Copyrights and trademarks are also protected IP (Figure 3.4). A corollary of truthfulness is fairness, which means to be impartial, unbiased, and in compliance with rules and standards of right and wrong behavior. 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. This lecture focuses on the ethical and legal challenges involved with starting a firm. Ideally, you should use written contracts whenever you enter into a substantial transaction with another party. In today’s environment, it’s a must that you have guidelines in place as to what constitutes workplace harassment, discrimination, and bullying. Integrity: hen it comes to integrity, it is impossible to avoid sounding preachy or parental. Every entrepreneur enters into contracts, usually on a regular basis, and thus should have an understanding of basic contract concepts. Although the ethics of social entrepreneurship is relatively unexplored, Zahra et al. 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. The underlying facts, reality, and evidence behind something are the truthfulness of a matter. 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. Be optimistic but realistic with where challenges might occur. Ethical acts are generally considered voluntary and personal—often based on our individual perception of what is right and wrong. Another situation in which potential conflicts arise is in the area of professional services, which attracts many young potential business owners. ABOUT Unfortunately, ignorance of the law here can be a costly mistake. 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. (2009-this issue) develop a framework for thinking about ethical issues in social ventures. Normative theories of ethics are primarily concerned with establishing standards or criteria that delineate what is considered ethical behavior. You may be asking, “What are some examples of ethical and legal issues in business that I should look out for as an entrepreneur?” While this list is by no means comprehensive, it does highlight some of the larger issues that entrepreneurs frequently overlook or encounter themselves. To critically examine the decisions of an individual such as Shkreli, one needs an enhanced awareness of the multitude of stakeholders to be considered, as opposed to only shareholders. Make the success of your company your primary goal and nepotism will never be able to get a foothold. This may be due to a variety of reasons, including what researchers term a positive effect on business culture, stakeholders, and reputation.6 In other words, being ethical beneficially influences employees, investors, and customers. Proponents of virtue ethics claim that ethics consists of a series of innate but latent virtues that an individual needs to develop over time. The easy fix is to not commingle, but at every step you should seek the advice of an experienced accountant. 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. However, consumers are getting smarter at identifying fake reviews, so getting caught is real and has very negative consequences. Unlike working in a large corporate environment with an established structure, entrepreneurs often create and operate a new business venture by their own rules. Partnership Solutions Regardless of its type, a firm has the exclusive rights to the ownership of its IP. Or as a financial advisor, are you getting commissions on both ends of a transaction? Perform a knockout search before choosing a business name. This includes the ability to recognize and identify both ethical dilemmas and legal issues that might arise. INFORMATION • Kuratko and Hodgetts, (2004)- ethics … This protection is afforded because a continuous stream of innovations can be a major source of revenue for a firm as well as a vehicle for developing a sustained competitive advantage. 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. It is an all-too-common situation that could have serious liability consequences for an entrepreneurial business if adequate insurance is not procured. Openness and honesty help ensure a good fit. Although he provided full disclosures of his interests, rival critics challenged his conflicts of interest. Often, ethical thought precedes and sets the stage for changes in the law. An example of an ethical business organization is one that follows the Statement of Purpose by the Business Roundtable. citation tool such as. Success may lie in knowing the profit we make does not come from shortchanging others. This responsibility will enable the entrepreneur to develop a sustained competitive advantage. However, he viewed his position as responsible behavior that served the best interests of his company and his shareholders. 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. IP law also helps establish brand awareness and secure secondary revenue streams. 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. An entrepreneur should consider these questions when growing and protecting a firm’s IP. Acting with integrity means we adhere strongly to a system of ethical values. Textbook content produced by OpenStax is licensed under a A design patent protects the ornamental aspects of a product idea. Some professions, such as medicine and the law, have traditional and established codes of ethics. 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. playerId: '7a99bbff-ee60-489a-b377-212102e8a9a1' The ethical entrepreneur looks for opportunities to engage the business as a whole and align them to the community and its needs. The … We are committed to transparency and effective engagement with shareholders. The legal issues can always be explored with a legal representative, but the ethical issues add more nuances to working life, and making ethical decisions is not always easy. Related Courses. The antitrust concept is important to the entrepreneur’s ability of entrepreneurs to form new startup businesses that are able to compete with larger, more established corporations (which may try to discourage competition). (credit (a): modification of modification of "US Patent US381968A" by Nikola Tesla/Google Patents, Public Domain; credit (b): modification of “Coke bottle patent” by Unknown/Wikimedia Commons, Public Domain), (a) Published texts and artwork are granted a copyright, which will expire over time (usually a long period), as is the case with Thomas Paine’s seminal work. 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. 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. You may also choose never to defraud or mislead your business partners. B.E. Essentially, a commitment to treat with honesty and integrity customers, clients, employees, and others affiliated with a business. Being successful as an entrepreneur may therefore consist of much more than simply making money and growing a venture. However, he was criticized for routinely covering stories about the companies he invested in and consulted for. Successful entrepreneurs and the companies they represent will take pride in their enterprise if they engage in business with transparency, intentionality, and integrity. 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. A code of ethics acts to guide conduct and may be derived from a variety of sources. A professional must be very cautious about conflicts of interest, especially in areas in which you owe a fiduciary duty to your clients. chapter preparing the proper ethical and legal foundation main topics of this chapter: most important initial ethical and legal issues facing new firm (incl. And don’t avoid or ignore doing proper payroll or paying quarterly taxes. Read the Ten Principles of the United Nations Global Compact that urges corporations to develop a “principled approach to doing business.” The principles cover human rights, labor, the environment, and corruption. Common areas rife with potential legal issues include contracts, torts, employment, intellectual property, conflicts of interest, full disclosure/truthfulness in product or service claims and performance, and antitrust/competition law (Figure 3.2). This includes the ability to recognize and identify both ethical dilemmas and legal issues that might arise. Numerous government investigations and hundreds of private lawsuits have been filed as a result of the hack. Discrimination and Harassment In Small Business. But it is more than just consistency of character. Legal risks faced by entrepreneurs. Success may also mean treating employees, customers, and the community at large with honesty and respect. }).render('36f26b9bfc7c4b75b62dd096b3ffa5ae'); The following answers are provided by members of Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. Intellectual property (IP) rights are created by federal law and protect small businesses from problems such as this. Women of Power Summit Our mission is to improve educational access and learning for everyone. This obligation traces its lineage to ancient Greece and the physician Hippocrates. In one instance, this company admitted in court that they had illegally marketed Zyprexa, which was primarily intended and approved by the US Food and Drug Administration office (FDA) to treat depression, to be used for off-label (not cleared by FDA to market and advertise) ailments such as sleep disorders, Alzheimer’s disease, and dementia. But they seem at times to be the exceptions. 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. 7. It is also a fundamental basis for developing and maintaining trust, which is vital to all contractual and informal commitments between businesses and all their key stakeholders. For example, if the decision to raise the price of a lifesaving drug by 5,000 percent is moral and if it is intended to add value, then an individual is obligated to raise the price. This action is unethical since you are not giving the employer what they are due, which are your time, talents, and services in exchange for agreed-upon compensation. Yet, startups have no similar framework within which to address ethical issues in business and challenges. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses. 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. IP can take the form of a patent, a copyright, a trademark, or a variation thereof called a trademark secret. Businesses are different in not having a mutually shared standard of ethics. Integrity—that is, unity between what we say and what we do—is a highly valued trait. 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. 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. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all. 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. If you find yourself wanting to use something that you didn’t create yourself, it’s important to get permission from the rightful owner. Disclosure describes sharing the needed facts and details about a subject in a transparent and truthful way. This information should be adequate, timely, and relevant to allow the recipient to understand the purpose and intent behind a product/service and to make a good decision about the value of that product/service. Most employers understand they run a risk that their employees may commit a tort, and that they are responsible when employees cause harm to others (customers or coworkers) while on duty, working on company property, and using company equipment. However, many employers are not aware that employers can actually be liable for harm caused by an employee if that employee caused harm within the scope of his or her job duties. Instead, there might be sufficient profits to distribute a portion of them to other stakeholders in addition to yourself—for example, those who are important because they have helped you or are affected one way or another by your business. These and other actions begin to help individuals develop and internalize an ethical compass. For example, as an IT consultant, do you recommend to a client that they buy a software product, when unknown to them, you own stock in that company? Was Shkreli aware of all aspects (ethical, legal, financial, reputational, and political) of the decision he made? Since 1970, BLACK ENTERPRISE has provided essential business information and advice to professionals, corporate executives, entrepreneurs, and decision makers. After immigrating to the United States, Tesla was employed by the Continental Edison Company and began to develop AC technology. Ethics in Social Entrepreneurship Kidder (1995), states that if a situation is not a clear cut case of right vs. wrong then there are four ethical dilemma paradigms, truth vs. loyalty, short term vs. long term, justice vs. mercy, self vs. community. This concept refers to proprietary information, processes, or other internal knowledge that contribute to an organization’s competitive advantage in a market. 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. The famous motto,“People, Planet, Profit”,(Elkington, 1997) includes the triple bottomline of making 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. In this perspective, if the price hike is fair and equitable, if it is responsible to behave in this way, and if it does not cause harm to the society, then the price should be raised. When you’re considering job candidates, it’s important that nepotism doesn’t drive hiring … Therefore, compliance generally refers to the extent to which a company conducts its business operations in accordance with applicable regulations, statutes, and laws. Thus, business ethics guides the conduct by which entrepreneurs and their companies abide by the law and respect the rights of their stakeholders, particularly their customers, clients, employees, and the surrounding community and environment. Imagine that upon graduation, you have the good fortune to face two entrepreneurial opportunities. As an Amazon Associate we earn from qualifying purchases. Legal Issues in Entrepreneurship. On September 26, 2017, the CEO resigned, days before he was to testify before Congress about the breach. 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? It also means that the entrepreneur should be concerned with the nontechnical aspect of IP, which is to develop a culture of creativity that enables the organization to deliver a continuous stream of new IP. A white-collar criminal convicted of fraud, this interview with Mark Faris shows his admission that greed, arrogance, and ambition were motivating factors in his actions. Harvard Business School published a paper estimating 1 in 5 Yelp reviews is fake. #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. Research on the performance of the World’s Most Ethical Companies (WMEC) indicates a positive association between ethical conduct and successful long-term financial performance. 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. From a technical aspect, there are two different types of patents: utility and design patents (Figure 3.3). Develop and sustain a sense of ethical values. Your Money, Your Life, LATEST LISTS Please check back soon. 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 few examples of antitrust laws are the Sherman Act, the Clayton Act, the Federal Trade Commission Act, and the Bayh-Dole Act. cnx({ !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); “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. Keep your business finances separate from your personal finances. However, these concepts are not interchangeable and call for different standards of behavior. 4.0 and you must attribute OpenStax. Compliance with legal standards is mandatory. Except where otherwise noted, textbooks on this site 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. Read this article from Forbes to see a list of companies recently deemed the most ethical in the world. Legal and ethical issues confront entrepreneurs and freelancers on a regular basis; learning how to handle them is vital to business success. 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. If you don’t get expensing right you can end up in trouble with local, state, and federal tax authorities. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses. Entrepreneurs today need to focus not only on complying with the letter of the law but also on going above and beyond that basic mandatory requirement to consider their stakeholders and do what is right. Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. 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. We recommend using a This is changing, however, as evidenced by the array of codes of conduct and mission statements many companies have adopted over the past century. Black Men XCEL Major Ethical Issues in Entrpreneurship Group 3 M12E Major Ethical Issues Major Ethical Issues Ethical Issue - is a problem or situation that requires a person or organization to choose between alternatives that must be evaluated as right (ethical) or wrong (unethical). Financial liability often results from the assumption of and exposure to risk; therefore, this is an important issue for entrepreneurs to manage. Ethical reasoning often is more topical and reflects the changes in consciousness that individuals and society undergo. 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. To treat customers, clients, employees, and all those affected by a venture with dignity and respect is ethical. It is important to note that any deviation from these laws may result in long and costly legal problems. Entrepreneurs Summit A conscious or deliberate attempt to avoid, ignore, or marginalize that which is rightfully due an employer by addressing other interests would be a conflict of interest. He was in a classic conflict of interest position.10 Similar cases involving business reporters and potential conflicts of interest include The Wall Street Journal, Business Week, Time magazine, and the L.A. Herald Examiner. 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. It also gives the patent holder the exclusive right to block or withhold access to others, or to sell the right to use the patent. How important an attribute is income, and at what point would a higher income override for you the nonmonetary benefits of the lower-compensated opportunity? These two concepts are not only part of an ethical approach to doing business but are also underlying requirements of several areas of law including fraud. But this kind of behavior is dangerous and represents a slippery slope. Dealing fairly and ethically with our suppliers. 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. Utilitarian ethics focuses on the usefulness or utility of the decision. (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license), (a) This drawing of Nikola Tesla’s alternating-current motor was granted U.S. Patent 381968 and represents a utility patent. If the decision deals with a change that is financially sound and beneficial, if there are an adequate number of customers that need and value the HIV product and are willing to pay that price, then that decision should be made. not be reproduced without the prior and express written consent of Rice University. Success may come from the sense of pride felt when engaging in honest transactions—not just because the law demands it, but because we demand it of ourselves. Delivering value to our customers. Many businesses creating an online presence are approached by third parties offering positive online reviews in exchange for cash. What central point might constitute such a code? At the same time, the challenge to meet these expectations can create temptations and ethical pressures as entrepreneurs make a variety of decisions. Entrepreneurs should pay especially close attention to the legal implications of how patent law can affect a business. In what ways might company contributions to a cause carry more power to impact the cause? Behaving ethically requires that we meet the mandatory standards of the law, but that is not enough. There are multiple reasons why an entrepreneur should be aware of intellectual property rights under the law. This is a great site for help with understanding legal requirements and regulatory compliance. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations. Intellectual property (IP) is the output or result of the creative work of one or more individuals to turn a unique idea into a practical and value-added product/service; this manifestation of original ideas is legally protected. Ethical start-ups recognize the ethical dilemmas that surround them in the first few months. “The World’s Most Ethical Companies: Does the Fame Translate into Gain?” Presented to the European Financial Management Association (EMFA). If we violate these standards, we are subject to punishment as established by the law. Oral agreements are enforceable in most situations; however, proving their terms can be difficult. Legal Issues in Social Entrepreneurship admin 2017-12-14T16:28:08+00:00 Legal Issues in Social Entrepreneurship Reflecting the sector convergence in social entrepreneurship is the development of hybrid legal entities focusing on both financial and social return Ethical observance builds on this baseline and reveals the principles of an individual business leader or a specific organization. 3.1 Ethical and Legal Issues in Entrepreneurship SBREFA Small Business Resource Center. Sustaining ethical values. We foster diversity and inclusion, dignity and respect. For example, an action may be legal that we personally consider unacceptable (consider how many viewed Shkreli’s legal price hike). 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. }); EVENTS An individual who is being truthful is exercising the capability of being factual about a subject matter, dealing with reality, and aware of evidence. The Hippocratic Oath, for example, is embraced by most professionals in healthcare today as an appropriate standard always owed to patients by physicians, nurses, and others in the field. -Timothy Schmidt, WebsiteRescue Ethical 2 These foundational beliefs, in turn, prepare us for the codes of ethical behavior that serve as ideal guides for business. Some entrepreneurs stay the ethical course. The primary issue is commingling of assets and properly attributing expenses across personal and business. Yet this represents only a baseline minimum. Without it, our society would be in chaos. 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