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Thursday, May 27, 2010
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Ethics in entrepreneurship

Samson H Chowdhury

During the past few decades, there has been an explosion of new interest in entrepreneurs and their activities. Yet, only recently, serious research attention is known to have been devoted (in some developed countries) to the ethical problems encountered by entrepreneurs and their organisations. Entrepreneurs face uniquely complex moral problems related to basic fairness, personnel and relationships, distribution dilemmas and other challenges that need to be addressed by all concerned through appropriate legal framework, social order and perhaps also a 'Moral Re-armament Movement.

In order to understand the role of ethics in entrepreneurship, we need to understand the concept of ethics in life. How should we live? Shall we aim at happiness or at knowledge, virtue or the creation of beautiful objects? If we choose happiness, will it be our own or the happiness of all? And what of the more particular questions that face us. Is it right to be dishonest in a good cause?

Can we justify living in opulence while elsewhere in the world people are starving? If conscripted to fight in a war we do not support, should we disobey the law? What are our obligations to the other creatures with whom we share this planet and to the generations of humans who will come after us?

Ethics deals with such questions at all levels. Its subject consists of the fundamental issues of practical decision-making and its major concerns include the nature of ultimate value and the standards by which human actions can be judged right or wrong.

The term ethics and morality are closely related. We now refer to ethical judgments or ethical principles where it once would have been more common to speak of moral judgments or moral principles. Strictly speaking, the term refers not to morality itself but to the field of study or branch of enquiry that has morality as its subject matter. In this sense, ethics is equivalent to moral philosophy. Normative ethics is primarily concerned with establishing standards or norms for conduct and is commonly associated with general theories about how one ought to live.

Perhaps the most striking development in our study of ethics during the second half of the 20th century has been the growing interest among philosophers in applied ethics. Such moral issues as racial and sexual equality, human rights and justice have become prominent, as have questions about the value of human life raised by controversies over abortion and euthanasia.

Related to the latter are the ethical implications of various developments in medicine and the biological sciences, as in-vitro fertilisation (test tube babies), sperm banks, and gene manipulation. This field of applied ethics (known as bioethics) covering areas of business and entrepreneurship, frequently involve inter-disciplinary work requiring the cooperative efforts of philosophers, physicians, scientists, lawyers, theologians and the social /political leaders.

Entrepreneurs
Since the days of classical Greece, entrepreneurs have been praised for their important contributions to common life. Yet many have also been strongly criticised for significant ethical lapses.

The mythical entrepreneur Hermes depicted as a skilled inventor and merchant, is dishonest and is described as an 'unethical trickster and thief', concerned only with his own interest and gain. While today entrepreneurs are likewise greatly admired, many of their business leaders are also often perceived as willing to do almost anything to succeed.

In his book 'The Achieving Society', David McClelland was among first contemporary scholars to ask serious ethical questions about entrepreneurship issuing a call for more study. McClelland observed: “We do not know at the present time what makes an entrepreneur more or less ethical in his dealings but obviously there are few problems of greater importance for future research.”

Entrepreneurs today encounter uniquely challenging ethical problems. They typically operate in stressful business environments and they often struggle to find time and perspective for focused ethical reflections.

Entrepreneurs make choice and take actions that affect many, usually without the moral guidance available in established organisations. Their decisions can strengthen or seriously weaken a firm's future business viability. The cases of Enron, WorldCom, Anderson and other giants of USA are shining examples of results of unethical decisions by key personnel of those enterprises.

Entrepreneurs aspire to succeed and speak the language of entrepreneurship and economics. It is important that we speak of ethics. The capital that we use to build our business depletes, but the capital of our character outlasts all material resources.

Self-interest and self-preservation at times tend to compromise ethics. Today's economic environment thrusts the entrepreneurs into a survival mentality. Ethics stand as a vital bridge between entrepreneurship and economics. Ethics do not stand as the primary pillar of the house (firm); it will fall under the weight of corruption, which pervades most nations.

Therefore, ethics are internally self imposed limitations for entrepreneurial success. Ethics do not guarantee material success, but they carve a straight path. No one can force a person to be honest and upright in dealing with others. These internal traits comprise a person's character.

Government and bosses can impose laws and a code of conduct to govern and rightfully so. However, codes and laws are not intended for persons who do right according to a character of integrity. Rather, they are intended for those who tend to violate them.

Adam Smith rightfully wrote, “When the law does not enforce the performance of contracts, it puts all borrowers near upon the same footing with bankrupts or people of doubtful credit” (Wealth of Nations). That is, those who tend toward cutting corners in their business drag others down with them if legal code does not prevent it. This, in turn, leads to the disintegration of the free markets.

What does this look like in daily business affairs? The entrepreneur must lead by example in upholding the highest regard for ethics in the company. A leader is a service provider to all constituents within and to the company. Sound leadership holds ethics in high regard and exhibits integrity. This regard is an internal quality that says, “I value the governing principles that apply to all persons for the good of society, because such value is ingrained in my person. I also value my fellow human because he or she is my equal."

Attempting to cut corners in business under pressure to meet the numbers or failure to deliver according to agreements lead only to hurt the entrepreneur and those served. As these practices work their way out among all business, they cause great harm to the free market and lead to greater external imposition on all business. An internal set of ethics promote greater freedom, enhance the entrepreneurial spirit, grant success, and lead to greater house management (economics).

Doing the right thing works from an internal core and forms an upright character. External codes and laws can force people to do right but fail to change the internal core of one's character.

However, exactly what is the right thing? All of us know about integrity, promise keeping, commitment, and truthfulness. We learned these traits from childhood. An important question arises for us personally and in the business world do we practise integrity or do we have it imposed on us from an external source? The capital we use to build our business becomes consumed through production, but the capital of our character outlasts all material resources.

This is the abridged version of a lecture on ethics in entrepreneurship, delivered at the School of Business, North South University, on April 2. The writer is the chairman of Square Group.

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