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July, 2005 |
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Do Business Ethics Matter?
Why a Code of Conduct Is Important for the
Entrepreneur
By
Michael D. Pfarrer
Doctoral Candidate
Management & Organization Department
Robert H. Smith School of Business
University of Maryland, College Park
College Park, MD 20742
Tel: (301) 653-0458
mpfarrer@rhsmith.umd.edu
Business ethics has certainly been
in the news lately. Beginning with the rash of
corporate corruption cases at the beginning of this
century, corporate behavior has been labeled amoral
at best, illegal and immoral at worst. Indeed, the
wave of corruption cases in the news has rekindled
calls for ethical training in the boardroom and
workroom, as well as in the classroom. Clearly, US
businesses have seen better days as far as their
images and reputations go.
For example, 68% of the respondents to a 2004 Harris
Interactive, Inc. and Reputation Institute Quotient
study rated the reputations of US businesses as “not
good” or “terrible” (Alsop, 2004). Consistent with
these ratings, there has been a twenty-eight percent
increase in financial restatements over the last
three years (Johnson, 2005) along with more than 900
charges of corporate crime and over 500 convictions
(Johnson, 2004).
With unethical behavior at the center of many
debates as to how to best train our current and
future business leaders, it is time for
entrepreneurs to be leaders in setting future
standards for business behavior as well as to take a
proactive role in educating tomorrow's industry
employees (Rousseau, 2004a, 2004b). Ironically, the
recent spate of unethical behavior has given
founders of new firms the opportunity to take an
active role in shaping industry expectations. As new
firms are established, they will take heed of
successful entrepreneurial activities and pattern
themselves after such behavior. Why not have a
strong code of ethics be a part of that success
story?
WHY A CODE OF ETHICS?
Ethics can be a messy business.
Scholars and practitioners alike have often argued
over a definition of ethical behavior, as well as
the necessity for a code of ethics in organizations.
Indeed, there appears to be no clear moral compass
to guide organizations (McNamara, 2005). But, if one
operates under the assumption that business has a
moral responsibility to act ethically (to which some
would disagree [cf. Locke & Noel, 2004]), then a
code of ethics is a logical next step to help codify
proper behavior in organizations.
If ethical behavior is somehow "doing the right
thing" (McNamara, 2005), then perhaps defining
unethical behavior is less ambiguous, and more
helpful in understanding the need for a written code
of ethics. Unethical behavior is manifested in
organizational actions that are deemed immoral or
unacceptable according to societal norms or general
standards of conduct. In other words, unethical acts
are those that disrupt the harmony in the
relationship between an organization and its
stakeholders because they violate the ideas of
honesty and fairness (Sharpe, 1993). A written code
of ethics, then, can serve as a guide to
organizational members in helping them determine
what actions are unethical, and thus proscribed by
the code.
Why do entrepreneurial firms need a code of ethics?
Some would argue that a code is superfluous, that
professionals are keenly aware of unethical behavior
and that such a code is not needed (Hunt & Tirpok,
1993). However, the recent wave of corporate
scandals and unethical behavior has shown that
highly educated, white-collar workers are as
susceptible to immoral and unethical actions as
anyone. Hence, on one level, one could argue that a
code of ethics is necessary to help expressly
dictate what behavior is unacceptable. On another,
as important level, an effective code of ethics is
necessary for entrepreneurs to signal that they are
serious about combating unethical behavior in
business. Similarly, designing an effective code
signals that entrepreneurs are proactive and that it
is interested in issues that affect the public (that
it "matters"). As professionals, entrepreneurs
should be held to a higher standard; they should be
leaders in developing better ethical guidelines for
the industry; they should be seen as a beacon to
those they lead. In the end, ethics is good public
relations (Rousseau, 2004a, McNamara, 2005). By
taking the lead in creating an effective, emulative
code of ethics, entrepreneurs send a signal to
future stakeholders that it does matter, while
meanwhile expanding their profile and enhancing
their image.
IMPLEMENTING AN EFFECTIVE CODE
OF ETHICS As an early stage entrepreneurial
company it is never too early to start thinking about
and implementing a code of conduct to ensure ethical
standards are ingrained into the corporate DNA. This
ensures that all the process and procedures for a
well-managed, investor-owned company are robust and
developed. Implementing a code of conduct in an
important first step.
An effective code of ethics...
1. Elects Board members and recognizes students' and
industry needs
Entrepreneurial firms should elect a board of directors
that includes both inside and outside representation to
ensure that their bylaws, policies, and codes reflect
the importance of including these stakeholders in their
implementation.
2. Elects an ombudsperson
At the same time, entrepreneurial firms should elect an
ombudsperson whose responsibility includes coordinating
ethics policies, institutionalizing the code, and who
serves as an advocate for employees and board members
who report, or who are involved in, an ethical dilemma
(McNamara, 2005).
3. Is supported by the firms' officers and leaders
No code of ethics will be heeded if officers and leaders
do not support it (Fleming, 2004b; McNamara, 2005; pr
reporter, 1991). To that end, executives should ensure
that they place high priority in supporting and
disseminating the contents of the code.
4. Is communicated to all members and stakeholders
The code of ethics, in order to be effective, needs to
be publicly distributed to all members and stakeholders,
including publishing it internally and externally
(Fleming, 2004b). Failure to proactively discuss and
distribute the code will lead to its ineffectiveness and
eventual obsolescence.
5. Has training
An effective code of ethics provides training to its
members (McNamara, 2005; pr reporter, 1991), including
on-going education.
6. Has a hotline
The entrepreneurs' code of ethics should have an ethics
hotline (Fleming, 2004b; McNamara, 2005) where
individuals are encouraged to report ethical misconduct
without fear of reprisal.
7. Has sanctions and enforces them
An effective code of ethics must show stakeholders that
violators will be punished. If offenders have little
fear of punishment, than stakeholders will see those
espoused values in the code as little more than lip
service (Bivens, 1993; McNamara, 2005; O'Dwyer's PR
Services, 1992; pr reporter, 2001; Seib & Fitzpatrick,
1995). In this vein, an improved code should attempt to
list those behaviors it deems unethical, as well as
provide respective punishments for said violations. At
the same time, the code should encourage cooperation by
working with offenders instead of instantly punishing
them (Ayers & Braithwaite, 1992) As Fleming noted,
"elements of both compliance and aspiration can enrich a
code" (Fleming, 2004a: 6). Regarding sanctions, an
effective code should allow for outside adjudication as
well as a panel of peers to judge any proscribed
behavior (O'Dwyer's PR Services, 1992).
8. Is regularly updated and flexible
An effective code of ethics should be viewed as a living
document (Fleming, 2004b; Hunt & Tirpok, 1993; McNamara,
2005; Seib & Fitzpatrick, 1995). That is, it should be
flexible enough to allow for changes in social norms,
and it should be reviewed and updated when necessary.
9. Has a pledge that members take regularly,
including a signed oath as part of membership.
Finally, an effective code of ethics should include both
an oral and written pledge that members take annually
(PR Educator, 2001; Rousseau, 2004b). For example:
I recognize my responsibility to
the firm's stakeholders to conduct business in a
truthful and ethical manner. I believe in exhibiting
trustworthy behavior to our stakeholders. I also
espouse treating our stakeholders with care,
justice, and fairness. Finally, I recognize that I
have a responsibility to myself, other members of
the firm, and society at large to exhibit civic
virtue and citizenship.
Absent any explicit prohibition in the
Code of Ethics or that which is proscribed by law, I
pledge to adhere to a "reasonable person" approach to my
behavior. I recognize that I have a duty to treat others
with dignity and thus conduct myself in an ethical
manner at all times.
Ed. Note: Michael Pfarrer is a doctoral
candidate in the Management and Organization Department
at the Smith School of Business. He graciously
agreed to write this premier article for the Dingman
Center for Entrepreneurship's E-Newsletter.
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DINGMAN CENTER EVENTS
SURVEY
JUST 2 MINUTES OF YOUR TIME
Please visit the website for our
electronic survey at:
Dingman Center Event Survey to provide us
with your valuable feedback, so we can continue
to provide value-added programming during the
coming year.
Your responses will directly impact how our
events are planned for the 2005-2006 academic
year, the time of day they are held, the
location (College Park, Shady Grove, Baltimore
or Washington, D.C.), the subject matter
selected, and even the speakers.
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DINGMAN CENTER IN THE NEWS
The
Dingman Center for Entrepreneurship has been
featured prominently in recent business
publications, and we are delighted to share some of
these articles with you in our newsletter.
Small Business Maker: Dingman Center for
Entrepreneurship at the University of Maryland
Cultivates Students and the Region
(The Daily Record,
Friday, May 20, 2005)
Dingman
Center Managing Director Asher Epstein was
interviewed by Kara Kridler of The Daily Record, to
seek his input on the state of Maryland's
entrepreneurial climate.
Who Wants to be an Entrepreneur? And the Dingman
Center for Entrepreneurship
(The Business
Monthly, May, 2005)
Business Monthly staff writer Ambika Behal describes
the Dingman Center, and talks about several
successful entrepreneurs, including Kevin Plank,
founder of Under Armour and graduate of the
University of Maryland, Interactive Magic CEO Josh
Norris, and others, and how they got started.
(Ed. Note: The article incorrectly states that Kevin
Plank was assisted by the Dingman Center during his
time as a student at Maryland.)
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WHERE ARE
THEY NOW?
What the most recent class of Dingman
Scholars
is doing since receiving their MBAs
Our class of Dingman Center
Scholars for 2004 - 2005 have graduated,
received their MBAs from Smith, and many
have embarked on the exciting careers ahead
of them. Trying to reach them via
e-mail in the last few weeks has proved
challenging, but many of them have responded
with an update of their summer, leisure or
new career paths. Here's a summary:
Ken Kratovil:
Ken started work at Huron Consulting Group in
Washington D.C. on June 13. An office of about
25 people, Huron was ranked the number one
fastest growing new business in America by
Entrepreneur magazine for 2005.
http://www.entrepreneur.com/hot100
Ken is doing financial and
economic consulting for the disputes and
investigation business. Ken's biggest
news, however, is that he is a NEW DAD!
Ken and Karla had a baby girl, Evelyn
Victoria Kratovil, on July 1.
Mike Grenier: Mike and his
wife, Lindsay,
are in the process of moving to
Portland, Oregon, where Mike has taken a job with
Ridgeline Energy as Director of Finance and
Business Development. Ridgeline acquires,
develops and manages wind energy projects in
the greater northwest. They are a start-up
company and have successfully completed
their first project (68 megawatts, located
in eastern Idaho), which will begin
construction in September. They have a
large portfolio of future projects, and
continue to actively acquire new sites.
Mike is interested in talking to anyone who
wants to talk about energy markets or
technology, especially in the Portland,
Oregon area, which has a vibrant and growing
technology and start-up community, combined
with a great quality of life.
Elly Vasyushina: Elly has just
started as a business
analyst for DecisionPath Consulting, a
boutique consulting firm based in
Gaithersburg, Maryland. The company's core
competence is business intelligence and data
warehousing. A few of their staff members
teach at the Data Warehousing Institute, the
premier membership association of IT
professionals in the data warehousing and
business intelligence industry.
Aviral Singh (returning to the Dingman Center
for 2005-06): Aviral is gaining valuable
brand management experience this summer at
The Hershey Company. He is developing the
execution plan and brand strategy for a new
product, and hopes to apply what he has
learned when he returns to the Dingman Center
in the Fall, where he will continue to
support the Shop DC business launched by
former Dingman scholar Zoey Rawlins.
Aviral will also be president of the
Entrepreneurship Club.
Zoey Rawlins: Zoey is working
on the second issue of SHOP DC
as well as a pilot project for a coffee
table book on DC boutiques, a business
concept supported by the
D.C. Business Improvement Council. Zoey has
also accepted and will begin as a senior
associate with PricewaterhouseCoopers' DC
office in late August.
Matt Fleischer: Matt has been
very busy getting Hook and Ladder beer
launched and distributed. They have
appeared at a number of public and private
functions, including the Old Dominion Beer
Festival in Virginia in June and the BBQ on
the Bay for the Anne Arundel Tech Council in
July. They dispense Hook and Ladder
beer at these events, and are getting rave
reviews! They are expanding their
presence in local restaurants, and plan to
be selling bottles of Hook and Ladder next
month (they only are brewing kegs at this
time). Check their website for
restaurants carrying Hook and Ladder:
http://www.hookandladderbeer.com
Maya Rao: Maya is joining Sandler
O'Neill, an investment bank that exclusively
serves financial institutions (banks,
insurance companies, asset management
companies). She will be joining their M&A
group on July 18.
Kara Holzer: Kara is the Vice
President of
Marketing for Dayna Designs, the very
successful business launched by Smith MBA
grad Dana Lande a few years ago. Kara
and her husband are
getting ready to move to Nashville,
Tennessee in
November.
Jason Volk: Jason is spending
the summer working on his new business
endeavor in the security field with his
partner.
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TENTATIVE CALENDAR OF DINGMAN
CENTER EVENTS
FOR 2005 - 2006 ACADEMIC YEAR
Not all speakers are confirmed
as yet, and some dates are subject to change.
Dingman Process
Workshop
This
informative 75 - 90 minute workshop explains the
Dingman Process, which consists of Ideation,
Assessment, Implementation, and Iteration.
The most
successful entrepreneurs are not necessarily those
with the most innovative ideas, but those who can
find gaps in the market and develop products to meet
consumers' needs.
The Dingman
Process helps entrepreneurs systematically analyze
and develop businesses based on this concept.
This workshop is presented once each academic year,
and this year it will be held at College Park as
well as at each of our satellite campuses for our
part-time MBA students. Light refreshments
will be served.
Tuesday,
September 6, 5:45 - 7:00 p.m. -- Shady Grove
Wednesday, September 7, 5:45 - 7:00 p.m. -- D.C.
Monday, September 12, 5:45 - 7:00 p.m. -- Baltimore
Tuesday, September 13, 12:30 - 1:45 -- College Park
Open House
This
annual event is open to all students and regional
entrepreneurs. It is an opportunity to hear
about the programs and events which the Dingman
Center is planning for the upcoming year, to meet
the Dingman Center staff and new Dingman Scholars,
and to get involved with our activities right from
the beginning. Pizza and sodas will be served.
Thursday, September 8, 12:00 noon - 2:00 p.m. --
3rd Floor Atrium, Van Munching Hall
Women's
Entrepreneur Event
This event
is co-sponsored by the Smith Women MBA Club.
The event will include a group of dynamic women who
are successful entrepreneurs talking about their
experiences and answering questions from the
audience. A light reception will be available
before and after the discussion.
Wednesday, September 28, 5:00 - 7:00 p.m.,
Executive Dining Room, Van Munching Hall
Pitch Dingman
Competition
This event
is held monthly and is a follow-up to our weekly
walk-in Pitch Dingman held on Fridays at
11:00 a.m. Come to the monthly competition,
present your business idea in 5 minutes to a panel
of judges from the Dingman Center, and you could win
$500!
Friday, September 23, 2:00 - 4:00 p.m., 1518 Van
Munching Hall
Friday, October 21, 2:00 - 4:00 p.m., 1418 Van
Munching Hall
Friday, November 18, 2:00 - 4:00 p.m., 1418 Van
Munching Hall
Friday, December 9, 2:00 - 4:00 p.m., 1418 Van
Munching Hall
Dingman Day
Lunch
These
catered luncheons are open to undergraduate and MBA
students and members of the entrepreneurial
community. Two successful entrepreneurs will
talk about their experiences and answer questions
from the audience. Typically, a Dingman
Scholar will talk about their business endeavor, how
they got started, their successes, their failures,
and where they plan to go.
Friday, October 14, 12:30 - 2:30 p.m., Executive
Dining Room, Van Munching Hall
Friday, December 2, 12:30 - 2:30 p.m., Executive
Dining Room, Van Munching Hall
Dingman Day
Field Trip
This new
event will be offered once each semester, and will
be an all-day trip to an interesting manufacturing
plant, via one of the UM luxury coach buses. The day
will include a tour of the plant, a meeting with the
senior management, an opportunity for Q&As with the
management team, and will end with a fun activity on
the return trip to College Park. Details are
still in the planning stage for this event.
Friday, October 28, Trip to Mack Truck Facility
Back-2-Basics
Panel Discussion
This
popular event returns with proposed discussions
about family run businesses, marketing your
business, financing your business, and exiting your
business. The typical format includes two
entrepreneurs who are highly experienced in the
given topic, along with two Smith faculty who are
experts on the topic. Light
refreshments will be served.
Tuesday, October 18, 5:45 - 7:00 p.m., Shady Grove
Thursday, December 1, time tbd,, Executive Dining
Room, Van Munching Hall
Speaker
Event
This
returning event will feature a well-known and
dynamic speaker who will engage and capture the
audience with their experiences as a highly
successful entrepreneur. A reception will be
held during which time the audience can network with
each other, Smith faculty who are present, and the
evening's speaker.
Wednesday, November 9, 5:45 - 8:00 p.m., Washington,
D.C.
CAN Breakfast
This
event is by invitation only to angel investors who
are qualified investors in the CAN network. They
will have an opportunity to hear a 10 minute
presentation from approximately eight start-up
entrepreneurs who are seeking funding for their
business. This event is tied closely to the
Mentor Day event. For more information on the CAN
Program, contact Susannah Smoot Campbell at
susannah_smoot@yahoo.com. A continental breakfast will be
served.
Tuesday, September 13, 9:30 a.m., Montgomery
Development Technology Center (Gaithersburg)
Tuesday, October 18, 9:30 a.m., Chesapeake
Innovation Center (Annapolis)
Tuesday, November 15, 9:30 a.m., Silver Spring
Innovation Center (Silver Spring)
Tuesday, December 6, 9:30 a.m., Emerging Technology
Center (Baltimore)
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THE DINGMAN
CENTER FOR ENTREPRENEURSHIP
Founded by Rudy Lamone in 1986, the Dingman Center was one of
the first of its kind in the country and has emerged as a
top-ranked entrepreneurship center. Thanks to initial funding
with a generous grant from Michael D. Dingman, founder of the
Signal Corporation (now part of Honeywell International), the
Dingman Center continues to grow as a regional and national
catalyst in the field of entrepreneurship. The Center is now
aggressively evolving, and in some areas, is expanding its
services to further its role as a leader in the student,
regional, and academic entrepreneurial communities.
The Dingman Center is currently led by:
Asher Epstein, Managing Director
Dr. Charles Heller, Chairman of the Board and Director Emeritus
Dr. Scott Koerwer, Associate Dean, Executive Education,
Entrepreneurship, and
Marketing, Communications
Please visit our website at
http://www.rhsmith.umd.edu/dingman .
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newsletter is powered by and co-sponsored by
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Previous
2005 Issues of Dingman Center
Newsletters:
June, 2005
May, 2005
April, 2005
March, 2005
February, 2005
January, 2005
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