Entrepreneurial Integrity and Ethics

What Is Integrity?
The seeds of corporate misdeeds are sown when individuals compromise their personal
integritythat is, they do not do what they believe to be right and proper. integrity An uncompromising adherence
to doing what is right and proper
Doing the Right Thing
It is probably evident by now that the notion of integrity is closely tied to ethical issues,
which involve questions of right and wrong. Such questions go far beyond what is legal
or illegal. Entrepreneurs must often make decisions regarding what is honest, fair, and
respectful.
Individuals who face ethical issues are sometimes tempted to place self-interest and
personal financial gain ahead of the reasonable and legitimate interests of others. Selfinterest
is a valid force in human life, but it can, when left unchecked, lead to behaviour that is unfair or harmful to
others.at

Promoting the Owners Interests

The Nobel Prizewinning economist Milton Friedman outlined the responsibilities of
businesses to society in very focused terms: There is only one social responsibility
of businessto use its resources and engage in activities designed to increase its profi ts
so long as it stays within the rules of the game, which is to say, engages in open and free
competition without deception or fraud.4
Respecting Customers
What do you call a business without customers? Bankrupt! Customers are obviously one
of the most important stakeholder groups that a company must please. The fact that they
are central to the purpose of any business has implications for integrity. Entrepreneurs
who take customers seriously and care about them as individuals are apt to have more of
them. And those they have are likely to return again and again because of that attitude.
advertising content must sell the product or service but also tell the truth,
the whole truth, and nothing but the truth. Salespeople must walk a fi ne line between persuasion
and deception. In some businesses, a salesperson might obtain contracts more
easily by offering improper inducements to buyers or by joining with competitors to rig
bids. This is clearly illegal, but it does happen.

Valuing Employees
The level of integrity in a fi rm is refl ected in the amount of respect given to employees.
Through management decisions, an owner affects employees personal and family lives.
Issues of fairness, honesty, and impartiality are inherent in decisions and practices regarding
hiring, promotions, salary increases, dismissals, layoffs, and work assignments. Employees
are also concerned about privacy, safety, and health issues, and these should not be ignored.

Social Responsibility and Small Business

To most people, an ethical business is one that not only treats customers and employees
honestly but also acts as a good citizen in its community. These broader obligations of
citizenship are called social responsibilities.
Some regard social responsibility as a price of freedom to operate independently in a
free economy. They believe that the public has certain social expectations regarding business
behavior, not all of which are required by law. Accordingly, they regard some socially
responsible expenditures as proper, even when they are costly. social responsibilities
Ethical obligations to customers, employees, and the communitye

The Challenges and Benefi ts of Acting Ethically

When it comes to integrity and entrepreneurial ventures, it is important to recognize that
the news is not all good: Small companies face unique challenges to integrity. At the same
time, the news can be very positive: The benefi ts of integrity are real and can offer small
businesses a distinct advantage in the marketplace.
The Vulnerability of Small Companies
Walking the straight and narrow may be more diffi cult and costly on Main Street than it is
on Wall Street. That is, small, privately held fi rms that are not part of the corporate world
epitomized by Wall Street may face greater pressures than large businesses do to act
unethically. Indeed, because small fi rms are at a disadvantage relative to larger competitors
with superior resources, entrepreneurs may fi nd it easier to rationalize inappropriate
gift giving or bribery as a way of offsetting what seems to be an unfair competitive disadvantage
and securing a level playing fi eld. And isnt a little white lie justifi ed when the
life and future of the company are at risk? Its easy to cave in to the pressure when your
back is against the wall.wa

yThe Integrity Edge

The price of integrity is high, but the potential payoff is incalculable. For example, it is
impossible to compute the value of a clear conscience. The entrepreneur who makes honorable
decisions, even when it comes to the smallest of details, can take satisfaction in
knowing that he or she did the right thing, even if things do not turn out as planned.
tPerhaps the greatest benefi t of integrity in business is the trust it generates. Trust
results only when the stated values of a company and its behavior in the marketplace
match. When a small business owner looks to the needs of others and follows through on
her or his promises, stakeholders notice. Customers buy more of what a fi rm sells when
they realize that the company is doing its best to make sure that its products are of high
quality and its customer service is excellent. Employees are much more likely to go the
extra mile for a small company when it is clear that they are more than simply replaceable
parts in an impersonal machine.
And members of the community also respond positively to business integrity. When
they are convinced that a fi rm is living up to its commitments to protect the environment
and pay its fair share of taxes, their support can keep the company going even if it falls on
hard times. It all comes down to trust. If they conclude that the business is simply taking
advantage of them, then all bets are off. There is no substitute for trust, and there is little
hope for trust without integrity.

A Strong Foundation
The business practices that a fi rms leaders or employees view as right or wrong refl ect
their underlying values. An individuals beliefs affect what that person does on the job and
how she or he acts toward customers and others. Of course, people sometimes engage in
verbal posturing, speaking more ethically than they act. Thus, actual behavior provides
the best clues to a persons underlying system of basic values. Behavior may refl ect the
level of a persons commitment to honesty, respect, and truthfulnessthat is, to integrity
in all of its dimensions. Entrepreneurs who are deeply committed to underlying values of integrity operate
their businesses in ways that refl ect their personal interpretation of those values.
oS
Leading with Integrity
Entrepreneurs who care about ethical performance in their firms can use their influence
as leaders and owners to urge and even insist that all those in their firms act with honesty
and integrity in all their dealings. Ethical values are established by leaders in all organizations,
and those at lower levels take their cues regarding proper behavior from the statements
and conduct of top-level management.

An Ethical Decision-Making Process

Ethical decision making often is not a very clear-cut process. In fact, even after much
thought and soul searching, the appropriate course of action may still not be apparent
in some business situations. The Ethics Resource Center in Washington, D.C., offers a
decision-making process that may help with challenging dilemmas. We have adapted their
simple six-step decision-making process here to help small business owners see the issues
more clearly and make better, more ethical decisions.43
Step 1: Defi ne the problem. How you defi ne the problem is important because this will
guide where you look for solutions. For example, in the case of a student who is consistently
late for class, is the problem that he is not managing his time well, the professor in the prior
class consistently lets him out late, or he is coming from a classroom that is on the other side
of a very large campus? If the student is careless with his time, a penalty for tardiness may
correct the problem, but this solution will change nothing if one of the other causes is at work.
Looking for the root of the problem is the best place to start in your search for a solution to a
challenging ethical problem, whether it is a customer who is slow to settle his accounts or an
overseas client who wants to give you a tip to overlook a questionable practice.
Step 2: Identify alternative solutions to the problem. Its tempting to go with the
obvious solution or the one that has been used in the past, but this is often not the best
answereven if it is ethical. Be open-minded, and consider creative alternatives. Many
times, an innovative solution is available that is consistent with your personal ethics,
protects the interests of other parties, and offers superior outcomes. Seeking advice from
trusted friends and advisors who have faced similar situations can spur your thinking and
lead to options that you might otherwise overlook.
Step 3: Evaluate the identifi ed alternatives. Rotary Club International, a worldwide
organization of business and professional leaders, has set a high standard for business
conduct. It calls on its members to ask the following four questions when they prepare to
make a decision about the things they think, say, or do:44
1. Is it the TRUTH?
2. Is it FAIR to all concerned?
3. Will it build GOODWILL and BETTER FRIENDSHIPS?
4. Will it be BENEFICIAL to all concerned?
Taking a similar approach, you might ask yourself, How would I feel if my decision were
reported in the daily newspaper? Or, the question can be even more personal: How well
could I explain this decision to my mother or children? The answer could help to steer
you away from unethical behavior.
Perhaps the most widely recommended principle for ethical behavior is simply
to follow the Golden Rule: Treat others as you would want to be treated. This simple rule is embraced, in one form
or another, by most of the worlds religions and
philosophies.45 You may think of it as a basic teaching of Christianity, but its infl uence
is very far reaching. For example, the infl uential philosopher Immanuel Kant presented
the so-called categorical imperative, a sophisticated way of asking, How would it be if
everyone decided to do what you intend to do?46 Asking questions like these can be a
very practical way for an entrepreneur to evaluate ethical decisions and guard her or
his integrity.
No matter what approach you take, evaluating alternatives requires time and
patience. And to make the exercise even more challenging, personal perceptions and
biases are likely to cloud the way you see solutions. Therefore, it is important to separate
what you think is the case from what you know to be true. It often helps to write down
your thoughts about alternatives so that you can keep track of your concerns as well as
important facts and details. You might list the ethical pros and cons of each alternative
or identify the impact of each option on every person or company that will be affected.
Another possibility is to rank all potential options based on their overall merits and then
narrow the list to the two or three best solutions so that you can consider these further.
This will allow you to organize your thoughts and make a better selection.
Step 4: Make the decision. The next step is to choose the best ethical response,
based on your evaluation of all possible alternatives. On the surface, this sounds easy
enough, but unfortunately no single option will completely solve the problem in most
cases; in fact, you may not even be able to identify an obvious winner. No matter how you
go about making the decision, keep your vision and core values fi rmly in mindthis is essential
to making solid decisions that do not compromise your ethical standards.
Step 5: Implement the decision. This may seem like a no-brainer, but entrepreneurs
sometimes put off responding to ethical challenges because the solution is not
apparent or because any response will be bad news for someone involved. But putting off
the decision may allow a small problem to grow into a major crisis. Even if the decision
is not pressing, delaying your response will cause you to spend more time thinking about
the dilemma when other important matters deserve your attention.
Step 6: Evaluate the decision. The goal of making a decision is to resolve an ethical
dilemma. So, how has your response panned out? Has the situation improved, gotten
worse, or stayed about the same? Has the solution created ethical issues of its own? Has
information come to light indicating that your decision was not the most ethical course of
action? Everyone makes mistakes. You may very well need to reopen the matter to make
things right. But remember, if your decision was based on the best of intentions and information
available at the time, you can wade back into the waters of ethical turmoil with a
clear conscience, and there is no substitute for that.

Social Entrepreneurship: A Fast-Emerging Trend

The social issues affecting businesses are numerous and diverse. Businesses are expected
at different times and by various groupsto help solve social problems related to education,
crime, poverty, and the environment. In fact, these expectations are converging into a form
of venturing called social entrepreneurship, which is rapidly gaining momentum. Though
the term has been defi ned in different ways, Harvard researchers suggest that social entrepreneurship
refers to entrepreneurial activity with an embedded social purpose.47 In other
words, a social entrepreneur is one who comes up with innovative solutions to societys
most pressing needs, problems, and opportunities
The Burden of Environmentalism
The triple bottom line formula specifi cally mentions the planet. In recent decades, deterioration
of the environment has become a matter of widespread concern. Today,
environmentalism, the effort to protect and preserve the environment, directly affects
most businesses. Releasing industrial waste into streams, contaminants into the air, and
noise into neighborhoods is no longer acceptable.
The interests of small business owners and environmentalists are not necessarilyor
uniformlyin confl ict. Some business leaders, including many in small companies, have
consistently worked and acted for the cause of conservation. For example, many small
fi rms have modernized their equipment and changed their procedures to reduce air and
water pollution. Others have taken steps to landscape and otherwise improve the appearance
of plant facilities. Some small businesses have actually been in a position to benefi t
from the growing emphasis on the environment. For example, fi rms whose products do not
harm the environment are generally preferred by customers over competitors whose products
pollute. And some small fi rms actually build their business on planet-saving services.
Small auto repair shops, for example, service pollution-control devices on automobiles.
mall Business Opportunity