Ethics in Entrepreneurship
Experiential Education
Objectives
What you will learn:
- What entrepreneurial ethics are
- Some of the particular ethical challenges faced by new entrepreneurial endeavours
- Steps towards being an ethical entrepreneur
Introduction
To understand entrepreneurial ethics, it is first important to understand what it means to be ‘entrepreneurial.’ According to Harvard University Professor Emeritus Howard Stevenson, it is ‘the pursuit of opportunity beyond sources controlled’ (cited in Harvard Business Review, 2013).
In this definition:
- Pursuit implies a singular, relentless focus.
- Opportunity implies an offering that is novel.
- Beyond sources controlled implies resource constraints.
(Eisenmann 2013)
Entrepreneurship: A Working Definition , published in the Harvard Business Review, is worth reading, as it gives some handy hints for successful entrepreneurship.
While the author expands on the idea of what ‘entrepreneurship’ is, and concludes that, among other things, it ‘provides a guidepost for entrepreneurial action’, nowhere in the article is there a reference to ethics. Yet ethics and honesty are important in the corporate world, and in entrepreneurship.
Stevenson’s 2000 article (with Amar Bhide), Why Be Honest if Honesty Doesn’t Pay, for example, is all about honesty in business. He cites the number of clear cases where dishonesty has paid, which throws into doubt the perceived notion that ‘economists, ethicists, and business sages had persuaded us that honesty is the best policy’ (p. 121). However, he concludes that, despite much evidence to the contrary, most people trust other people. The reason, he suggests, lies not in the financial aspects, but ‘in the realm of social and moral behavior [sic]’ (p. 127).
This module introduces the idea of social and moral behaviour – which can also be called ‘ethics’ – in a context of entrepreneurship.
It is suggested, before you progress any further in this module, if you have not done so, that you take a look at the module called ‘Ethics in a Fast-Changing World’. This module will give you a basic understanding of what ethics are.
What is Entrepreneurship, and What is an Entrepreneur?
Entrepreneurship is a concept difficult to easily define. Like with many other concepts, there are many definitions. In the introduction above is one definition.
What is your definition or keywords you associate with Entrepreneurship?
Here is another, which might contain some of the ideas and words shared above:
Entrepreneurship is the willingness to take risks and develop, organize and manage a business venture in a competitive global marketplace that is constantly evolving. Entrepreneurs are pioneers, innovators, leaders and inventors. They are at the forefront of technological and social movements - in their fields, in their forward thinking, in their desire to push the envelope. They are dreamers and most importantly - doers.
Put simply:
Entrepreneurship is the process of creating, launching and managing a business, usually with considerable initiative and risk (myfuture 2017).
What Are Entrepreneurship Ethics? Are They Different From Business Ethics?
Ethics apply across all aspects of business. However, Francis Hannafey (2003, p. 99), among others, suggests that there may be some particular ethical challenges that are faced by entrepreneurs:
Entrepreneurs face complex ethical problems related to basic fairness, personnel and customer relationships, honesty in communications, distribution dilemmas, and other challenges.
Especially for new entrepreneurs (individuals or companies), Hannafey suggests, navigating ethical considerations can be difficult: they ‘must function under conditions of significant business and moral uncertainty’ (2003, p. 100). In examining various literature on the topic, he found several areas of ethical challenge for entrepreneurs:
Social Effects |
Direct Financial gain |
|---|---|
|
These changes may include economic harm, and environmental degradation. |
Entrepreneurs often take more risks with investments, and the opportunity of easing financial contraints by actions that are not quite ethical or may harm others can be hard to resist. |
Relationships |
Promotion of the venture |
|
As ventures develop, so can relationships with family, friends, colleagues and others change, especially if those people take on (or do not take on) roles within the venture. Conflicts of interest are a possibility, as are problems that can arise as people become investors in the venture, or feel pressured to do so. |
This includes the dilemma of how much information to disclose about the venture, tactics used to influence investment, and bargaining tactics |
Are Ethics In Entrepreneurship Possible At All?'
A recent study by three academics asked this question – it is the title of their paper. Their research pointed to ethical considerations rating highly during the good (financial) times – but dropping during the not-so-good times (Staniewski, Słomski & Ryziński 2015). Yet, business ethics ‘are of particular importance and serve, first and foremost, to avoid moral malaise and the use of non-humanitarian practices’ (p. 199). The authors do not explicitly answer their own question – but they suggest that one of the solutions is to teach ethics from early childhood and through every stage of life.
All this, of course, leads to the next question: ‘why be ethical?’
Why be Ethical?
Here’s a YouTube video that points out that actions have consequences. It’s not a heavyweight few minutes, but gets the point across:
FilmdeasInc | Entrpreneurship: Ethics RX | 2:46
Ethics is knowing the difference between what you have a right to do and what is right to do.
Some Help Towards Being An Ethical Entrepreneur
There are many scholarly and non-scholarly articles on ethical entrepreneurship and most come down to values. To learn more about Values you might review the module Values and Virtues.
For entrepreneurs, ethical behaviour is often overlooked as the chaos of everyday business obscures the philosophical side of your company.
Here is an example list of values required for ethical entrepreneurship:
(hover over or tap on the tiles to see more information)
Respect
That is, respect for yourself, and for others, personally, socially, culturally and environmentally.
Honour
Be ready to give honour to those who do the right thing.
Integrity
This includes not doing anything dishonest, with employees, with customers, or with anyone with whom you deal.
Customer focus
Without customers, you have no market for your product. Be fair to customers and in all dealings with them.
Results-oriented
Don’t aim for results at any cost. This also includes supporting employees to achieve results, and giving them feedback to help them reach their potential.
Risk-taking
‘Organizations that thrive, prosper and grow do so by taking risks’. However, in doing so, the values must be adhered to.
Passion
Entrepreneurs, and those they employ, are often driven more by the excitement of a challenge. Be aware, and reward those whose passion takes them the extra mile.
Persistence
This means continuing despite obstacles and failures, but doing so while retaining all the above values.
How Can I Apply These Ethical Principles?
Here is the link for an interesting and helpful article from the Markkula Center for Applied Ethics at Santa Clara University in California, USA:
An interesting article titled A Good Start: Ethics for Entrepreneurs from the Markkula Center for Applied Ethics at Santa Clara University in California, USA details steps for embedding ethics.
Kirk Hanson (2015), the author of the article starts by suggesting that sometimes, in the flurry of activity and priorities occasioned by the start-up of a new entrepreneurial venture, the topic of ethics either does not arise, or is lost amongst the welter of things that need attention. Hanson (2015) suggests the following key steps for embedding ethical practice into the culture of few ventures:
| Recognise the ethical dilemmas that surround them in the first few months |
|---|
| Entrepreneurs keep in mind that things can get difficult in the first while, and put ethical practices into place right from the start. |
| Make ethics a core value of the enterprise |
|---|
| The culture of ethical behaviour needs to be explicit: spelt out in business plans, mission statements, and all company documents. |
| Find early opportunities to make your ethical commitment real |
|---|
| There is a need to communicate ethical standards to everyone concerned, including partners, employees, and customers. |
| Anticipate the ethical tensions in day-today-decisions |
|---|
| Especially when attracting investors or top employees, keep an ethical balance between truth and hope. |
| Welcome ethical questions and debate |
|---|
| Maintain an open-door policy and be willing to discuss ethical questions, in an open-minded way. |
| Be watchful for conflicts of interest |
|---|
| This is particularly important in the digital world, where opportunities to be not-quite-ethical abound. |
| Talk about the ethical values all the time |
|---|
| Busy lives can mean things slip from people’s memories. Reinforce the need for maintaining ethical standards, especially when new people arrive. |
| Identify employees who do not embrace the company’s ethical values |
|---|
| A reputation is a valuable asset, and can be damaged by employees who do not adhere to a company’s standards. |
| Look for opportunities to engage the company in the community |
|---|
| Find ways for the company and its employees to engage in community service and emphasise the importance of each team member’s families. |
| Renew commitment to ethical behaviour |
|---|
| As the venture grows, and as the world changes (especially as the digital age progresses), keep reinvigorating the commitment to the ethical guidelines, and prepare all involved for the changes that will inevitably happen. |
To Recap:
- Ethics apply not only across life in general, but are important in business.
- Having a good ethical basis is an important part of any new business venture.
- There are several areas that hold potential dangers for new entrepreneurial endeavours: socially, finances, with relationships, and venture promotion.
- Ethical conduct comes down to values.
- Some suggested values for ethical conduct of entrepreneurial endeavours: respect, honour, integrity, customer focus, results-orientation, risk-taking, passion, and persistence.
- It is important for entrepreneurial leaders to create a good ethical culture right from the start, and to clearly identify (and then reinforce from time to time) what is acceptable behaviour, and what is not acceptable behaviour.
Activity
Please watch the following YouTube video:
Ethics in Business – Ethical Entrepreneurs | 3:47
The video itself is quite dry, but interesting nevertheless. In it, the speaker mentions an entrepreneur, Gary Erickson, founder of Clif Bar, an American company producing organic food and drinks. The speaker informs us that Gary has not one bottom line for his company – he has five, and they are inseparable.
References
American Express 2011, Clif Bar founder Gary Erickson shares his business secrets by OPEN forum, YouTube, viewed 12 October 2017.
Bhide, A & Stevenson, HH 2000, ‘Why be honest if honesty doesn’t pay’, Harvard Business Review Sep-Oct, pp. 121-29, viewed 11 October 2017.
Eisenmann, TR 2013, Entrepreneurship: a working definition, Harvard Business Review, 10 January, viewed 11 October 2017.
FilmIdeasInc 2010, Entrepreneurship: ethics RX, YouTube, viewed 12 October 2017,
Hannafey, FT 2003, ‘Entrepreneurship and ethics: a literature review’, Journal of Business Ethics, no. 46, pp. 99-110.
Hanson, KO 2015, A good start: ethics for entrepreneurs, Markkula Center for Applied Ethics, Santa Clara University, viewed 12 October 2017.
Marquette Business 2011, Ethics in business – ethical entrepreneurs, A discussion at Marquette University’s Entrepreneurship Week 2010, viewed 12 October 2017.
Matthews, 2002, Eight elements of an ethical organization, Ewing Marion Kauffman Foundation, viewed 12 October 2017.
myfuture 2017, What is entrepreneurship?, Education Services Australia, viewed 11 October 2017,
Presidio Graduate School 2017, What is entrepreneurship?, viewed 11 October 2017,
Staniewski, MW, Słomski, W & Ryziński, R 2015, ‘Are ethics in entrepreneurship possible at all?’, Filosofija, Sociologija, vol. 26 no. 3, pp. 193-200.
Developed for University College, by Dr Christine Angel, October 2020. Updated 2022.
Built with Shorthand