stunned when record
companies began prosecuting them for theft.
Can music be stolen? Yes. Music, paintings, literature, inventions, and architectural
designs are types of intellectual property. Intellectual property is artistic and industrial
creations of the mind. “Possession” of these creations is protected by law. The owners
are entitled to credit and usually some form of payment when their works are used,
especially when used for commercial gain.

Artistic creations are protected by copyright. Copyright is the exclusive right to

perform, display, copy, or distribute an artistic work. Copyright applies automatically as
soon as a work is created. It covers all forms of expression, whether words, music,
images, or concrete objects. It includes works published on the Internet.
Another type of intellectual property—industrial invention—is protected by patent. A
patent is the exclusive right to make, use, or sell a device or process. Many types of
creations can be patented, from an improved design for a ketchup bottle, to a variety of
tomato used to make the ketchup, to a process for bottling the ketchup.
A trademark is a symbol that indicates that the use of a brand or brand name is legally
protected and cannot be used by other businesses. A trademarked brand or brand name
is a type of intellectual property. Two symbols are associated with U.S. trademarks. The
trademark symbol ™ is used to indicate that the brand is protected in a general way, but
does not have formal legal protection.

Lesson 5 Ethical Issues in Entrepreneurship

 Violating a copyright, trademark, or patent holder’s rights is called infringement. A
shop owner who plays music for customers’ enjoyment commits copyright infringement.
A fashion designer who copies software that creates dress patterns commits patent
infringement.

Conflict of Interest

Another ethical decision that entrepreneurs often face is related to conflicts of

interest. A conflict of interest exists when personal considerations and professional
obligations interfere with each other. It’s wise to avoid such situations—or even the
appearance of such situations—even if you think you can act fairly and objectively.

Confidentiality

As an entrepreneur, you will be gathering a good deal of information. You may run
a background check and find that a job applicant has a criminal record, or discover
sensitive financial data through a credit check on potential investors or partners.
How you and others in your company use this information can be an ethical matter, and
the decision isn’t always clear-cut. On one hand, you have a duty to respect the
confidentiality (privacy) of others. On the other hand, keeping silent could expose some
people to harm. Someone may have a criminal conviction on record, for example, but you
should ask yourself whether you have a reason, or a right, to make it known.

Lesson 5 Ethical Issues in Entrepreneurship