Ethics in entrepreneurship
Jeffrey S. Harrison
Ethics represent a very challenging topic to study in any field, since there is not even consensus on what the term means. To simplify this discussion, I am going to associate ethics with a form of social morality, recognizing that the specific definitions of morality will vary depending on the societal context. When I use the term ‘‘ethical,’’ I am referring to attitudes, behaviors, and outcomes that most members of a particular society would consider ethical. Also, 122 ethics in entrepreneurship in an effort to discuss the intersection of ethics with entrepreneurship in an abbreviated format, I am going to focus on entrepreneurship only as it pertains to creation of a new business entity to provide a new or existing good or service to a new or existing market. I will first discuss some of the ethical implications of entrepreneurial activities from a societal perspective, followed by an examination of work that has examined the ethics of entrepreneurs themselves.
For many reasons, entrepreneurship is a central public policy issue in most countries (Bren kert, 2002). It has been linked to the creation of millions of jobs and new products and services. These products and services have altered the way people work and live, allowing them to perform tasks and enjoy life in ways that were previously inconceivable. In addition, entrepreneurship is associated with the concept of self determination by providing opportunities for people to own and operate businesses. All of this has led to greater efficiency and the creation of wealth. From a Western capitalist perspective, these are great things. However, not all societies view wealth creation in the same positive light. For example, in spite of recent advances in China with regard to support of entrepreneurial activity, the communist mindset tends to be much more concerned about the distribution of this wealth. Chinese leaders ‘‘tolerate’’ the con centration of wealth and power in the hands of entrepreneurs because they understand the connection between entrepreneurship and the over all wealth of a country (Brown, 2002).
Varying levels of entrepreneurship across countries provides evidence that some social orders are more encouraging to entrepreneur ship than others (Brenkert, 2002). Obviously, the existence of venture capital is a huge determinant of such variance. However, the legal system is also a key factor. In general, the less encumbered a citizenry is with legal restrictions, laws, and regulations pertaining to business dealings, the more likely that entrepreneurship will take place.
Another interesting development in this stream of thinking is the role that entrepreneur ship plays in reducing inequities among organizational stakeholders. Venkataraman (2002) calls these inequities ‘‘value anomalies.’’ For example, an employee may add much more value to an organization than what is received in return. In these situations, if society allows it, the employee may sever ties with the organization to pursue a separate venture and thus become an entrepreneur. Venkataraman (2002) also suggests that major shifts in technologies can lead to numerous value anomalies, which may build up until they result in sweeping changes to organizations and industries. One example of this phenomenon is the large numbers of ‘‘computer nerds’’ of the late twentieth century who became owners or co owners of their own companies (Harrison, 2002). Many of them previously worked for large corporations, where their talents were underutilized and under rewarded. In essence, wealth was re distributed to them as sweeping changes took place in technologies and the resulting organizational forms. The absence of a social order that facilitates entrepreneurship would have stifled these equilibrating processes.
Nonetheless, these arguments in favor of a society unencumbered by legal restrictions to entrepreneurship, taken to the extreme, can be dangerous. The fact is that people may engage in entrepreneurship for good or bad reasons (Bren kert, 2002). For example, an illegal drug dealer may peddle narcotics to teenagers in an attempt to create wealth. Most people from any culture would agree that this is a bad thing for society. Laws are enacted to protect against such activities which, in one sense, also stifles entrepreneurship. The problem is that there is not a reliable connection between law and ethics. For example, some companies buy prescription medicines in Canada and then sell them illegally in the United States. One of their primary targets is older retired people who can’t afford to buy the higher priced drugs in the United States. In many ways, these entrepreneurs are engaged in the same sorts of activities, albeit the outcomes are quite different. Governments have to find a balance between protecting their citizens and facilitating entrepreneurial behaviors.
With regard to promoting fairness or moral practices, corporations tend to be more open to public inspection than entrepreneurial firms (Mitchell, 2002). More information is disclosed to the public as a result of legal requirements. ethics in entrepreneurship 123 Also, entrepreneurial ventures tend not to be subject to the same level of laws, rules, and regulations that protect society and its individual citizens. Furthermore, governance practices tend to be feudal/political rather than democratic in a smaller, entrepreneurial business. This means that there are fewer stakeholders that have legitimacy or power in the organization, with most of the power resting in the entrepreneur. This situation means that the ethical and moral conduct of the organization as an entity is largely determined by the ethical and moral standards of the entrepreneur. Consequently, another critical issue is whether entrepreneurs tend to be more or less ethical than other types of managers.
People who become entrepreneurs tend to be unconventional thinkers. As mavericks and risk takers, they break away from many social norms. Consequently, it is reasonable to think that their ethics could be different from other types of managers. Indeed, Teal and Carroll (1999) found evidence that entrepreneurs exhibit moral reasoning skills at a higher level than either middle level managers or the general adult population. Working with the defining issues test developed by Rest (1979), they dis covered that entrepreneurs were more likely to think independently and reject social norms. In fact, almost none of their entrepreneurs exhibited moral reasoning at the lowest levels. In another study that compared the ethical standards of managers with entrepreneurs, Bucar (2001) found that more entrepreneurs believed it was unethical to use company services, sup plies, or time in non company activities. Also, a larger percentage of entrepreneurs felt that it was wrong to take longer than necessary to do a job, to authorize subordinates to violate company policy, or to hire competitors to learn trade secrets.
Not surprisingly, personal ethics also vary by country. Bucar, Glas, and Hisrich (2003) dis covered some striking differences among entrepreneurs and managers in Slovenia, the US, and Russia. For example, 91.7 percent of the Slovenian entrepreneurs in their sample felt that it was wrong to take extra personal time during lunch hours and breaks, compared to 80 percent for US entrepreneurs and 69.8 percent for Russian entrepreneurs. For managers, the percentages were 92.6 percent in Slovenia and 56.8 percent in the US (Russian managers were not included). As might be expected, only 49.7 percent of Russian entrepreneurs believed it was wrong to give gifts in exchange for preferential treatment, compared with 81 percent of Slovenian entrepreneurs and 84.8 percent of American entrepreneurs. Managers in each country were similar in percentages to their entrepreneur counterparts.
To summarize, entrepreneurship is a central issue to policy makers of nations throughout the world. Although the wealth creating benefits of entrepreneurial activities are widely extolled, serious societal concerns exist regarding distribution of wealth and protection of citizens against potential abuses. Successful entrepreneurs sometimes build great wealth and power in society, and entrepreneurial firms tend not to be subject to the same oversight as corporations. Consequently, the ethical behavior of an entrepreneurial firm largely depends on the ethics of the entrepreneur. Fortunately, by most measures, entrepreneurs tend to have higher ethical standards and moral reasoning than other types of managers. As a caveat to this statement, we should remember that some entrepreneurs, such as drug dealers, engage in unethical business activities. The subjects that have been sampled in this stream of research reflect only a portion of the larger population of entrepreneurs.
Bibliography
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