Small Business Management , 11th edition Longenecker, Moore, and Petty 2000 South-Western College Publishing

1. Chapter 16 Social and Ethical Issues In the Spotlight: Delta Sand & Gravel and Delta Construction • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-1

2. Learning Objectives: Chapter 16 1. Explain the impact of social responsibilities on small businesses. 2. Describe the special challenges of environmentalism and consumerism. 3. Identify the kinds of ethical issues in small businesses and explain the special vulnerability of small firms. 4. Describe practical approaches for building an ethical business. • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-2

3. Some Social Obligations of Small Firms Compliance with Government Regulations Response to Employee Needs Consumerism Protection of Environment Support of Education Contributions to Community Organizations Response to Community Needs • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-3

4. Impact of Environmentalism on Small Firms +$ Positive Impact 1. Builds customer loyalty 2. Improves firm’s image in the community 3. Provides business opportunities - $ Negative Impact 1. Entails cost of modifying facilities 2. Adds government regulation 3. Increases likelihood of lawsuits • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-4

5. Consumerism Issues Key Emphasis: Let the seller beware! • Customer Expectations: • Products/services that reflect • Safety • Reliability • Durability • Quality • Accuracy in advertising • Small Firm Responses: • Clearly stated warranties • Efforts to satisfy customers • Honest advertising • Smoke-free areas • Standing behind repair work • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-5

6. How Entrepreneurs Rationalize Cheating on Taxes “Everybody does it.” “It’s the way I get paid for unnecessary government red tape.” “I have to compete with people who cheat.” “Big operators have their loopholes; this just evens things up.” “Taxes are too high; the government doesn’t deserve that much money.” • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-6

7. Difficult Ethical Issues Facing Small Firms Number of Responses Examples of Responses Issues Relationship with outside parties in the marketplace Superior subordinate relationships Employee responsibilities and actions that in some way conflict with the best interests of the employer Relationships with suppliers “Putting old parts in a new device and selling it as new” “Lying to customers about test results” “Reporting to an unethical person” “Being asked by my superiors to do something that I know is not good for the company or its employees” “Receiving kickbacks by awarding overpriced contracts” “Theft of corporate assets” “Getting people to do a full day’s work” “Vendors want a second chance to bid if their bid is out of line.” “The ordering of supplies when cash flows are low and bankruptcy may be coming” 56 30 26 18 • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-7A

8. Difficult Ethical Issues Facing Small Firms Number of Responses Examples of Responses Issue “Having to deal with so-called antidiscrimination laws which in fact force me to discriminate” “Employing people who may not be legal [citizens] to work” “Whether to lay off workers who [are] surplus to our needs and would have a problem finding work or to deeply cut executive pay and perks” “Sexual harassment” “Whether to pay to have chemicals disposed of or just throw them in a dumpster” “Environmental safety versus cost to prevent accidents” Compliance with governmental requirements and reporting to government agencies Human resource decisions Environmental and social responsibilities 17 14 5 Source: Justin Longenecker, Joseph A. McKinney, and Carlos W. Moore, “Ethical Attitudes, Issues, and Pressures in Small Business,” paper presented at the International Council for Small Business Conference, Sydney, Australia, June 1995. • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-7B

9. How Ethical Are These Actions? 1. In order to increase profits, a business owner used a production process that exceeded legal limits for environmental pollution. 2. A small business received most of its income in the form of cash. The owner reported only three-fourths of this income for tax purposes. 3. A highway bridge contractor deplored the cutthroat competition. He reached an understanding with other contractors to permit bidding that would provide a reasonable profit. 4. A company president sent expensive Christmas gifts to purchasing agents, since this appeared to be common practice. 5. A small firm selected a legal method of financial reporting that concealed some embarrassing financial facts that would otherwise have become evident. 6. To avoid spending $700 on a computer software program, a business owner obtained a copy from a friend. • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-8

10. What They’re Doing Wrong Percentage of Employees Admitting it Unethical Action Creating a potentially dangerous situation by using new technologies (e.g., cellular phones) while driving Wrongly blaming an error you made on a technical glitch Using office equipment to do personal shopping on the Internet Copying company software for home use 19% 14% 13% 13% Source: “Crime and Misdemeanors,” Inc. Technology, Vol. 20, No. 3 (1998), p. 32. • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-9

11. An Ethical Culture An ethical culture is one in which the company makes a good faith effort to meet its obligations to all its stakeholders not just to its employees, but also to its customers, shareholders, the community and the environment. The list of stakeholders gets longer every day, and their interests often conflict, but they cannot be ignored. Shaun O’Malley, chairman emeritus of Price Waterhouse • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-10

12. Functions of a Better Business Bureau 1. It provides free buying guidelines and information a consumer should have about a company priorto completing a business transaction. 2. It attempts to resolve questions or disputes concerning purchases. • Small Business Management, 11th edition • Longenecker, Moore, and Petty • 2000 • South-Western College Publishing 16-11