Transcript Personal Ethics & the Entrepreneur

Venture Planning
Chapter 10
“Personal Ethics & the
Entrepreneur”
Dowling
BA 560
Fall Term 2005
Personal Ethics & The Entrepreneur
 What
is ethical
and what is not
often is not
obvious.
 Situations
regarding ethical
issues are often
ambiguous.
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.
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.
Unethical Behavior

Why do normally honest, intelligent,
compassionate business founders and
entrepreneurial managers act in unethical
ways that are dishonest, wrongheaded,
and often illegal?
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
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 don’t want to know about.
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 venture’s
second priority, not its first. The first is
ensuring its survival.

Rationalization #1

The smartest venture managers know that
the best answer to the question, “How far
is too far?” is don’t try to find out !!!
Rationalization #2

A belief that the activity is in the
individual’s or venture’s 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.”
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.

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 won’t get caught?
– What is the role of investors, professional
advisors, and boards of advisors in guiding a
venture’s ethical conduct?
Rationalization #3
“Discovery” - the process in which a
plaintiff’s attorneys can comb through a
company’s 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.

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).
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?
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.

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.
4 Rationalizations Summary
Believing that the activity is not “really”
illegal or unethical.
 Believing it is in the individuals’ or new
venture’s 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
Personal Ethics & The Entrepreneur
Dilemmas of entrepreneurial
management

Promoter:
– Entrepreneurial euphoria
– Impression management
– Pragmatic vs. moral considerations
Personal Ethics & The Entrepreneur
Dilemmas of entrepreneurial
management

Innovator:
– New types of ethical problems
– Ethic of change
Personal Ethics & The Entrepreneur
Dilemmas of entrepreneurial
management

Relationships:
– Conflicts of interest and roles
– Transactional ethics
– Guerilla tactics
Personal Ethics & The Entrepreneur
Dilemmas of entrepreneurial
management

Other dilemmas:
– Finders-keepers ethic
– Conflict between personal values
and business goals
– Unsavory industry practices
Chapter 10 - 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.

Chapter 10 - 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.

Chapter 10 - Key Points

Financial success at the expense of your
integrity is not success at all.