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CHAPTER 2: SMALL BUSINESS ETHICS: A KEY TO LONGTERM SUCCESS Chapter Summary This chapter defines basic ethics terms and theory. It explains why ethics is so important for small businesses and how small businesses use good ethical practices to build social capital through legitimacy. The ethical planning process is introduced, as well as a plan to handle small business crises.

Learning Objectives After studying this chapter, the student should be able to: 1. Define ethics, and ethical dilemmas, and the relationship between them 2. Find out why ethics is a big part of small business 3. Understand why there aren’t any “do this” and “don’t do this” types of lists for ethical decisions 4. Learn Ethics Planning, a three step process to help you make ethical decisions 5. Learn the techniques of building social capital through legitimacy. 6. Learn the basic skills for handling a crisis

Focus on Small Business: Tobin Real Estate and Development Martin Tobin, one of the owners of Tobin Realty & Development was facing an ethical dilemma. The builder he had hired found a problem and told Tobin that he’d have to pay for the extra expenses. While Tobin realized that this was probably necessary, he worried that he’d set a precedent. Of course if Tobin didn’t pay, this opened up several other problematic scenarios. Discussion Questions These will vary based on students’ initial orientations toward ethics and responsibility as well as the “stickiness” of chapter material before class discussion or lecture.

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1.

Does Tobin have any responsibility toward resolving this problem? Students’ responses will range from Tobin having no responsibility because the contract states the builder pays for all digging costs, including soft spots, to Tobin having at least some responsibility to the home buyer to get the house done well and on time. Some may respond that, due to small business’s unique position within a “visible” community (actions by small business owners are accrued to the owners themselves) they have a responsibility to maintain their excellent reputation within the community. Others may respond that, because Tobin had a good working relationship with Sarski prior to this build, they have a responsibility to help out a fellow small business owner who is having a tough financial time. Another possible response would be a short-term responsibility that a successful business might have toward a struggling one during a prolonged economic trough.

2.

What are the main facts to consider when deciding what the right thing to do is? Tobin has no legal obligation to pay for the dig, but may have a contract with the buyers to have the home done within a certain time frame. Students should also consider the nature of the relationships involved to determine relevant facts. Tobin and Sarski have worked well together in the past. Sarski is having financial cash flow issues due mainly to a prolonged bad economy; it may be relevant to some students that Sarski’s financial issues are arising from circumstances outside of his control, rather than because he mismanaged his money. The homebuyers expect a well-built house to be finished within an agreed-upon time frame; there should be, however, enough flexibility within that contract to allow for successful digging out of the spot. Tobin may have a difficult time finding a replacement builder if Sarski walks off the job, but Sarski certainly could be replaced. The longer-term negative hit to Sarski’s reputation is also a fact students should consider.

3.

What are the options for resolving this dilemma? How would you rank them? Ranking will vary, but options include: a. Tobin pays for the entire dig out because Sarski cannot afford it. The build continues with Sarski and the homebuyers probably never know about the problem. b. Tobin refuses to pay for the dig out and forces Sarski to honor his contract to pay for the dig out. Sarski could go bankrupt and not be able to continue the build for Tobin, or he could walk off the job in search of work that will be more financially viable. He could find alternative financing that allows him to continue the build (making up for the cash flow loss).

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c. They could share the cost of the dig out and continue the build as planned. d. They could work out some other arrangement wherein Tobin pays for the dig out and frees up Sarski from having a cash crunch, such as Sarski including some additional services on a different build or a discounted service on another house. e. Tobin could pay for the dig out and refuse to use Sarski’s services again. 4.

Why is this problem an ethical dilemma? The right thing to do in this situation is unclear, making it an ethical dilemma. There may be some personal values that are in conflict, such as responsibility toward a fellow business owner vs. honoring a contract. Although there is a clear legal path, legality is not ethics. Making the right ethical decision means considering many more angles to a particular situation than if it is simply legal. Tobin should consider his relationship with Sarski as a valuable, ongoing source of working collaboration, potential referrals, and community goodwill. Sarski has done good work for Tobin before and is having troubles because of a bad economy. There is a community issue here, too, since small business owners, their decisions, and their businesses are often conflated into one entity in peoples’ minds! If Tobin makes a decision that works out badly for Sarski, there may be community repercussions in terms of lost goodwill, negative press coverage, and the like.

Case Follow-up: Martin Tobin knew he had to make a decision about the soft spot— and fast. He called his cousin and business partner, Frank, into the office to discuss it with him. Martin wondered if there was going to be a good solution to this problem, and hoped Frank had some ideas! (Video vignette follows this scenario).

Extended Chapter Outline Note: Key terms are in boldface. Teaching tool

Internet application

International application

Group activity

Objective 1: Define ethics, and ethical dilemmas, and the relationship between them 1.1

Businesses often face not just a simple decisions but a set of decisions due to ethical implications among the various choices. 1.1.1 Small businesses are more visible in their communities and the ethical decisions they make are also more visible. 1.1.2 Everyone uses ethics to make decisions about what is right and wrong.

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1.2

1.1.3 Unfortunately these decisions often involve a number of choices where our ethical values may conflict – an ethical dilemma. Teaching tool: Pull the business section from the local newspaper and find several articles discussing the decisions a business has made. Ask what possible negative consequences might be faced due to this decision. Have the students speculate what alternatives the company may have considered. Assuming that the firm made the most ethically sound decision, what might have been the negative consequences of the other possible decisions – and possible sources of the firms’ ethical dilemmas?

Objective 2: Find out why ethics is a big part of small business 2.1

Ethical decision making has community impact. 2.1.1 Unethical decisions cause sales to drop off. 2.1.2 Employees will lose jobs if sales fall off enough. 2.1.3 Unemployed people do not have money to spend in the community nor do they pay taxes. 2.1.4 State governments have additional costs in the form of unemployment payments. 2.1.5 Customers avoid doing business with firms they consider unethical. Teaching tool: Review some of the decisions or alternatives from the previous teaching tool. What impact would these have on the community?

Teaching tool: Contact your local BBB and find out statistics for your area. If you think it’s appropriate, tell students some of the businesses that have BBB records and why. Debate the fairness of judging a business based on its having a BBB record--is it right to judge a business based on someone else’s complaint?

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2.2

Ethical decision making leads to trust. 2.2.1 Trust is integral to the firm’s survival. 2.2.2 Customer, suppliers and employees must be able to trust that they will receive fair treatment in their dealings with the firm. 2.2.3 Often the reputation of the firm is the same as that of the owner – they are considered one and the same. Small Business Insight: How Trust Pays Off John Bauer as achieved trust for himself and his construction firm. While other firms have delays due to paperwork, John is able to do much on a simple handshake – and thus is able to do more, quicker. 2.2.4 2.2.5 2.2.6

While trust can be a competitive advantage (as it was for John Bauer) it can backfire when the firm betrays this trust. Communities expect personal accountability from the owners of small businesses. Even the appearance of unfairness or untrustworthiness can have negative consequences.

Small Business Insight: The Horrors of the Unsatisfied Customer David and Veronica Sullivan of Starlit Dry Cleaners had always tried to satisfy the customer and maintained high levels of ethical integrity, but one disgruntled customer ruined that. In this case, the customer was clearly in the wrong and the Sullivans still offered to pay half of the cost of the jacket. The customer took the settlement and continued to bad mouth the Sullivans and Starlit Dry Cleaners at every opportunity. Years later, customers still question their abilities, citing the story of a customer whose jacket was damaged. Teaching Tool: Solicit examples from the students of times where their trust was lost in a business and how they responded. Would they go back again? This also would work well as an opening exercise to the chapter. 2.3

The organizational culture the owner establishes goes a long way to setting the ethical tone of the business. 2.3.1 When owners model the behaviors they expect their employees to use, employees are likely to do so. 2.3.2 Owners must also be consistent in their decisions and their decisions should exhibit visibility. 2.3.3 Personal values of the owner are often reflected in the ethical standards he/she set up in their business; this is called the “spillover” effect.

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2.3.4 2.3.5 2.3.6 2.3.7 2.3.8

There are times, however, when what an owner would do personally conflicts with what he or she thinks is best of the business. Business owners suffer these dilemmas mostly with customers and employees than with different stakeholders. The more closely a business’ values correspond with the owner’s values, the fewer ethical dilemmas will occur. Consider also the personal ethics of your employees. If they make decisions in their personal life that you disagree with, they are likely to do so also in their business life.

Teaching Tool: Ask students to write down what they think their values are (what they stand for, what their morals are) and what they think their current company’s values are. (If many students do not work, a list of well known firms may be used, assigning a name to each student. Is there a match? Where are points of disagreement? How might any mismatch affect the way they made decisions while at work? 2.4

The flexibility of a small business offers additional opportunity for unethical decision making. 2.4.1 Flexibility means not having a lot of rules, policies and procedures and allowing employees to handle multiple job responsibilities in the company. 2.4.2 Even if the owner wanted to establish rules, there are a lot of first time situations that they cannot anticipate until they happen. 2.4.3 This flexibility can cause employees to use their personal ethics in making decisions – deciding in ways differently that you would prefer. 2.4.4 Modeling ethical behavior is a good way to alleviate some of these problems. Teaching tool: Chapter 19 on Human Resources indicates that cross training and giving job autonomy are good procedures for small business owners to follow, so simply trying to eliminate these possible chances for errors or crime, isn’t really the best policy. Another example of an ethical dilemma an owner must face! Chapter 19 on Managing Risks, as well as other chapters, offer tools such as separation of duties that help remedy some of the tempting situations employees may find themselves.

Teaching tool: A model often used for ethical decision making shows that an ethical decision = a person’s own ethical background + corporate culture + opportunity. Place this on the board or on an overhead and have the students discuss how this relates to the chapter and what they have learned about ethics.

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2.5

While innovation can be one of a small firm’s greatest assets, it is also an opportunity for ethical issues and other problems.

Small Business Insights: The Bleeding Edge of Innovation Carl Moore’s Rx Depot re-imported pharmaceuticals to the US from Canada, thereby saving his customers up to 60% on many drugs. Moore’s business was on the cutting edge of innovation, but the US Justice Department shut him down claiming that Canadian drugs were not as safe as US ones. Technically, re-importation is against the law, however Moore believes that charging US customers – especially senior citizens – so much more is unethical. Get more information about the Rx Depot story by Googling “Rx Depot.” You’ll find many stories, including the warning letter sent to Carl Moore’s store manager Harry Lee Jones from the FDA at http://www.fda.gov/foi/warning%5Fletters/. Discussion could center on the government’s tactics in trying to shut Rx Depot down as well as a more standard discussion of whether students believe it’s ethical to operate a business like Rx Depot (re-importing). There are other instances when doing the “right” thing may be illegal. For example, restaurants, grocery stores and other food vendors sometime run afoul of health laws when trying to donate food they cannot use. 2.5.1 2.5.2 2.6

Innovations can challenge the status quo and push limits as to what is acceptable and not. Successful innovations often make a small business a target for big businesses with deeper pockets.

Small businesses are faced with a unique set of characteristics and situations that makes small business ethical decision making a different prospect than for many larger businesses.

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2.7 Objective 3: Understand why there aren’t any “Do this” and “Don’t do this” types of lists for ethical decisions. 3.1

A rules list for ethical decision making would be ideal but since each situation tends to be unique, there are no hard and fast rules. Even if there were, holding to them would often cause more trouble than breaking them in certain situations. 3.1.1 Ethical decisions are tough for small businesses because the stakes are so high – your reputation and the viability of the company. 3.1.2 Using the ethics planning process can help you make ethical decisions. Included in ethics planning is the establishment of first principles. 3.1.3 The need for ethical decision making is reduced if you are only in business to make money for the short term; if you plan to be out of business soon, your reputation and other benefits of ethical decision making are not nearly as important.

Small Business Insight: Treating Temps Right Phil Jamieson runs a chili-pepper farming business in New Mexico and hires a lot of temporary workers. Although costly in the short term, modeling ethical business practices and holding his temporary employees to the same code of ethics as him has created loyalty in these seasonal workers.

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Objective 4: Learn ethics planning, a three step process to help you make ethical decisions 4.1

Ethics planning is a three step process: 4.1.1 Step one: ask the four questions. 4.1.1.1 The four questions. 4.1.1.1.1 Who will be hurt and how badly? 4.1.1.1.2 Who will benefit, and how much? 4.1.1.1.3 What do you owe others, if anything? 4.1.1.1.4 What do others owe you, if anything? 4.1.1.2 Answering these questions will help you determine what is important and not so important in your business 4.1.1.2.1 Are the outcomes (the answers to the first two questions) balanced or do they give clear indication that a certain action should be or should not be taken? 4.1.1.2.2 Can you quantify these outcomes? 4.1.1.2.3 The last two questions focus on the obligations a business has. Thoughtful Entrepreneur: Thinking Through an Ethical Dilemma A typical small business situation is given and the student has the opportunity to apply the four questions to see if there is a clear-cut path to take. Like many business decisions, there is an element of ambiguity in the decision, an ethical dilemma. Have students think of other decisions they may have made or that a small business may make that have two equally “right� outcomes. 4.1.2

Step two: creating options for actions 4.1.2.1 There are two ways to think about solutions: integrative and distributive.

Teaching tool: A recent high-profile case of having a distributive vs. an integrative view is the 2004-2005 National Hockey League labor dispute. For the first time in American professional sports history, a professional league lost an entire season to a labor dispute. Following a timeline of the story at http://sports.espn.go.com/nhl/feature/featureStory?page=nhlcba could allow students to see an almost entirely distributive view, and how costly it was for everyone involved.

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4.1.2.2 Since community relations are important to small businesses, integrative decisions are clearly the only choice. 4.1.2.3 This step is comprised of several sub-steps: Teaching Tool: It will help students if there is a real example to “resolve.” Check if there is a local or national story where students can apply these steps. Some possible suggestions include some student government-administration controversy, a controversial planned or current building project, or controversial proposed legislation. 4.1.2.3.1

4.1.3

Check for obvious solutions; you may not need to reinvent the wheel. 4.1.2.3.2 Check for creative solutions; think outside the box and ask others – even outsiders – how they might solve the problem. 4.1.2.3.3 Fill in the details for each option; consider costs and eliminate those too costly. 4.1.2.3.4 Check for mismatches; which ideas go against your personal ethics and which go against your company’s ethics. 4.1.2.3.5 List all your remaining options. 4.1.2.3.6 Apply the integrative view; consider what is best for everyone and how to share costs. 4.1.2.3.7 Make a new list, rank order them and choose. 4.1.2.4 No decision is perfect, but using this process can reduce the chances of it being unethical. Step three: The ethical tests: 4.1.3.1 Especially if step two leaves you with several possible options, there are ways to decide with one is the best. 4.1.3.2 Ethics and legality are not the same; there are times when you may want to discard legal rights in order to make the better decision (e.g., the Focus On Small Business case). 4.1.3.3 Utilitarianism or is my solution the best thing for most people? 4.1.3.3.1 The action resulting in the greatest good for the greatest number of people is the correct one. 4.1.3.3.2 This rule considers the long term view.

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4.1.3.4 Universalism or what if everybody did what I want to do? 4.1.3.4.1 This concept is key to your upbringing, religion and education as well as companies’ codes of ethics. 4.1.3.4.2 Based on a code of what is right and what is wrong accepted by a particular society. Teaching tool: Universalism is particularly difficult to use in international settings since it is based on the codes of a particular society. Rules that seem silly in the US – do not touch the head in Thailand; do not show the bottoms of your feet or shoes in Arabic countries – to rules that seem horrible – jihad, child labor, suttee, etc. – cannot be justified by US universalistic principles, while our rules cannot be justified by their principles. This causes a number of difficulties in international business. Try an international culture website – for example: http://www.cyborlink.com/ (this site lists innocuous ones such as what colors to wear) or http://www.transparency.org/ (which tackles bribery and corruption) to promote discussion. http://www.seagate.com/newsinfo/citizenship/work_environment/internationa l_ethics.html is a Website that shows how an international company chooses to deal with the ambiguities of international ethics.

4.1.4 4.1.5

4.1.6

4.1.3.5 Golden Rule or am I treating others the way I’d want to be treated? 4.1.3.6 Billboard Principle or how would I feel if my decision (with my name) was posted on a billboard in my home town? 4.1.3.7 Eliminate any that fail these tests. Select the best from the remaining and do it. Some help for making ethics everyday reality include: 4.1.5.1 Crafting and ethics code. 4.1.5.2 Discuss your ethical standards with all you hire or subcontract. 4.1.5.3 Use ethical lapses as learning tools. 4.1.5.4 Learn how to council ethical issues properly. 4.1.5.5 Be the role model. While the chapter discusses tools, the best way is practice.

Objective 5: Learn the techniques of building social capital through legitimacy. 5.1

Ethical decision may be made because of our own personal convictions or because we feel like it’s the best way to keep in business. 5.1.1 A key benefit of ethical behavior is to build social capital. 5.1.1.1 Businesses with high social capital are trusted, checked up on less, treated more fairly and given the benefit of the doubt when something bad does occur. 5.1.1.2 It acquired by treating all publics fairly and honestly

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5.1.1.3 It is an asset that can be “spent” and that increases the value of your firm (accounting goodwill). 5.2

Building legitimacy is one way of building social capital 5.2.1 Legitimacy simply means that customers and suppliers believe that the firm is worthy of doing business with. 5.2.2 There are three general forms of legitimacy: 5.2.2.1 People-based legitimacy comes from having employees that are well-known or well-regarded, achieving public recognition (owner or the firm), selling brand name merchandise, belonging to trade and business associations, professional attire like uniforms and similar factors. 5.2.2.2 Product based legitimacy comes from having publicly stated guarantees, super customer service, meeting or exceeding quality standards, ISO certification, winning the Baldridge Award, customer testimonials, trademarks, patents and other such factors. 5.2.2.3 Organizational-base legitimacy comes from being visible in the media, operating for a long time, having “regular and normal” hours of operation, having a dedicated phone line answered by humans, being a corporation, partnership, or LLC and similar factors. 5.2.3 Most business will not incorporate all 29 legitimacy factors, but should attempt to have two or three from each category and lock them in.

5.3

Building a social network is another way of achieving legitimacy. 5.3.1 Social networking builds trust, reciprocity and long-term relationships. 5.3.2 Networking helps identify people who could be useful to the firm and to whom you can be useful – mutuality. 5.3.3 Your reputation helps build your network and your network helps build your reputation. 5.3.4 Knowing who to ask for help is only the first step; more important is building the relationship or partnership with them.

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Skill Module 2.1: Asking for Help This exercise gives a seven-step approach to asking others to help: 1. Request from people you trust. 2. Ask for specific behavior. 3. Do not be defensive. 4. Do not over- or under- react. 5. Summarize what was said for understanding. 6. Explain what you are going to do about feedback. 7. Thank the person for input. Have students role play to practice these skills. 5.3.5

5.3.6 5.3.7

Social networking has ethical implications: 5.3.5.1 Ask for help, but be respectful of the time and effort you are requesting. 5.3.5.2 Be willing to reciprocate when asked. Networking also has the ethical implication of being willing to share as much information as you request and provide social support and approval. Social networking is much easier with the Internet including sites such as Facebook.com and MySpace.com.

Skill Module 2.2: Networking Skills This exercise provides a seven step networking procedure: . 1. Know who you are. 2. Know whom you want and why. 3. Buddy-up. 4. Bone-up on small talk. 5. Do not forget why you are here. 6. Make the connection. 7. Follow-up. Combined with the previous skill module, the student should now have the skills necessary for social networking – or, at least, know where he/she is lacking. Encourage an action plan to develop these skills.

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Objective 6: Learn the basic skills for handling a crisis 6.1

Sooner or later, all businesses will face a crisis; knowing what to do can be a very specialized and emotionally demanding form of ethical decision making. 6.1.1 There is a six step procedure that can help: 6.1.1.1 Admit you’re in trouble – quickly. 6.1.1.2 Get to the scene as soon as possible. Show caring and accountability. 6.1.1.3 Communicate facts you know (and those you don’t) to employees, customers and suppliers. 6.1.1.4 Have one person serve as the firm’s spokesperson. It is best if it can be the owner. 6.1.1.5 Separate crisis management from the everyday management of the firm. 6.1.1.6 Deal with the crisis quickly. Take steps to solve the problem, and make the process of dealing with the problem as open as possible.

Key Terms Baldridge Award: an award given by the US government to businesses that have been judged outstanding in seven measures of quality leadership. Billboard principle: an ethical model which posits if the person would be comfortable having their decision and name advertised on a billboard for the public to see. Consistency: maintaining the same behavior, attitude or value over long periods of time. Distributive view: an ethical overview which involves thinking of problem-solving as a win-lose deal. Compares to the integrative view. Ethical dilemma: a situation which occurs when a person’s values are in conflict, making it unclear whether a decision he or she is thinking about making is the right thing to do. Ethics: a system of values that people use to determine whether actions are right or wrong. Ethics planning: a three-step process for making better, more ethical decisions. First principles: basic ideas about what constitutes right behavior. Flexibility: the behavior of not having lots of rules, policies and procedures. Golden Rule: an ethical model which suggests you treat others in the manner you wish to be treated.

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Innovation: the behavior of creating something new, or trying something for the first time. Integrative view: an ethical overview which involves considering what is best for everyone involved in the situation. Compares to the distributive view. ISO: stands for the International Standards Organization and refers to a certification for having met a standard of quality that is consistently evaluated around the world. Legitimacy: the belief that a firm is worthy of consideration or doing business with because of the impressions or opinions of customers, suppliers, investors or competitors. Modeling: when an owner acts in ways she wants her employees to act. Mutuality: the idea of each person helping the other. Networking: interaction with others done to build relationships useful to the business. Obligations: the idea that people who make decisions have responsibility to act ethically because the actions they take affect many other people. Organizational culture: a set of shared beliefs or basic assumptions or common, accepted ways of dealing with problems and challenges within a company that show how things get done. Personal accountability: a process where people take responsibility for themselves for decisions and consequences of decisions. Personal ethics: beliefs about what is right and wrong which guide decisions in everyday life. Personal values: attitudes regarding what a person believes are important in life, and the best way to live one’s life. Social capital: characteristics of a business like trust, consistency, and networks, which represent potential social obligations which are an asset of the firm or entrepreneur. Social network: the set of relations and contacts with individuals and institutions. Trust: a feeling of fairness in all business transactions in which the firm engages, such as financial transactions, employee matters, regulatory compliance, and complaint resolution.

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Universalism: an ethical model which believes there is a code of right and wrong that everyone can see and follow. Utilitarianism: an ethical model which seeks the greatest good for the greatest number of people. Visibility: demonstrating a behavior, attitude or value in ways that are evident to others.

Discussion Questions NOTE: many questions allow for a number of different answers. Below are some suggestions 1. Why is ethical action important to small businesses? Give at least three reasons. i.

ii. iii.

iv.

v.

There are five key actions that small businesses take that are impacted by ethics: community impact, trust, culture, flexibility, and innovation. Arguably, a small business will be less successful if they do not pay attention to the ethical nature of actions in any of those five areas. People avoid doing business with companies they perceive as unethical, so unethical decision-making jeopardizes a small business’ very survival. Trusting the small business owner is key, because the owner and the business are often the “same” in peoples’ eyes. If potential customers perceive the owner as untrustworthy, that business has just lost a customer. If that happens repeatedly the firm will not survive. Owners set the culture for their small business, and employees watch owners to know how to act. If owners act unethically, so will their employees. Unethical actions can cost both dollars and customers, threatening the firm’s very survival. Small businesses don’t have lots of policies and rules, so owners and employees don’t have clear-cut guidelines for how to resolve ethical dilemmas.

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2. How can the owner of a start-up business help promote an ethical organizational culture? Small business owners need to “walk the talk” of acting ethically. They are the strongest role model for showing employees how they are expected to act (modeling). Consistency and visibility are also cornerstones of creating an ethical culture. Owners have to behave ethically with everyone, day in and day out (consistency) and in front of everyone (visibility). Rewards have to match the type of culture owners want to support, and owners have to coach employees (guide them step-by-step) in how to act ethically sometimes. Finally, owners have to consistently pay attention to ethics during day-to-day operation of the business. If something unethical happens, the owner needs to point it out and coach for change, reward or punish as is needed, and set the expectations for moving forward. The worst thing an owner can do is ignore ethical violations. 3. Why is flexibility important to the survival of a small business? Is it all right for ethics to be flexible in a small firm? Small businesses survive and thrive when owners and employees are able to take on multiple roles and responsibilities, and when they are comfortable with a fast pace of change that doesn’t always allow for meetings or discussion of “what next?” Small businesses are, by design, less structured and policy-driven than larger organizations. This can be a great benefit to both owners and employees, but can pose some challenges to knowing what the right thing to do is because there are so few set policies and procedures. It’s especially important that the owners model what kinds of behaviors they expect from their employees. Employees decide how to act more often based on how the owner acts, rather than relying on a rule or policy. While flexibility is a necessary part of small business, ethical breaches can be a much bigger deal in a small business because it usually has fewer resources at its disposal than a larger firm. Unethical behavior, like stealing money or merchandise, matters much more in a small business and can even determine whether the company stays in business or not. Owners need to be consistent in how they respond to ethics issues to show employees their expectations. 4. What are the three steps in ethics planning? Step One: The Four Questions. This is a process of thinking about an ethical dilemma and who will be impacted by actions taken. It helps you figure out what the important facts are in the situation. They focus both on outcomes of potential actions, as well as on obligations a business owner might have to various people.

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Step Two: Creating Options for Action. Step Two helps owners think about maintaining relationships that are so important to small businesses. It outlines the distributive view and the integrative view of potential actions. The distributive view is a win-lose way of thinking about an ethical situation while the integrative view helps show that you’re interested in what’s best for everyone involved in the situation. Step Three: The Ethical Tests. The ethical tests are a “big picture” way of evaluating potential actions that give owners a different vantage point from which to view the impact of what they’re thinking about doing to resolve an ethical dilemma. The focus is on defensible decision-making that is visible to many people, so owners want to make sure they can stand by their decisions. Ethics planning gives three distinct ways of viewing ethical dilemmas and is unique in that it provides actionable steps to undertaking thorny ethical decisionmaking. 5. How does your time-orientation as an owner make a difference in ethical decision-making? It’s all about relationships and maintaining your place within a community. If you have a short-term view of business, meaning, you’re in for the quick hit to make as much money as possible and then you want to get out, then you really don’t have to worry about ethics or maintaining relationships. If, however, an owner wants to retain their business for a long time and actively be a part of the community in which the firm is placed, then ethics is a critical success factor. Making good ethical decisions as a small business owner means always evaluating the impact on business and personal relationships, since those relationships are the web of success for any small business. 6. What are the four questions of ethical decision-making? The four questions are:  Who will be hurt, and how badly?  Who will benefit, and how much?  What do you owe others, if anything?  What do others owe you, if anything? Notice that the first two questions are about impact of actions, and the last two are about obligations to others regardless of outcomes.

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7. What are the four major ethical tests? The four major ethical tests are:  Is my solution the best thing for the most people? This is utilitarianism and has a strong community focus.  What if everyone did what I want to do? This is universalism and helps you think about what standards of behavior you want to promote.  Am I treating others the way I want to be treated? This is the Golden Rule and is rooted in reciprocity—another key success factor for small businesses.  What if my decision was advertised on a billboard? This gets at transparency of decision-making and how defensible your decision would be to other people if they were to find out about it. 8. What are the three general forms of legitimacy? Give two examples of ways to build legitimacy in each general form. The three general forms are:  People-based, where people judge your business by the people involved in it.  Product-based, where customers judge your business by the product itself.  Organization-based, where people judge your business by how they understand your firm. Tables 2-4, 2-5, and 2-6 provide responses for ways of building each type of legitimacy. 9. Why is a social network important for a small business? Remember how important relationship-building is to a small business. Social networking is the day-to-day manifestation of trust, reciprocity, and long-term relationships. You build your social network every day by the way you deal with customers, suppliers, employees, etc. A social network is also about contacts, which can be important lifeblood of new business for any small firm. 10. What are three keys to success in building your network using a social networking website? 1. Make it easy for people to contact you. 2. Take the initiative to ask other on the network to link with you. 3. Find and link-up with network mavens – people who like to gather and share their enormous networks.

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11. What are the six steps of handling a crisis? The six steps are: 1. Admit you’re in trouble, quickly. It is better to say, “If there is a problem, I will find it and fix it,” than to delay an admission until fact finding is done. 2. Get to the scene as soon as possible. Your job? Show caring and accountability. 3. Communicate facts you know (and those you don’t) to employees, customers and suppliers. 4. Have one person serve as the firm’s spokesperson. It is best if it can be the owner, but an articulate employee, family member or outside professional (e.g. lawyer) can stand in. 5. Separate crisis management from the everyday management of the firm. If you are doing both, try and take time to do each, separately. Delegate as much as possible of the everyday management to employees or family while you are concentrating on dealing with the crisis. 6. Deal with the crisis quickly. Take steps to solve the problem, and make the process of dealing with the problem as open as possible.

Experiential Exercises 1. When talking about codes of ethics, you were encouraged to do a Google search. One of the sites that may have turned up is the Center for the Study of Ethics in Professions at the Illinois Institute of Technology. Check out the site’s collection of Codes of Ethics. Select one in an area that matches your small business interests (e.g. Business, Management, Real Estate, Service, etc.] and look at one of the codes for that area. What do you need to do to prepare yourself to understand and follow that code when you enter your business? Answers will vary based on areas selected. 2. Your instructor will show you one or more several video clips of role plays and ask you questions about what you think was going on and how you might handle it using the idea presented in this chapter. Please see detailed instructors manual for the videos at the end of the chapter.

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3. 4. Complete and discuss the self-assessment in the textbook. Teaching tool: Instructors may want to break classes into small groups, for more effective sharing and less threatening self-disclosure from students. Whole-group debrief could follow questions b, d & e and application question h. These questions are the least threatening as part of a “public� discussion and are framed overtly in the small business context. a. For the college items 1-4, who is harmed and who benefits from these behaviors? When people cheat, it’s mainly a matter of being harmed. For the cheaters themselves, they short-change themselves by not truly taking away the learning offered to them in college, and the learning for which they are paying! Other students are harmed, because their honest behaviors go unnoticed and their grades may be lowered by cheaters doing better on the exams and assignments. It is a question of time orientation-- while cheating may benefit the cheaters themselves in the short term and in a narrow way, in the long-term cheaters are harmed by not knowing what others (like employers) think they know. Professors are also harmed by cheating behaviors in that trust for the whole class declines, they have to spend more time ferreting out cheating, and the course may even be modified to try to eliminate cheating. An example would be removing an outside research paper assignment from the course due to the possibility (and past experience) of buying the paper from a web site. b. For job items 5-24, select the three (circle their numbers) that you consider the most severe unethical behavior. Who is harmed and who benefits from these behaviors? Would it matter if they were in a small business or a big company? Why? Answers will vary widely as to harms and benefits. The discussion about small vs. big business should focus on the five key actions of why ethics matters most to small business: community impact, trust, culture, flexibility, and innovation. Small businesses are affected more deeply by ethics breaches and in fact may be threatened with going out of business depending on the size of the problem.

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c. d. If you observed unethical behavior but didn’t report it, why not? If you did report it, why? What was the result? Was it worth it to you to report the behavior? Answers will vary widely. Discussion could focus on outcomes (questions 1 and 2 of the four questions) vs. obligations (questions 3 and 4 of the four questions). Discussion could also surface students’ values systems and how differing values fundamentally affect ethical decision making. Some students, for example, think reporting unethical behavior (whistleblowing) is ratting out a fellow employee; their loyalty is toward other employees. Others will believe that unethical behaviors should always be reported, regardless of potential retribution or charges of disloyalty to fellow employees. e. As a small business manager, you know unethical behavior can threaten the company’s existence. If you know some of the employees are stealing from the company, would you tell the owner? Why or why not? Answers will vary. Here again, values systems will come into play. Discussion will also focus on the value of the stolen property, allowing for a rich discussion of “how much is OK to steal?” Instructors can ask if any student has ever stolen office supplies (like a couple of pens, or a pad of Post-it notes) from work. Is this OK? What about eating the company’s food without paying for it if the company is a restaurant? Where is the line between OK and stealing? Another tack to take is how the owner models behaviors that should be acceptable. Does the owner engage in what employees think is questionable behaviors? If so, students should see that it is much easier to justify employees’ stealing from the firm if they believe the owner also behaves unethically. f. If you were a small business owner and you caught your employee, who is also your friend, doing any of the three behaviors you circled in Question 2 (most severe), what would you do? Answers will vary widely. Discussion may focus on loyalty and obligation —what should we expect from our friends in terms of ethical behaviors? Do we cut our friends slack when they behave unethically, even if we stand to be harmed by it?

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Application questions: g. What did I learn from this exercise? Answers will vary. h. How might I use this self-understanding in the future if I either own my own, or manage a small business? Hopefully students will see that personal values systems play an integral role in how employees behave in the workplace, and that how owners behave and model acceptable ethical dilemma resolution is equally as powerful. Understanding one’s own values, like what’s important to someone and what someone would be willing and unwilling to compromise on, are critical to managing and owning small businesses. i. As a small business owner, what can I do to prevent unethical behaviors? Model what you want from employees; be visible in making decisions. Be consistent in how you respond to potentially problematic issues. Create a culture of professionalism and respect by treating everyone associated with the firm with respect and care. Take care of unethical behaviors immediately, by removing the employee from the business, hiring another vendor, etc. Acknowledge and discuss ethical issues and both tell and show your employees how the issue was resolved.

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Student Workbook Critical Thinking Exercises Learning Objective 1 1. Ethical dilemmas occur when there are two or more ethical principles that you hold that conflict in a certain situation. Below are a list of some commonly held ethical principles and some situation where they could conflict. Match the situation with the two (or more) conflicting principles. Ethical principle 1. Do not lie. 2. Do not cheat on an exam, homework, etc. 3. Do not steal. 4. Do not hurt/kill others. 5. Be polite and respectful. 6. Family comes first. 7. Be a good friend. 8. Obey your parents, your boss and others in power. 9. Protect yourself, your family, your country. 10. Spend your money, time, etc. wisely. _______ a. Your parents expect you to do well in school, but economics just doesn’t make any sense to you regardless of how hard you study. _______ b. Someone physically threatens you. _______ c. Your friend has a new dress – a horrible choice. She asks you how she looks. _______ d. Your boss wants to enter a new market. Although you agree, the numbers just don’t look good. He asks you to suppress some of the bad numbers in your presentation. _______ e. Your sister calls you at work. She has just had a messy break-up with her boyfriend and really needs to talk to you. _______ f. A telemarketer calls and you just can’t seem to get them to leave you alone. You know you either have to buy something or just hang up the phone on them.

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Answer: a. 2 and 8 b. 4 and 9 c. 1 and 5 or 7 d. 1 and 8 e. 3 and 6 (Stealing time from your employer) f. 5 and 10 2. Using the ethical principles above or others that you can think of, identify three other situations where there could be an ethical dilemma. Answer: Answers will vary. Others that often come up include “do not kill” with “serving in the army during a war” or “police work.” “Spending your time wisely” may conflict with “relaxing.” “Telling the truth” can conflict with “someone asks what you got them for Christmas” or “exaggeration.” Learning Objective 2 3. Kim was having lunch with her friends. She said, “Marla’s Flower shop is the greatest. When I used to work for her, Marla was always fair and considerate about overtime and hours worked. Once a supplier forgot to bill her for the rush shipment charges and Marla immediately called to tell them their mistake. “She always delivers exactly what’s ordered and uses the freshest flowers. When a customer discovered she’d been overcharged once, Marla not only made it right, but gave her a discount off her next order. She tells us to do whatever it takes to make the customer happy.” Kim continued, “We had one customer who was pretty particular about his orders – telling us exactly what kind of flowers he wanted and the colors as well and when exactly he’d like them delivered. He was my customer and I always took care of his order, but one day, when I was swamped, Marla did it. (She always jumps in and helps wherever she’s needed.) We were out of the ribbon he wanted – the shipment wasn’t due until after his requested delivery time. Marla decided to send it with a different ribbon. The next day was my day off and when the customer came in and complained about me, she took the blame. I wasn’t even there; she could have said it was my fault, but she didn’t.” Marla practiced a number of things we’ve learned in this chapter. Use Kim’s comments to show how Marla developed trust, showed personal accountability, tried to create an ethical organizational culture, modeled ethical business practices and showed flexibility.

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Answer: Note: many of these overlap and may be acceptable answers in several areas.  Trust: was always fair, considerate about overtime, immediately called to tell them their mistake, delivers exactly what’s ordered, uses the freshest.  Personal accountability: she took the blame.  Ethical organizational culture: She tells us to do whatever it takes to make the customer happy.  Modeling: She always jumps in and helps wherever she’s needed, made it right, gave her a discount.  Flexibility: She always jumps in and helps wherever she’s needed. 4. Randy was proud of his new veterinary clinic. He hired Regan as a part time animal groomer and Mandy as his receptionist. He told them, “Regan, you take care of the grooming end of the business. You set your own fees, collect them and put them in the cash drawer and at the end of the month, we’ll settle up. When you aren’t grooming, you can fill in as receptionist, so Mandy can have lunch. Mandy, you’ll be making appointments for both Regan and me and will be collecting my fees and Regan’s too, when she’s busy. We’ll just jot everything down in this notebook – who gets what money – and figure it out later.” Anna had just opened her photography studio and specialized in portraiture and weddings. She put together a book of poses to show prospective clients – ones where they could select what they liked and didn’t like. Wanting to stay on the cutting edge in her profession, she continues to take classes on photography techniques and frequently experimented with new ideas. She just never got around to adding them to her selection book and would just occasionally slip one into a customer’s order. Randy shows a good deal of flexibility and Anna, innovation. While a good thing, this can sometimes cause ethical issues. Name a possible ethical problem that could occur in each case. Answer: While several answers are acceptable and obvious, flexibility could become a problem for Randy due to the number of people handling money and the chances of some disappearing or not being accounted for properly. For Anna, her experimentation may mean customer get photos they didn’t want and other customers may not get the opportunity to see/buy some of her innovations.

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Learning Objective 3 5. Below is list of ethical principles that a business might follow. Think of a situation where following each might not necessarily be the right thing. a. Follow contracts to the letter. b. Never deviate from the customer’s order. c. The customer is always right. d. Treat every customer exactly the same. Answer: There are again a number of possible answers but here are a few suggestions. a. Follow contracts to the letter: A supplier adds a surcharge that’s not in the contract; you may refuse to pay, but the supplier may not do business with you again. A customer is a day late with his/her payment; your contract may allow you to cancel future orders, repossess the product or even sue, but doing so will likely loss a valuable customer and may result in bad publicity b. Never deviate from the customer’s order: If airlines followed this, you’d never get upgraded. If restaurants did this, you’d never get a free dessert. If bakeries did this, you might not ever get an extra donut. c. The customer is always right: What if a car owner requested you rotate the tires because their car was making noises and you discovered it was really a bad tire? d. Treat every customer exactly the same: Many “frequent shopper” programs are based on giving your best customers something extra. Learning Objective 4 6. Although Janice has two small children at home, she is trying to start up a gymnastics center. Janice’s neighbor, Hannah has three young children who would like to participate. Janice plans to charge $15/week for a half hour lesson. Hannah can only budget $30/week. What personal ethical value might Janice have with Hannah’s situation? Suggest both an integrative and a distributive solution to Janice and Hannah’s problem. Answer: The personal ethic involved might be something along the line of “treat all customers equal” or “show no favorites.” If Janice chose a distributive solution, she might suggest that Hannah send only two of her children until she could afford the third. (Or rotate her children, two at a time.) If Janice chose an integrative solution, she might have Hannah baby sit her children once a week in exchange for the third lesson.

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7. Legality and ethics are not the same thing. Sometimes the “right” decision from an ethical point of view may mean breaking a law or not exercising your right under the law. For example, a green light gives me the right to walk out into the crosswalk (legality), but if I see a truck running his red light, the right decision is to NOT exercise my right to walk. Below are some laws that you have or will run up against frequently. Think of an example of when you might make the right decision ethically and break the law or not exercise your rights under the law. a. The speed limit is 55 mph. b. The contract says that your customer must pay in 30 days. c. The sign posted on the beach reads, “No swimming allowed.” d. City regulations allow your store to be open seven days a week. e. Labor laws mandate a half hour lunch break. Answer: While several answers may occur to you, here are some of the more typical. a. The speed limit is 55 mph. It is generally considered acceptable to break the speed limit in an emergency situation. Ambulances, policemen and firemen do it most times. On the other hand, you may not choose to exercise your right if it is icy or foggy. b. The contract says that your customer must pay in 30 days. If your customer is having temporary financial hardships, allowing them an extension may create a lifelong loyal customer. Accepting a partial payment with possible future payments may be better than legal action, losing a customer, etc. c. The sign posted on the beach reads, “No swimming allowed.” What if you are an expert swimmer and you see someone drowning? d. City regulations allow your store to be open seven days a week. Your operation is closely affiliated with a particular religious organization (Christian book store, kosher or halal grocery store); you may wish to be closed on religious days. e. Labor laws mandate a half hour lunch break. Your firm is located quite some distance from restaurants; you may wish to allow longer. Your employees would rather forego the break and get off early. (Be careful: in some cases this may not be legal. Check local labor laws.) 8. Mackenzie’s goal was to make horseback riding affordable to all children. When she looks at what less privileged families can afford to pay, she realizes that at those prices she cannot be profitable. She could consider a sliding scale fee based on need, but she wants to be fair to all of her clients. Consider the four steps in question one of the ethics planning model. How would Mackenzie answer these?

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She’s thought about the obvious solution, a sliding scale payments system based on need, but worried that while their children are in the riding ring, parents might compare costs. The parents paying more might become angry and leave. Can you add a couple more creative solutions? Answer: a. Who will be hurt and how badly? Should she NOT offer discounted lessons, the underprivileged children will not get an opportunity to ride. Should she offer them and the word gets out, she may lose many paying customers and eventually her business. Which weighs the most will be determined on how Mackenzie values running her own business against helping underprivileged children. b. Who will benefit and how much? Should she offer the discounted lessons, a number of underprivileged children will get to learn how to ride a horse. The wealthier children could probably have other options available to them. Here the clear winners are the underprivileged children. c. What do you owe others, if anything? Technically, she probably owes nothing to anybody; however, Mackenzie may feel that she owes it to these underprivileged children to give them this opportunity. She probably feels no obligation to the wealthier children. d. What do others owe you, if anything? Again, there may technically be nothing, but she may be able to convince the wealthier parents that they are contributing to a good cause – that they “owe” it to the underprivileged children through her. Creative solutions are unlimited, but here are several: (1) Segregate the children at different times or different days so that parents are less likely to realize the discrepancy. (2) Convince the wealthier parents that this is an opportunity for them to give back to the community. (3) Set the riding school up as being only for underprivileged children, get a non-profit status and solicit contributions for its upkeep. 9. Matt’s etching business is still pretty small. He generates only a small amount of waste solvents and other hazardous materials. The quantities he has to dispose of are well below the amounts that the EPA regulates and he could legally dump them. Apply the four ethics tests and show how each of them might convince Matt to take precautions beyond what the law permits. Answer: a. Utilitarianism: If Matt dumps, it helps him; if he doesn’t dump, it helps the community at large. b. c.

Universalism: A commonly accepted standard is that you don’t pollute. Golden Rule: Would Matt want to have other firms dumping any hazardous materials – regardless how small – in places where he might be exposed to them?

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d. e.

Billboard principle: Matt probably would not want to see a billboard that says, “Matt dumps hazardous materials.�

Learning Objective 5 10. Alex wants to open a bike shop. He would like to achieve a reputation as a worthy place to do business (i.e., achieve legitimacy). Make suggestions of two things he could do in each area of legitimacy. Answer: The more typical options for a business just starting include: a. People Based: carry name brand products; belong to trade groups; have several employees who wear uniforms. b. Product Based: have publicly state guarantees, return policies, etc.; be able to fully demonstrate the bicycle and all its components; solicit and post testimonials from earliest customers; get as much positive PR on the bikes he carries as possible. c. Organization Based: Get as much PR as possible on the bike shop; work at it full time; be open seven days a week during normal business hours; answer the phones himself; set up as a LLC; be located in typical and usual store space; be listed in the Yellow Pages and other directories; have an Internet domain rather than a generic one; have professionally done graphics, signs, business cards, advertisements, etc.; being an authorized dealer for one or more of the bikes. 11. Mutuality occurs when two (or small) businesses help each other out. This can be by doing business with each other or by referring customers who might use both services. Below are several pairs of businesses. Give an example of how the pair could exhibit mutuality. a. b. c. d. e.

A hairdresser and a photographer. A print shop and a caterer. A bed & breakfast and a bakery. A pizza restaurant and a Laundromat. An accounting firm and a dentist.

Answer: There could be several answers, but here are some suggestions: a. A hairdresser and a photographer: the hairdresser could display photos in her shop advertising the photographer and the photographer could take photos of attractive haircuts for the hairdresser to use in advertising. b. A print shop and a caterer: the print shop could trade brochures for the caterer and the caterer could recommend invitations from the print shop.

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c. A bed & breakfast and a bakery: the bakery could give discounted or free pastries to the B&B for breakfast in exchange for being able to sell some of their goods in the B&B for visitors to take home. d. A pizza restaurant and a Laundromat: The Laundromat could trade free cleaning for the pizza restaurant uniforms for the pizza restaurant agreeing to offer free delivery to customer doing laundry. e. An accounting firm and a dentist: The accounting firm could do the books for the dentist in exchange for discounted dental care for their personnel. Learning Objective 6 12. It was Nicholas’s worst nightmare. The health inspector found a several violations at his upscale restaurant and closed it down until they were resolved. Nicholas rushed to the restaurant as soon as he got the call and was met by a number of reporters. He explained that there was a problem and that he was taking immediate steps to discover the source and resolve it. He found out that one of his employees did not have the certification he claimed and therefore violated a number of restaurant health rules. The following day, Nicholas met with reporters, food critics and health department officials and responded to their questions about how the problem had occurred and how he was making sure it would not happen again. All employees who answered the phone were given strict instructions on what to tell customers who called. Using the steps in crisis management critique Nicholas’s performance. Answer: a. Admit you’re in trouble – Nicholas did this (met with reporters). b. Get to the scene as soon as possible – Nicholas did this (rushed as soon as he got the call). c.Communicate facts you know – Nicholas did this (meeting with reporters immediately and with a number of people the following day). d. Have one person serve as the firm’s spokesperson – While Nicholas was the official spokesperson, he did allow others to answer the phone and be his spokesperson. This may be to allow him to handle other responsibilities. He did carefully script what employees would say. e.Separate crisis management from everyday management – difficult to tell in this example. f. Deal with the crisis quickly – Nicholas did this (he had a plan the following day).

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Mini-Case: The Gift Teaching tool: Have students read the case before class, and generate answers to the Case Discussion Questions as homework to bring to class. After introducing the case, and perhaps reading it aloud, break students into small groups to discuss their individual answers, and come up with a group “composite” list of answers. Suggested small group time: 20 minutes. Reconvene the whole class and discuss each group’s responses to the questions. Additionally, the instructor should probe for the differences students perceived between their individual decisions and those of the group. A response gap analysis helps reveal where students might not be spending enough time in their thinking about ethical decisions. As a new employee of CDI Electronics, you have just received an expensive watch from a supplier. Your initial reaction is to return it as it in against company policy. It seems that all other employees have received them as well except for the CEO, and a colleague explains that this happens annually and the supplier does not get preferential treatment. Evidently the CEO does not know what is going on and if you bring this to his attention you might get others in trouble. Mini-Case Questions 1. What is the important decision you’re faced with, and why is it an ethical dilemma? The decision is whether or not to return this expensive holiday gift to the vendor who provided them to the entire small business, CDI. You’re a new manager in a small firm and you’ve received an expensive holiday gift from a vendor. The dilemma is that although receiving this gift clearly violates policies you have encountered in other companies in which you’ve worked, there is no clear policy on these types of gifts in CDI. This is very common in small businesses. Although small gifts from vendors to buyers can in fact signal goodwill, this gift is expensive enough to raise questions about possible preferential treatment of the vendor. Co-workers enjoy these annual gifts very much and assure you there is no preferential treatment given or expected. In addition, the owner of the firm is probably unaware of employees getting such gifts each year, and no one is sure how he might react if he found out. Employees like these gifts so as a new manager, you don’t want to alienate and anger your employees, but you can’t be sure that they are in fact not giving the vendor special treatment. And, you don’t want to alienate or anger the vendor either, since you’ve had a good business relationship with that firm for some time.

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2. Is this a situation that matters in the short-term or the long-term? Why? Both are relevant. In the short-term, employees and the vendor may resent you if you return the watch but you will relieve your feelings of discomfort with accepting the gift. If you keep the gift, you may struggle with feeling unethical and model behavior you think is unacceptable to your employees. Longer-term, how you behave in this probably first ethical dilemma in your new job will set the tone for how employees will behave in the future. While it may seem like an isolated event—receiving a holiday gift—the modeling implications for you as a manager are long lasting. And, you have to consider how Joe, the owner, might react if he found out you had kept the gift. You don’t know how Joe feels about it, so the long-term risk is having Joe come back to you and be angered by your decision. 3. What does a Four Questions analysis tell you? Who will be hurt and how much? If you keep the gift, you may be hurt if Joe finds out and does not approve of this kind of gift-giving. He may be so upset you might lose your job, along with others in the company for having accepted such gifts. If you return the gift, your employees will be upset and potentially so will the vendor. If you ask Joe about it, you’re taking a chance by not knowing his response. He may think it’s nothing, or, he may think it’s a big enough deal where people, including you, get fired. Who benefits and how much? If you keep the gift, everyone gains a nice watch and the vendor, perhaps, gains increased goodwill (and potentially better treatment) within CDI. If you return the gift, you benefit from relieving your own doubts about accepting a gift that you perceive to be inappropriate. Longer-term, CDI might benefit from being perceived as a more ethical company to do business with. If you ask Joe about it, you may benefit from his appreciating your honesty and that appreciation could take many forms. What do you owe others? Perhaps you owe the vendor a discussion about how uncomfortable you are about these gifts and that it may be better in the future to “downsize” them. You owe your employees a meeting in which to discuss this issue; again, it is a “setting the tone” experience for you as a new manager. Getting input from your employees promotes an open atmosphere and helps them understand your decision-making, even if they don’t agree with you. You also owe Joe a discussion about this issue, to get his opinion and help him understand the potential dilemma CDI could continue to face with this vendor.

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What do others owe you? Perhaps the vendor owes you an option of what type of gift to send each year. Dilemmas over expensive gifts are not new; the vendor should realize the issue these gifts could make. Although student responses will vary, it appears that a four questions analysis points to a plan of action that involves discussions with everyone involved: employees, Joe and the vendor. Transparency of action (the billboard principle) seems important here. 4. The case tells you some of the obvious solutions or courses of action. What are some of the creative solutions you can come up with? Accept the gifts this year but invite the vendor to brainstorm less expensive but still valued options for the future. Invite the vendor to send one large, “everyone can use it” gift such as a catered lunch one day. Invite employees and vendors to a social gathering event in lieu of gifts as a new policy. 5. Using Figure 2.2, recommend your “best” ethical course of action, and see if it passes any or all of the four ethical tests. What do the four tests tell you about your possible decision? A key consideration from Figure 2-2 is the mismatch between personal ethics and decision options. It appears that simply keeping the gift without some other sort of action is unacceptable to you as a new manager at CDI. And, since CDI doesn’t have a policy on this issue and we don’t know how Joe feels about it, we cannot evaluate the mismatches between options and company/Joe’s ethics. The next part of Figure 2-2, using the integrative view, offers the best ways to resolve this dilemma. By involving the vendor, the employees and Joe you can create a collaborative solution that most everyone buys into and promotes transparency of actions.

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Applying the four ethical tests, the best thing for everyone involved (test #1, utilitarianism) in both the short and long term is perhaps keeping the gift this year but certainly creating an alternative for coming years. Keeping Joe informed is also the best thing for everyone, since he is integrally involved in setting the ethical norms for CDI. If everyone did what you want to do (test #2, universalism), then keeping the gift would be less defensible since most larger companies have recognized this potential conflict of interest and have policies in place limiting or eliminating vendor gift-giving. Using test #2, you’d probably be able to argue for returning the watches and setting limits or eliminating gifts in the future, to help ensure fairness. Using test #3, the Golden Rule, reciprocity becomes critical. You have to ask yourself what the probable quid pro quo is from the vendor giving you an expensive gift like that. Would other vendors be happy about your accepting the gift from this particular vendor? Would they be worried about special treatment? What if you had to give the vendor a gift in return to cultivate that relationship if, for example, there were only one vendor from which to buy a product vital to your company? Using the Golden Rule, you’ll probably conclude that returning this gift is the right thing to do. Test #4, the billboard principle, asks you to consider how you would feel if your decision to keep the watches were advertised on a billboard. Would you feel OK about everyone knowing? Would you feel defensive and feel the need to explain how this vendor receives and expects no special treatment in exchange for sending these annual gifts? Using test #4, the decision to keep the watches becomes less defensible. 6. Defend the course of action you’ve decided to take to a small group of your classmates. Answers will vary. Whole group discussion questions: 1. How did your individual answers differ from your group’s answers? Were your answers generally the ones the group decided to adopt? Why or why not? Something to consider students think about is, how hard were you willing to push for your course of action to be taken by the group? Why is this? If it was very important for you to have your decisions accepted by the group, you may want to delve a little deeper into your comfort level with considering other peoples’ answers when they may not agree with your own. Ask students if they can enunciate the values that are coming into play with their decisions and those of their group members.

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2. Did your group members help you think about aspects of the decision you didn’t think of yourself? How might you change your ethical decisionmaking process because of what your group said? Answers will vary, but discussion should lead somewhere around differing values systems and where those might have come from. Religious tradition? Family norms? Prior work experiences? One of the Big Five traits is openness to experience, which along with relatively high tolerance for ambiguity and internal locus of control have been shown to positively correlate with successful managers. Students should talk about how open they were to accepting another group member’s course of action. If potential courses of action are very different than a student’s values system would “allow” a good discussion about conformity in hiring in a small business might work. Ask students if an owner specifically should hire people with similar values systems. Discussion closure would entail telling students about the effectiveness—efficiency relationship in group decision-making. An interesting discussion also might come from having students talk about having a “work self” and a “non-work self” where differing norms and acceptable behaviors come into play. How willing were students to accept solutions they had not considered? How did group process, such as the tendency toward conformity in a group, come into play? Depending on the class, any of these discussion points could be fruitful. Additional Activities 1. Fast Company magazine has a number of interesting articles on social capital and firms who have achieved recognition in this area. See www.fastcompany.com/social for more information. 2. Ethical dilemmas, potentially unethical solution and small business often come together during times of disaster – flood, snowstorms, hurricanes, etc. An article in the Los Angeles Time (September 8, 2005) entitled “Chasing the Storms and the Bucks” illustrates this situation in the wake of Hurricane Katrina. Articles are archived at www.latimes.com.

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End of Book Case G & R Garden Center: Lawn Care Services Division Overview: One of the goals of this exercise is to ensure that students realize the impact that a business and its policies and practices can have on employees, customers, the environment and the community at large. Another goal is to provide a forum for students to discuss and consider ethics and social responsibility and the trade-off with and between the profit motive, the company mission statement and personal values. Where exactly does a person or a business “draw the line?” At what point should a person or a business sacrifice profit for what is “right?” You are encouraged to engage students in this debate. Invariably, two sides will quickly come to exist within the group. Each group should be prepared to argue their point and to consider the other point of view. Actual Results The owner got out! While the division was very profitable, the owner chose to give up the money for peace of mind and a good night’s sleep. Other Options Beyond the main focus of ethics and social responsibility -vs. - profits, the case is full of clues that will lead the astute business management student to seek other ways to improve operations and profits. This list includes but is not limited to:      

Industrial and/or governmental market options Promotional campaigns to establish product differentiation and higher pricing Contractor sales The establishment of an outside sales associate or two Sub-contractor services (pesticide and fungicide applications?) Seasonal/Off-season product ideas

There is no obvious “right answer” to this case. While some business situations and decisions are “black and white”, others fall into that “gray” area. There is a clear distinction however between ethical and legal decisions. Students must develop their own unique business policy and philosophy. It is important to make money. It is also important to feel good about the person in the mirror.

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Ethics Role Play Scenarios - Video MHHE DVD/Video Assignments Small Business Ethics: (1) Dry Cleaning (2) Construction Summary: This video focuses on how franchising can be a viable option for many entrepreneurs. Diana had always wanted to be her own boss. After carefully looking around, she decided that purchasing a franchise would be the best option for her and her family at the time. She considered the benefit of having a “ready-made” business to be a huge support. The franchise only cost $300,000 upfront. To obtain the business loan she would need, she decided to mortgage her house. For her money, Diana received everything she needed to start her own business. Rieva Lesonsky, editor of Entrepreneur Magazine, says that if you want it badly enough and you work hard enough, a franchise can be a good option for many entrepreneurs. About 85% of franchisees are in existence after the first five years. That is a huge success rate compared to other types of entrepreneurships. When deciding which franchise to purchase, name recognition matters. The top five franchises of 2005 all have names that are easily recognized, making them safer investments. It is also easier to get funding for a proven product like a well-known franchise. The top five franchises include: UPS store, Jackson Hewitt, Quizno's, Curves, and Subway. All are well known names and have good reputations. A franchise helps set-up the entrepreneur’s business. For instance, Quizno’s instructs the entrepreneur on everything from where to put the new store, to what types of ovens to buy, to which food supplier to use. The rate of success drastically increases with a franchise. Discussion Questions: 1. Why is franchising considered an imitation strategy for a small business? 2. Using SWOT analysis, describe the potential strengths and weaknesses of a successful franchise. 3. Give examples of hotel or restaurant franchises that use strategies of differentiation, cost and focus. Discussion Question Answers: 1.

Why is franchising considered an imitation strategy for a small business?

The imitation strategy is one in which the entrepreneur does basically what others are already doing. A franchise uses the same methods, systems, and protocol for each new business they set up. All franchisees imitate the franchise plan.

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2. Using SWOT analysis, describe the potential strengths and weaknesses of a successful franchise. A strength is a characteristic that gives the business an advantage. For a franchise these include name recognition, a proven operation system, and a strong success rate. A weakness is a characteristic that gives the business a disadvantage. For a franchise this may be a “cookie cutter” look and feel, the inability to adapt easily, or the ability for competitors to readily imitate. 3. Give examples of hotel or restaurant franchises that use strategies of differentiation, cost and focus. A differentiation strategy clarifies how one product or business is unlike another in a mass market. This is usually not a franchise. Students may have a hard time finding an answer, or may list a regional franchise. Some upscale franchises may use a differentiation strategy with their competitors. A cost strategy is when a business focuses on cost benefits for customers. Any fast food restaurant classifies as this type, while examples in the hotel industry may include Budget Inn, Hampton Inn, Red Roof Inn, etc. A focus strategy allows an organization to focus on a specific segment or niche in the market. A niche the students may think about is family. Any restaurant that has a “play land” like McDonald’s or Burger King is focusing on this niche. Hotels like Howard Johnson and Holiday Inn where kids can stay free is also focusing on this niche. Environmental Responsibility at New Belgium Brewery (8:15-9:00- ethics) Summary: Founded by a social worker and an electrical engineer, it is no surprise that New Belgium Brewery has always found ways to operate efficiently and in a socially responsible manner. Embracing new technologies, seeking out alternative forms of energy, and reducing its waste, New Belgium strives to make smart decisions that do well by the environment each and every day. In the past, taking environmental issues to heart was considered contradictory to good business. You either helped business and killed the environment, or helped the environment, but killed business. New Belgium has shown that companies can be environmentally conscious and operate efficiently and effectively as a long-term profit-seeking business.

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Jeff, one of the founders and an electrical engineer, thinks outside the box about what kinds of beers to make, how the company runs (including its unconventional upstart), and how the beer is actually produced. This alternative thinking about the operations aspect of the business is what allows Jeff and the rest of the firm to have an environmentally friendly perspective. The company realizes that as a manufacturing firm, it operates as a waste stream. This also contributes to the setup of operations and the management of waste and focus on efficiency—which is good for the environment and for business. At New Belgium, many new, innovative, and environmentally friendly techniques are used in the beer-brewing process. The firm reduces the amount of resources that it uses, limiting the initial flow coming into the firm. It also places an emphasis on being highly energy-efficient. The firm also reuses resources, and, lastly, it recycles what it can. Turning lights on and off automatically is a simple but very effective way to reduce energy consumption on a daily basis at New Belgium. This required an up-front investment in technology, but promises long-term cost-savings and is true to the environmental ethic the company embraces. This is just one small example of how New Belgium embraces technology to use energy efficiently or recapture it. Methane recaptured from the brewery’s waste actually provides enough energy to fuel the brewery for 5 hours each day. The company’s workers are also its owners. Therefore, when a decision to reduce carbon emissions was on the table, the entire firm was involved. A study revealed that the largest emissions came from the company’s source of fuel—from a coal plant at the time. The company voted unanimously to contract 100% of its energy from a wind farm nearby, which accomplished the environmental goal of reducing emissions and also allowed the wind plants to continue in operation. Not only did the firm vote to do this, they voted to dip into their bonus pool in order to finance the deal. This is all part of the socially responsible component of New Belgium’s mission. The firm even has a philanthropy committee which demonstrates the firm’s proactive stance (rather than reactive) toward social responsibility. Discussion Questions: 1.

How is New Belgium’s approach to social responsibility revolutionary? How does it contradict what you may have previously thought about social responsibility and effective business decision-making?

2.

Who are New Belgium’s stakeholders? Give a few examples and explain the relationship between the stakeholders and the company, based on what you learned from the video.

3.

What type of strategy does New Belgium use for managing its stakeholders? Use the example of environmental responsibility and the larger community as the stakeholder.

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Discussion Question Answers: 1.

How is New Belgium’s approach to social responsibility revolutionary? How does it contradict what you may have previously thought about social responsibility and effective business decision-making? New Belgium is a company that believes that it can be environmentally conscious as well as being a profit-seeking business. This is contradictory to the previously viewed notions about social responsibility. The concept of social responsibility was considered to be bad for business, as a company either did financial well and destroyed the environment or was environmental friendly and destroyed the business. New Belgium’s approach to social responsibility has been a great example for other companies.

2.

Who are New Belgium’s stakeholders? Give a few examples and explain the relationship between the stakeholders and the company, based on what you learned from the video. New Belgium’s stakeholders include their employees, the community, and suppliers. New Belgium allows all of their employees that have been with the company for over two years to have a vote on decisions affecting the company. In addition, the company has made significant efforts to improve the community by being environmentally conscious. New Belgium pays close attention to all of their stakeholders as they try to be profitable and environmentally conscious at the same time.

3.

What type of strategy does New Belgium use for managing its stakeholders? Use the example of environmental responsibility and the larger community as the stakeholder. New Belgium’s strategy for managing its stakeholders is relatively simple. The company keeps its stakeholders constantly informed and involved in the decision making process. For example, the company’s research discovered that the largest percentage of their carbon-dioxide emissions was from the coal fuel power plant that supplies their fuel. The company unanimously voted to get their energy from a wind farm nearby, which reduced the carbon-dioxide emissions. Another benefit from their decision was the fact that the wind plants were able to continue in operation because of their usage. The community’s environment is being sustained for future generations by actions such as this by the company.

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Additional Materials Please see the textbook Website (www.mhhe.com/katzesb) for the latest instructional materials and “JFF’s” (Just for Fun’s) that can be used with this chapter. Available on Primis It May Be Legal, But It's Just Wrong! Odwalla, Inc., and the E. Coli Outbreak (A) Heidi Roizen

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eClips Videos eClips #1: Clip Title: Malia Mills Shares Thoughts on Business Ethics and Favors Summary: Malia Mills explains the importance of ethical practices in business. Interview/Lecture Intro: Malia Mills is head of her own company, Malia Mills. While the company focuses on swimwear design, it bills itself as a beauty company and the company's mission is "to produce collections of items which inspire women to look in the mirror and see what is right instead of what is wrong." In 1993, Mills won the Vidal Sassoon Excellence in New Design award for her innovative designs. Prior to starting her own business, Malia Mills worked as an assistant designer for Jessica McClintock, Inc. Malia Mills is a graduate of Cornell University. Transcript: There aren't any specific rules except that we definitely, as sort fields and flowers as it sounds, we really believe in karma. You've got to do the right thing from an emotionally standpoint. more than a business standpoint, every single day. We to be very proud of the work that we do and we want people to recognize that it will be difficult and there will be challenges and there will be disagreements and people won't necessarily like the decisions that we make, but ultimately if we can sleep well at night, that is the best decision of all. And it's hard, cause you've got bills to pay, and you do have people that are screaming you owed me money 60 days ago, and I need it now. But you can't turn around and sell right next door to Bloomingdale's another store and sell them the same goods for 75 percent off because you need cash right away. That's just wrong. Tempting you know, when you get desperate, they're lots of things that are very tempting out there. But you have to really ask yourself, why are you doing this? Are you going to be happy tomorrow? Business is an emotional thing. For me, it's a very emotional thing. I know there are thousands ways, as I said, to get into business, and sometimes it's strictly as a money making operation. Sometimes you don't care if you are making widgets or wool socks, you just want to be making product that is making money. But for me, it was very, every day is a very emotional day. The hard part also is, when you first start out you have a lot favors from people. People do really want help you. It's important to recognize that you have a choice everyday, just because someone offering help, doesn't mean it's the best help, it doesn't mean it's the right answer. You have to really learn to, I had to really learn to process that and say I am grateful for everything you've done but it's not what I need right now. I need something else. Class Question: 1. Why are ethics especially important for an entrepreneur? Answer: The small business owner is the face of the business, and therefore must take greater ownership of the ethical duties and responsibilities.

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Other Videos From Same Firm/Entrepreneur Used is ESB2  Malia Mills Discusses Early Days of Company and Balancing Two Jobs (Chapter 5)  Malia Mills Discusses Importance of Creating a Budget, Monitoring Inventory and Cash Flow (Chapter 17) Other Videos From Same Firm/Entrepreneur on eclips  Malia Mills Discusses Background of Swimwear Company  Malia Mills States Personal Goal Was Never To Be an Entrepreneur  Malia Mills Shares Thoughts on First Business Plan and Importance of Funding  Malia Mills States Mission of Company Is To Promote Self Esteem  Malia Mills Discusses Importance of Understanding Industry Specifics When Building Startup  Malia Mills Discusses Starting Business as Sole Proprietor  Malia Mills States Importance of Creating a Flexible Foundation When Starting a Business  Malia Mills Discusses Definition of Sweat Equity  Malia Mills States Spending on Overhead is Often Important  Malia Mills Discusses Finding Balance Between Work and Personal Life  Malia Mills Shares Thoughts on Funding and Partnering with Investors  Malia Mills States Apparel is an Emotional Business  Malia Mills Shares Importance of Managing Expectations of New Employees  Malia Mills Discusses Partnerships  Malia Mills Shares Realities of Running a Business and Lack of Time for Designing  Malia Mills Discusses Challenges From Growing a Business and Delegation  Malia Mills Shares Challenge of Being Small and Gaining Confidence From Retail Establishments  Malia Mills Discusses Missing Orders  Malia Mills Discusses Sourcing Fabric and Production  Malia Mills Discusses Challenge of Company's Current Size With Regards to Fabric Minimums  Malia Mills Shares Thoughts on the Wholesale Cycle  Malia Mills Discusses Challenges of Opening Retail Stores  Malia Mills States Importance of Having Cash Reserves  Malia Mills States Pros and Cons of Operating Retail Stores  Malia Mills Discusses Domestic and International Sourcing for Production  Malia Mills Discusses Decision to Add Lingerie Product Line  Malia Mills Shares Thoughts on Positioning Company as a Beauty Company  Malia Mills Discusses Intellectual Property, Trademarks and Non-Compete Issues  Malia Mills Shares Thoughts on Licensing Personal Name  Malia Mills Discusses Generating Income From Licensing Agreements

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 Malia Mills Shares Thoughts on Copyrighting Product Designs  Malia Mills Shares Thoughts on Intellectual Property Battles in Apparel Industry  Malia Mills Discusses Fabric Development and Use  Malia Mills States Importance of Documenting Vendor Agreements  Malia Mills Shares Challenge of Managing Money as a Small Business Owner  Malia Mills Discusses Creating Separate Accounts to Manage Money More Effectively  Malia Mills Shares Experiences From Growing Business Too Quickly  Malia Mills Discusses Importance of Understanding Personnel Needs of the Business  Malia Mills Discusses Scaling Back and Focusing on Basics  Malia Mills Discusses Decision Not To Solicit Wholesale Accounts  Malia Mills Shares Experience From Undergraduate Education  Malia Mills Discusses Personal Experience in Europe and at First Design Job  Malia Mills Shares Thoughts on Using Internet  Malia Mills Discusses Integration of Internet and Personal Contact  Malia Mills Shares Decision to Use Personal Contact as Competitive Advantage  Malia Mills Discusses Defining the Target Customer  Malia Mills Shares Thoughts on Return Policies eClips #2: Clip Title: Erika Fowler-Decatur Share Ethical Challenge of Selling Certified Fair Trade Chocolate Summary: Erika Fowler-Decatur explains her personal challenge to live up to personal ethics when buying certain products. Interview/Lecture Intro: Erika Fowler is the founder of Ithaca Fine Chocolates based in Ithaca, New York. One of the most popular items produced by the company is the Art Bar. Art Bars are organic, Fair Trade chocolate bars that feature an art reproduction by a regional adult artist or an international child artist on a collectible card inside the wrapper. Ten percent of profits from sales are donated to the Kaleidoscope outreach program of the Community School of Music & Arts in Ithaca, NY, and to the International Child Art Foundation in Washington, DC. Ithaca Fine Chocolates aims to promote artists and support art education by bringing together the luxuries of fine art and exquisite chocolate for inspired enjoyment. A former museum director and art history instructor, Fowler intended to start an art gallery in Ithaca. That plan evolved into Art Bars while she was contemplating how to provide artists with broader exposure. Fowler received an undergraduate degree from Hamilton College and her Masters degree from the State University of New York at Binghamton.

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Transcript: They actually said to him you know you can't do this but in the meantime the damage is sort of done because people now have already branded this whole line of chocolate as fair trade. And for example, we have a really knowledgeable retailer in Cambridge called Cambridge Naturals. And people go to that store, I've seen them in action, because we did a demonstration there and gave out some chocolate and talked to people about Art Bars. People walk in there and they can ask the staff members what can you tell me about this herb and they are very knowledgeable about it and these people come in and they trust what the retailers there have to say, the staffers have to say. And they were under the impression that this chocolate bar was all fair trade. And they're telling the people that come to them you can feel good about buying this because it's all fair trade. And it's not. It got to the point where my husband sort of surreptitiously, I guess, emailed under our personal email this company and said so what's the deal, are you fair trade or not? And the email back was here's our link at Trans Fair USA. And Trans Fair USA is the certifying agency for fair trade so Michael, my husband hits the link and it leads him to Trans Fair where this company is listed as a fair trade licensee. So it's very deceptive and the fact that the implication is yup, we're fair trade. But what he's done is done sort of the right thing and let it fall through on everything else so I found that really frustrating and that I'm thinking you're getting all the credit for being fair trade. People are starting to buy your bars because they're fair trade but really they should be buying Art Bars because they're all fair trade. And you know, I hadn't even thought of it until this one student came in and said here's a hard question, do you really need all these bars to be fair trade? Maybe you could find some margin there. That's what these other companies ... there's also a company out of the UK that is doing the same thing. They actually had several fair trade bars and they pulled out on all of them except one. So now people are still buying the same bars assuming they're still fair trade but they're not. That's really frustrating. So the fact that the fair trade label is obviously off the packaging doesn't have the kind of impact that the fair trade people think- M: brand identity. R: Because of the brand identity. It just and people ... you know you're so busy and you want a chocolate bar, you go to the grocery store and you go grab it. You're not researching, looking every time to see is that logo still there? You wouldn't think to do that. It wouldn't cross your mind. And so what's happening and these people are riding on this wave of fair trade and people are only too glad to buy these bars and the ride the wave with them because people want to feel good about enjoying a chocolate bar and not feeling guilty about it because they know that they're not sending some poor child into forced labor or something. So that's been really frustrating. But at the same time it's not so much an option because I just don't ... we couldn't go forward with Art Bars and cut some of the fair trade lines because that just isn't what it's about. So yeah, I guess that really tests us in terms of keeping your values out there when you can see that other people are very successfully not doing that and going forward with their own missions. But you gotta hope in the end that was goes around comes around or something. I don't know. We just have to go with it. And we still... we have to find a solution to cut these costs but it's not gonna be to cut out, you know, organic or fair trade or any of the other things that we think the bar is all about.

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Class Question: 1. How does Ms. Fowler incorporate the Four Questions into her decision to sell fairtrade chocolate? Answer: She recognizes that children will be hurt by labor standards, and that she can benefit by selling fair traded goods, both economically and morally. She believes that she owes others honesty and integrity when selling her chocolate, and that competitors owe her the same. 2. How is Ms. Fowler true to her personal ethics? Answer: She has distinct ideas as to what is right and wrong, and expands these ethical ideas to her business practices. Other Videos From Same Firm/Entrepreneur Used in ESB2: None Other Videos From Same Firm/Entrepreneur on eClips:  Erika Fowler-Decatur Shares Educational and Professional Background  Erika Fowler-Decatur Discusses Experience in Not For Profit Sector and Decision to Settle in Ithaca  Erika Fowler-Decatur Explains How Business Idea Started As An Art Gallery and Became Art Bars  Erika Fowler-Decatur Explains The Idea of Tying Fine Art to Fine Chocolate  Erika Fowler-Decatur Discusses Decision to Outsource Chocolate Production  Erika Fowler-Decatur Discusses Negotiating Vendor Relationships with Swiss Chocolatiers  Erika Fowler-Decatur Discusses Similar Social Vision Between Art Bars and Chocolatier Vendor  Erika Fowler-Decatur Shares Mission of Ithaca Fine Chocolates  Erika Fowler-Decatur Shares Process Behind Recruiting Initial Artists for Art Bars  Erika Fowler-Decatur States Company Was First in US to Sell Fair Trade Chocolate  Erika Fowler-Decatur Discusses Mission Of Fair Trade and Art Education Through Art Bar Product  Erika Fowler-Decatur Shares Story of Overnight Growth From Local to National Distribution Due to Fair Trade  Erika Fowler-Decatur States Change in Launch Timing From August to November Was Beneficial  Erika Fowler-Decatur Shares Example of How Word of Mouth Helped Grow the Business  Erika Fowler-Decatur Discusses Establishing a Gallery and Coordinating the Product Launch

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 Erika Fowler-Decatur Shares Challenges of Finding Appropriate Gallery Locations  Erika Fowler-Decatur Shares Importance of Sharing Social Mission With Customers First Hand  Erika Fowler-Decatur Shares Personal Thrill When Public Understands Company's Work and Mission  Erika Fowler-Decatur Shares Surprise At Growing Number of Business Students Interested in Social Responsibility  Erika Fowler-Decatur Discusses Pitching Idea to Artists And Challenge of Translating Art to Small Size  Erika Fowler-Decatur Discusses Challenge of Matching Art Bar Packaging With Overall Social Mission  Erika Fowler-Decatur Shares Support Found From Local Retailers  Erika Fowler-Decatur Shares Example of Vendor Advocating Art Bars Based on Belief in Social Mission of Company  Erika Fowler-Decatur Shares Example of Children Demanding Fair Trade Chocolate  Erika Fowler-Decatur Discusses Importance of Explaining Social Importance of Product  Erika Fowler-Decatur Discusses Struggle With Profit Margins and Competition  Erika Fowler-Decatur States Social and Moral Values Have Costs  Erika Fowler-Decatur States Importance of Social Responsibility From a Longer-Term Perspective  Erika Fowler-Decatur Shares Thoughts on Success  Erika Fowler-Decatur Shares Example of How Art Bars Helped Local Artist Sell Work  Erika Fowler-Decatur Discusses Use of Children's Art in Art Bar Packaging  Erika Fowler-Decatur Discusses Handling Negative Feedback  Erika Fowler-Decatur Shares Thoughts on Handling Doubt and Criticism  Erika Fowler-Decatur Discusses Dealing with Competition and Disappointment  Erika Fowler-Decatur States Company Values Are Competitive Benefit  Erika Fowler-Decatur States Personal Sense of Responsibility To Vendors, Retailers and Consumers  Erika Fowler-Decatur States New Entrepreneurs Should To Stick Their Values  Erika Fowler-Decatur Shares Thoughts on Role of Business in Society  Erika Fowler-Decatur States Importance of Being Stubborn And Surrounding Yourself With Smart People  Erika Fowler-Decatur Shares Thoughts on Being a Female Entrepreneur  Erika Fowler-Decatur Discusses Cash Flow  Erika Fowler-Decatur Discusses Developing Fair Trade Market Knowledge  Erika Fowler-Decatur Shares Personal Professional Experience in Not For Profit Sector  Erika Fowler-Decatur Shares Thoughts on Socially Responsible Business  Erika Fowler-Decatur Shares Aspirations For Business  Erika Fowler-Decatur Shares Thoughts on Social Responsibilities as an Entrepreneur

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 Erika Fowler-Decatur States Students Today Have More Options To Take Courses on Social Responsibility  Erika Fowler-Decatur Outlines Locations in Which Art Bars Are Sold  Erika Fowler-Decatur Discusses First Year Revenues and Profits  Erika Fowler-Decatur Discusses Sales Tracking  Erika Fowler-Decatur States Most of Business Is Wholesale With Retail Sales Coming From Web Site  Erika Fowler-Decatur Discusses Mention of Art Bars in Time Magazine  Erika Fowler-Decatur States Disappointment That Time Magazine Didn't Mention Art Bar Company Information  Erika Fowler-Decatur Shares Thoughts on Sales Reps eClips #3: Clip Title: Bill Shore States Importance of Being Willing To Walk Away From Wrong Relationship Summary: Bill Shore explains why it is sometimes necessary to decline membership in a relationship that is not beneficial. Interview/Lecture Intro: Bill Shore is the founder and executive director of Share Our Strength, a national nonprofit that inspires and organizes individuals and businesses to share their strengths in innovative ways to help end hunger. Shore is also the chairman of Community Wealth Ventures, Inc., a for-profit subsidiary of Share Our Strength that provides consulting services. Shore founded Share Our Strength in 1984 in response to the Ethiopian famine and subsequently renewed concern about hunger in the United States. Since its founding, Share Our Strength has raised over $180 million to support more than 1,000 anti-hunger, anti-poverty groups worldwide. Prior to founding Share Our Strength, Shore served on the senatorial and presidential campaign staffs of U.S. Senator Gary Hart (D-Colo.) He also served as chief of staff for U.S. Senator Robert Kerrey (D-Neb.) Shore is also an author. His three books include Revolution of the Heart (1995), The Cathedral Within (1999) and The Light of Conscience (2004). Shore earned his B.A. at the University of Pennsylvania and his law degree from George Washington University in Washington, D.C.

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Transcript: I think the most important thing is to be willing to walk away from a relationship if its not the right one, which we've done on a number of occasions before its even started...its just like this is not right for us. And my theory is that life is short and it's a really big world and if you're going to do something that you don't sleep well at night over because you've done it, you ought to not do it and move on. So, you know, I think its something to pay attention to. I think as there's more of this and the marketplace gets more cluttered, I think the market will decide what's real and what's not real. And our focus is on if it really genuinely contributes to our impact, then we want to try and make it work. I: So where do the values come...surface in your business? R: Um...well they surface in...I'd say they service in a number of places. I mean we still have issues with...there's one company that we work with that...you know, it's a very large global company that has tried to, you know, do the right things in a lot of areas that are, kind of, adjacent to the space where Share Of Strength works within any community but they still have issues...they have environmental issues, they have fair labor practice issues...they have issues like that and they...we wrestle with it...I mean, you know, we've seen them improving and we think we've been partly responsible for that improvement. And I think you always have to ask yourself in a way that is not just, kind of, a rationalization but it an authentic question. You know, are you more effective working inside the tent or more effective standing outside and throwing rocks at it. And sometimes its one and sometimes it's the other. Class Question: 1. How does breaking off a bad relationship affect one’s social network? Answer: Although a social network may be shortened by ending a relationship, it can be strengthened by making the network more true to ideals. 2. What should an entrepreneur go about handing the crisis of a wrong relationship? Answer: He or she should admit that there is a problem, communicate why the relationship should be terminated, and use a spokesperson to finish the deed. Other Videos From Same Firm/Entrepreneur Used in ESB2: Bill Shore Shares Thoughts on Strategic Planning (Chapter 6) Bill Shore States Importance of Having A Value Proposition (Chapter 10) Other Videos From Same Firm/Entrepreneur On eClips:  Bill Shore Discusses Idea Behind Creation of Share Our Strength  Bill Shore States Share Our Strength Focused on Intersection Between Private and Public Interest  Bill Shore States Share Our Strength Fdoes Not Rely On Foundation Support  Bill Shore States Vision For Organization Was Large From The Start  Bill Shore States Partnership With American Express Came From Working With Their Customers First  Bill Shore Shares Thoughts on Entrepreneurship  Bill Shore Discusses Challenges of New Office Space  Bill Shore Discusses Desire to Build Brand Definition

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 Bill Shore Discusses Examples of Share Our Strength Logos  Bill Shore Shares Thoughts on Leadership  Bill Shore Discusses Tension Between Partnerships with Corporations and Not For Profit Mission  Bill Shore Discusses Determining Alignment with Corporations  Bill Shore Discusses Failure and Testing New Concepts  Bill Shore States Importance of Taking a Long Term View In Your Career  Bill Shore Discusses Overlap in Leadership and Design  Bill Shore Discusses Ripple Effect Of Not-For-Profit Mission  Bill Shore Discusses Role of Business in Society eClips #4: Clip Title: Tom Szaky Discusses Turning Away From Funding Because It Didn’t Fit With Core Idea of Business Summary: Tom Szaky explains his reasoning for staying loyal to his principles and team members, even when it demanded sacrifice. Interview/Lecture Intro: Tom Szaky is co-founder and Chief Executive Officer of TerraCycle, Inc., producer of the world’s first product made from and packaged in waste. At 14, Szaky started his first business, a web design company called Flyte Design, which employed three associates and earned its young proprietor a five-figure income. Szaky then engaged in the start-up of three small dot.com companies: Werehome.com (an online home improvement site), piority.com (an online fundraising school), and studentmarks.com (an online grade tracking software). In 2002, Szaky took a leave of absence from Princeton University to dedicate himself full-time to starting TerraCycle, Inc., beginning as a 2 man outfit in the crowded basement of an old office building in Princeton. Today TerraCycle occupies a 20,000 sq. ft. factory in an urban enterprise zone in Trenton, NJ, where it employs over 20 workers and makes and ships its unique consumer products to WalMart Canada, Whole Foods, Home Depot, and other major retail stores.

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Transcript: So we had won $1 million from a major business plan competition. An offer of funding to be clear, for $1 million. And we did have $500 bucks in our bank account at the time. But what they wanted - cost like venture capital. I mean this was not unusual. They wanted me to change my entire management team who had struggled real hard to get us to where we were. And more importantly than that, they wanted me to move away from the core of the idea, which was making a product out of waste. The just liked the idea of an organic fertilizer. But they didn't like the idea of garbage. And that was the core. I could have potentially settled for an you know, a management change because that's - I mean it's not okay but it's okay. But the core of the idea, that's the essence. And I felt - and the reason that we refused it was because without the core we felt like it wouldn't work. And so we turned down $1 million with $500 in our bank account and came back to Princeton and kept doing the company. Class Question: 1. How did Tom Szaky incorporate utilitarianism into his decision to decline the funding? Answer: Utilitarianism is a model that supports the greatest good for the most people. Tom decided that while accepting the money would be beneficial to some, it would be most beneficial to his team as a whole to remain true to their core idea. 2. What were Tom’s obligations to his team? Answer: Because the management team had worked so hard to get where they wanted to be, Tom felt obligated to remain loyal to them. He rightly felt that he owed the team his loyalty. Other Videos From Same Firm/Entrepreneur Used in ESB2:  Tom Szaky States Surprise That Dream Became Reality (Chapter 1)  Tom Szaky Discusses Paradigm Shift Of Money Turning Into Time (Chapter 6)   

Tom Szaky States TerraCycle Has Never Actively Pursued Press (Chapter 10) Tom Szaky Shares Thoughts on Cash Flow (Chapter 14) Tom Szaky Defines Concept of Smart Risk (Chapter 16)

Other Videos From Same Firm/Entrepreneur on eClips:  Tom Szaky States Entrepreneurship Is Ingrained And Shares Background of TerraCycle  Tom Szaky Discusses Influence of Parents, Risk and Thoughts on Work  Tom Szaky Shares Thoughts on Being a Young Entrepreneur  Tom Szaky Discusses Deciding Between Startup and College  Tom Szaky States Importance of Being Able to Dream Big  Tom Szaky States Initial Business Plan For TerraCycle Came From Business Plan Contest  Tom Szaky Discusses Using Criticism To Strengthen Business Plan  Tom Szaky Shares Thoughts on Pitching and Putting on a Show  Tom Szaky States Investors Believe In Him Becauce He Fundamentally Believes in Company

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 Tom Szaky Discusses Importance of Execution  Tom Szaky Discusses TerraCycle's Sustainable Competitive Advantage  Tom Szaky States Doubters Fuel The Ego  Tom Szaky Discusses Parents Reaction To Fact That He Was Dropping Out of College To Start Company  Tom Szaky Discusses Turning Away From Funding Because It Didn't Fit With Core Idea of Business  Tom Szaky Discusses TerraCycle's Future Plans  Tom Szaky Shares Thoughts on Dealing With Wal-mart and Other Big Box Stores  Tom Szaky Discusses Evolution of Business Strategy  Tom Szaky States Corporate Growth Changes His Role and Corporate Culture  Tom Szaky States Ego Helps With Selling and Vision But Hurts With Team Building and Managing  Tom Szaky Shares Thoughts on Passion and Drive  Tom Szaky States Importance of Having an Individual Leader At the Top of an Organization  Tom Szaky Discusses Employee Incentive Plan Within TerraCycle  Tom Szaky States Most of Investment Goes Towards Branding  Tom Szaky Discusses Sourcing Bottles For Packaging Plant Food  Tom Szaky States Difficulty In Being An Entrepreneur And Finding Work/Life Balance  Tom Szaky States Odds Of Failure As An Entrepreneur Are High  Tom Szaky States Importance of Being Comfortable With Positive and Negative Impacts of a Business Deal  Tom Szaky States Importance of Picking Investors With Same Care As Picking New Employees  Tom Szaky States Importance of Experiential Learning  Tom Szaky States Age Difference Can Be Source of Conflict But Leads To Open Environment  Tom Szaky Shares Thoughts on Providing Feedback  Tom Szaky States Globalization For TerraCycle Is A Long-term Goal  Tom Szaky Shares Thoughts on Mentoring  Tom Szaky States Being A Young Entrepreneur Enables You To Function Without Walls  Tom Szaky States First Professional Experience Was In Entrepreneurial Environment  Tom Szaky States Sustainability and Profit Go Hand In Hard  Tom Szaky Defines The Concept of Triple Bottom Line  Tom Szaky Discusses Competitive Response  Tom Szaky States Business Worries Evolve With The Business  Tom Szaky States Communicating Negatives Is As Important As Communicating Positives  Tom Szaky Defines Waste As A Commodity  Tom Szaky Discusses Having Urban Artists Paint Company's Interior Space

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eClips #5: Clip Title: Seth Goldman States That Staying True To Your Beliefs Is Most Important Aspect of the Business Summary: Seth Goldman explains the importance of staying true to beliegs. Interview/Lecture Intro: Seth Goldman is President and CEO (TeaEO) of Honest Tea, the company he founded together with Professor Barry Nalebuff of the Yale School of Management. An entrepreneur at heart, Seth started with lemonade stands and newspaper routes, created an urban service corps and almost pursued a prize-winning biotechnology idea before he started Honest Tea in his kitchen in 1998. Before launching Honest Tea, Seth was Vice President of Calvert Social Investment Fund, managing the marketing and sales efforts for the nation's largest family of socially responsible mutual funds. His previous work includes managing a corporate child labor initiative for the Calvert Foundation, directing an AmeriCorps demonstration project in Baltimore and serving as Senator Lloyd Bentsen's Deputy Press Secretary for two and a half years. Before that he worked for a year in China (1987-1988) and a year and a half in the former Soviet Union (1989-1990). Seth Goldman received his undergraduate degree from Harvard College and a Master's degree from the Yale School of Management. Transcript: Somebody was telling me the other day that Honest Tea is lucky just, you know seems to be lucky because we are growing so quickly, we must have been in the right place at the right time and you know, for me doing what you believe is being in the right place at the right time, whatever happens, so I really cannot imagine telling people to act in a way that I would not want ... do not think they should be acting or selling a product that I do not think my kids or my family should be drinking and you know, obviously people do market and sell products that way but, so for me there really has not been a... you know I lose sleep at night over the challenges that a lot of entrepreneurs have, do you have enough cash to grow, are you going to be able to succeed in a new market or get distribution in a new market. I do not worry about, you know, are we going to endanger anybody's lives from drinking this product or are we harming the ecosystem, are we exploiting workers, those kind of things do not keep me up. Class Question: 1. Explain how Seth Goldman incorporates personal accountability into his business. Answer: As the CEO of Honest Tea, Seth takes responsibility for the product that he puts out. Producing a good, safe product is not high on his list of concerns, because he has taken accountability. 2. How does Seth Goldman’s business philosophy incorporate consistency? Answer: Goldman believes that people should do what is right while running a business, and insists that does not change as a business grows.

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Other Videos From Same Firm/Entrepreneur Used in ESB2: None Other Videos From Same Firm/Entrepreneur Used on eClips:  Seth Goldman Discusses Role of Business From The Perspective of Social Responsibility  Seth Goldman Discusses The Cost of Values  Seth Goldman Shares Decision To Pursue Fair Trade But Not To The Extent That It Destroyed The Company  Seth Goldman Shares Example of Placing Product at the Museum of the American Indian  Seth Goldman Outlines Relationship With Native American Organizations  Seth Goldman Discusses Partnership Arrangement With the Crow Indians  Seth Goldman Discusses Values At Honest Tea and Importance of Authenticity  Seth Goldman Discusses Importance of Design For Product Packaging  Seth Goldman States Honest Tea Employees Have Ownership in Company  Seth Goldman Discusses Importance of Courtesy In Working Environment  Seth Goldman Discusses Challenge of Offering Product Without Conventional Levels of Sweetness That American Public Is Used To  Seth Goldman Discusses Differences In Glass Versus Plastic As Packaging Material  Seth Goldman Discusses Honest Tea's Tea Bag Line  Seth Goldman Shares Thoughts on Package Labeling  Seth Goldman Discusses Creative Packaging Agreeement For Peach Tea Product  Seth Goldman Discusses Using Consumers To Assist In Product Label Design  Seth Goldman States That Staying True To Your Beliefs Is Most Important Aspect of the Business  Seth Goldman States Corporate Values Drive All Decisions  Seth Goldman States Desire For Financial Success Is Not At Odds With Company Values  Seth Goldman States Importance of Acting On Your Values  Seth Goldman States Honest Tea Has Ambition And Desire To Succeed As Business and Business Model  Seth Goldman Outlines Metrics With Which He Is Concerned  Seth Goldman Discusses Product Recall  Seth Goldman Shares Customer Appreciation Stories  Seth Goldman Shares Thoughts on Developing Customer Loyalty  Seth Goldman Discusses Design of Logo and Product Label  Seth Goldman Discusses Relationship With City Year  Seth Goldman States Importance of Never Giving Up Despite Setbacks  Seth Goldman States Importance of Listening

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eClips #6: Clip Title: Kurt Zitzner Discusses Dealing With Unethical Vendors As A Small Company Summary: Kurt Zitner explains the challenges of having to deal with unethical vendors. Interview/Lecture Intro: Kurt Zitzner is the owner of Mugzees Restaurant in Kent, Ohio. He has been working in restaurants since the age of 14. His restaurant experience includes Chuck's Diner, Cafe 56, Fire Food and Drink, and his own catering company, City Cuisine. He graduated from Cornell University's School of Hotel Administration with a Bachelor of Science in May of 2005. While at Cornell, he was elected by his peers to be the Managing Director of Hotel Ezra Cornell, a student run hotel conference for industry leaders.

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Transcript: Our suppliers, basically this happens in most businesses, but they basically send you food that either you didn't order or it is different product than you ordered or its perhaps the same product but if you order 40 pounds they take 4 pounds out of it which is completely illegal and put that 4 pounds towards some other product that they are going to sell to somebody else and then after ten cases you now have a 40 pound case that you could resell to somebody else. So luckily, having been to the Hotel School, that was one of the things that they told us to watch for and along with a whole bunch of other things, checking your invoices like to a T and talking to the drivers and remembering not to be friends with your driver and not to be friends with your sales person when they offer to take you to Indians games or Cavs games or any of the sporting events, the answer should be no, because that is not their purpose. Their job is not to become your friend, their job is to be your supplier and so when I have offers like that, I find it funny now realizing exactly what is going on, their whole vision is to get you to trust them, so that once you trust them you are not going to look around for other lower prices, you are not going to look around for anything, you are just going to call them, and they are going to deliver your food. So within our third delivery, our foods started showing up either wrong products, it started showing up four pounds missing out of a 40 pound case, then six pounds missing, then ten pounds missing and every time we call our sales rep or whatever, he would come on and, ah man I don't know how that could have happened, and I said, well I can show you how it happened. There is a slice in that container that is a sealed container and it is open and there's four pounds missing. So I think somebody probably took a knife and opened the container, I don't think it takes a genius to figure out that's what happened. Right but I don't know how that, you know nobody in our warehouse would have done that. Right. So perhaps your driver did it. I don't know who did it but the point is, it is, you know four pounds short. So it is developing these types of relationships where now when they deliver food to us and frankly that company doesn't deliver food to us anymore but when they were delivering to us, they know this food is going to Mugzee's and therefore they are going to weigh everything regardless of whether it is a ten pound bag of potatoes or a 40 pound case of chicken wings, whether it is like a $5 item or a $50 item, we are weighing it and we are going to weigh it with the driver standing there, so when it is not the right weight we can send it back. We stopped working on credit system, that is what everyone does. Well we will credit you for next week, and then next week oh I forgot, I will credit you the following week, I'll credit you the next week. So we just stopped credit system and now we send everything back. So they deliver 40 pound case and you know there are times we would even get 15, 16 things delivered, 16 items and we would send back 11 out of 16 items and for them it is awful because their driver has to drive all the way out, turn around drive all the way back and sometimes they have to turn around and come back from Cleveland to Kent which is 45 minutes to redeliver the food and so over time they realized this is not going to work. This guy is either way too much of a jerk which is probably what they say or he is way too intelligent to realize that this is, you know we are cheating them out of their stuff and the driver told us straight up. You know you are the only person that ever weighs any of his food, nobody weighs their stuff. I said are you serious. What's wrong with these operators. How can they not be weighing these things? Nobody seems to care, we just deliver stuff, they don't even look at the invoice. I said are you serious. He said yeah because sometimes you know the dishwasher would be free and the owner will not be

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free and I'll say can you grab this and just, you know sign for it and put everything away and that is about the worst thing you could do, it just does not make any sense. Not that the dishwasher cannot do it, they just need to be trained, this is what you need to look for when you are doing it and it is not difficult work. It is just, somebody has to do it, somebody has to literally weigh the boxes so that companies remain in business. We are not here to get taken advantage of especially a small operator like us. We cannot afford, you know to miss four boxes. They do that to McDonald's and they won't notice. It is fine with me but, you know when you are operating out of a shoe string budget you cannot afford that. Class Question: 1. What does Kurt Zitzner explain is the role of trust in his relationship with his vendor? Answer: He believes that trust is very important between the distributor and his company, but that it should be done by establishing good business practice, and not by trying to establish some sort of friendship between the two parties. 2. How do some of the behaviors of the bad vendor violate first principles? Answer: By sending faulty products, or delivering less goods than promised, they are both lying and cheating their client company. They are also not properly demonstrating the golden rule. These are bad business practices, and ones that will lead to breaking off of their business partnerships. Other Videos From Same Firm/Entrepreneur Used in ESB2: None Other Videos From Same Firm/Entrepreneur on eclips:  Kurt Zitzner Discusses Use of Undergraduate Courses To Hone Business Plan For Restaurant He Opened After Graduation  Kurt Zitzner Discusses Differences In Restaurant Business Versus Other Businesses  Kurt Zitzner States Target Market Changed Once Restaurant Opened  Kurt Zitzner States Importance of Creating a Business Plan Even If It Isn't Followed To the Letter  Kurt Zitzner Outlines Market Research Performed on Target Geographic Area  Kurt Zitzner States For A Franchise To Work There Has To Be A Known Brand  Kurt Zitzner States Logo Was Created To Build Sense of Familiarity With Customers  Kurt Zitzner Discusses Decision on Company Name and Logo  Kurt Zitzner States Website Strategy Was To Create A Professional Appearance  Kurt Zitzner Discusses Mugzee's Value Proposition  Kurt Zitzner Discusses Advertising Strategy For Mugzee's  Kurt Zitzner States Tracking Expenses Is Key In The Restaurant Industry  Kurt Zitzner Discusses Personnel Structure To Mugzee's  Kurt Zitzner Discusses Challenge of Managing Employee Relationships In A Small Business  Kurt Zitzner Discusses Challenges of the Hiring Process

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 Kurt Zitzner States Importance of Following The Textbook In Interviewing And Hiring  Kurt Zitzner States Business Can Operate At A Loss As Long As Cash Flow Is Positive  Kurt Zitzner States Importance of Raising More Money That You Think You Will Need  Kurt Zitzner Discusses Motivation To Get Out Of Bed In Morning And Continue To Build The Business  Kurt Zitzner States Biggest Worry Is Hoping For Continued Customer Demand  Kurt Zitzner Discusses New Realizations Regarding Target Markets and How To Reach Them  Kurt Zitzner States Entrepreneurs Are Risk Takers Who Don't See Failure As A Bad Thing  Kurt Zitzner Discusses Influence Of Father On His Career Decisions  Kurt Zitzner States Biggest Surprise Comes From Difficulty in Customer Adaptation  Kurt Zitzner States Most Important Personality Trait Is Persistence  Kurt Zitzner States Importance Of Doing What Makes You Happy eClips #7: Clip Title: Patricia Warner Shares Thoughts on Her Ethical Acid Test Summary: Patricia Warner explains her personal test on business ethics. Interview/Lecture Intro: Patricia Warner is the founder of Global-eze Inc. Prior to founding Global-eze, Warner held progressive management positions with Corning. Patricia Warner holds an undergraduate degree from University of Connecticut and a MBA from Cornell University. Transcript: This newspaper was how to develop an ethical framework that you can live by. Now, ethics change from country to country, culture to culture, company to company, religion to religion. So, ethics is a tough topic to get your arms around. So, we kind of looked in the workplace often for an ethical acid test as I call it. What is something that you could think of that would help you make a choice if it wasn't clear and one that is often used is make sure you and your network of friends and family would be proud to see your activities published in a national newspaper. So, if you're trying to decide whether something's right or not and you say if it's in a full headline in the New York Times would I be okay with it, would the law be okay with it, would my family, my grandmother be okay with it. And if they are not going to be okay with it, maybe that's not the thing I should do, that it's not ethical. So, I call this the ethical acid test and many times when you're sitting in your work saying should I do this or not and this comes up. Class Question: 1. How does Ms. Warner’s ethical acid test incorporate personal ethics? Answer: Personal ethics are what one personally believes is right and wrong, which is incorporated from family, friends, and one’s environment. Patricia advocates the pondering of whether or not one’s family would approve of a business decision.

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2. How does Patricia’s test incorporate universalism? Answer: She makes it clear that the values that one has with family are the same as the ones that are dealt with in business. Even though they are different aspects of life, they both require the same ethics and values. Other Videos From Same Firm/Entrepreneur Used in ESB2: None Other Videos From Same Firm/Entrepreneur on eclips:  Patricia Warner Discusses Academic and Professional Background  Patricia Warner States Life Is Like A Wild Tiger  Patricia Warner States Importance of Knowing Yourself  Patricia Warner Discusses Anglo-Western Workplace Values  Patricia Warner States Life Has Ups and Downs and States Importance of Remaining Centered  Patricia Warner States Importance of Understanding Your Life Priorities  Patricia Warner Shares Story Of Being Told Most Important Life Decision Is Who You Marry  Patricia Warner Explains Concept of Freedom Fund  Patricia Warner Discusses Starting Her Own Business  Patricia Warner Discusses Importance of Saving  Patricia Warner States Importance of Starting To Save For Retirement Early  Patricia Warner States Freedom Fund Should Never Be Used As A Bailout Fund  Patricia Warner States Importance of Understanding Your Boundaries  Patricia Warner States Importance of Avoiding Risky Behavior In The Workplace  Patricia Warner States Importance of Asking For What You Deserve When Negotiating  Patricia Warner States Incredible Impact of Living Somewhere As A Minority  Patricia Warner States Importance of Developing Cultural Awareness  Patricia Warner Shares Thoughts on Male and Female Networks eClips #8: Clip Title: Robert Frank Poses Question Of Whether You Are Perceived As An Ethical Person Summary: Robert Frank asks whether others perceive you as being ethical. Interview/Lecture Intro: Robert Frank is a Professor of Economics at Cornell University's Johnson School. In addition, Frank is a monthly contributor to the "Economic Scene" column in The New York Times.

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Until 2001, he was the Goldwin Smith Professor of Economics, Ethics, and Public Policy in Cornell's College of Arts and Sciences. He has also served as a Peace Corps volunteer in rural Nepal, chief economist for the Civil Aeronautics Board, fellow at the Center for Advanced Study in the Behavioral Sciences, and was Professor of American Civilization at l'Ecole des Hautes Etudes en Sciences Sociales in Paris. Frank's books include Choosing the Right Pond, Passions within Reason, Microeconomics and Behavior, Luxury Fever, and What Price the Moral High Ground? The Winner-Take-All Society, co-authored with Philip Cook, was named a Notable Book of the Year by The New York Times, and was included in Business Week's list of the ten best books for 1995. Frank holds a BS in mathematics from the Georgia Institute of Technology, an MA in statistics from UC Berkeley and a PhD in economics, also from UC Berkeley.

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Transcript: Imagine you're the chairman of a Fortune 500 company and you have a big new division you're about to start up and you know that the person in charge of this division will have lots of opportunities to embezzle cash from the company. There's just no practical way you could monitor it to prevent that and maybe it wouldn't be worth your while opening up this division if unless you thought you could get somebody to manage it honestly. Well here's someone you can send on that assignment, the very same person you think would return your $10,000 in cash if you found it in an envelope is somebody you ought to logically be willing to send on assignment to manage a division where there would be opportunities to cheat the company. That's a pretty valuable skill to have in the labor market, to be chosen for an assignment like that. Think about you when your first big promotion opportunity comes up when you're out working in the world. Will your boss know enough about you to be able to say, is this the kind of person who would return my envelope if she found it with $10,000 in it. Maybe your boss won't know you as well as you knew the person you predicted would return your envelope but your boss is going to have an opinion about that. People form very quick opinions about others and we refine them over time as we get to know them but you can bet your bottom dollar that promotion decisions made about you will be made on the basis of people's assessments about the answer to questions like that about you. Well, how would they know whether you are gonna return the envelope, if they think about a question like that. It's a very interesting question how people make judgments like that. Think about how you made the judgment about the person you predicted would return your envelope. There's a whole suite of clues on which we rely. People have moral emotions that guide them typically in these decisions and moral emotions just bleed out into the open. If you care about the other person, the other person can sense that and that's typically one of the moral emotions that makes you likely to return somebody's envelope. It's that you've put yourself in the other person's place and imagined what would it be like if somebody found my envelope and kept it and the bad thought that you get from contemplating that question is an extra nudge... it will be nice to keep the $10,000, no doubt about it but it's not the right thing to do and you're concerned about the well-being of the other person is often for most people enough of a nudge to do the right thing. So that's the encouraging news that in fact the business world is a lot more forgiving than the track world. There can be golden opportunities to cheat in the business world, people can pass them up and it's true, they won't get paid back right away from having passed up a golden opportunity to cheat but as long as people can make judgments about them that are accurate, that they're the kind of people who would pass up opportunities to cheat, they can turn out to be quite successful in the business world and there is indeed pretty good evidence that the people who rise most rapidly in the business world are not the crooks that we read about in the news, not the people who fudge the numbers but the people who actually do bring integrity to the decisions that they make. Class Question: 1. How does being viewed as an ethical person help one’s business network? Answer: Having a good reputation draws more people to want to do business with you, and can therefore lead to a strong network of eager partners.

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2. How does being viewed as an ethical person affect legitimacy? Answer: When one does business in an ethical manner, he or she gains a reputation of legitimacy. Good recommendations and references lead to an increased legitimacy, which is a valuable tool for an entrepreneur. Other Videos From Same Firm/Entrepreneur Used in ESB2: None Other Videos From Same Firm/Entrepreneur on eclips:  Robert Frank Discusses The Darwinian Argument For Cheating  Robert Frank Shares Thought Experiment On Honesty and Integrity  Robert Frank States Good Opportunities Are Available For People Who Are Not WillingTo Cheat  Robert Frank States Most People Are Not Oblivious To The Ethical Influences of Others  Robert Frank Discusses Cheating Experiments  Robert Frank Expresses Need To Be Wary That You Can Turn A System Around

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STVP Videos Why are ethics important? Overview: An explanation of the importance of business ethics. Objective: To communicate the importance of high standards in business ethics. Speaker: Frank H. Levinson founded Finisar in April 1987 and has served as a member of our Board of Directors since February 1988 and as our Chairman of the Board and Chief Technical Officer since August 1999. Mr. Levinson also served as our Chief Executive Officer from February 1988 to August 1999. From September 1980 to December 1983, Mr. Levinson was a Member of Technical Staff at AT&T Bell Laboratories. From January 1984 to July 1984, he was a Member of Technical Staff at Bellcore, a provider of services and products to the communications industry. From April 1985 to December 1985, Mr. Levinson was the principal optical scientist at Raychem Corporation, and from January 1986 to February 1988, he was Optical Department Manager at Raynet, Inc., a fiber optic systems company. Mr. Levinson holds a B.S. in Mathematics/Physics from Butler University and an M.S. and Ph.D. in Astronomy from the University of Virginia. Class Questions: 1. What are some ways that ethics fit in with small business? Answer: Small businesses have a strong impact in the local communities. An ethical small business will gain respect in the community. Another important factor is trust. Small businesses that rely on local support for their survival need to maintain the trust of their market. The way to do this is to remain ethical. 2. How can a business follow ethics planning in its hiring process? Answers: Ethics planning is a process used to better consider issue issues of right and wrong. The steps are asking oneself questions to separate the important issues from the less important ones. Then one must determine the possible actions that would resolve problems. Finally, ethics planning lets one seek the potential solution to see if it’s good with what might happen once the decision is put into place. Asking these questions at an interview, along with giving a test scenario, can be helpful in finding employees who meet ethical standards.

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Establishing Credibility Overview: An explanation on steps a business should follow to establish credibility. Objective: To communicate the importance of establishing a credible small business. Speaker: Peter A. Seligmann is one of today's most dynamic leaders in the global conservation movement, where he has brought innovation and action to the forefront of biodiversity protection for more than 25 years. In 1987, he co-founded Conservation International, and as Chairman and CEO he has positioned CI at the cutting edge of conservation, creating lasting solutions to biodiversity and sustainable development challenges. Seligmann holds a masters degree from Yale University's School of Forestry and Environmental Science and an honorary Doctorate in Science from Michigan State University. In 2001, he was awarded the Order of the Golden Ark from the Netherlands. Seligmann serves on the board of the Wild Salmon Center in Portland, Oregon, and the Mayor's Environmental Council in Washington, D.C. He also serves on several corporate boards, as well as on the advisory councils of the Jackson Hole Land Trust, Ecotrust and other not-for-profit organizations, including the Japanese Keidanren's Nature Conservation Fund. In 2000, President Clinton named him a member of the Enterprise for the Americas Board. Seligmann's work has been featured by ABC's "Nightline," CNN and Fortune Magazine. A strong advocate of building partnerships, Seligmann has forged groundbreaking joint projects between the environmental community and other sectors, including government and industry. In 1998, CI established the Center for Applied Biodiversity Science, and in 2001, the Center for Environmental Leadership in Business. In 2000, CI launched the Critical Ecosystem Partnership Fund in collaboration with the World Bank and the MacArthur Foundation. Under Seligmann's leadership, CI has pioneered conservation tools that are economically sound, scientifically based and culturally sensitive. He has guided CI to become a major international conservation leader, with field offices in more than 30 countries, and major influences in science and business. An avid outdoorsman with a passion for fishing and diving, Seligmann lives in Washington, D.C. as well as at his farm in the Shenandoah Valley.

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Class Questions: 1. How does Peter’s advice fit in with the Golden Rule? Answer: Peter notes that the best way to establish credibility is to deliver on promises. Since everyone wants their promises delivered, this shows that a business is treating others the way they wish to be treated. 2. Why is consistency important in delivering promises? Answer: Consistency is maintaining the same behavior, attitude or value of long periods of time. Delivering on a promise once is not good enough. A business must consistently meet its standards for contracts and promises to gain an ethical reputation. How do you hire ethical people? Overview: Advice on how to find ethical people for a business? Objective: To offer guidance on hiring ethical people. Speaker: Frank H. Levinson founded Finisar in April 1987 and has served as a member of our Board of Directors since February 1988 and as our Chairman of the Board and Chief Technical Officer since August 1999. Mr. Levinson also served as our Chief Executive Officer from February 1988 to August 1999. From September 1980 to December 1983, Mr. Levinson was a Member of Technical Staff at AT&T Bell Laboratories. From January 1984 to July 1984, he was a Member of Technical Staff at Bellcore, a provider of services and products to the communications industry. From April 1985 to December 1985, Mr. Levinson was the principal optical scientist at Raychem Corporation, and from January 1986 to February 1988, he was Optical Department Manager at Raynet, Inc., a fiber optic systems company. Mr. Levinson holds a B.S. in Mathematics/Physics from Butler University and an M.S. and Ph.D. in Astronomy from the University of Virginia. Class Questions: 1. How do ethics and morals relate to the first principals? Answer: As a person in Frank’s audience suggested, ethics and morals are very closely related. The first principals are basic ideas of what is right or wrong, including that it is wrong to lie, cheat and steal. These are the basic moral principles of both life and business.

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2. Why should businesses follow the Golden Rule with customers? Answer: In order for businesses to survive, they must rely on faithful relations with their customers. By treating customers the way they would want to be treated, they gain a positive reputation, which will lead to a better social network, and hopefully, more business.

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Importance of Networking Overview: The importance of maintaining good relationships with those in a social network. Objective: To stress the importance of social networking. Speaker: Tina Seelig is the Executive Director for the Stanford Technology Ventures Program where she is responsible for the management, operations, and dissemination efforts of STVP. In addition, Tina is the Director of the Stanford Entrepreneurship Network and the co-Director of the Mayfield Fellows Program. Tina also teaches a course in the Department of Management Science & Engineering on Creativity and Innovation. Prior to joining STVP, Tina worked as an entrepreneur, management consultant, author, and scientist. Tina received her Ph.D. from Stanford University Medical School in 1985 where she studied Neuroscience. Tina has worked as management consultant for Booz, Allen, and Hamilton, has written several popular science books and has designed a series of educational games. Her books include The Epicurean Laboratory, Incredible Edible Science, and a series called Games for Your Brain. After Tina's first book was published in 1991, she became interested in how books are marketed. This led her to start a company designed to help match books with buyers. The product was a multimedia system for bookstore customers, called BookBrowser. BookBrowser was a kiosk-based system that allowed customers to identify books of interest. With the help of a team of engineers and graphic designers, Tina built the business and sold the company in 1993. After selling her business, Tina worked as a Multimedia Producer for Compaq Computer Corporation. In this position Tina led a team of engineers, artists, scriptwriters, and education specialists through the design and implementation of a series of multimedia titles. Tina's current position as Executive Director of the Stanford Technology Ventures Program takes advantage of her technical background, in addition to her experiences as a manager, entrepreneur, and educator.

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Class Questions: 1. How can a businesses’ reputation be improved with a good social network? Answer: A social network is a set of relationships and contacts with individuals and institutions. It is better to have a good reputation among a multitude of associates, rather than just one. 2. The book notes that social networking is good for a company’s reputation. How does this relate to Tina’s philosophy? Answer: Tina noted that the world is small, and that one is likely to meet with the same 50 or so people multiple times in their lifetime. It is best not to “burn bridges”, or set a bad reputation. A reputation sticks, whether it is good or bad, so it is important to maintain a good one. SBTV Videos Proper Introductions in Business Overview: An discussion on how to properly introduce associates in business. Objective: To show the proper way to introduce business members. Speaker: Syndi Seid is a business etiquette coach. Class Questions: 1. The book explains the concept of modeling. How can someone use Syndi’s advice to employ a modeling technique? Answer: If a small business owner uses the type of business etiquette to address associates, they can address to their employees what there is expected of them in terms of proper business etiquette. 2. How can following these etiquette rules help a business expand its social network, as explained by the book? Answer: If a small business owner employs good etiquette, building respect among those whom he or she wishes to do business with, more people will be willing to network with the owner. This will expand the entrepreneur’s set of relationships and contacts with individuals and institutions.

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Preparing for Business Emergencies Overview: A series of steps to prepare for business emergencies. Objective: To show how businesses can prepare themselves for business emergencies. Speakers: Jorge Riopedre is a reporter for SBTV. Heather Blanchard is the Deputy Director for the Ready Campaign at the Department of Homeland Security. Class Question: 1. How can the idea of mutuality, as explained in the textbook, assist with a business emergency plan? Answer: Mutuality is the action of each person helping one another. The idea of mutuality is good to be implemented in a business emergency plan. It is important that members of a business help one another, and this can be especially true in an emergency situation. If everyone carries their weight, the emergency is less likely to be severe. Wordpress blog: http://katzesb.wordpress.com/ Billboard Kevin Bacon – 6 degrees ANNUAL EDITIONS: Entrepreneurship, Fifth Edition None BizInfoLibrary Ethics and the Entrepreneur

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