CHAPTER 3 person to do it.

However, when he knows

that there is a possibility that he would be
THE ETHICAL AND SOCIAL
censured, the motivation is diminished. For
RESPONSIBILITIES OF THE
ENTREPRENEUR instance, a person who is considering
adulterating his products to increase profits
What is Business Ethics? will be more inclined to do it especially if
Ethics is the study of moral obligation the community does not strongly condemn
involving the distinction between right and such acts. Another example is
wrong. As a consequence, the study of photocopying original works of others.
ethics paved the way for the adaption of
the general rules of conduct in society. People are different from one another and
The rules about how entrepreneurs ought that includes differences in reacting to
to behave are referred to as business specific situations. For instance, a trader
ethics. The ethical behavior required of may think selling food products which had
entrepreneurs is determined by the already expired is not bad. Another person
following: would think differently and would not want
1. The public;
to engage in such activity.
2. Interest groups like the Society of
Prevention of Cruelty to Animals; When a person is in competition with
3. Business organizations; and others, and he wants to be sure of winning,
4. The individual’s personal morals and he is more inclined to adapt unethical
values. behavior. An example is the trader who
Adherence to ethical standards contributes
spreads rumors to discredit competitors.
to the smooth flow of business exchanges.
It establishes trust between buyers and
sellers and between lenders and
borrowers. How Ethical Behavior is
Encouraged
Factors Influencing Ethical
If the entrepreneur believes that business
Behavior
Ethical behavior, whether by a person or a success requires good ethical behavior, his
business entity, is influenced by any or a next concern would be to encourage his
combination of the following: people to adapt good ethical behavior.
1. Situation; There are certain ways of encouraging
2. Reward system; ethical behavior among employees.
3. Individual differences; and
4. Other factors. These are the following:
1. adaption of a code of ethics;
2. institution of rewards and
Circumstances vary, and the reactions of punishments concerning ethical
firms or individuals also vary. For instance, behavior:
a firm that behaves ethically during 3. adaption of internal programs for
prosperous times may act unethically in resolving conflicts:
times of financial hardships. 4. creation of ethics review
committees;
The expectation of high rewards for 5. provision of training in ethics for
committing unethical behavior motivates a employees; and
 appropriat
6. top management support.

CODE OF e
ETHICS behavior.
The A code of
code of ethics is
ethics is a very
formal useful to
document the firm
indicating espousing
the ethical
entrepren behavior.
eurship’s It serves
adapted as
principles a basic
of reference
of nts are
employee met:
s who 1. It
make a should
big or refer to
small specific
decisions. unethical
A code of practices
ethics can like
be made receiving
effective if gifts,
the avoiding
following warranty
requireme claims,
bid-
rigging, various
making forms
fictitious such as
claims, providing
among sufficient
others; funds for
and its
2. It must implement
be ation and
supported assigning
by top specific
managem employee
ent. s to
Support handle
comes in ethical
infractions code of
of other ethics and
employee successful
s and the ly
like. implement
Ethical s it
behavior
CODE OF ETHICS

The code of ethics is a formal document

indicating the entrepreneurship’s adapted

of principles of appropriate behavior. A code

of ethics is very useful to the firm
espousing ethical behavior. It serves as a

personnel basic reference of employees who make a

big or small decisions.

occurs A code of ethics can be made effective if

the following requirements are met:

only when
1. It should refer to specific unethical
practices like receiving gifts, avoiding
warranty claims, bid-rigging, making

the
fictitious claims, among others; and

2. It must be supported by top

management. Support comes in various

entrepren forms such as providing sufficient funds for

its implementation and assigning specific
employees to handle ethical infractions of

eur other employees and the like.

Ethical behavior of personnel occurs only

develops a when the entrepreneur develops a code of

ethics and successfully implements it.
 Such training should make them sufficiently
prepared to deal with various ethical issues
REWARDS AND PUNISHMENTS
they would encounter in their respective
CONCERNING ETHICAL BEHAVIOR
workplaces.
A code of ethics is sufficient for
some people if ethical behavior is required.
For many people however, this may not be TOP MANAGEMENT SUPPORT
enough to motivate them to act ethically.
It is very difficult for any program
1. Reward - a thing given in recognition or activity to succeed without sufficient
of one's service, effort, or support from the top management. For
achievement. Example: cash, gifts, instance, when unethical conduct is
promotion or citation committed and no sanction is imposed by
2. Punishment - inflict a penalty or top management, it can be expected that
sanction on (someone) as retribution more violations of good ethics must be
for an offense, especially a made.
transgression of a legal or moral code.
Example: dismissal demotion,
suspension or reprimand. ETHICAL ISSUES FACING
ENTREPRENEURSHIPS
INTERNAL PROGRAMS FOR RESOLVING
CONFLICTS Entrepreneurships face ethical questions
on a daily basis. The spring form the
Conflicts arise, even when ethical
following relationships:
conduct is concerned. It is important for
entrepreneurs to adapt a program of 1. Between the company and the
resolving conflicts. costumers
2. Between the company and its
Example: meetings.
personnel and employees
3. Between the company and its
business associates
ETHICS REVIEW COMMITTEES
4. Between the company and
To encourage ethical behavior, the investors and financial community.
entrepreneurship may create an ethics
review committee. The committee is
RELATIONS WITH COSTUMERS
usually composed of company employees
as well as some who are not employed by When ethical abuses are committed, the
the company. most probable victims are costumers. This
is expected because of the high frequency
or transactions between the company and
PROVISION OF TRAINING IN ETHICS the costumers.

Company personnel who are exposed to

activities that are ethically charged must be
provided with sufficient training in ethics.
Relations because
with of the
Customers high
. When frequency
ethical of
abuses transactio
are ns
committed between
, the most the
probable company
victims and the
are customers
customers .
. This is Entrepren
expected eurs are
expected provide
by society support
to treat for
their consumer
customers rights
fairly and which are
not to act as follows:
in ways
Entrepreneurs are expected by society to
treat their customers fairly and not to act in
ways that will be harmful to them.

that will
Entrepreneurs should provide support for
consumer rights which are as follows:

a. The Right to Be Safe. Consumers expect

be that the products and services that they

buy will do them no harm. They also expect
to be free from bodily harm when they are

harmful to inside the entrepreneur’s business

premises.

them. b. The Right to Be Informed. Consumers

make purchasing decisions often. The
quality of their decisions, however, will

Entrepren depend on whether or not they are

properly informed.

eurs
c. The Right to Choose. Firms that intend to
adhere to business ethics should strive to
protect consumers’ right to choose, what

should products and services they need and intend

to purchase.
d. The Right to Be Heard. Customers have RELATIONS WITH BUSINESS ASSOCIATES
the right to communicate their concerns to Entrepreneurships operate in conjunction
entrepreneurships they patronize. This with the efforts of suppliers, agents, and
right may be used to express appreciation various types of middlemen. In the course
about what the company is doing, or to of business transactions between the
provide information about defects in the players mentioned and the firms, some
products the customer bought. ethical questions may come into force. A
supplier who badly needs a contract, for
instance, may attempt to bribe the
RELATIONS WITH PERSONNEL AND company’s purchasing officer. Another
EMPLOYEES example would be the company’s sales
manager extending favors to a trader by
There is always the possibility that business giving priority to delivery of orders, in
firms, including entrepreneurships, will exchange for personal favors.
commit unethical acts toward their
employees. Good ethical conduct requires The practices like those stated above are
entrepreneurs to be aware of their unethical and must not be allowed to
responsibilities to employees. These are happen in a company that upholds good
the following ethical conduct.

a. Workplace Safety. The ethical

entrepreneur is one who makes sure that
RELATIONS WITH INVESTORS AND THE
the workplace is safe for employees. He
FINANCIAL COMMUNITY
sees to it that adequate measures are
adapted to prevent accidents from The country’s financial system survives
happening in the factory and in the office. partly because investors and other players
have placed a certain degree of trust in
b. Quality of Life Issues. Entrepreneurs
firms they deal with. The degree of trust is
addresses the burdens or problems of
maintained at a high level if the investors
employees to maintain a good balance
and the financial community feel that
between work and family.
business firms practice goo business ethics,
c. Avoiding Discrimination. Everyone has especially if they think that their
the right to work in a place where investments are well protected. If that is
discrimination is not practiced. Factors like so, the desired level of investment is
age, sex, race, religion, political beliefs, and maintained.
the like must not be allowed to affect any
Trust and confidence, however, are eroded
person’s chance of getting employed or
by wrongdoings of some firms. The
promoted.
investment scams perpetrated by some
d. Preventing Sexual Harassment. scheming persons do not provide good
Entrepreneurs have the moral examples of ethical firms. It is to the best
responsibility of keeping the workplace interest of companies including
free from sexual harassment and where entrepreneurships to continue to be
everybody is treated fairly blessed with a stable financial system. This
will only possible if companies behave
 CODE OF
ethically. Misinterpretation concerning the
financial health of firms, land swindles,
embezzlement and misleading reports

ETHICS
about non-existent assets are only some of
the unethical and illegal practices that
undermine our country’s financial stability.

Summary

The survival of society is expected to be the

The
highest priority concern of everybody
including business firms. This can only
happen if in quest for profits, business
code of
firms do not jeopardize the welfare of the
society. A way of pursuing this objective is
the adherence to the rules of conduct
ethics is a
which is generally referred to as "business
ethics." formal
document
The ethical behavior required of
entrepreneurs is determined by the public,
interest groups, business organizations,
and the individual's personal morals and
values. indicating
the
Certain factors influence the ethical behavior of
firms and individuals and these are the
situation, the reward system, the individual
differences, and other factors.

The ethical behavior of employees may be

encouraged through adaption of a code of
entrepren
eurship’s
ethics, institution of rewards and the
punishments concerning ethical behavior,
adaption of internal programs for resolving

adapted
conflicts, creation of ethics review committees,
provision of training in ethics among
employees, and top management support.

Ethical issues confronting entrepreneurships

arise from their relationships with their
customers, their personnel and employees,
principles
of
their business associates, and the investors and
the financial community.
appropriat of
e employee
behavior. s who
A code of make a
ethics is big or
very small
useful to decisions.
the firm A code of
espousing ethics can
ethical be made
behavior. effective if
It serves the
as following
a basic requireme
reference
nts are rigging,
met: making
1. It fictitious
should claims,
refer to among
specific others;
unethical and
practices 2. It must
like be
receiving supported
gifts, by top
avoiding managem
warranty ent.
claims, Support
bid- comes in
various infractions
forms of other
such as employee
providing s and the
sufficient like.
funds for Ethical
its behavior
implement of
ation and personnel
assigning occurs
specific only when
employee the
s to entrepren
handle eur
ethical develops a
code of
1. environment; and
2. personality of the entrepreneur.

The Environment as a Factor

ethics and An entrepreneurship will survive and grow

in an environment that is friendly or akin to

successful it. Nature provides us with examples of

what happens to entities living in certain
environments. For instance, giant clams

ly thrive in the ocean, but not in the river. The

coconut palm will grow in the Philippines
but not in Sweden. These are so because

implement giant clams were designed by nature to

survive in saltwater, and freshwater river
will be hostile to it because it is not its

s it natural habitat. Coconut trees grow

naturally in the tropics and because
CHAPTER 4 Sweden has a cool, temperate climate, they
ENTREPRENEURIAL will not survive there.
PERSONALITY In the same light,
entrepreneurships will survive and grow
Operating a business enterprise is a only in economic environments of free
very challenging occupation. The rate of enterprise. Full blooming
failure among those who dared to make entrepreneurships cannot be expected to
attempts is high. Only a small number of
flourish in economies that are not fully
them! become successful and the levels of
supportive of free enterprise.
their success differ. Some of them become
highly successful and the rest are either In terms of support to
moderately or slightly successful. Those entrepreneurships, economic
who fail also differ in terms of degree of environments differ from place to place. To
failure.
facilitate discussion, economic
Clearly, entrepreneurship is not for
environments may be classified as follows:
everyone. But how do we know,
beforehand, that a person is a good 1. fully supportive of entrepreneurships;
prospect? What determines success or
failure? It is important for those interested 2. moderately supportive of
in entrepreneurship to know the answers entrepreneurships; and
to those questions. Some guides provide
clues and one of them indicates that there 3. not supportive of entrepreneurships.
are two complementary factors that Economies that fully support
determine success or failure in an entrepreneurships make it easy for
entrepreneurship.
entrepreneurs to succeed. The exact
opposite may be expected in economies
These factors are:
that are not supportive of abilities, self-image, intelligence, and visible
entrepreneurships (Figure 6). behavior patterns.

Types of Economic The Entrepreneur’s Psychologists have made great advances in

Environment Task research about personality. An interesting
study is that one made by Holland (quoted
Those fully supportive in Patton and McMahen, 2006, 29-31). His
of entrepreneurships easy proposal indicates six personality types.
They are as follows:
Those moderately
Supportive of less easy 1. realistic type;
Entrepreneurships
2. investigative type;
Those not supportive hard 3. artistic type;
Of entrepreneurships
4. social type;

5. enterprising type; and 6. conventional

type.

A brief description of the foregoing

The Entrepreneur's Personality
personality types is presented in Table 6.
Every person has a personality that is
unique and different from others. Each
personality type has a corresponding type Table 6. A Brief Description of Holland's
of iob that fits it. A certain personality, Personality Types
however, may fit in more than one type of
job, although the level of fitness will be 1. Realistic This individual prefers
activities involving
different with each job. A given personality, aggressive behavior and
for instance, may perfectly fit the physical exertion
entrepreneur si job, moderately fits the requiring skill, strength,
teacher's job, but is not fitted for the and coordination
engineer's job (Table 5). Examples: farming and
mining.
Table 5. Personalities and Job Fit 2. Investigative This individual prefers to
be analytical, curious,
Personality Entrepreneur’s Teacher’s Engineer’s methodical, and precise.
Types Job
Job Job Examples: crime
investigator and arson
A Perfect fit Moderate fit Unfit
B Unfit Perfect fit Modrate fit investigator.
C Moderate fit unfit Perfect fit 3. Artistic This person is expressive,
nonconforming, original,
and introspective.
What is Personality Personality refers to Examples: songwriter and
the pattern of characteristics that novelist.
distinguishes one person from another. It 4. Social This person enjoys
includes the person's traits, values, motives working with and helping
others and purposefully
com attitudes, emotional reactivity,
 avoids systematic loads of entrepreneurial drive" (Ros Jay,
activities involving tools 2001), and became a successful
and machinery. Example: entrepreneur. As a child, he made his
social worker. money growing Christmas trees. At 16, he
5. Enterprising This person enjoys verbal started publishing a magazine. At 19, he set
activities to influence
up a mail-order business. Drive enabled
others and to attain
power and status. him to own businesses as diverse as
Examples: manager and banking and soft drinks, condoms, and
entrepreneur. airlines and became a billionaire in the
6. Conventional This person enjoys the process.
systematic manipulation
of data, filing of records, Thinking Ability
or reproducing materials. The entrepreneur's job involves solving
Examples: accounting, problems and making decisions. When he
finance. finds the correct solutions to problems that
Characteristics of Entrepreneurs confront him and then makes decisions
that are implemented, he comes closer to
Successful entrepreneurs possess certain
realizing his goals.
characteristics that are unique and
If, for instance, the entrepreneur is asked
different from those having other to make the final decision in the promotion
occupations. Based on research by experts, to vice president of one of three qualified
the following traits are considered vital to a managers, he needs to use his thinking
successful career in entrepreneurship: ability and that ability must be sufficient to
guide him to make the best choice.
1. drive; 6. reasonable risk taker;
2. thinking ability; 7. self-confident;
3. human relations ability; 8. goal setter; A man with superior thinking ability can see
4. ability to communicate; 9. accountable; and through the maze of information (or
5. technical knowledge; 10. innovative. disinformation) brought before him. That
ability is an ingredient of successful
entrepreneurship.
Drive
Reading the biographies of successful
Success in entrepreneurship becomes
entrepreneurs provides insight into how
possible when the entrepreneur is self-
these people used their intelligence to
motivated enough to pursue his chosen
succeed in their business endeavors. A
course without relenting even in the face of
good example is Jeff Bezos who founded
adversity. Reaching a goal, however, is
Amazon.com, an online shopping site. As a
often achieved through a series of moves.
child, Jeff was extremely bright. When he
It is rare for entrepreneurs to succeed with
grew older, he used his thinking ability to
just a single stroke. If he fails in his first
make his company generate sales of $1.92
attempt, he makes another attempt. He
billion in 2000, just five years since the
repeats the attempts, maybe with some
founding of his company (Ros Jay, 2001).
improvements, until he succeeds. This will
happen if the person has drive. The tension
Human Relations Ability
that occurs when a need is not met is called
Three types of persons will determine the
drive.
survival and growth of business firms (1)
the customer, (2) the employee, and (3) the
Richard Branson is an Englishman who is a
third party with interest in the firm.
fine example of a person "with bucket
 Operating entrepreneurship
The customer makes the decision requires the performance of major and
whether to patronize the firm or not. His minor tasks. In running a restaurant, for
decision, however, will depend on what he instance, important tasks may include the
thinks of the firm. Perception of customer following: recruitment of personnel,
relations will definitely be a factor. purchasing of materials, bookkeeping,
The employee can be productive sanitation, cashiering cooking, and others.
and loyal to the firm. He can help avoid The restaurant entrepreneur must at least
production delays and shortages, wasteful be familiar with and possess some
consumption of company resources, technical knowledge about how the various
dissatisfied customers, and the like. He can tasks are performed.
be an asset depending on what his It will be easier for him to devise a
superiors do to him. strategy on how he will manage his firm to
effectively compete with others.
Third parties with various interests
regarding the firm can also be made to be
more cooperative and accommodating.
This will depend, however, on how the Reasonable Risk-taker
company relates to them. The internal When a person starts a new
revenue service personnel and the police, venture, he has already begun to assume
for instance, can be less accommodating to the risk of business failure. Entrepreneurs,
the firm and they can make business however, normally do not assume
operations difficult. unreasonable risks.
All of the interests cited above can Theoretically, ventures with zero
be useful partners of the firm, but this will risks yield zero benefits. Those who aspire
depend to a large extent on the ability of for benefits like profits must reckon with
the entrepreneur to relate with them. possible losses. There are instances,
however, when the possibility of benefits
Ability to communicate far outweighs the risk involved. It is the
Communication skill is a very function of the entrepreneur to determine
important characteristic an entrepreneur when this is so. The entrepreneur must
must have if success is expected. The ability calculate a reasonable trade-off between
to understand and be understood makes it risks and benefits.
easier for the entrepreneur to transact Entrepreneurs are expected to be
business with customers, bankers, and reasonable risk-takers, not conservative
government officials. but also not gamblers. They assume risks
When the entrepreneur gives but only after they are convinced that they
orders that are easily understood, wastages have the skills and resources to overcome
in time and materials are minimized. An the difficulties inherent in a new venture.
entrepreneur who has little ability to Table 7 indicates how the entrepreneur as
communicate tends to demoralize and a risk-taker is compared with other types of
alienate his staff. What usually happens risk-takers.
next is low productivity and high employee
turnover. Table 7. The Entrepreneur Compared with
other Risk Takers
Technical Knowledge Types of Risk Taker Level Expected
of Risk Level of
 Taken Benefits if the entrepreneur is accountable enough
Salaried Low Low to take responsibility for whatever happens
employee to the firm.
Entrepreneur Moderate Moderate
Gambler High High
Innovative
Self-confident A free enterprise economy like ours allows
A person cannot achieve much unless he business enterprises to flourish. This will
has sufficient confidence in himself. In any depend, however, on how well the public is
undertaking, including entrepreneurship, a convinced to patronize them. Buyers will
person's belief in his ability leads him to have to be persuaded to buy from the
actual performance and eventual success. entrepreneur's firm rather than from
When a person has self-confidence, he competitors. The innovative entrepreneur,
does his job without inhibition. however, will be able to handle this
problem.
Self-confidence is best exemplified by
successful entrepreneurs who have Innovation may be the only way the
physical disabilities. One such person is Mr. entrepreneur can achieve the following:
Aurelio Dagdag whose diminutive stature 1. penetrate the market
did not prevent him from establishing his 2. improve employee turnover
own business, J.A.C. Footwear. The 3. reduce manufacturing cost
company is currently doing well. It is able 4. improve the collection rate
to provide employment to as many as 100
persons (Entrepreneur, Jan.Feb. 2008). Walter Disney is an example of a highly
innovative entrepreneur. He developed
Goal Setter and incorporated new technology and new
Goals are very useful motivational tools, ideas to draw customers. Some of his
especially those related to accomplishing accomplishments in entrepreneurship
the objectives of entrepreneurs. A goal consist of Mickey Mouse, Disneyland, and
performs the following functions: Walt Disney movies (Ros Jay, 2001).
1. it directs one's attention to a specific
target What Motivates People to Become
2. it encourages one to exert effort Entrepreneurs
toward achieving something specific Not everyone desires to be an
3. it encourages persistence entrepreneur. Those who do, however, are
4. it fosters the creation of strategies and motivated by any or all of the following:
action plans 1. desire to be one's own boss;
2. desire for financial rewards;
It is easy to understand that persons who 3. desire to create one's own job
are goal setters would make entrepreneurs security; and
of high success potentials 4. desire to improve one's quality of
life.
Accountable
The success of an enterprise will depend Desire to Be One's Own Boss
much on the willingness of subordinates to
There are times when an employee sees
comply with the wishes of the
some good opportunities for his em
entrepreneur. Compliance can be expected
employer's business. When he
recommends action to be undertaken and errors and it affects the company's
is ignored, the employee may just proceed viability, the jobs of the employees are
to take the opportunity and organize his compromised.
own business. For instance, a professor in a Persons who cannot bear to
university thought that it's time for his worry about job security may just
employer to open branches in several decide to become entrepreneurs. Even
locations. His recommendation to the if the venture fails, the entrepreneur
president was ignored. knows that it is the result of his poor
He could not convince his boss about the
performance.
importance of expansion. He decided to be
his own boss by establishing a school for
Desire to Improve One's Quality of Life
elementary students in the nearby town. Oftentimes, employees do not
have control over their work schedules.
As a result, they could not fulfill some
important family responsibilities. A
Desire for Financial Rewards
nursing mother, for instance, will have
Getting employed is the desire
to consider other less desirable options
of most people. This is understandable
in providing for the needs of her baby.
because many people want a sure
The same predicament confronts those
monthly income. Some people,
who care for elderly relatives. Persons
however, do not get satisfaction from a
who travel daily to work also sacrifice
fixed monthly income which, most
valuable time that could be spent with
often, is inadequate. Some think that
their families.
they deserve to be properly rewarded
To some people, engagement in
for their skills. The means open to them
entrepreneurship provides them with
is entrepreneurship. Although
some control over their work
entrepreneurship is a very serious
schedules. An entrepreneur can
proposition, some people are still
choose a type of business that will be
attracted to it. This is so because of the
compatible with the quality of life he
prospect of high financial rewards. The
desires. Specifically, the business
financial rewards reaped by successful
location and the type of products sold
entrepreneurs are enough to motivate
can be chosen to jibe with the personal
the would-be entrepreneur.
and family needs of the entrepreneur.
Desire to Create One's Own Job
Security The Entrepreneur and the Manager
Some employees feel that their Distinguished
jobs are not secure. They think they The terms "entrepreneur" and
could be fired for a variety of reasons. "manager" are sometimes used
For instance, when a company decides interchangeably. Although both jobs
on downsizing its operations, are useful to the economy, each
employees are the first to be affected. performs distinct functions. The
When management makes serious difference between the entrepreneur's
and the manager's job may be pointed
out in Chapter l's discussion about the
stages by which the enterprise must get
through before it becomes stable (Table
8).
A major distinction between the
entrepreneur and the manager is
orientation. The entrepreneur (also
alternatively called promoter) feels
confident of his ability to seize a
business opportunity regardless of the
resources under his current control.
The manager (also alternatively called
the trustee) emphasizes the efficient
utilization of resources.

For the firm to get along in the first three

stages, the entrepreneur's skill is required.
The last two stages require the skills of the
manager (Table 9). Table 9. The
Entrepreneur's Task vs. Manager's Task
Activity
Figure 7 illustrates the complementary
roles of the entrepreneur and the manager
as they confront competition.
Note: At the prestart-up stage, the only
activity of the entrepreneur is identifying a
good business idea.
When he decides on a business idea, he
starts operating with limited human
resources and capital. He does not consider
new business ideas from start-up to stable
enterprise. As the business grows, so does
human resource and capital. New business
ideas may only be considered when the
venture fails.