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Social entrepreneurship and the ethical challenges of entrepreneurship

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  • 1. Part I The Entrepreneurial Mindset in the 21st Century CHAPTER 4 Social Entrepreneurship and the Ethical Challenges of Entrepreneurship© 2009 South-Western, a part of Cengage Learning. PowerPoint Presentation by Charlie CookAll rights reserved. The University of West Alabama
  • 2. Chapter Objectives 1. To examine the concept of “social entrepreneurship” 2. To introduce the challenges of social enterprise 3. To discuss the importance of ethics for entrepreneurs 4. To define the term “ethics” 5. To study ethics in a conceptual framework for a dynamic environment 6. To review the constant dilemma of law versus ethics 7. To present strategies for establishing ethical responsibility 8. To emphasize the importance of entrepreneurial ethical leadership© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–2
  • 3. The Social Entrepreneurship Movement • Social Entrepreneurship  A new form of entrepreneurship applies to social problem solving tradition, private-sector entrepreneurship’s focus on innovation, risk-taking, and large scale transformation. • Social Entrepreneurship Process  Recognition of a perceived social opportunity  Translation of the social opportunity into an enterprise concept  Identification and acquisition of resources required to execute the enterprise’s goals.© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–3
  • 4. Social Entrepreneurs • Social Entrepreneur  A person or small group of individuals who founds and/or leads an organization or initiative engaged in social entrepreneurship.  Also referred to as “public entrepreneurs,” “civic entrepreneurs,” or “social innovators.© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–4
  • 5. Social Entrepreneurs (cont’d) • Characteristics of Social Entrepreneurs as Change Agents  Adoption of a mission to create and sustain social value (beyond personal value)  Recognition and relentless pursuit of opportunities for social value  Engagement in continuous innovation and learning  Action beyond the limited resources at hand  Heightened sense of accountability© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–5
  • 6. The Social Enterprise Challenge• Social Obligation  Firms that simply react to social issues through obedience to the laws.• Social Responsibility  Firm that respond more actively to social issues; accepting responsibility for various programs.• Social Responsiveness  Firms that are highly proactive and are even willing to be evaluated by the public for various activities. 4–6
  • 7. Table 4.1 What Is the Nature of Social Enterprise? Environment Pollution control Restoration or protection of environment Conservation of natural resources Recycling 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 minorities Employment 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 safety Employee training and development Remedial education programs for disadvantaged employees Alcohol and drug counseling programs Career counseling Child day-care facilities for working parents Employee physical fitness and stress management programs Community Involvement Donations of cash, products, services, or employee time Sponsorship of public health projects Support of education and the arts Support of community recreation programs Cooperation in community projects (recycling centers, disaster assistance, and urban renewal) Products Enhancement of product safety Sponsorship of product safety education programs Reduction of polluting potential of products Improvement in nutritional value of products Improvement in packaging and labelingSource: Richard M. Hodgetts and Donald F. Kuratko, Management, 3rd ed. (San Diego, CA: Harcourt Brace Jovanovich, 1991), 670 4–7
  • 8. Table 4.2 Classifying Social Enterprise Behavior DIMENSION STAGE ONE: STAGE TWO: STAGE THREE: OF BEHAVIOR SOCIAL OBLIGATION SOCIAL RESPONSIBILITY SOCIAL RESPONSIVENESS Response to Maintains low public profile, Accepts responsibility for Willingly discusses activities social pressures but if attacked, uses PR solving current problems; will with outside groups; makes methods to upgrade its public admit deficiencies in former information freely available to image; denies any practices and attempt to the public; accepts formal and deficiencies; blames public persuade public that its informal inputs from outside dissatisfaction on ignorance or current practices meet social groups in decision making; is failure to understand corporate norms; attitude toward critics willing to be publicly evaluated functions; discloses conciliatory; freer information for its various activities information only where legally disclosures than stage one required Philanthropy Contributes only when direct Contributes to Activities of stage two, plus benefit to it clearly shown; noncontroversial and support and contributions to otherwise, views contributions established causes; matches new, controversial groups as responsibility of individual employee contributions whose needs it sees as employees unfulfilled and increasingly importantSource: Excerpted from S. Prakash Sethi, “A Conceptual Framework for Environmental Analysis of Social Issuesand Evaluation of Business Patterns,” Academy of Management Journal (January 1979): 68. Copyright 1979 bythe Academy of Management. Reproduced with permission of the Academy of Management 4–8
  • 9. Environmental Awareness• Ecovision  A leadership style that encourages open and flexible structures that encompass the employees, the organization, and the environment, with attention to evolving social demands. 4–9
  • 10. Environmental Awareness• Key Steps in an Environmental Strategy 1. Eliminate the concept of waste. Seek newer methods of production and recycling. 2. Restore accountability. Encourage consumer involvement in making companies accountable. 3. Make prices reflect costs. Reconstruct the system to incorporate a "green fee" where taxes are added to energy, raw materials, and services to encourage conservation. 4–10
  • 11. Environmental Awareness Key Steps in an Environmental Strategy (Contd) 4.Promote diversity. Continue researching the needed compatibility of our ever-evolving products and inventions 5.Make conservation profitable. Rather than demanding "low prices" to encourage production shortcuts, allow new costs for environmental stewardship. 6.Insist on accountability of nations. Develop a pilan for every trading nation of sustain-able development enforced by tariffs. 4–11
  • 12. BUSINESS AND THE SOCIAL ENVIRONMENT CRS – DEBATE: Source: Lawrence and Weber (2008)
  • 13. BUSINESS AND THE SOCIAL ENVIRONMENT Multiple Responsibilities of Business Are three  Economic responsibilities  Social responsibilities  Legal responsibilities Challenge is to balance all three Successful firm is one which finds ways to meet each of its critical responsibilities and develops strategies to enable the obligations to help each other Graphic on next slide shows this balancing act Source: Lawrence and Weber (2008)
  • 14. BUSINESS AND THE SOCIAL ENVIRONMENT Source: Lawrence and Weber (2008)
  • 15. The Ethical Side of Entrepreneurship• Why are ethics important?• What exactly represents right or wrong conduct?• How do we develop our own codes of conduct?• What impact does integrity and ethical conduct have on creating a successful venture? 4–15
  • 16. Defining Ethics• Ethics  A set of principles prescribing a behavioral code that explains what is good and right or bad and wrong; ethics may outline moral duty and obligations.  Provide the basic rules or parameters for conducting any activity in an “acceptable” manner.• Reasons for Ethical Conflicts  The many interests that confront business enterprises both inside and outside the organization  Changes in values, mores, and societal norms  Reliance on fixed ethical principles rather than an ethical process 4–16
  • 17. Differentiating Ethics and MoralityEthics MoralityEthics is a system of moral principles Morals are principles of right and wrong conduct.Ethics is a framework, a systemic and reasoned Morals are simply what we believebasis for making statements about morality. to be right and wrong.Ethics stress a social system in which those Morals define personal character,morals are applied.Ethics point to standards or codes of behavior While a person’s moral code isexpected by the group to which the individual usually unchanging, the ethics hebelongs. This could be national ethics, social or she practices can be other-ethics, company ethics, professional ethics, or dependent.even family ethics. 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. 4–17
  • 18. Example: Differentiating Ethics and Morality • 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
  • 19. The Spectrum of Ethicality (Verne E. Henderson, 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
  • 20. The corporation and society Market stakeholders Source: Lawrence and Weber (2008)
  • 21. The corporation and society Nonmarket stakeholders Source: Lawrence and Weber (2008)
  • 22. The Dilemma with Ethics • "Deciding what is good or right or bad and wrong in such a dynamic environment is necessarily situational. Therefore, instead of relying on a set of fixed ethical principles, we must now develop an ethical process. 4–22
  • 23. Figure 4.1 Classifying Decisions Using a Conceptual FrameworkSource: Verne E. Henderson, “The Ethical Side of Enterprise,” Sloan Management Review (spring 1982): 42. 4–23
  • 24. Classifying Decisions Using a Conceptual 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
  • 25. Ethics and Laws• Managerial Rationalizations  Justifications in defense of unethical acts are believing that an activity: 1. Is not “really” illegal or immoral. 2. Is in the individual’s or the corporation’s best interest. 3. Will never be found out. 4. That helps the company will be condoned by the company. 4–25
  • 26. Comment 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
  • 27. Table 4.3 Types of Morally Questionable Acts Type Direct Effect Examples Nonrole Against the firm Expense account cheating Embezzlement Stealing supplies Role failure Against the firm Superficial performance appraisal Not confronting expense account cheating Palming off a poor performer with inflated praise Role distortion For the firm Bribery Price fixing Manipulating suppliers Role assertion For the firm Investing in South Africa Using nuclear technology for energy generation Not withdrawing product line in face of initial allegations of inadequate safetySource: James A. Waters and Frederick Bird, “Attending to Ethics in Management,” Journal of Business Ethics 5 (1989): 494. 4–27
  • 28. The corporation and society stakeholder network Source: Lawrence and Weber (2008)
  • 29. The corporation and society STAKEHOLDER ANALYSIS: • It is part of every manager’s job • Process whereby identify relevant stakeholders and analyze their interest and power • Asks 4 Questions: 1. Who are the relevant stakeholders? 2. What are the interests of each stakeholder? 3. What is the power of each stakeholder? 4. How/what are coalitions likely to form? Source: Lawrence and Weber (2008)
  • 30. The corporation and society Stakeholder Analysis – Question 1 Who are the Relevant Stakeholders? • Answer this question by drawing market and nonmarket stakeholder maps • Use Figures 1.2 and 1.3 as guides • Recognize that not all of these groups are relevant to every situation; examples:  Some businesses sell directly to the public and will not have retailers  A certain stakeholder may not be relevant to a particular decision/action Source: Lawrence and Weber (2008)
  • 31. The corporation and society Stakeholder Analysis – Question 2 Which are the STAKEHOLDER INTERESTS? • Analyzing stakeholder interests includes addressing:  What are the groups’ concerns?, and  What does the group want/expect from their relationship with the firm? • Examples:  Stockholders have an ownership interest, they expect to receive dividends and capital appreciation  Customers are interested in gaining fair value and quality in goods and services they purchase  Public interest groups advance broad social interests Source: Lawrence and Weber (2008)
  • 32. The corporation and society Stakeholder Analysis – Question 3 What is the Power of each Stakeholder? • Alternative concept called stakeholder salience, meaning something that stands out from its background • Stakeholder salience is determined by each group’s power, legitimacy, and urgency attributes Source: Lawrence and Weber (2008)
  • 33. The corporation and society Stakeholder Analysis – Question 4 How are Stakeholder Coalitions Likely to Form? • Stakeholder groups often have common interests and will form temporary alliances to pursue these common interests • Coalitions are very dynamic (can change at any time) • Coalitions are increasing international Source: Lawrence and Weber (2008)
  • 34. The corporation and society • Internet has enabled coalitions to form quickly, across political boundaries • International alliances, coupled with media interest, can be a very powerful strategic force for companies • The greater the stakeholder group’s salience, the more attention a manager should pay to that group  Groups that have all 3 attributes are called definitive stakeholders  Groups that have 2 attributes are called expectant stakeholders 4–34