venture planning chapter 10 “personal ethics & the entrepreneur” dowling ba 560 fall term...

Venture PlanningVenture PlanningChapter 10Chapter 10

“Personal“Personal Ethics & the Ethics & the Entrepreneur”Entrepreneur”

DowlingDowlingBA 560BA 560

Fall Term 2005Fall Term 2005

Personal Ethics & The Personal Ethics & The EntrepreneurEntrepreneur

What is ethical What is ethical and what is not and what is not often is not often is not obvious.obvious.

Situations Situations regarding ethical regarding ethical issues are often issues are often ambiguous.ambiguous.


Ethical behavior is at Ethical behavior is at the core of long-term the core of long-term success, because it success, because it provides the glue that provides the glue that binds enduring binds enduring successful business successful business and personal and personal relationships together.relationships together.

Entrepreneurial EthicsEntrepreneurial Ethics

EthicsEthics: the guidelines or rules : the guidelines or rules of conduct we aim to live by; a of conduct we aim to live by; a system or set of moral system or set of moral principles. principles.

Most business decisions involve Most business decisions involve some degree of ethical some degree of ethical judgement. The ethical judgement. The ethical standards of a new venture standards of a new venture founder or a business are founder or a business are judged by actions, not by judged by actions, not by pious statements of intent.pious statements of intent.

Why do normally honest, intelligent, compassionate business Why do normally honest, intelligent, compassionate business founders and entrepreneurial managers act in unethical ways founders and entrepreneurial managers act in unethical ways that are dishonest, wrongheaded, and often illegal?that are dishonest, wrongheaded, and often illegal?

Unethical BehaviorUnethical Behavior

Lessons from the SadhuLessons from the Sadhu

““Real ethical dilemmas are ambiguous, and Real ethical dilemmas are ambiguous, and many of us are likely to hike right through many of us are likely to hike right through them, unaware that they exist. When, usually them, unaware that they exist. When, usually after the fact, someone makes an issue of after the fact, someone makes an issue of one, we tend to resent his or her bringing it one, we tend to resent his or her bringing it up. Often, when the full import of what we up. Often, when the full import of what we have done (or not done) hits us, we dig into a have done (or not done) hits us, we dig into a defensive position from which it is very defensive position from which it is very difficult to emerge. In rare circumstances, we difficult to emerge. In rare circumstances, we may contemplate what we have done …” may contemplate what we have done …” From From The Parable of the SadhuThe Parable of the Sadhu

A belief that the activity is within A belief that the activity is within reasonable ethical and legal limits - that reasonable ethical and legal limits - that is, that it is not “really” unethical or is, that it is not “really” unethical or illegal.illegal.– Where is the line between profit Where is the line between profit

maximization and unethical/illegal conduct?maximization and unethical/illegal conduct?– Founders/entrepreneurial managers Founders/entrepreneurial managers

sometimes leave the impression that there sometimes leave the impression that there are things that they don’t want to know are things that they don’t want to know about.about.

Rationalization #1Rationalization #1

The difference between becoming a The difference between becoming a success and becoming a statistic lies success and becoming a statistic lies in knowing where the ethical line is. in knowing where the ethical line is. Successful venture founders know that Successful venture founders know that there is a difference between taking there is a difference between taking risks, and knowing which risks to take.risks, and knowing which risks to take.

Maximizing profits is a new venture’s Maximizing profits is a new venture’s second priority, not its first. The first second priority, not its first. The first is ensuring its survival. is ensuring its survival.


The smartest venture managers The smartest venture managers know that the best answer to the know that the best answer to the question, “How far is too far?” is question, “How far is too far?” is don’t trydon’t try to find out !!! to find out !!!


A belief that the activity is in the A belief that the activity is in the individual’s or venture’s best individual’s or venture’s best interests - that the individual would interests - that the individual would somehow be expected to undertake somehow be expected to undertake the activity.the activity.– ““All new ventures need to do whatever All new ventures need to do whatever

is expedient to survive.”is expedient to survive.”– ““I have the right to do this, after all, I I have the right to do this, after all, I

am the founder of this venture.” am the founder of this venture.”


This ethical dilemma nearly always This ethical dilemma nearly always results from a limited, narrow-minded results from a limited, narrow-minded view of what those interests (individual view of what those interests (individual or venture) are. The real interests of or venture) are. The real interests of the venture (and its founders) are the venture (and its founders) are served by ethical, honest conduct in served by ethical, honest conduct in the first place.the first place.

Venture managers need to be Venture managers need to be concerned with more than just results, concerned with more than just results, they need to look hard at how these they need to look hard at how these results are obtained.results are obtained.


A belief that the activity is “safe” A belief that the activity is “safe” because it will never be found out or because it will never be found out or publicized; the classic crime-and-publicized; the classic crime-and-punishment issue of discovery.punishment issue of discovery.– Why do venture managers/employees Why do venture managers/employees

believe that they won’t get caught?believe that they won’t get caught?– What is the role of investors, professional What is the role of investors, professional

advisors, and boards of advisors in advisors, and boards of advisors in guiding a venture’s ethical conduct?guiding a venture’s ethical conduct?


““Discovery” - the process in which a Discovery” - the process in which a plaintiff’s attorneys can comb through plaintiff’s attorneys can comb through a company’s records to look for a company’s records to look for incriminating evidence.incriminating evidence.

The most effective deterrent is to The most effective deterrent is to heighten the perceived probability of heighten the perceived probability of being caught in the first place.being caught in the first place.

The point is to prevent misconduct, The point is to prevent misconduct, not just catch it.not just catch it.


As the main deterrent to unethical As the main deterrent to unethical behavior or illegal conduct is the behavior or illegal conduct is the perceived probability of detection, perceived probability of detection, venture managers should announce venture managers should announce any misconduct and how the any misconduct and how the individuals were punished (within individuals were punished (within legal HR limits).legal HR limits).


A belief that because the activity helps A belief that because the activity helps the venture, the venture (and its the venture, the venture (and its managers) will condone it, and even managers) will condone it, and even protect the person who engages in it.protect the person who engages in it.– How do founders/venture managers keep How do founders/venture managers keep

loyalty from going berserk?loyalty from going berserk?– How does a venture founder harness the How does a venture founder harness the

passion to succeed short of passion to succeed short of unethical/illegal behavior?unethical/illegal behavior?


Venture founders have the right and the Venture founders have the right and the responsibility to exert a moral force responsibility to exert a moral force within the business.within the business.

Venture founders/managers are Venture founders/managers are responsible for clearly delineating responsible for clearly delineating between passion and loyalty, and actions between passion and loyalty, and actions that are unethical and illegal. This has to that are unethical and illegal. This has to be done well in advance, ideally as part be done well in advance, ideally as part of the founding principles of the venture. of the founding principles of the venture.


As this line can become obscured in As this line can become obscured in the heat of the moment, the ethical the heat of the moment, the ethical line needs to be drawn well short of line needs to be drawn well short of where reasonable men and women where reasonable men and women could even begin to wonder about could even begin to wonder about the ethical and legal consequences the ethical and legal consequences of their actions.of their actions.


Believing that the activity is not “really” Believing that the activity is not “really” illegal or unethical.illegal or unethical.

Believing it is in the individuals’ or new Believing it is in the individuals’ or new venture’s best interest.venture’s best interest.

Believing that the activity or behavior Believing that the activity or behavior will never be found out.will never be found out.

Believing that because it helps the Believing that because it helps the ‘venture’, the company and its senior ‘venture’, the company and its senior managers will condone it.managers will condone it.

From: From: Why “Good” Managers Make Bad Ethical ChoicesWhy “Good” Managers Make Bad Ethical Choices

4 Rationalizations 4 Rationalizations SummarySummary


Dilemmas of entrepreneurial Dilemmas of entrepreneurial managementmanagement

Promoter:Promoter:– Entrepreneurial euphoriaEntrepreneurial euphoria– Impression managementImpression management– Pragmatic vs. moral considerationsPragmatic vs. moral considerations



Innovator:Innovator:– New types of ethical problemsNew types of ethical problems– Ethic of changeEthic of change



Relationships:Relationships:– Conflicts of interest and rolesConflicts of interest and roles– Transactional ethicsTransactional ethics– Guerilla tacticsGuerilla tactics



Other dilemmas:Other dilemmas:– Finders-keepers ethicFinders-keepers ethic– Conflict between personal values Conflict between personal values

and business goalsand business goals– Unsavory industry practicesUnsavory industry practices

Differences among partners’ notions Differences among partners’ notions of what constitutes ethical and of what constitutes ethical and unethical behavior can be a major unethical behavior can be a major source of ‘venture divorce’.source of ‘venture divorce’.

Unfortunately, it usually takes the Unfortunately, it usually takes the “test of battle” during the actual “test of battle” during the actual heat of start-up to discover the ‘real’ heat of start-up to discover the ‘real’ ethics of partners.ethics of partners.

Chapter 10 - Key PointsChapter 10 - Key Points

This argues to know whom you are This argues to know whom you are dealing with! Try to work under ‘real dealing with! Try to work under ‘real world’ conditions with potential venture world’ conditions with potential venture partners. Get reliable references from partners. Get reliable references from sources who have observed their sources who have observed their performance in situations that would performance in situations that would test their integrity. test their integrity.

Investors and high quality prospects for Investors and high quality prospects for the venture team will not settle for the venture team will not settle for questionable standards of integrity and questionable standards of integrity and ethics.ethics.


Financial success at the expense of Financial success at the expense of your integrity is not success at all.your integrity is not success at all.


venture planning chapter 10 “personal ethics & the entrepreneur” dowling ba 560 fall term...

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