Markkula Center of Applied Ethics

Classroom Materials for "Starting with Ethics"

By David L. Perry


"Ethics, shmethics. I don't have time for that stuff. I'm too busy trying to get my company off the ground." Sound familiar? Many entrepreneurs assume that it's a waste of time for them to think about establishing clear ethical standards for their new companies, either because it's naive to think that being ethical in business is realistic at all, or because they don't see how it contributes to their bottom line, or because they assume that they can worry about ethics later on, after the company has become successful. Such views are understandable, but erroneous--and very risky.

There's nothing naive or Pollyannaish about practicing high ethical standards in business. Sure, there are unscrupulous companies out there, some of which will be your competitors. But it's a huge mistake to think that sinking to their level is going to make your company flourish, or worse, that their unethical conduct justifies your own.

Also, think about your own experiences in dealing with various companies: How long do you continue to do business with ones that violate your trust or take advantage of you? How long do you think your company will be around if you treat customers or employees that way?

Finally, notice that you can't help but foster and reinforce some sort of corporate culture. So why not make ethics a part of that culture from the beginning? Is it realistic to think that you could permit an unethical corporate culture to grow and somehow change it later on? And isn't it important that as your company grows, you're hiring people with the same commitment to integrity as your own?

Now, it's safe to assume that most entrepreneurs (like most other adults) have developed what might be called the "standard equipment" of ethics: sympathy toward the suffering of others, a sense of fairness and injustice, and habits of telling the truth and keeping your promises even when doing so is not personally convenient; in short, a conscience. But then, you might wonder, what is the point of worrying about ethics as a normal adult if the "standard equipment" is already in place?

One reason is that people don't always take the time to reflect on their moral beliefs and ethical decisions, and as a result they sometimes make costly mistakes that they might otherwise have avoided. And people of integrity sometimes disagree fundamentally about what's right and wrong, and it won't do at that point simply to encourage them to obey their individual consciences. We need wisdom and critical thinking as well as a good conscience. We need to find some way to judge which moral views are most sensible and seek consensus on principles by which we can run an ethical corporation.

"Business ethics" is sometimes said to be an oxymoron, a contradiction in terms. Some have argued that we should regard business as a cutthroat game like poker and not expect the players to abide by normal ethical rules like honesty. But many businesspeople today acknowledge ethical responsibilities to multiple stakeholders, i.e., not only to company stockholders but also to fellow employees, customers, suppliers, and the communities in which they operate. Ethics has also supported the creation of laws and regulations on workplace and product safety, sexual harassment, antitrust, insider trading, bribery, and environmental protection. Business need not be antithetical to ethics; indeed, it assumes ethics in order to flourish best.

In business as in other arenas of life, it is important for us to develop moral wisdom and moral courage: wisdom to recognize when an ethical problem arises, as well as to make sound decisions in situations of moral conflict; and courage to do what we know is right even when there are strong pressures or incentives to do otherwise.


Below, you will find some questions to help you reflect on the ethical issues that arise in start-up companies. The first set are general and should be answered after reading through all the material in the Start-up Ethics section. The rest are arranged around the specific articles listed. Click on the titles to link to the relevant material.

Starting With Ethics

Individual students or entrepreneurs should do the following assignment on their own before meeting with others to do the exercises that follow:

1) Learn what many U.S. companies have created in terms of ethics policies and practices by mining the web site of Business for Social Responsibility. You can browse various topics (left side of the page), search the site using keywords of your own choosing (right side), or read about recent developments in corporate ethics under "News Archives" (top).

In a classroom setting, divide into groups of four or five to do the following exercises together. Entrepreneurs would also benefit from holding a similar sort of brainstorming session with their prospective business partners.

1) Imagine that you are about to start your own company, hoping to grow it within five years to employ 200 people. What are the core ethical values that you would want to inspire and guide your employees from day one? (You might phrase them in relation to specific stakeholders, e.g., "honesty toward stockholders," or "maintaining a level playing field for potential suppliers.")

2) What examples could you provide your employees to clarify how to apply those core ethical values in specific situations?

3) What management practices should you adopt in order to ensure that your employees know:

a) That you'll never ask them to violate their conscience in order to meet your business goals?

b) That you'll back them up for doing the right thing?

c) To seek clarification if they're ever unsure about applying the company's core values in particular situations?

d) To disclose potential conflicts of interest?

e) That they can voice their ethical concerns up the chain of command without fear of retaliation?

A Good Start by Kirk O. Hanson

1) Good ethical decision making in business requires consideration of the legitimate interests and expectations of key stakeholders. In regard to any significant company decision or policy, it's important to ask:

a) Who will be helped by this?

b) Who will be harmed?

c) Are we at risk of violating anyone's rights, breaking promises, or undermining trust?

d) Are there other alternatives that are consistent with our existing commitments and obligations, and which would produce a greater balance of good over harm or no harm at all?

e) If the interests of some of our stakeholders conflict with those of others, whose ought to be paramount?

With those questions in mind, as you read Kirk Hanson's overview of ethical issues in start-up companies, whom would you identify as key stakeholders for entrepreneurs to consider?

For further insights on making decisions based on rights, fairness, and potential benefits and harms, consult "A Framework for Ethical Decision Making

Work-Life Balance by Warren Anderson

1) Warren Anderson mentions his concern as a corporate executive about the effects of commission-based compensation on his employees during sales downturns. But can you think of other ethical risks that could arise where sales commissions are the only form of compensation? For instance, how might customers be harmed by the behaviors of salespeople molded by commission-based incentives and pressures? (Consider as an example, incentives to promote products that are seriously flawed or are about to become obsolete.)

2) How would you guard against creating those kinds of ethical risks for your own start-up company? E.g., could you set performance goals and incentives that don't encourage employees to deceive or manipulate customers?

3) In light of Anderson's concerns about work-life balance, what policies, practices and structures could you create for your employees that would fully engage their skills, talents and creativity without unduly constricting the time they may need and want to spend with their families?

The Treatment of Employees in High-tech Start-ups by Dennis Moberg

1) Under the heading of "tree-ring distinctions," Dennis Moberg raises concerns about fairness in distributing ownership stakes. When do you think it would be ethically questionable to favor your own friends and family with shares in a company that you create?

2) What degree of honesty or candor about the firm's prospects is owed to prospective employees? How much information do they have a right to know in order to make a sufficiently informed decision to join your company?

The X979 Jumpstart by Peter A. Facione

1) In light of Peter Facione's hypothetical "X979" case, what ethical obligations do you think companies have toward their competitors? For example, is it unethical to hire employees away from competitors in order to induce them to reveal proprietary information? Why or why not?

2) If your competitor is unscrupulous, does that give you an excuse to be unscrupulous, too?

3) Should your long-term reputation for integrity be more important than winning every head-to-head battle against unethical competitors? (Consider the emphasis place on reputation and trust in the essays by Floyd Kvamme, Dennis Moberg, Audrey Maclean, Umang Gupta and Mike Markkula.) Can you leverage a well-earned reputation for integrity into a business advantage?

Further Reading:

Tom Beauchamp, "Venture Capital for Rubbernex," in his Case Studies in Business, Society, and Ethics, fourth edition (Prentice Hall, 1998), pp. 49-54.

John Boatright, "Trade Secrets and Conflicts of Interest," in his Ethics and the Conduct of Business, third edition (Prentice Hall, 2000), pp. 128-158.

Lynn Sharp Paine, "Corporate Policy and the Ethics of Competitor Intelligence Gathering," Journal of Business Ethics 10 (1991): 423-436.

Blurred Lines by a young entrepreneur

1) In defending the use of his employer's equipment to create plans for an independent start-up, the young entrepreneur in "Blurred Lines" wrote, "No one had ever complained that I was not getting my work done for our own company." Is that an adequate excuse? Was he honest enough with his boss about his personal use of company assets?

2) If you don't like the way your company treats you, are you still obligated to protect its secrets after you leave?

3) How can you foster innovation and entrepreneurship among your employees without placing your company's proprietary information or other assets at risk?