978-1305405745 Chapter 2

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Chapter 2: Integrity, Ethics, and Social Enterpreneurship

CHAPTER 2: INTEGRITY, ETHICS, AND SOCIAL

ENTREPRENEURSHIP

CHAPTER OUTLINE

Spotlight: The Home Grown Farm

(http://www.thehgf.com)

1) What Is Integrity?

LO1: Define integrity, and understand its importance to small businesses.

i) The general sense of honesty and reliability that is expressed in a strong

commitment to doing the right thing, regardless of the circumstances.

2) Integrity and the Interests of Major Stakeholders

LO2:Explain how integrity applies to various stakeholder groups

a) Ethical Issues

i) Questions of right and wrong. Frequently observed forms of workplace

misconduct – Exhibit 2.1

(1) Category One – related to customers and competitors

(2) Category Two – the way a company treats its employees

(3) Category Three – obligations of employees to their employers

ii) Stakeholders – those who either can affect or are affected by the performance of

the company.

iii) Four types of responsibilities for small businesses- Exhibit 2.2

(1) Economic- be profitable

(2) Legal- obey all laws, adhere to all regulations

(3) Ethical- avoid questionable practices

(4) Discretionary- be a good corporate citizen, give back

b) The “Big Three” Stakeholders– Owners, Customers, and Employees

i) Some say companies must follow the Golden Rule- that is those that hold the gold

(owners) make the rules! Others lean on the philosophy that the customer is

always right. The truth is that all of these groups (sometimes called primary

stakeholders because they interact very directly with the company) pack the

greatest punch when it comes to influence.

ii) Promoting the Owner’s Interests

(1) Business owners have an obligation to make choices that protect the financial

investment that others have in the company

iii) Caring about Customers

(1) Customers are the most important stakeholder groups – without customers

there is no business

iv) Valuing Employees

(1) Fairness, honesty and impartiality inherent in decisions and practices

(2) Fairness works both ways – FBI statistics indicate employees who steal

supplies, merchandise, tools, or equipment from work may cost employers as

much as $150 billion each year (figure doesn’t include embezzlement)

c) Social Responsibility and Small Business

Chapter 2: Integrity, Ethics, and Social Enterpreneurship

i) Social Responsibilities – A company’s ethical obligations to the community

(1) Contribution starts with creating jobs and adding to local tax revenues causing

goodwill in the community.

d) Integrity and Governmental Regulations

i) Entrepreneurs must comply with government laws and regulations

ii) Unethical behavior includes fraudulent reporting of income and expenses for

income tax purposes

(1) Skimming

(2) Tax evasion

(3) Casual accounting systems

3) The Challenges and Benefits of Acting With Integrity

LO3: Identify some common challenges and benefits of maintaining integrity in

small businesses.

i) Small companies face unique challenges to maintaining integrity, especially at

critical states such as when getting started and establishing a name, launching

online operations, or expanding internationally.

a) Small Companies and the Legitimacy Lie

i) Small, privately held firms may face greater pressures to act unethically and to

rationalize situations and actions

ii) Most entrepreneurs exercise great integrity, but some are vulnerable when ethical

issues directly affect profits

b) Integrity and the Internet

i) Legitimacy and trust are important to all small businesses, but those using the

Internet face a host of ethical issues that are unique to the online marketplace.

(1) Personal privacy is an issue of great concern to users of the Internet.

(2) Protection of intellectual property has garnered increased attention.

c) Integrity and Doing Business Abroad

i) Sooner or later, small business owners operating abroad will run up against

challenging ethical questions, and they could relate to just about any part of the

company’s operations.

(1) Ethical imperialism- the belief that the ethical standards of one’s own country

can be applied universally.

(a) Foreign Corrupt Practices Act – makes it illegal for U.S. businesses to use

bribery elsewhere in the world

(2) Ethical relativism- the belief that ethical standards are subject to local

interpretation.

(a) Training is necessary to ensure employees understand the firm’s

commitment to integrity.

(b) One-time practices may set a pattern for future behavior.

d) The Integrity Edge

i) The entrepreneur who makes honorable decisions, even when it comes to the

smallest of details, can take satisfaction in knowing that she or he did what was

right, even if things do not turn out as planned.

ii) A growing body of research supports the notion that ethical business practices are

good for business.

Chapter 2: Integrity, Ethics, and Social Enterpreneurship

iii) There are numerous long-term benefits to adopting ethical and responsible

business practices including:

(1) Improved financial performance

(2) Enhanced brand image and reputation

(3) Increased sales and customer loyalty

(4) Improved productivity and quality

(5) Better recruitment and reduced employee turnover

(6) Fewer regulatory inspections and less paperwork

(7) Improved access to capital

4) Building a Business with Integrity– The goal of a small business owner with integrity

should be to operate honorably in all areas of practice, which sets the entrepreneur on the

path toward crafting the worthy legacy. The build a business with integrity, those at the

top must provide the leadership, culture, and instruction that support appropriate ethical

perspectives and proper behavior.

LO4: Suggest practical approaches for building a business with integrity.

a) The Foundations of Integrity

i) Underlying values

(1) Have students discuss a difficult ethical dilemma faced at work or at school

(2) Unarticulated ethical beliefs that provide a foundation for ethical behavior in a

firm

(3) “Actions speak louder than words” – behavior reflects the level of a person’s

commitment to honesty, respect, truthfulness, etc.

b) Leading with Integrity

i) Establishing high standards of integrity is more apparent in small firms than in

large ones

ii) Personal integrity of the founder or owner is the key to a firm’s ethical

performance

c) An Ethical Organizational Culture

i) Ideally the instinctive resolution of every ethical issue is doing what is right

ii) Kenneth Blanchard and Norman Vincent Peale (The Power of Ethical

Management) suggest five fundamental principles:

(1) Purpose – the vision for the company and your core values will guide business

conduct

(2) Pride – when employees take pride in their work and their company, they are

much more likely to be ethical in their dealings

(3) Patience – if you push too hard for short-term results, sooner or later acting

unethically will seem to be the only way to achieve the outcomes you seek

(4) Persistence – stand by your work, which is the foundation of trust

(5) Perspective – stop from time to time to reflect on where the business is going,

why it is going that way, and how to plan to get there to assure your are on the

right track

iii) Code of ethics – official standards of employee behavior formulated by a firm

(1) Ask students about Codes of Ethics they have come into contact with and have

them discuss what those Codes included

d) Better Business Bureaus—encourages ethical business practices

i) Ethical conduct is promoted by:

(1) Providing consumers with free information to help them make informed

decisions when dealing with a company.

(2) Creating an incentive for businesses to adhere to proper business practices and

earnestly address customer complaints.

(3) Resolving questions or disputes concerning purchases through mediation or

arbitration.

e) The Ethical Decision-Making Process

i) Step 1: Define the problem

ii) Step 2: Identify alternative solutions to the problem

iii) Step 3: Evaluate the identified alternatives

(1) Rotary Club International suggests

(a) Is it the truth?

(b) Is it fair to all concerned?

(d) Will it be beneficial to all concerned?

(2) Golden Rule

(a) Treat others as you would want to be treated

(3) Separate what you think is the case from what you know to be true

iv) Step 4: Make the decision

v) Step 5: Implement the decision

vi) Step 6: Evaluate the decision

5) Social Entrepreneurship: A Continuing Trend– a social entrepreneur is one who

comes up with innovative solutions to society’s most pressing needs, problems, and

opportunities and then makes them happen.

LO5: Define social entrepreneurship, and describe its influence on small companies

and startup opportunities.

a) Social Entrepreneurship and the Triple Bottom Line

i) Focus on people, profits and planet

ii) Social entrepreneurship refers to entrepreneurial activity that provides innovative

solutions for social issues.

b) Small Business and the Natural Environment

i) Sustainability Matters

(1) The effort to protect and preserve the environment

(2) Cost to business of environmentalism may be prohibitive to small business

however win-win solutions are possible

ii) Green Opportunities for Small Business

(1) Adds to cost for some small companies, opens opportunities for others (may

even create startups)

ADDITIONAL DISCUSSION QUESTIONS

1. Define the concept of integrity. What are the major features of integrity?

Integrity is an uncompromising adherence to the lofty values, beliefs, and

Chapter 2: Integrity, Ethics, and Social Enterpreneurship

2. What are the major stakeholder groups that influence and are influenced by

small companies? What are the primary interests of each of these groups? How

can a small business owner manage potential conflicts between the demands of

these groups?

The major stakeholder groups include owners, customers, employees, the

community, and the government. There are four types of responsibility for small

business:

3. Why might small business CEOs focus more attention on profit and less on

social goals than large business CEOs do?

Chapter 2: Integrity, Ethics, and Social Enterpreneurship

7. What are some of the advantages of conducting business with integrity? Some

people say they have no responsibility beyond maximizing the value of the firm

in financial terms-can this position be defended? If so, how?

There are many advantages to conducting business with integrity, beginning with

maintaining a clear conscience! Integrity suggests that due attention will be given

8. Explain the connection between underlying values and ethical business

behavior.

9. Why are the six steps in the ethical decision making process presented in this

chapter? What is the practical value of this model to the processing of decision

in a small business?

10. Give some examples of expenditures required on the part of small business

firms to protect the environment. In your opinion, do rising concerns for the

environment create more costs or more business opportunities for small

SUGGESTED ANSWERS TO YOU MAKE THE CALL EXERCISES

Situation 1

1. What decision on Sally’s part would contribute most to the success of her

business?

2. What ethical reasoning would support hiring Mary?

SUGGESTED SOLUTION TO VIDEO CASE 2: PORTIONPAC CHEMICALS

1. Based on what you have learned about PortionPac, what do you think the

owners would claim to be the most important features of doing business with

integrity? Do you agree? Why or why not?

The owners’ sense of integrity refers to the honesty and reliability in their strong

2. Who are the most important stakeholders for PortionPac? What is the order of

emphasis on the interests for these stakeholders—from most important and

influential to least important and influential—on the company’s decision-

making processes? In your opinion, does this represent a wise ordering of

stakeholder interests?

PortionPac’s most important stakeholders are their employees and clients. It’s

3. PortionPac is very concerned about the environment. Is the company’s

environmental focus good for the company? Why or why not?

Student answers will vary.

4. Would you want to work for a company that operates according to the goals

discussed in the case? What would be the pros and cons of working there?

Chapter 2: Integrity, Ethics, and Social Enterpreneurship

ADDITIONAL ACTIVITIES

Purpose: The purpose of these activities is to give students the opportunity to see

how companies express ethical principles and then to think about their own personal

ethics. Understanding their own underlying values will then help students to see how

those values can inform and support their business ventures.

Setting it up: These three activities are organized so that you can move students

from the familiar (what they saw in the video) to the unfamiliar (working on a set of

values for their own business venture). The first activity can be done in class as

group work after watching the video. Let students spend about 10 minutes in groups

of three to four working on mission and values statements for Joseph’s Lite Cookies.

After the allotted time is up, reconvene as an entire class to share results and discuss

differences of perspectives.

For the second activity, it is probably best to have students work

independently. If they have a business venture in mind, they may be reluctant to

share it with another student, particularly if they are passionate about it. The purpose

of the second activity is to have students think about what mission statements will

drive their own business.

Likewise, the third activity is best used as an assignment. Many

businesspeople use their companies to express their own values. For example,

Howard Shultz, the entrepreneur who founded Starbucks, shows his commitment to

the company’s employees by offering full health care benefits to part-time workers,

offering a tuition reimbursement plan, and by working to create coffee growing

technologies that don’t deplete the rainforest areas of the world. By doing activity

number 3, students will explore the possibilities – and the limitations – of using a

business to express core personal values.

1. It is not uncommon for large corporations to have documents that provide ethics

guidelines. The world’s leading producer of cereal and a leading producer

cookies and convenience foods, Kellogg’s, is one such corporation. At the

company’s Web site, http://www.kellogcompany.com, you will find Kellogg’s

Corporate Social Responsibility commitment statement and a long list of what it

terms “K Values”—written very much like a mission statement. Review the

commitment statement and values statement on the Web site. Draft a mission and

values statement for Joseph’s Lite Cookies that reflects what you have seen in the

videos. (At the time of publication, there was no such document posted on the

Joseph’s Lite Cookies Web site.) Share your work with your classmates or study

group partners.

2. Now practice writing mission and values for your own business enterprise. Even

if you don’t currently have a business concept or plan, you can still organize your

thoughts on the values that will guide your future business ventures. How

detailed do you think you want to be? Dow Chemical’s Code of Business

Conduct is 35 pages; Nordstrom’s fits on a 3 x 5 index card.

3. Once you have written down your own underlying values, indicate ways that you

will act on them. You may find the following list of questions a good starting

place for thinking about on how your business will reflect your personal values:

• Will your business give to charities? If so, how will you select groups that

receive donations?

• Will you be involved in the community? How so? If not, why not?

• How will you find employees? For example, will your recruitment efforts

take into account the disabled, low-income, minorities, and others in

underrepresented groups?

• How will you manage your company’s waste? If it costs more to recycle, will

you do it?

• Will you reward employees for their community involvement with non-profit

organizations or civic groups? Will you encourage your employees to become

active in their community?

• How will you determine pay levels?

• What kinds of benefits will you offer?

• Where will you locate?

Sources: Small Business School video; company Web site at

http://www.josephslitecookies.com; April Y. Pennington, “Making Their Mark,”

Entrepreneur, February 15, 2006, online; The American Business Awards: The Stevies,

stevieawards.com, online; Kellogg’s Web site,

http://www.kelloggcompany.com/company.aspx?id=35 and

http://www.kelloggcompany.com/social.aspx?id=56