1. Part I
The Entrepreneurial Mindset
in the 21st Century
CHAPTER 4
Social
Entrepreneurship
and the Ethical
Challenges of
Entrepreneurship
© 2009 South-Western, a part of Cengage Learning. PowerPoint Presentation by Charlie Cook
All rights reserved. The University of West Alabama

2. Chapter Objectives
1. To examine the concept of “social entrepreneurship”
2. To introduce the challenges of social enterprise
3. To discuss the importance of ethics for entrepreneurs
4. To define the term “ethics”
5. To study ethics in a conceptual framework for a
dynamic environment
6. To review the constant dilemma of law versus ethics
7. To present strategies for establishing ethical
responsibility
8. To emphasize the importance of entrepreneurial
ethical leadership
© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–2

3. The Social Entrepreneurship Movement
• Social Entrepreneurship
 A new form of entrepreneurship applies to social
problem solving tradition, private-sector
entrepreneurship’s focus on innovation, risk-taking,
and large scale transformation.
• Social Entrepreneurship Process
 Recognition of a perceived social opportunity
 Translation of the social opportunity into an enterprise
concept
 Identification and acquisition of resources required to
execute the enterprise’s goals.
© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–3

4. Social Entrepreneurs
• Social Entrepreneur
 A person or small group of individuals who founds
and/or leads an organization or initiative engaged in
social entrepreneurship.
 Also referred to as “public entrepreneurs,” “civic
entrepreneurs,” or “social innovators.
© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–4

5. Social Entrepreneurs (cont’d)
• Characteristics of Social Entrepreneurs
as Change Agents
 Adoption of a mission to create and sustain social
value (beyond personal value)
 Recognition and relentless pursuit of opportunities for
social value
 Engagement in continuous innovation and learning
 Action beyond the limited resources at hand
 Heightened sense of accountability
© 2009 South-Western, a part of Cengage Learning. All rights reserved. 4–5

6. The Social Enterprise Challenge
• Social Obligation
 Firms that simply react to social issues through
obedience to the laws.
• Social Responsibility
 Firm that respond more actively to social issues;
accepting responsibility for various programs.
• Social Responsiveness
 Firms that are highly proactive and are even willing to
be evaluated by the public for various activities.
4–6

7. Table
4.1 What Is the Nature of Social Enterprise?
Environment Pollution control
Restoration or protection of environment
Conservation of natural resources
Recycling efforts
Energy Conservation of energy in production and marketing operations
Efforts to increase the energy efficiency of products Other energy-saving programs (for example,
company-sponsored car pools)
Fair Business Practices Employment and advancement of women and minorities
Employment and advancement of disadvantaged individuals (disabled, Vietnam veterans, ex-
offenders, former drug addicts, mentally retarded, and hardcore unemployed)
Support for minority-owned businesses
Human Resources Promotion of employee health and safety
Employee training and development
Remedial education programs for disadvantaged employees
Alcohol and drug counseling programs
Career counseling
Child day-care facilities for working parents
Employee physical fitness and stress management programs
Community Involvement Donations of cash, products, services, or employee time
Sponsorship of public health projects
Support of education and the arts
Support of community recreation programs
Cooperation in community projects (recycling centers, disaster assistance, and urban renewal)
Products Enhancement of product safety
Sponsorship of product safety education programs
Reduction of polluting potential of products
Improvement in nutritional value of products
Improvement in packaging and labeling
Source: Richard M. Hodgetts and Donald F. Kuratko, Management, 3rd ed. (San Diego, CA: Harcourt Brace Jovanovich, 1991), 670
4–7

8. Table
4.2 Classifying Social Enterprise Behavior
DIMENSION STAGE ONE: STAGE TWO: STAGE THREE:
OF BEHAVIOR SOCIAL OBLIGATION SOCIAL RESPONSIBILITY SOCIAL RESPONSIVENESS
Response to Maintains low public profile, Accepts responsibility for Willingly discusses activities
social pressures but if attacked, uses PR solving current problems; will with outside groups; makes
methods to upgrade its public admit deficiencies in former information freely available to
image; denies any practices and attempt to the public; accepts formal and
deficiencies; blames public persuade public that its informal inputs from outside
dissatisfaction on ignorance or current practices meet social groups in decision making; is
failure to understand corporate norms; attitude toward critics willing to be publicly evaluated
functions; discloses conciliatory; freer information for its various activities
information only where legally disclosures than stage one
required
Philanthropy Contributes only when direct Contributes to Activities of stage two, plus
benefit to it clearly shown; noncontroversial and support and contributions to
otherwise, views contributions established causes; matches new, controversial groups
as responsibility of individual employee contributions whose needs it sees as
employees unfulfilled and increasingly
important
Source: Excerpted from S. Prakash Sethi, “A Conceptual Framework for Environmental Analysis of Social Issues
and Evaluation of Business Patterns,” Academy of Management Journal (January 1979): 68. Copyright 1979 by
the Academy of Management. Reproduced with permission of the Academy of Management
4–8

9. Environmental Awareness
• Ecovision
 A leadership style that encourages open and flexible
structures that encompass the employees, the
organization, and the environment, with attention to
evolving social demands.
4–9

10. Environmental Awareness
• Key Steps in an Environmental Strategy
1. Eliminate the concept of waste. Seek newer methods
of production and recycling.
2. Restore accountability. Encourage consumer
involvement in making companies accountable.
3. Make prices reflect costs. Reconstruct the system to
incorporate a "green fee" where taxes are added to
energy, raw materials, and services to encourage
conservation.
4–10

11. Environmental Awareness
Key Steps in an Environmental Strategy (Contd)
4.Promote diversity. Continue researching the needed
compatibility of our ever-evolving products and
inventions
5.Make conservation profitable. Rather than demanding
"low prices" to encourage production shortcuts, allow
new costs for environmental stewardship.
6.Insist on accountability of nations.
Develop a pilan for
every trading nation of sustain-able development
enforced by tariffs.
4–11

12. BUSINESS AND THE SOCIAL ENVIRONMENT
CRS – DEBATE:
Source: Lawrence and
Weber (2008)

13. BUSINESS AND THE SOCIAL ENVIRONMENT
Multiple Responsibilities of Business
Are three
 Economic responsibilities
 Social responsibilities
 Legal responsibilities
Challenge is to balance all three
Successful firm is one which finds ways to meet each of its
critical responsibilities and develops strategies to enable
the obligations to help each other
Graphic on next slide shows this balancing act
Source: Lawrence and
Weber (2008)

14. BUSINESS AND THE SOCIAL ENVIRONMENT
Source: Lawrence and
Weber (2008)

15. The Ethical Side of Entrepreneurship
• Why are ethics important?
• What exactly represents right or wrong conduct?
• How do we develop our own codes of conduct?
• What impact does integrity and ethical conduct
have on creating a successful venture?
4–15

16. Defining Ethics
• Ethics
 A set of principles prescribing a behavioral code that
explains what is good and right or bad and wrong;
ethics may outline moral duty and obligations.
 Provide the basic rules or parameters for conducting
any activity in an “acceptable” manner.
• Reasons for Ethical Conflicts
 The many interests that confront business enterprises
both inside and outside the organization
 Changes in values, mores, and societal norms
 Reliance on fixed ethical principles rather than an
ethical process
4–16

17. Differentiating Ethics and Morality
Ethics Morality
Ethics is a system of moral principles Morals are principles of right and
wrong conduct.
Ethics is a framework, a systemic and reasoned Morals are simply what we believe
basis for making statements about morality. to be right and wrong.
Ethics stress a social system in which those Morals define personal character,
morals are applied.
Ethics point to standards or codes of behavior While a person’s moral code is
expected by the group to which the individual usually unchanging, the ethics he
belongs. This could be national ethics, social or she practices can be other-
ethics, company ethics, professional ethics, or dependent.
even family ethics.
There appears to be a clear distinction here that ethics are more sophisticated than
morals. Morally, one can support almost anything, while ethically we require reason
and justification for what we believe.
4–17

18. Example: Differentiating Ethics and Morality
• Though the lawyer’s personal moral code likely
finds murder immoral and reprehensible, ethics
demand the accused client be defended as
vigorously as possible, even when the lawyer
knows the party is guilty and that a freed
defendant would potentially lead to more crime.
Legal ethics must override personal morals for
the greater good of upholding a justice system in
which the accused are given a fair trial and the
prosecution must prove guilt beyond a
reasonable doubt.
4–18

19. The Spectrum of Ethicality (Verne E. Henderson, 1984, JBE)
• Business ethics is the continuing process of re-
defining the goals and rules of business activity.
In times of rapid change, spurred equally by
technological innovation within the business
community and by societal expectations in the
larger community, participants who share in that
process of re-defining goals and rules should be
sensitive to professional differences.
• Because of these differences, definitions of what
is ethical will vary as well, spread across a
spectrum of ethicality. 4–19

20. The corporation and society
Market stakeholders
Source: Lawrence and
Weber (2008)

21. The corporation and society
Nonmarket stakeholders
Source: Lawrence and
Weber (2008)

22. The Dilemma with Ethics
• "Deciding what is good or right or bad and
wrong in such a dynamic environment is
necessarily 'situational.' Therefore, instead of
relying on a set of fixed ethical principles, we
must now develop an ethical process.
4–22

23. Figure
4.1 Classifying Decisions Using a Conceptual Framework
Source: Verne E. Henderson, “The Ethical Side of Enterprise,” Sloan Management Review (spring 1982): 42.
4–23

24. Classifying Decisions Using a Conceptual
Framework
• The quadrants depicted in Figure demonstrate
the age-old dilemma between law and ethics.
Moving from the ideal ethical and legal position
(Quadrant 1) to an unethical and ille-gal position
(Quadrant IV), one can see the continuum of
activities within an ethical process. Yet legality
provides societal standards but not definitive
answers to ethical questions.
4–24

25. Ethics and Laws
• Managerial Rationalizations
 Justifications in defense of unethical acts are
believing that an activity:
1. Is not “really” illegal or immoral.
2. Is in the individual’s or the corporation’s best
interest.
3. Will never be found out.
4. That helps the company will be condoned by the
company.
4–25

26. Comment on Managerial Rationalizations
• These rationalizations appear realistic, given the
behavior of many business enterprises today.
• However, the legal aspect can be the most
dubious. This is because the
business world (and society) relies heavily on the
law to qualify the actions of various
situations. The law interprets the situations
within the prescribed framework.
4–26

27. Table
4.3 Types of Morally Questionable Acts
Type Direct Effect Examples
Nonrole Against the firm Expense account cheating
Embezzlement
Stealing supplies
Role failure Against the firm Superficial performance appraisal
Not confronting expense account cheating
Palming off a poor performer with inflated praise
Role distortion For the firm Bribery
Price fixing
Manipulating suppliers
Role assertion For the firm Investing in South Africa
Using nuclear technology for energy generation
Not withdrawing product line in face of initial
allegations of inadequate safety
Source: James A. Waters and Frederick Bird, “Attending to Ethics in Management,” Journal of Business Ethics 5 (1989): 494.
4–27

28. The corporation and society
stakeholder network
Source: Lawrence and
Weber (2008)

29. The corporation and society
STAKEHOLDER ANALYSIS:
• It is part of every manager’s job
• Process whereby identify relevant stakeholders
and analyze their interest and power
• Asks 4 Questions:
1. Who are the relevant stakeholders?
2. What are the interests of each stakeholder?
3. What is the power of each stakeholder?
4. How/what are coalitions likely to form?
Source: Lawrence and
Weber (2008)

30. The corporation and society
Stakeholder Analysis – Question 1
Who are the Relevant Stakeholders?
• Answer this question by drawing market and nonmarket
stakeholder maps
• Use Figures 1.2 and 1.3 as guides
• Recognize that not all of these groups are relevant to
every situation; examples:
 Some businesses sell directly to the public and will not have
retailers
 A certain stakeholder may not be relevant to a particular
decision/action
Source: Lawrence and
Weber (2008)

31. The corporation and society
Stakeholder Analysis – Question 2
Which are the STAKEHOLDER INTERESTS?
• Analyzing stakeholder interests includes
addressing:
 What are the groups’ concerns?, and
 What does the group want/expect from their
relationship with the firm?
• Examples:
 Stockholders have an ownership interest, they expect
to receive dividends and capital appreciation
 Customers are interested in gaining fair value and
quality in goods and services they purchase
 Public interest groups advance broad social interests
Source: Lawrence and Weber (2008)

32. The corporation and society
Stakeholder Analysis – Question 3
What is the Power of each Stakeholder?
• Alternative concept called stakeholder salience,
meaning something that stands out from its
background
• Stakeholder salience is determined by each
group’s power, legitimacy, and urgency
attributes
Source: Lawrence and
Weber (2008)

33. The corporation and society
Stakeholder Analysis – Question 4
How are Stakeholder Coalitions Likely to
Form?
• Stakeholder groups often have common interests
and will form temporary alliances to pursue
these common interests
• Coalitions are very dynamic (can change at any
time)
• Coalitions are increasing international
Source: Lawrence and
Weber (2008)

34. The corporation and society
• Internet has enabled coalitions to form quickly,
across political boundaries
• International alliances, coupled with media
interest, can be a very powerful strategic force for
companies
• The greater the stakeholder group’s salience, the
more attention a manager should pay to that
group
 Groups that have all 3 attributes are called definitive
stakeholders
 Groups that have 2 attributes are called expectant
stakeholders
4–34