Course : ENTR6460 - New Venture Creation

Effective Period : 2021

Ethical Decision Making

Session 25-26
 Learning Objectives (2 of 2)

• Foundations for ethical decision making

• Advice and tips from the trenches
• Thorny issues for entrepreneurs
• The ecological shareholder
Foundations for Ethical Decision Making

• 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 screen. 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. 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.
• 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).”
• A number of issues can make the utilitarian approach difficult
to adhere to or can to 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 you.
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
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
 Action under Pressure
• An entrepreneur will have to act on issues while under
serious time constraints 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.
 Advice and Tips from the Trenche

• 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 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. Ask, “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
• 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
• Do not Forget the Mirror and Those Internet Headlines
– Looking in the mirror can be a powerful, challenging
exercise
 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
Different Views

• Different reactions to what is ethical may explain

why some aspects of venture creation go wrong,
both during startup 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
 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
The Ecological Stakeholder
• While working through the chaos and constantly
considering how to get the most out of each dollar
spent, it is important to remember the effects of  your
decisions, not only on team members, investors, and
other stakeholders, but also on the environment.
• Environmental ethics can play a tricky role in
entrepreneurship—there are so many challenges which
already drain time, money, and patience that business
owners sometimes struggle to consider the short- and
long-term effects of their decisions on the natural world.