This is changing, however, as evidenced by the array of codes of conduct and mission statements many companies have adopted over the past century. The Protestant work ethic looks at the decision from the viewpoint of capitalism, free markets, and a sense of duty to ensure maximum return on investment. A trademark can be protected for an unlimited number of ten-year renewable terms as long as it is still in use. Another situation in which potential conflicts arise is in the area of professional services, which attracts many young potential business owners. Such values often serve as the foundation for the creation of ethical codes, or codes of conduct. Likewise, most businesses are likely to have some involvement with tort law: that area of law that protects the rights of people not to be harmed physically, financially, or in any other way, such as a breach of privacy. A few examples of utility patents would be Nikola Tesla’s electric magnetic motor, dynamo-electric machine, electrical transmission of power, and his system of electrical distribution patents. Integrity: hen it comes to integrity, it is impossible to avoid sounding preachy or parental. Martin Shkreli, an aspiring pharmaceutical entrepreneur and former hedge fund manager, made headlines in 2015 when he capitalized on a profitable and controversial business opportunity. A comprehensive view of business and entrepreneurial ethics requires an understanding of the difference between shareholders, a small group who are the owners (or stockholders), and stakeholders, a large group that includes all those people and organizations with a vested interest in the business. Not only is it unethical to hire a less qualified candidate purely because of their relationship to you, you also do your company a disservice by not hiring the best person for the job. Integrity in business brings many advantages, not the least of which is that it is a critical factor in allowing businesses and society to function properly. For example, if a new startup business comes up with a unique invention, it is important to protect that intellectual property. We foster diversity and inclusion, dignity and respect. Keep your business finances separate from your personal finances. A code of ethics acts to guide conduct and may be derived from a variety of sources. Contracts can be formal or informal agreements. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. Read the following statement on the purpose of a corporation from Business Roundtable: Some entrepreneurs stay the ethical course. A conflict of interest occurs when an individual (or company) has interests in multiple areas (financial investments, work obligations, personal relationships), and the interests may conflict with each other. However, it’s important to implement a transparent system and ensure taxes are paid and revenue is reported accurately. Success may also mean treating employees, customers, and the community at large with honesty and respect. These ethical theories, discussed in the following paragraph, provide a systematic means of examining and evaluating business conduct. A large corporation that has been operating for many years and has hired a Corporate Compliance Officer (CCO) with a budget and monitoring authority and dedicated staff can strive in an organized manner for ethical compliance, or at least seek to do so. These acts were created to encourage competition and provide options for consumers. The first is with a startup known to value a hard-nosed, no-nonsense business culture in which keeping long hours and working intensely are highly valued. A trademark is a registration that provides the owner the ability to use a name, symbol, jingle, or character in conjunction with a specific product or service, and prevents others from using those same symbols to sell their products. “The World’s Most Ethical Companies: Does the Fame Translate into Gain?” Presented to the European Financial Management Association (EMFA). If you don’t get expensing right you can end up in trouble with local, state, and federal tax authorities. A few-hundred-dollar investment with an IP lawyer will potentially saveyou from realizing a major mistake down the road, like infringing upon another company’s trademark. After immigrating to the United States, Tesla was employed by the Continental Edison Company and began to develop AC technology. So it may be tempting to hide this income rather than reporting it, especially given the fact that a business owner operates on tight margins. – Andrew Schrage, Money Crashers Personal Finance. A major challenge is dealing with and determining a code of ethics. Truthful individuals earn a level of credibility and reliability over time because what they say and what they do are in alignment. As an Amazon Associate we earn from qualifying purchases. This starts with compensating them fairly and providing important benefits. Ethical acts are generally considered voluntary and personal—often based on our individual perception of what is right and wrong. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses. Without such protection, any competitor can legally, even if not ethically, copy the invention, put their own name or company brand on it, and sell it as if it were their own. On September 26, 2017, the CEO resigned, days before he was to testify before Congress about the breach. As a result, in 2009, Eli Lilly was fined $1.4 billion by the office of criminal investigation of the US Department of Justice.11. Taking legal and ethical issues into account in the beginning of your business doesn’t only ensure your quick progress but it also provides your business with long-term benefits.. We hold that “an ethical person” conveys the same sense as “a moral person.” Ethical conduct by entrepreneurs/business owners is not only the right way to behave, but it also burnishes our own professional reputation as business leaders of integrity. By the end of this section, you will be able to: What does it mean to be both ethical and socially responsible as an entrepreneur? You may decide you should always tell the truth to family, friends, customers, clients, and stakeholders, and if that is not possible, you should have very good reasons why you cannot. There should also be clearly set consequences for what happens when these policies are violated. One whose track record gives evidence of honest business practices. In 2009, AMD filed a suit against Intel claiming that the company had used “leveraging dominance” to exclude AMD from effectively competing in the marketplace through exclusionary pricing, discounts, and similar practices. IP law also helps establish brand awareness and secure secondary revenue streams. Legal risks faced by entrepreneurs. Is IP law relevant to my business, and if so, how can it help me? “Equifax to Pay at Least $650 Million in Largest-Ever Data Breach Settlement.”, Ira Basen. Women of Power Summit -Timothy Schmidt, WebsiteRescue In that event, you should at least follow-up with all parties via traditional mail or email to document the key terms of your agreement. If the decision to raise the price adds value and usefulness for shareholders, then that decision should be made. cnx({ A utility patent protects a brand-new product idea or invention under US law for a period of twenty years (see the discussion on patents in Entrepreneurial Journey and Pathways. Success may lie in knowing the profit we make does not come from shortchanging others. A professional must be very cautious about conflicts of interest, especially in areas in which you owe a fiduciary duty to your clients. “Massive Data Breach at Equifax: As Many As 143 Million Social Security Numbers Hacked.”, Stacy Cowley. This means creating a business environment in which each member of the organization is encouraged, enabled, and supported to develop the ethical capabilities to habitually and systematically differentiate between right or wrong. It can be said that these individuals possess a good character, are able to earn trust, and have qualities that are deemed necessary for leadership. Serving as a Mentor, Consultant, or Champion, Business Roundtable Official Statement on the Purpose of a Corporation, There are many legal issues facing entrepreneurs, including intellectual property, contracts, antitrust laws, fraud, employment, and torts. Being successful as an entrepreneur may therefore consist of much more than simply making money and growing a venture. As a small business owner, the most challenging thing to get right is tax accounting. Or as a financial advisor, are you getting commissions on both ends of a transaction? It also offers the chance to pursue your own professional interests or volunteerism during a portion of every workday. Normative theories of ethics are primarily concerned with establishing standards or criteria that delineate what is considered ethical behavior. Read this article from Forbes to see a list of companies recently deemed the most ethical in the world. This fundamental question raises a number of related questions about the ethics of the situation. This lecture focuses on the ethical and legal challenges involved with starting a firm. Sustaining ethical values. OpenStax is part of Rice University, which is a 501(c)(3) nonprofit. Privacy Policy It can be tempting to not report income, to put vacations on your business card, or to tap your business account when you need some extra cash. When Martin Shkreli decided to increase the price overnight of a lifesaving HIV drug from $13.50 to $750 per pill, the public immediately characterized his actions as unethical. How to plan for and avoid legal problems including forming the business, legal liability, and protecting assets. This aids in team building and strengthening interpersonal relationships. At the same time, the challenge to meet these expectations can create temptations and ethical pressures as entrepreneurs make a variety of decisions. Successful entrepreneurs and the companies they represent will take pride in their enterprise if they engage in business with transparency, intentionality, and integrity. From an ethical theory perspective, Kantian or duty-based ethics emphasizes the underlying intent or reason behind a decision and whether that decision is good or bad. • Ethics refers to standards of behavior that tell us how human beings ought to act in many situations in which they find themselves as parents, children, friends, business people, professionals etc. Ethical observance builds on this baseline and reveals the principles of an individual business leader or a specific organization. Women of Power TECH, PODCASTS This means you should not be satisfied with an occasional spark of creativity from a designated individual, department, or functional area within your organization (such as research and development). For certain businesses (like finance), your mission is more than a marketing statement; it’s an ethical code that needs to be upheld at all costs. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions. We commit to: The aim of this chapter is twofold: first, to assist entrepreneurs in understanding the significance of ethics and the role that entrepreneurs play in developing an ethical and responsible organization. Many people confuse ethical and legal compliance. However, as you will learn, an entrepreneur needs to first provide the organizational framework and foundation in which individuals and business units regularly exercise these qualities. There are multiple reasons why an entrepreneur should be aware of intellectual property rights under the law. Imagine that upon graduation, you have the good fortune to face two entrepreneurial opportunities. “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans.’”, Nelson Areal and Ana Carvalho. Note his proposed solutions: practicing ethical leadership and developing awareness at an individual level via corporate training. These foundational beliefs, in turn, prepare us for the codes of ethical behavior that serve as ideal guides for business. Legal Issues in Entrepreneurship Legal risks faced by entrepreneurs. Therefore, compliance generally refers to the extent to which a company conducts its business operations in accordance with applicable regulations, statutes, and laws. It also requires understanding the importance of ethical business practices, giving back to your community and running your business in a way that minimizes harm to others and the environment. This claim was later settled by the two firms and resulted in Intel paying AMD $1.25 billion in damages. Ethical start-ups recognize the ethical dilemmas that surround them in the first few months. As an entrepreneur, should Shkreli’s concerns be with ensuring the sustainability of his business or with providing patients with a more affordable (less profitable) lifesaving drug? #1: Moral Marketing Compass: This is especially important in economic downturns, when unethical practices become tempting.#2: Win-win Marketing: The focus on customer value will increase company value.#3: Keeps marketing legal: Reduces the risk of cutting corners and turning a blind eye.#4: Goodwill: Goodwill and strong reputation among clients and associates are the benefits which companies cannot afford to overlook. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide healthcare; generate and deliver energy; and offer financial, communications and other services that underpin economic growth. As an example of this new awareness, the Business Roundtable, a group of CEOs from the biggest and most successful companies in the US, recently released a new statement addressing business ethics. Tesla had to quit, teaming up with Westinghouse to open the Tesla Electric Light company, bringing his valuable creativity and ideas with him to his new venture.9 Eventually, Tesla’s AC became the American standard, not Edison’s DC. Legal and Ethical Issues for Entrepreneurs is a Course Legal and Ethical Issues for Entrepreneurs Self-paced Sorry! This group of stakeholders might include employees (profit sharing), shareholders (dividends), the local community (time), and social causes or charities (donations). Unlike working in a large corporate environment with an established structure, entrepreneurs often create and operate a new business venture by their own rules. An entrepreneur should consider these questions when growing and protecting a firm’s IP. Still, we need not subscribe to any particular faith to hold that ethical behavior in business is necessary. Or it could be an external code based on one’s profession (e.g., CPAs, attorneys, CFPs, and others have professional codes of ethics), or a more broadly applicable external code such as that of the Business Roundtable or Business for Social Responsibility. Second, we want to enable entrepreneurs to develop a moral compass that allows them to lead their business organization in a manner consistent with ethical and legal principles. An example of illegal competition would be the competition and patent war between Intel Corporation and American Micro Devices (AMD). !function(n){if(!window.cnx){window.cnx={},window.cnx.cmd=[];var t=n.createElement('iframe');t.display='none',t.onload=function(){var n=t.contentWindow.document;c=n.createElement('script'),c.src='//cd.connatix.com/connatix.player.js',c.setAttribute('async','1'),c.setAttribute('type','text/javascript'),n.body.appendChild(c)},n.head.appendChild(t)}}(document); Second, we want to enable entrepreneurs to develop a moral compass that allows them to lead their business organization in a manner consistent with ethical and legal principles. Yet, startups have no similar framework within which to address ethical issues in business and challenges. We are committed to transparency and effective engagement with shareholders. BusinessCollective, launched in partnership with Citi, is a virtual mentorship program powered by North America’s most ambitious young thought leaders, entrepreneurs, executives and small business owners. You either lose credibility/trust later on or commit yourself to an unrealistic timeline that will only frustrate those who have bought into your dream. While it remains with the courts to determine the underlying intent, legal implications, and consequences of Shkreli’s decision, evidence from this and other case studies shows that some corporate leaders have not developed ethical capabilities, or they have not internalized a moral compass that enables them to differentiate between right and wrong. In effect, these laws make it illegal for a competitor to make agreements that would limit competition in the market. Full course description. Make the success of your company your primary goal and nepotism will never be able to get a foothold. playerId: '7a99bbff-ee60-489a-b377-212102e8a9a1' Discrimination and Harassment In Small Business. The law is needed to establish and maintain a functioning society. Predictable ethical questions that arise in startups. 3.1 Ethical and Legal Issues in Entrepreneurship SBREFA Small Business Resource Center. Perform a knockout search before choosing a business name. The progress made in social entrepreneurship research has not been matched by a robust analysis from the ethics perspective (Cornelius et al. The underlying facts, reality, and evidence behind something are the truthfulness of a matter. A trade secret is dependent on being kept a secret by the business that owns it and is enforced through contract law. For example, if an employer asks an employee to drop something off at FedEx or UPS after work hours, and that employee negligently causes an auto accident, even if the employee is driving their personal vehicle and not a company car, the employer could be liable for damages. Do not lie, … It’s a given that everyone on a small team will have to pull their weight and wear multiple hats, but you need to be conscious of where to draw the line. In this culture, every member of the organization is expected to be creative and continually improve the processes they are engaged with on a daily basis. Potential Legal or Ethical Issues Business Owners Face. For this reason, we use the words ethics and morals interchangeably in our discussion. But it is more than just consistency of character. In what ways might company contributions to a cause carry more power to impact the cause? But this kind of behavior is dangerous and represents a slippery slope. This obligation traces its lineage to ancient Greece and the physician Hippocrates. Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. It could also mean using the tangible and intellectual resources of a company on something that will benefit your private interests instead of your employer’s. Some areas of the business world involve a combination of tort law and contract law, such as litigation involving the wrongful termination of an employee. Be reasonable with your expenses. One example of this dynamic is the culture of continuous improvement at Toyota (Kaizen) (see Launch for Growth to Success). Textbook content produced by OpenStax is licensed under a Utilitarian ethics focuses on the usefulness or utility of the decision. are licensed under a, Ethical and Legal Issues in Entrepreneurship, Frameworks to Inform Your Entrepreneurial Path, The Ethical and Social Responsibilities of Entrepreneurs, Corporate Social Responsibility and Social Entrepreneurship, Developing a Workplace Culture of Ethical Excellence and Accountability, Creativity, Innovation, and Invention: How They Differ, Developing Ideas, Innovations, and Inventions, Researching Potential Business Opportunities, Problem Solving and Need Recognition Techniques, Problem Solving to Find Entrepreneurial Solutions, Telling Your Entrepreneurial Story and Pitching the Idea, Clarifying Your Vision, Mission, and Goals, Developing Pitches for Various Audiences and Goals, Protecting Your Idea and Polishing the Pitch through Feedback, Entrepreneurial Marketing and the Marketing Mix, Market Research, Market Opportunity Recognition, and Target Market, Marketing Techniques and Tools for Entrepreneurs, Marketing Strategy and the Marketing Plan, Overview of Entrepreneurial Finance and Accounting Strategies, Developing Startup Financial Statements and Projections, Launching the Imperfect Business: Lean Startup, Why Early Failure Can Lead to Success Later, The Challenging Truth about Business Ownership, Managing, Following, and Adjusting the Initial Plan, Avoiding the “Field of Dreams” Approach, Business Structure Options: Legal, Tax, and Risk Issues, Business Structures: Overview of Legal and Tax Considerations, Additional Considerations: Capital Acquisition, Business Domicile, and Technology, Using the PEST Framework to Assess Resource Needs, Managing Resources over the Venture Life Cycle, Making Difficult Business Decisions in Response to Challenges, Now What? 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