Social Responsibility of Entrepreneurs

Ethical Issues
Basic Fairness

Ethical decision-making should prioritize:

Protecting employee and customer rights.

Ensuring fair and just business operations.
Safeguarding the common good.
Respecting individual employee values and beliefs.

Partners

Entrepreneurs have an ethical and legal obligation to act in good faith with their partners. This
means avoiding actions that unfairly exclude a partner from business success, such as removing
them from accounts or changing access. A more ethical approach is to buy out the partner's
interest if disagreements arise.

Gross Negligence

Board members have a duty of care to exercise utmost diligence in decisions affecting the
corporation and its shareholders. Rushing through important processes, like a merger
investigation, without proper care can be considered gross negligence, violating this ethical and
legal duty.

Just Wages

Wages are compensation for labor, including salaries, bonuses, royalties, commissions, and
fringe benefits. Factors influencing wage and salary structures include:

External Market Factors: Supply and demand for labor, economic conditions, and
underemployment.
Laws and Regulations: Government-mandated minimum wage requirements.
Cost of Living: The essential expenses for maintaining a decent standard of living.
Existing Industry Rate: The average wages paid by other companies for similar jobs.
Organizational Factors: The nature of the industry, company size, and profitability.
Job Factors: Duties, responsibilities, and skill requirements of the specific job.
Individual Performances: Employee productivity and performance ratings influencing wage
increases.

Minimum Wage vs. Living Wage

 Minimum Wage: A government-set national floor for wages. Often determined through
negotiations between government, industry, and unions.
Living Wage: The amount a worker needs to provide their family with a decent standard of
living, covering primary needs (nutrition, housing, transportation, energy, healthcare, childcare,
education, savings) and some discretionary income.
The minimum wage is often insufficient to meet basic living expenses for a family and may
only be adequate for a single individual to stay above the poverty line.

Personnel and Customer Relations

Sexual Harassment

This includes unwanted sexual advances, requests for favors, threats or bribes for sexual activity,
sexual innuendos, suggestive jokes, unwelcome touching, displaying sexually explicit material,
and sexual assault. It can affect anyone regardless of gender.

There are two forms of sexual harassment:

1. Quid Pro Quo (an employment decision):

Submission to sexual harassment is made a condition of employment decisions (e.g.,
promotion, job security).
Submission to conduct is an explicit or implicit term of employment.
Submission to or refusal of conduct is used as a basis for employment decisions.

2. Hostile Work Environment:

Sexual harassment creates a frightening, intimidating, or offensive workplace. This can
interfere with an employee's work performance. Factors considered include:
The nature of the behavior (verbal, physical, or both).
Frequency of the behavior.
Severity and offensiveness of the behavior.
Whether the harasser was a co-worker or supervisor.
Whether others participated in or condoned the harassment.
Whether the harassment was directed at multiple individuals.

Employee Promotion
Accomplishment Promotions: Based on achieving specific, predetermined goals (e.g.,
reaching a certain sales target, acquiring a specific number of clients). These typically include
a title change, pay raise, and additional benefits.
Competitive Promotions: Occur when employees within a group compete for a limited
number of higher positions. Ethics become crucial in how individuals pursue these
promotions.

Employee Termination

Terminating employees significantly impacts the employee, their family, and remaining staff.
Ethical dilemmas arise, especially when considering termination for mediocre performance. An
alternative to immediate termination might be implementing a structured performance
improvement program.

Distribution Dilemmas
Ethics are crucial in marketing, particularly in pricing, placement, and promotion.

Pricing Strategy Ethics

Fair and Reasonable Price: A price that is equitable for both the buyer and seller, considering
agreed-upon conditions, quality, and timeliness.
Marketing strategies should uphold honesty, transparency, and autonomy.
Balance of Power: Producers often have an advantage over consumers due to control over
products and processes. This can lead to unethical practices like using substandard
materials or making false claims.
Price Collusion: Competitors illegally agree to set prices, circumventing market forces and
disadvantaging consumers.

Product Placement Ethics (Media)

Product placement in media (TV, movies) is debated for its ethics. While it aids in film production
and can add realism, it raises concerns when audiences are unaware they are being advertised
to, especially with children. The line between artistic purpose and financial agreement can
become blurred, potentially leading to corporate branding dominating artistic endeavors.

Ethics and Promotions

Promotions aim to increase short-term sales through attractive offers (coupons, sales, rebates,
giveaways).

Bait and Switch: An unethical tactic where customers are lured by advertised low prices or
specific qualities of an item that is unavailable, only to be upsold to a more expensive
alternative.

Fraud
Product Misrepresentation

Altering or distorting information about a product or service.

Direct Misrepresentation:
Actively deceiving consumers.
Deceptive Packaging: Creating an impression of more product for the same price.
Adulteration: Corrupting a product by adding inferior substances or substituting a lesser
 product.
Misbranding/Mislabeling: Copying a well-known brand's design to deceive consumers.
Short Weighing: Tampering with scales to provide less product.
Shortchanging: Giving incorrect, lesser change to a customer.
Short Measuring: Using measuring tools that are shorter than standard.
Short Numbering: Providing fewer items than paid for.
Misleading Advertising: Using false or deceptive statements in advertisements.

Indirect Misrepresentation:
Omitting unfavorable information.
Caveat Emptor ("Let the buyer beware"): The buyer assumes the risk of product defects or
unmet expectations.
Business Ignorance: Failing to provide customers with complete information needed for a
fair purchase decision.

Tax Evasion

Illegally reducing or eliminating tax liability through fraudulent means. This is criminally
punishable.

Tax Avoidance: Legally minimizing tax liability through lawful means.

Unfair Competition
When competitors operate on unequal terms due to favorable or disadvantageous conditions
applied to some but not others, or when actions harm competitors' ability to compete fairly.

Antitrust Law/Competition Law: Tactics to force competitors out of the market or prevent
new entrants (e.g., predatory pricing, exclusive purchase rights for raw materials).
Trademark Infringement: Using a competitor's name, logo, or identifiers to deceive
consumers.
Misappropriation of Trade Secrets: Illegally obtaining a competitor's confidential information.
Trade Libel: Spreading false information about a competitor's products.
Tortious Interference: Inducing a party to breach a contract or duty with another competitor.
Anti-competitive Practices: Actions designed to prevent or reduce market competition.
Dumping: Foreign entities selling products below normal value, harming domestic markets.
Exclusive Dealing: A retailer agreeing to purchase only from a specific supplier.
Price Fixing: Competitors colluding to set prices.
Refusal to Deal: Agreements between companies to boycott a specific vendor.
Dividing Territories: Agreements to avoid competition in designated geographical areas.
Limit Pricing: A monopolist setting prices to deter new market entrants.
Tying: Requiring the purchase of unrelated products together.
Resale Price Maintenance: Preventing resellers from setting their own prices.
Religious/Minority Group Doctrine: Requiring businesses to pay tribute to certain community
groups to trade with them.

Unfair Communication
This category encompasses deceptive or misleading communication practices that harm
consumers or competitors.

Conflict of Interest

Occurs when an individual's personal interests conflict with their professional responsibilities,
leading to actions advantageous to themselves at the expense of their employer or clients. This
can be financial or non-financial.

Non-respect of Agreements

A breach of contract occurs when a party fails to honor a binding agreement through non-
performance or interference with the other party's performance.

Environmental Degradation

The deterioration of the environment through resource depletion (air, water, soil), ecosystem
destruction, and wildlife extinction.

Framework of Social Responsibility

The Stakeholder Model of the Corporation

This model contrasts with Friedman's shareholder model, which focuses solely on owner profits.
The stakeholder model recognizes that a business is affected by and affects a wider range of
groups.

Stakeholder: Any group or individual who can affect or is affected by the achievement of an
organization's objectives.

Key stakeholders include:

Shareholders (stockholders, owners)

Employees
Customers
Suppliers
Competitors
Government
Non-government organizations (NGOs)
Community
Natural environment
The stakeholder model emphasizes that business managers must consider the claims and
interests of all primary and secondary stakeholders, not just the economic welfare of owners.
Effective stakeholder management is crucial for a business's viability and long-term success.

Corporate Social Responsibility (CSR)

CSR is an obligation to consider the effects of decisions and actions on the entire social system.
Businesses apply CSR when they consider the needs and interests of all affected parties, looking
beyond narrow economic and technical interests.

Five Dimensions of CSR:

Environmental: Concern for the natural environment.

Social: Consciousness of the business's impact on communities.
Economic: Maintaining the economic viability and profitability of the business.
Stakeholder: Fair and just treatment of all stakeholders (employees, suppliers, customers).
Voluntariness: CSR initiatives going beyond legal requirements, driven by ethics and values.

CSR has led many businesses to move beyond profit maximization, recognizing the
unacceptability of exploiting workers, polluting the environment, or deceiving consumers.
Businesses now understand their responsibility includes not only avoiding harm but also actively
contributing positively to the community and environment. Doing well (financial performance) is
seen as compatible with doing good (ethical and social performance), creating a virtuous cycle.