Social entrepreneurship and the ethical challenges of entrepreneurship

PowerPoint Presentation by Charlie CookThe University of West Alabama

PowerPoint Presentation by Charlie CookThe University of West Alabama

Part IThe Entrepreneurial Mindset in the 21st Century

Part IThe Entrepreneurial Mindset in the 21st Century

C H A P T E R 4C H A P T E R 4

© 2009 South-Western, a part of Cengage Learning. All rights reserved.© 2009 South-Western, a part of Cengage Learning. All rights reserved.

Social Entrepreneurship and the Ethical Challenges of Entrepreneurship

Social Entrepreneurship and the Ethical Challenges of Entrepreneurship

© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–2

Chapter ObjectivesChapter Objectives

1.1. To examine the concept of “social entrepreneurship”To examine the concept of “social entrepreneurship”

2.2. To introduce the challenges of social enterpriseTo introduce the challenges of social enterprise

3.3. To discuss the importance of ethics for To discuss the importance of ethics for entrepreneurs entrepreneurs

4.4. To define the term “ethics”To define the term “ethics”

5.5. To study ethics in a conceptual framework for a To study ethics in a conceptual framework for a dynamic environmentdynamic environment

6.6. To review the constant dilemma of law versus ethicsTo review the constant dilemma of law versus ethics

7.7. To present strategies for establishing ethical To present strategies for establishing ethical responsibilityresponsibility

8.8. To emphasize the importance of entrepreneurial To emphasize the importance of entrepreneurial ethical leadershipethical leadership


The Social Entrepreneurship MovementThe Social Entrepreneurship Movement

• Social EntrepreneurshipSocial Entrepreneurship A new form of entrepreneurship applies to social A new form of entrepreneurship applies to social

problem solving tradition, private-sector problem solving tradition, private-sector entrepreneurship’s focus on innovation, risk-taking, entrepreneurship’s focus on innovation, risk-taking, and large scale transformation.and large scale transformation.

• Social Entrepreneurship ProcessSocial Entrepreneurship Process Recognition of a perceived social opportunityRecognition of a perceived social opportunity Translation of the social opportunity into an enterprise Translation of the social opportunity into an enterprise

conceptconcept Identification and acquisition of resources required to Identification and acquisition of resources required to

execute the enterprise’s goals.execute the enterprise’s goals.


Social EntrepreneursSocial Entrepreneurs

• Social EntrepreneurSocial Entrepreneur A person or small group of individuals who founds A person or small group of individuals who founds

and/or leads an organization or initiative engaged in and/or leads an organization or initiative engaged in social entrepreneurship.social entrepreneurship.

Also referred to as “public entrepreneurs,” “civic Also referred to as “public entrepreneurs,” “civic entrepreneurs,” or “social innovators.entrepreneurs,” or “social innovators.


Social Entrepreneurs (cont’d)Social Entrepreneurs (cont’d)

• Characteristics of Social Entrepreneurs Characteristics of Social Entrepreneurs as Change Agentsas Change Agents Adoption of a mission to create and sustain social Adoption of a mission to create and sustain social

value (beyond personal value)value (beyond personal value) Recognition and relentless pursuit of opportunities for Recognition and relentless pursuit of opportunities for

social valuesocial value Engagement in continuous innovation and learningEngagement in continuous innovation and learning Action beyond the limited resources at handAction beyond the limited resources at hand Heightened sense of accountabilityHeightened sense of accountability

4–6

The Social Enterprise ChallengeThe Social Enterprise Challenge

• Social ObligationSocial Obligation Firms that simply react to social issues through Firms that simply react to social issues through

obedience to the laws.obedience to the laws.

• Social ResponsibilitySocial Responsibility Firm that respond more actively to social issues; Firm that respond more actively to social issues;

accepting responsibility for various programs.accepting responsibility for various programs.

• Social ResponsivenessSocial Responsiveness Firms that are highly proactive and are even willing to Firms that are highly proactive and are even willing to

be evaluated by the public for various activities.be evaluated by the public for various activities.

4–7

Table4.1What Is the Nature of Social Enterprise?

Environment Pollution controlRestoration or protection of environmentConservation of natural resourcesRecycling efforts

Energy Conservation of energy in production and marketing operations Efforts to increase the energy efficiency of products Other energy-saving programs (for example, company-sponsored car pools)

Fair Business Practices Employment and advancement of women and minoritiesEmployment and advancement of disadvantaged individuals (disabled, Vietnam veterans, ex-offenders, former drug addicts, mentally retarded, and hardcore unemployed)Support for minority-owned businesses

Human Resources Promotion of employee health and safetyEmployee training and developmentRemedial education programs for disadvantaged employees Alcohol and drug counseling programsCareer counselingChild day-care facilities for working parentsEmployee physical fitness and stress management programs

Community Involvement Donations of cash, products, services, or employee timeSponsorship of public health projectsSupport of education and the artsSupport of community recreation programsCooperation in community projects (recycling centers, disaster assistance, and urban renewal)

Products Enhancement of product safetySponsorship of product safety education programsReduction of polluting potential of productsImprovement in nutritional value of productsImprovement in packaging and labeling

Source: Richard M. Hodgetts and Donald F. Kuratko, Management, 3rd ed. (San Diego, CA: Harcourt Brace Jovanovich, 1991), 670

4–8

Table4.2Classifying Social Enterprise Behavior

DIMENSION OF BEHAVIOR

STAGE ONE: SOCIAL OBLIGATION

STAGE TWO: SOCIAL RESPONSIBILITY

STAGE THREE: SOCIAL RESPONSIVENESS

Response to social pressures

Maintains low public profile, but if attacked, uses PR methods to upgrade its public image; denies any deficiencies; blames public dissatisfaction on ignorance or failure to understand corporate functions; discloses information only where legally required

Accepts responsibility for solving current problems; will admit deficiencies in former practices and attempt to persuade public that its current practices meet social norms; attitude toward critics conciliatory; freer information disclosures than stage one

Willingly discusses activities with outside groups; makes information freely available to the public; accepts formal and informal inputs from outside groups in decision making; is willing to be publicly evaluated for its various activities

Philanthropy Contributes only when direct benefit to it clearly shown; otherwise, views contributions as responsibility of individual employees

Contributes to noncontroversial and established causes; matches employee contributions

Activities of stage two, plus support and contributions to new, controversial groups whose needs it sees as unfulfilled and increasingly important

Source: Excerpted from S. Prakash Sethi, “A Conceptual Framework for Environmental Analysis of Social Issues and Evaluation of Business Patterns,” Academy of Management Journal (January 1979): 68. Copyright 1979 by the Academy of Management. Reproduced with permission of the Academy of Management

4–9

Environmental AwarenessEnvironmental Awareness

• EcovisionEcovision A leadership style that encourages open and flexible A leadership style that encourages open and flexible

structures that encompass the employees, the structures that encompass the employees, the organization, and the environment, with attention to organization, and the environment, with attention to evolving social demands.evolving social demands.

4–10

Environmental AwarenessEnvironmental Awareness• Key Steps in an Environmental StrategyKey Steps in an Environmental Strategy

1.1. Eliminate the concept of waste. Seek newer methods Eliminate the concept of waste. Seek newer methods of production and recycling. of production and recycling.

2.2. Restore accountability. Encourage consumer Restore accountability. Encourage consumer involvement in making companies accountable.involvement in making companies accountable.

3.3. Make prices reflect costs. Reconstruct the system to Make prices reflect costs. Reconstruct the system to incorporate a "green fee" where taxes are added to incorporate a "green fee" where taxes are added to energy, raw materials, and services to encourage energy, raw materials, and services to encourage conservation.conservation.

Environmental Awareness Environmental Awareness

Key Steps in an Environmental Strategy (Contd)Key Steps in an Environmental Strategy (Contd)

4.4.Promote diversity. Continue researching the needed Promote diversity. Continue researching the needed compatibility of our ever-evolving products and compatibility of our ever-evolving products and inventionsinventions

5.5.Make conservation profitable. Rather than demanding Make conservation profitable. Rather than demanding "low prices" to encourage production shortcuts, allow "low prices" to encourage production shortcuts, allow new costs for environmental stewardship.new costs for environmental stewardship.

6.6.Insist on accountability of nations. Insist on accountability of nations. Develop a pilan for every trading nation of sustain-able development enforced by tariffs.

4–11

Source: Lawrence and Weber (2008)

BUSINESS AND THE SOCIAL ENVIRONMENTBUSINESS AND THE SOCIAL ENVIRONMENT

CRS – DEBATE:CRS – DEBATE:



Multiple Responsibilities of BusinessMultiple Responsibilities of Business

Are threeAre three Economic responsibilitiesEconomic responsibilities Social responsibilitiesSocial responsibilities Legal responsibilitiesLegal responsibilities

Challenge is to balance all threeChallenge is to balance all three

Successful firm is one which finds ways to meet each of its Successful firm is one which finds ways to meet each of its critical responsibilities and develops strategies to enable critical responsibilities and develops strategies to enable the obligations to help each other the obligations to help each other

Graphic on next slide shows this balancing actGraphic on next slide shows this balancing act



4–15

The Ethical Side of EntrepreneurshipThe Ethical Side of Entrepreneurship

• Why are ethics important?Why are ethics important?

• What exactly represents right or wrong What exactly represents right or wrong conduct?conduct?

• How do we develop our own codes of How do we develop our own codes of conduct?conduct?

• What impact does integrity and ethical What impact does integrity and ethical conduct have on creating a successful conduct have on creating a successful venture?venture?

4–16

Defining EthicsDefining Ethics

• EthicsEthics A set of principles prescribing a behavioral code that A set of principles prescribing a behavioral code that

explains what is good and right or bad and wrong; explains what is good and right or bad and wrong; ethics may outline moral duty and obligations.ethics may outline moral duty and obligations.

Provide the basic rules or parameters for conducting Provide the basic rules or parameters for conducting any activity in an “acceptable” manner.any activity in an “acceptable” manner.

• Reasons for Ethical ConflictsReasons for Ethical Conflicts The many interests that confront business enterprises The many interests that confront business enterprises

both inside and outside the organizationboth inside and outside the organization Changes in values, mores, and societal normsChanges in values, mores, and societal norms Reliance on fixed ethical principles rather than an Reliance on fixed ethical principles rather than an

ethical processethical process

Differentiating Ethics and MoralityDifferentiating Ethics and MoralityEthics Morality

Ethics is a system of moral principles Morals are principles of right and wrong conduct.

Ethics is a framework, a systemic and reasoned basis for making statements about morality.

Morals are simply what we believe to be right and wrong.

Ethics stress a social system in which those morals are applied.

Morals define personal character,

Ethics point to standards or codes of behavior expected by the group to which the individual belongs. This could be national ethics, social ethics, company ethics, professional ethics, or even family ethics.

While a person’s moral code is usually unchanging, the ethics he or she practices can be other-dependent.

4–17

There appears to be a clear distinction here that ethics are more sophisticated than morals. Morally, one can support almost anything, while ethically we require reason and justification for what we believe.

Example: Differentiating Ethics and Example: Differentiating Ethics and MoralityMorality• Though the lawyer’s personal moral code

likely finds murder immoral and reprehensible, ethics demand the accused client be defended as vigorously as possible, even when the lawyer knows the party is guilty and that a freed defendant would potentially lead to more crime. Legal ethics must override personal morals for the greater good of upholding a justice system in which the accused are given a fair trial and the prosecution must prove guilt beyond a reasonable doubt.

4–18

The Spectrum of Ethicality The Spectrum of Ethicality (Verne E. Henderson, (Verne E. Henderson, 1984, JBE)1984, JBE)

• Business ethics is the continuing process of re-defining the goals and rules of business activity. In times of rapid change, spurred equally by technological innovation within the business community and by societal expectations in the larger community, participants who share in that process of re-defining goals and rules should be sensitive to professional differences.

• Because of these differences, definitions of what is ethical will vary as well, spread across a spectrum of ethicality. 4–19


The corporation and societyThe corporation and societyMarket stakeholdersMarket stakeholders


The corporation and societyThe corporation and societyNonmarket stakeholdersNonmarket stakeholders

The Dilemma with EthicsThe Dilemma with Ethics

• "Deciding what is good or right or bad and "Deciding what is good or right or bad and wrong in such a dynamic environment is wrong in such a dynamic environment is necessarily 'situational.' Therefore, instead necessarily 'situational.' Therefore, instead of relying on a set of fixed ethical of relying on a set of fixed ethical principles, we must now develop an ethical principles, we must now develop an ethical process.process.

4–22

4–23

Figure4.1Classifying Decisions Using a Conceptual Framework

Source: Verne E. Henderson, “The Ethical Side of Enterprise,” Sloan Management Review (spring 1982): 42.

Classifying Decisions Using a Conceptual Classifying Decisions Using a Conceptual Framework Framework • The quadrants depicted in Figure

demonstrate the age-old dilemma between law and ethics. Moving from the ideal ethical and legal position (Quadrant 1) to an unethical and ille gal position (Quadrant IV), one can see the continuum of activities within an ethical process. Yet legality provides societal standards but not definitive answers to ethical questions.

4–24

4–25

Ethics and LawsEthics and Laws

• Managerial RationalizationsManagerial Rationalizations Justifications in defense of unethical acts are Justifications in defense of unethical acts are

believing that an activity:believing that an activity:

1.1. Is not “really” illegal or immoral.Is not “really” illegal or immoral.

2.2. Is in the individual’s or the corporation’s best Is in the individual’s or the corporation’s best interest.interest.

3.3. Will never be found out.Will never be found out.

4.4. That helps the company will be condoned by the That helps the company will be condoned by the company.company.

Comment on Managerial RationalizationsComment on Managerial Rationalizations

• These rationalizations appear realistic, given the behavior of many business enterprises today.

• However, the legal aspect can be the most dubious. This is because the business world (and society) relies heavily on the law to qualify the actions of various situations. The law interprets the situations within the prescribed framework.

4–26

4–27

Table4.3Types of Morally Questionable Acts

Type Direct Effect Examples

Nonrole Against the firm Expense account cheatingEmbezzlementStealing supplies

Role failure Against the firm Superficial performance appraisalNot confronting expense account cheatingPalming off a poor performer with inflated praise

Role distortion For the firm BriberyPrice fixingManipulating suppliers

Role assertion For the firm Investing in South AfricaUsing nuclear technology for energy generationNot withdrawing product line in face of initial allegations of inadequate safety

Source: James A. Waters and Frederick Bird, “Attending to Ethics in Management,” Journal of Business Ethics 5 (1989): 494.


The corporation and societyThe corporation and societystakeholder networkstakeholder network


The corporation and societyThe corporation and society

STAKEHOLDER ANALYSIS:STAKEHOLDER ANALYSIS:

• It is part of every manager’s job It is part of every manager’s job

• Process whereby identify relevant Process whereby identify relevant stakeholders and analyze their interest and stakeholders and analyze their interest and power power

• Asks 4 Questions:Asks 4 Questions:1.1. Who are the relevant stakeholders?Who are the relevant stakeholders?2.2. What are the interests of each stakeholder?What are the interests of each stakeholder?3.3. What is the power of each stakeholder?What is the power of each stakeholder?4.4. How/what are coalitions likely to form?How/what are coalitions likely to form?



Stakeholder Analysis – Question 1Stakeholder Analysis – Question 1Who are the Relevant Stakeholders?Who are the Relevant Stakeholders?

• Answer this question by drawing market and Answer this question by drawing market and nonmarket stakeholder mapsnonmarket stakeholder maps

• Use Figures 1.2 and 1.3 as guidesUse Figures 1.2 and 1.3 as guides

• Recognize that not all of these groups are relevant Recognize that not all of these groups are relevant to every situation; examples: to every situation; examples:

Some businesses sell directly to the public and will not have Some businesses sell directly to the public and will not have retailersretailers

A certain stakeholder may not be relevant to a particular A certain stakeholder may not be relevant to a particular decision/action decision/action



Stakeholder Analysis – Question 2Stakeholder Analysis – Question 2Which are the Which are the STAKEHOLDER INTERESTS?STAKEHOLDER INTERESTS?

• Analyzing stakeholder interests includes Analyzing stakeholder interests includes addressing:addressing: What are the groups’ concerns?, and What are the groups’ concerns?, and What does the group want/expect from their What does the group want/expect from their

relationship with the firm?relationship with the firm?

• Examples:Examples: Stockholders have an ownership interest, they expect Stockholders have an ownership interest, they expect

to receive dividends and capital appreciationto receive dividends and capital appreciation Customers are interested in gaining fair value and Customers are interested in gaining fair value and

quality in goods and services they purchasequality in goods and services they purchase Public interest groups advance broad social interestsPublic interest groups advance broad social interests



Stakeholder Analysis – Question 3Stakeholder Analysis – Question 3What is the Power of each What is the Power of each Stakeholder?Stakeholder?

• Alternative concept called stakeholder Alternative concept called stakeholder saliencesalience, meaning something that stands , meaning something that stands out from its backgroundout from its background

• Stakeholder salience is determined by each Stakeholder salience is determined by each group’s group’s powerpower,, legitimacy legitimacy,, andand urgency urgency attributesattributes



Stakeholder Analysis – Question 4Stakeholder Analysis – Question 4How are Stakeholder Coalitions Likely How are Stakeholder Coalitions Likely to Form?to Form?

• Stakeholder groups often have common Stakeholder groups often have common interests and will form temporary alliances interests and will form temporary alliances to pursue these common intereststo pursue these common interests

• Coalitions are very dynamic (can change at Coalitions are very dynamic (can change at any time)any time)

• Coalitions are increasing international Coalitions are increasing international


• Internet has enabled coalitions to form Internet has enabled coalitions to form quickly, across political boundariesquickly, across political boundaries

• International alliances, coupled with media International alliances, coupled with media interest, can be a very powerful strategic interest, can be a very powerful strategic force for companiesforce for companies

• The greater the stakeholder group’s The greater the stakeholder group’s salience, the more attention a manager salience, the more attention a manager should pay to that groupshould pay to that group Groups that have all 3 attributes are called Groups that have all 3 attributes are called definitivedefinitive

stakeholdersstakeholders Groups that have 2 attributes are called Groups that have 2 attributes are called expectantexpectant

stakeholdersstakeholders

4–34