[TEXT: Young African Leaders Initiative Online Training Series]
Hello, my name is Siri Terjesen,
[TEXT: Dr. Siri Terjesen, Professor] Professor of Management and Entrepreneurship
[TEXT: Florida Atlantic University, Boca Raton, Florida Norwegian School of Economics, Bergen, Norway] at Florida Atlantic University and the Norwegian School of Economics.
Welcome to Fundamentals of Responsible Leadership for Entrepreneurs.
[TEXT: Fundamentals of Responsible Leadership for Entrepreneurs:] This lesson is entitled
[TEXT: Basic Principles of Ethical Business Leadership] "Basic Principles of Ethical Business Leadership."
In this lesson, we will review
[TEXT: Learning Objectives Basic Principles of Ethical Business Leadership Review the theories of ethics for business and entrepreneurs.] the two standard theories of ethics for business and entrepreneurs;
[TEXT: Review how entrepreneurs can prepare for ethical challenges.] we will examine why ethics is a necessary skill for leadership;
we will consider how entrepreneurs
must be prepared to face unintended consequences;
[TEXT: Examine recommendations for dealing with difficult situations.] and we will look at recommendations for entrepreneurs
when faced with difficult situations,
[TEXT: Review how to develop an ethical philosophy.] along with questions they should ask themselves to develop an ethical philosophy.
Entrepreneurs are typically involved in a broad set of activities in their ventures
and must make decisions based on sound business ethics.
These challenges are especially relevant
in countries that have less-developed institutions;
for example, operating in markets with a high level of corruption.
While there are certainly many good books,
websites, and other resources that discuss ethics,
there is no guidance on every single situation
that an entrepreneur will face
in the course of starting and growing his or her venture.
There are, however, some overall guidelines
that entrepreneurs can follow to maintain transparency
and good governance in their operations.
There are two primary standard theories of ethics:
[TEXT: Shareholder Theory Stakeholder Theory] shareholder theory and stakeholder theory.
According to shareholder theory,
[TEXT: Shareholder theory is to maximize shareholder returns.] a manager's primary duty is to maximize shareholder returns.
As Nobel laureate economist Milton Friedman once wrote,
"There is one and only one social responsibility of business:
to use its resources and engage in activities
designed to increase its profits
so long as it engages in open and free competition
without deception or fraud."
[TEXT: Stakeholder theory includes multiple constituents and identifies whose stakes are most important.] Stakeholder theory broadens the accountability to multiple constituents,
such as employees, suppliers, customers, partners, and communities.
According to this model, relevant stakeholders should be identified
and then determine the conditions
under which their stakes are most important.
Certainly entrepreneurs value their autonomy,
but they realize that they require many stakeholders
in order to be successful.
Entrepreneurs will need to actively cultivate these relationships
[TEXT: Entrepreneurs must build a culture of trust.] and build a culture of trust.
Ed Freeman, editor of the Journal of Business Ethics,
has argued that too many executives adopt the separation thesis,
in that business is separate from ethics.
But in fact, the two go hand-in-hand.
[TEXT: Ethics are necessary for leadership.] Ethics is more than just good behavior. It's a necessary skill for leadership.
Entrepreneurs need to be able to recognize potential dilemmas,
consider the nature of their challenges, and move forward.
Dealing successfully with ethical issues
will also impact an entrepreneur's personal wellbeing
because the decisions made in the workplace
spill over into personal life, too.
One way to plan for and guard against ethical pitfalls
is to develop a code of conduct.
[TEXT: Code of conduct outlines your values and behavior.] This code of conduct is your policy statement which outlines the values and behavior
that you expect from everyone you deal with:
employees, suppliers, customers, partners, and communities.
One example of an entrepreneurial firm's code of conduct
begins by stating that everything we do in connection with our work
will be and should be measured
against the highest possible standards of ethical business conduct.
This code of conduct also acknowledges that these ethical practices are critical
for interacting with stakeholders.
It continues: "Our commitment to the highest standards
helps us hire great people, build great products,
and attract loyal users.
Respect for our users, for the opportunity, and for each other
are foundational to our success
and are something we need to support every day."
In addition to core stakeholders
on the supply and demand side of their businesses,
other stakeholders include nongovernmental organizations,
industry, and labor associations.
Entrepreneurs need to be able to communicate
with these parties in repeated interactions.
[TEXT: The Business Ethics Field Guide, Brad Agle, et al., 2016] As Brad Agle and colleagues discuss in their book, The Business Ethics Field Guide,
it's a basic moral principle to live up to one's promises,
but there are two key truths.
First, breaking some promises will be necessary
in order to live a moral life.
And second, people remember when and under what circumstances
promises were fulfilled or broken.
But if you have a history of ethical leadership
based on your code of conduct,
you will find that recovering from these truths
can be less catastrophic for your business.
Generally, entrepreneurship is extremely positive for society,
leading to job creation, reduced unemployment levels,
increased competition and productivity, decreased poverty,
and often opening up new markets and generating foreign income.
But certainly, any business activity, including entrepreneurship,
[TEXT: Anticipate adverse impacts] can potentially result in adverse impacts, some of which can be anticipated.
As an example, in certain product and service industries,
there may be a fairly static demand;
that is, a constant demand regardless of changes in the supply.
One illustration would be the demand for an ice cream shop.
A town might have one ice cream shop that is fairly busy
and the addition of a second ice cream shop
located in proximity
may not double demand for ice cream.
Thus, it is reasonable to expect
that when an entrepreneur decides to establish a business
in a market segment with static demand,
he or she may be taking away sales
from established businesses in close proximity,
so be prepared to explain
why you are choosing a certain path for your enterprise
if you anticipate that your decision
may inadvertently create negative effects for others.
It is important to acknowledge
that there may also be unintended consequences
from entrepreneurship.
One example referenced in the book
[TEXT: Entrepreneurship: The Practice and Mindset, Heidi M. Neck, et al., 2016] Entrepreneurship: The Practice and Mindset by Neck, Neck, and Murray
is TOMS Shoes, a for-profit company
that utilizes a buy-one-give-one business model
by which TOMS Shoes donates one pair of shoes
for every pair of shoes it sells,
giving away over 35 million shoes.
This model has been criticized for treating the cause
rather than, as one might say, teaching someone to fish.
Certainly, there is then less of a market
for individuals to set up their own shoe companies
or to visit a local cobbler.
Other researchers found that children who received the free shoes
were 10% more likely to say
that others should provide for the children's families,
thus establishing a culture of dependency.
In the Business Ethics Field Guide, the authors recommend eight steps
that can help you navigate and successfully survive ethical dilemmas.
[TEXT: Step 1 - identify the important fact] One: Identify the important fact.
Determine what you know and what other information
you could quickly acquire in order to make a decision.
[TEXT: Step 2 - identify the ethical issue] Two: Identify the ethical issue.
Determine the circumstances that require some moral intensity
and articulate the values you want your decision to honor,
and note how those values may compete.
In other words, prioritize the issues,
speak your values forcefully and clearly,
and seek to resolve conflicts between the issues and your values.
[TEXT: Step 3 - identify the relevant stakeholders] Three: Identify the relevant stakeholders.
Determine what decision-makers will be influenced by your action
and which are most important to you and why,
and what harm or benefit they may accrue from your decision.
[TEXT: Step 4 - identify potential solutions] Four: Identify potential solutions.
Outline all potential solutions and consider a combination of them,
keeping in mind that doing nothing may also be an alternative.
[TEXT: Step 5 - assess solutions using ethical perspectives] Five: Assess solutions using ethical perspectives.
There are certainly many different time-honored principles of ethics
that you can use as rationales for your decisions.
You will likely not know how to resolve some things.
Seek guidance from trusted sources who adhere to an ethical code of conduct.
[TEXT: Step 6 - assess any new potential solutions] Six: Assess any new potential solutions.
As you consider current perspective, you may generate some new alternatives.
[TEXT: Step 7 - act in accordance with your ethical analysis] Seven: Act in accordance with your ethical analysis.
Do the thing you think is best, even if it is uncomfortable.
[TEXT: Step 8 - assess your actions and the outcomes] And eight: Assess your actions and the outcomes.
Determine how you feel about the results.
The authors also recommend these questions to ask
with every ethical challenge:
What are the core principles at stake?
Am I protecting others' rights?
Does my decision preserve others' dignity and ability to choose?
Would I be willing to be the other party in the transaction?
Will this decision be fair to all involved?
Who will be affected by my decision?
Who will benefit? Who will be harmed?
Who am I?
What kind of person would this action make me?
And how would I feel if my reasoning and decision appeared on the news?
Whether dealing with customers, suppliers, and partners,
managing employees or communities,
developing an ethical approach to entrepreneurship
is critical to effective leadership and the success of your business.
Reflecting on these issues will help you build a strong foundation
for confronting the tough choices that you will inevitably face
as you advance your business and your career.
[TEXT: Test Your Knowledge yali.state.gov YALI Network] After you have reviewed all of the lessons in this course at yali.state.gov,
[TEXT: Produced by the U.S. Department of State] you can test your knowledge and earn a YALI Network certificate.