ETHICS AND SOCIAL RESPONSIBILTY
Ethics or the moral code by which we live and conduct business – essentially the concept of right and wrong – derives from the cultural, social, political, and ethnic norms with which we are raised as children. People don’t always sit down to think about their value system; they merely act instinctively on the basis of it. It is only when they are faced with a dilemma that raises moral or ethical issues that they may consciously ask themselves what is the correct thing to do.
Many people believe that if they follow the Golden Rule (Do unto others as you would have them do unto you), they are safe from ethical dilemmas. Unfortunately, most ethical dilemmas in the business environment are complex and offer “gray’ areas that are troubling when one attempts to apply an ethical principle.
Entrepreneurs face special problems when it comes to ethical issues. Their small company generally is more informal and lack systems and controls. They often don’t have the time or resources to focus on ethics during their attempts to keep their business alive, and they often take for granted that everyone in their organization and everyone with whom they do business share their values. This is a mistake, because unethical behavior left undetected can contaminate a business for as long as it exists. In general, ethical dilemmas in business are found in four areas: conflict of interest, survival tactics, shareholder pressure, and pushing the legal limit.
Conflict of Interest
This is one of the most universal problems in business today. A conflict of interest occurs when a person’s private or personal interests clash with his or her professional obligations. Business owners have vested interests in many areas of their lives: careers, a business, family, community, and their investments, to name just a few. It is rare for all these interests to be in complete harmony with one another. A potential conflict of interest occurs when there is a discrepancy between an individual’s private interests and his or her professional obligations such that an independent observer might reasonably question whether the individual’s professional actions or decisions are influenced by personal gain, financial or otherwise. For example, a company may want to continue an important manufacturing process that provides many jobs and profit, even when the community claims that the same process is not good for the environment.
Conflict of interest has also found its way into e-commerce. Today, an online company can use its website to gather information about customers, profile them, and send the right message to the customer at the right moment. Through “cookie” technology, a company can track customers’ movements online. Over time, the company will have compiled an enormous amount of data that it can use to better target its marketing messages. A company that uses cookie technology will usually offer a notice of privacy to its customers, promising not to sell the information it gathers to other companies. Unfortunately, many an Internet company has gone back on its promise to protect customers’ privacy.
The Electronic Privacy Information Center (EPIC) requires companies to obtain customer consent before creating a profile. Proponents of profiling claim that advertising is the “lifeblood” of the Internet and that if it is too heavily regulated, content may no longer be free. This conflict of interest is one that will not go away for a long time because there is so much potential marketing benefit in consumer profiling.
Many are the stories of entrepreneurs who did whatever it took to survive, even violating their own standards. Survival is the area where most people’s ethics face a test. It is easy to be ethical when things are going your way, but what about the entrepreneur who is facing bankruptcy or can’t make payroll? What do that entrepreneur’s ethics look like then? Small firms, especially in the early years, are vulnerable to setbacks that would not significantly affect a large corporation. The loss of a major customer or supplier could put a small business out of business. In these types of life-or-death situations, a small business owner’s commitment to ethical practices can force the company to make some difficult decisions. Again, the importance of sticking to an ethical code is critical, because what an entrepreneur does today out of desperation will follow him for the rest of his business career.
There are many stakeholders in a business, and they all want what is owed them when it’s owed them. Stakeholders include any person or organization that has an interest in seeing the company succeed – investors, shareholders, suppliers, customers, and employees, to name a few. Every business, no matter how small, has stakeholders. One area of research has focused on what a business ought to do in terms of the “ends it pursues and the means it utilizes”. For many entrepreneurs, there are times when managing the demands of stakeholders becomes a real juggling act. For example, to grow the company to the next level, the entrepreneur may decide to consider an IPO. Once that issue is raised, the entrepreneur will find lots of stakeholders pressuring him to move forward, even when he is not sure it’s the best to do.
These stakeholders include investment bankers who get a fee for doing the deal, business partners who may be able to cash out of some of their holdings in the company, and lawyers who want the additional business. All these stakeholders want to be served, but research has revealed that the healthiest outcome is for the entrepreneur to hold to his or her code of ethics and base decisions on it, not on the personal agendas of stakeholders who may not have the best interests of the company at heart.
Pushing the Legal Limit
Some entrepreneurs look for ways to bend the law as much as possible without actually breaking it. Entrepreneurs who regularly play too close to the edge of legality eventually get caught, and the price is often their businesses and their reputations. Ethical entrepreneurs don’t play those games, but they are always on the alert for companies that might use quasi-legal practices against them to gain an edge in the market. These types of tactics must be dealt with decisively. For example, a large water-meter repair company that operated within the law was attacked by a competitor in collusion with a newspaper reporter. The competitor entrepreneur accused the company of bribing public officials. It was a false accusation, clearly unethical, but perhaps not illegal. It caused the innocent utility company a great many problems and cost it a lot of money defending itself, but the company had no choice because its reputation was at stake.
Learning From Real-Life Dilemmas
There is no better way to understand the role of ethics in any business than to encounter real-world dilemmas and determine how they might be resolved. Here are some examples of real-life ethical dilemmas. Think about how they might be resolved.
A struggling Internet company is not producing revenues at the rate originally projected. At the same time, the burn rate (the rate at which cash is spent) is increasing as the company continually seeks new customers. The site claims to protect the privacy of visitors who purchase its products and services, and this is something the company takes pride in. However, the entrepreneur is concerned that if she doesn’t find a quick source of income, the company may not survive. The entrepreneur learns that she can sell customer information lists to companies that will pay a lot of money for them. She has also heard that if she starts tracking which websites her customers visit, she can sell that information to major advertising firms for use in targeted advertising, another source of revenue. These tactics will violate customers’ privacy, but if she doesn’t do something quickly, she may have no business to offer them. What should she do?
One of a company’s best customers has asked for a specific product. After telling the customer the price, the company learns from the customer that a competitor is selling the same item at the company’s cost. It is well known that this competitor engages in unethical business practices. Should the company tell its customer about the competitor’s practices or let the customer purchase where he can get the best price?
An employee confides to an entrepreneur that another employee is planning to leave the company in two months to start her own company as a competitor. Armed with this knowledge, the entrepreneur is tempted to fire this employee immediately, but she is in the middle of a major project that is critical to the company, and it will be completed within two weeks. What should the entrepreneur do?
A company has hired and engineering design firm as an independent contractor to design and build an e-commerce site. It paid a large portion of the fee, $50,000, upfront to begin the work. The owner assures the company that the work is on schedule to be completed on time, but as of a week before the due date, the company has yet to see any designs. A meeting is scheduled at the engineer’s office to check on the status of the project. While waiting at the office, the entrepreneur overhears employees talking about the impending closure of the business. She also hears that the programmer assigned to the project has not been paid and there is no money to pay him.
The owner of the engineering firm says nothing about this during the meeting and instead assures the entrepreneur that the project will be completed as planned. The entrepreneur suspects that he is not being truthful and worries that if the business closes and she has not received the designs and software for the project, her company will be out $50,000, and will have to file a lawsuit. Should the entrepreneur talk to the programmer and reveal what she has heard? Should she confront the owner? Should she approach the disgruntled employees to find a way to gather the data she needs to win a lawsuit?
A company is about to begin doing business in another country where it is well known that paying cash to officials makes business transactions move more quickly. The entrepreneur knows that paying bribes is illegal in his home country, the home base for the business, but this contract will ensure that the company establishes a foothold on the global market before its competitors do. What should the entrepreneur do?
These are all difficult choices when often the very survival of the business is at stake. Small businesses are as guilty as multinational corporations when it comes to ethical missteps. Paying personal expenses out of business funds and writing them off, not reporting all cash receipts, cheating customers on price, using misleading advertising, failing to pay bills on time, and lying to customers, employees, and suppliers are all examples of poor ethics. Aristotle, the Greek philosopher, said that courage is the first of the human virtues because without it, the others are not possible. How we make these difficult and courageous choices depends on individuals.
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