BA 560 - New Venture Creation

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Personal Ethics the Entrepreneur Chapter 9
Dowling BA 560 Fall Term 2006
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Personal Ethics The Entrepreneur

• What is ethical and what is not often is not
  obvious.
• Situations regarding ethical issues are often
  ambiguous.

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Personal Ethics The Entrepreneur

• Ethical behavior is at the core of long-term
  success, because it provides the glue that binds
  enduring successful business and personal
  relationships together.

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Entrepreneurial Ethics

• Ethics the guidelines or rules of conduct we
  aim to live by a system or set of moral
  principles.
• Most business decisions involve some degree of
  ethical judgement. The ethical standards of a
  new venture founder or a business are judged by
  actions, not by pious statements of intent.

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Unethical Behavior

• Why do normally honest, intelligent,
  compassionate business founders and
  entrepreneurial managers act in unethical ways
  that are dishonest, wrongheaded, and often
  illegal?

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Lessons from the Sadhu

• Real ethical dilemmas are ambiguous, and many of
  us are likely to hike right through them, unaware
  that they exist. When, usually after the fact,
  someone makes an issue of one, we tend to resent
  his or her bringing it up. Often, when the full
  import of what we have done (or not done) hits
  us, we dig into a defensive position from which
  it is very difficult to emerge. In rare
  circumstances, we may contemplate what we have
  done From The Parable of the Sadhu

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Rationalization 1

• A belief that the activity is within reasonable
  ethical and legal limits - that is, that it is
  not really unethical or illegal.
• Where is the line between profit maximization and
  unethical/illegal conduct?
• Founders/entrepreneurial managers sometimes leave
  the impression that there are things that they
  dont want to know about.

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Rationalization 1

• The difference between becoming a success and
  becoming a statistic lies in knowing where the
  ethical line is. Successful venture founders
  know that there is a difference between taking
  risks, and knowing which risks to take.
• Maximizing profits is a new ventures second
  priority, not its first. The first is ensuring
  its survival.

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Rationalization 1

• The smartest venture managers know that the best
  answer to the question, How far is too far? is
  dont try to find out !!!

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Rationalization 2

• A belief that the activity is in the individuals
  or ventures best interests - that the individual
  would somehow be expected to undertake the
  activity.
• All new ventures need to do whatever is
  expedient to survive.
• I have the right to do this, after all, I am the
  founder of this venture.

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Rationalization 2

• This ethical dilemma nearly always results from a
  limited, narrow-minded view of what those
  interests (individual or venture) are. The real
  interests of the venture (and its founders) are
  served by ethical, honest conduct in the first
  place.
• Venture managers need to be concerned with more
  than just results, they need to look hard at how
  these results are obtained.

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Rationalization 3

• A belief that the activity is safe because it
  will never be found out or publicized the
  classic crime-and-punishment issue of discovery.
• Why do venture managers/employees believe that
  they wont get caught?
• What is the role of investors, professional
  advisors, and boards of advisors in guiding a
  ventures ethical conduct?

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Rationalization 3

• Discovery - the process in which a plaintiffs
  attorneys can comb through a companys records to
  look for incriminating evidence.
• The most effective deterrent is to heighten the
  perceived probability of being caught in the
  first place.
• The point is to prevent misconduct, not just
  catch it.

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Rationalization 3

• As the main deterrent to unethical behavior or
  illegal conduct is the perceived probability of
  detection, venture managers should announce any
  misconduct and how the individuals were punished
  (within legal HR limits).

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Rationalization 4

• A belief that because the activity helps the
  venture, the venture (and its managers) will
  condone it, and even protect the person who
  engages in it.
• How do founders/venture managers keep loyalty
  from going berserk?
• How does a venture founder harness the passion to
  succeed short of unethical/illegal behavior?

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Rationalization 4

• Venture founders have the right and the
  responsibility to exert a moral force within the
  business.
• Venture founders/managers are responsible for
  clearly delineating between passion and loyalty,
  and actions that are unethical and illegal. This
  has to be done well in advance, ideally as part
  of the founding principles of the venture.

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Rationalization 4

• As this line can become obscured in the heat of
  the moment, the ethical line needs to be drawn
  well short of where reasonable men and women
  could even begin to wonder about the ethical and
  legal consequences of their actions.

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4 Rationalizations Summary

• Believing that the activity is not really
  illegal or unethical.
• Believing it is in the individuals or new
  ventures best interest.
• Believing that the activity or behavior will
  never be found out.
• Believing that because it helps the venture,
  the company and its senior managers will condone
  it.
• From Why Good Managers Make Bad Ethical Choices

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Personal Ethics The Entrepreneur

• Dilemmas of entrepreneurial management
• Promoter
• Entrepreneurial euphoria
• Impression management
• Pragmatic vs. moral considerations

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Personal Ethics The Entrepreneur

• Dilemmas of entrepreneurial management
• Innovator
• New types of ethical problems
• Ethic of change

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Personal Ethics The Entrepreneur

• Dilemmas of entrepreneurial management
• Relationships
• Conflicts of interest and roles
• Transactional ethics
• Guerilla tactics

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Personal Ethics The Entrepreneur

• Dilemmas of entrepreneurial management
• Other dilemmas
• Finders-keepers ethic
• Conflict between personal values
• and business goals
• Unsavory industry practices

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Chapter 9 - Key Points

• Differences among partners notions of what
  constitutes ethical and unethical behavior can be
  a major source of venture divorce.
• Unfortunately, it usually takes the test of
  battle during the actual heat of start-up to
  discover the real ethics of partners.

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Chapter 9 - Key Points

• This argues to know whom you are dealing with!
  Try to work under real world conditions with
  potential venture partners. Get reliable
  references from sources who have observed their
  performance in situations that would test their
  integrity.
• Investors and high quality prospects for the
  venture team will not settle for questionable
  standards of integrity and ethics.

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Chapter 9 - Key Points

• Financial success at the expense of your
  integrity is not success at all.

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Exhibit 9.1
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Exhibit 9.2
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Exhibit 9.3
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Exhibit 9.4