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Ethics, entrepreneurs and corporate managers: a Canadian study.

Introduction

Most of the business ethics research to date has focused on large companies and the employees/managers within those companies. Yet, while some suggest that the ethical challenges facing entrepreneurs can overlap the ethical dilemmas of corporate managers, it has also been posited that the characteristics of entrepreneurship may pose additional challenges in relation to ethical behavior (Fisscher et al., 2005). In fact, research reveals that American entrepreneurs do differ from their manager counterparts in large companies when it comes to ethical attitudes (Bucar and Hisrich, 2001). However, one cannot conclude that since Canada and America share a common border and a similar socio-economic environment that the ethical attitudes of American entrepreneurs and American corporate managers would reflect the ethical attitudes of their Canadian counterparts. For example, previous cross-cultural research on American and Canadian business students revealed significant differences in attitudes toward ethics and ethical conduct (Crane, 2005). Furthermore, some researchers have explored cross-cultural differences in attitudes toward ethics held by entrepreneurs and also found significant differences (Bucar, Glas and Hisrich, 2003). Yet, there is little, if any, research which compares Canadian entrepreneurs with their corporate manager counterparts. Therefore, this research examines the ethical attitudes of Canadian entrepreneurs and Canadian corporate managers. Specifically, it attempts to determine whether or not the two groups hold similar ethical attitudes and, if not, to uncover any differences and the possible basis for such differences. For example, some researchers suggest that corporate managers, because of their organizational environment, may have higher ethical standards compared to entrepreneurs (Hisrich, Peters and Shephard, 2005). On the other hand, it is suggested that entrepreneurs, because their business practices more closely reflect their personal values, may have higher ethical standards than corporate managers (Hisrich, Peters and Shepherd, 2005). This research attempts to answer such questions within a Canadian context in the hope of providing insight into this important area of inquiry.

Literature Review

Recent research indicates that despite the seriousness of recent financial scandals as a result of unethical actions by companies in numerous countries, unethical business practices continue at all organizational levels and in every business function. In short, it is argued that ethics in business continues to recede (Fassin, 2005). Hannafey (2003) suggests that the erosion of business ethics is largely due to: pressures from all stakeholders, time pressures, scarce resources, social and financial pressure, and intense competition. Shareholders want a better stock price, managers want bonuses, customers want higher quality at lower prices, and banks want their loans repaid. This creates pressure on both the entrepreneur and the corporate manager. If this is the case, one might ask: Who is more likely to cut ethical corners: entrepreneurs or corporate managers?

Entrepreneurs want their business to succeed and corporate managers want to be successful in their careers. But failure in business is a stark reality for both. But, this reality may be more acute for the Canadian entrepreneur. In the U.S., the proverbial second chance is often available to the failed entrepreneur. However, this is not the case in Canada, where a second chance is rarely offered (Crane and Meyer, 2006). Moreover, Canadian research also indicates that an entrepreneur's ethical attitudes may be influenced by pressure from outside investors and/or technological turbulence within the industry in which the entrepreneur operates (Hudson and Wehrell, 2005; Hall and Rosson, 2006). Therefore, when confronted with a crisis situation, would the Canadian entrepreneur do anything to avoid such failure? This might include falsifying reports, exaggerating the company's financial performance, not disclosing product defects to customers, overcharging customers, or unfairly criticizing the competitors' products.

On the other hand, it is argued that corporate managers are driven by money, power and career advancement. At the same time, the ethical attitudes of managers are affected by the interaction between the manager's personal value system and that of his/her organization (Jackall, 1988). The organization, in effect, can either reinforce ethical conduct or allow for rogue behavior in the pursuit of such goals (Kuratko and Goldsby, 2004). According to Gellerman (1986), the decline in ethics in corporate business may be driven by the fact that some people might believe that the means will justify the aforementioned end goals. Gellerman suggests that using numerous rationalizations can lead to unethical behavior from usually intelligent, honest people who transgress the border between right and wrong in order to gain money, power and advancement. This behavior could consist of breaching customer confidentiality, taking credit for a coworker's work, blaming errors on an innocent coworker, or disclosing confidential customer information.

For the purposes of this paper, ethics can be defined as a system of value principles or practices and the ability to determine right from wrong (Payne and Joyner, 2006). Making ethical judgments implies that the decision-maker is concerned with the rightness or wrongness of the decision, more so than the simple legality of the decision. Also, for the purposes of this paper, business ethics is defined as doing the correct things, and doing the things correctly; doing honorable business, and doing business honorably (Fassin, 2005).

The concept of ethical attitudes is central to an understanding of the business ethics framework within which all business people operate. Ethical attitudes are the product of personal values, experiences, and the environment in which one works and lives (Donaldson and Dunfee, 1999). A necessary condition is that most individuals within a group hold attitudes consistent with the ethical norms of that group. Yet, typically, the entrepreneur does not have an established organizational culture or norms when making ethical decisions nor does he have the standard codes of ethics that his corporate counterparts can rely on for such decision-making. Thus, it is argued that an entrepreneur's ethical thinking and conduct may be largely shaped and solidified by family members, mentors and teachers, and these influences can ultimately determine the entrepreneur's ethical conduct in business (Hannafey, 2003).

Other research also suggests that without organizational constraints, the entrepreneur will indeed utilize his/her personal values as a basis for making ethical decisions (Nonis and Swift, 2001). This then raises the question as to whether or not entrepreneurs will differ in terms of their ethical attitudes compared to corporate managers due to varying external influences.

Still, other researchers suggest that the relationship between entrepreneurship and ethics can be characterized as a love-hate relationship (Fisscher et al., 2005). These researchers argue that entrepreneurs who are regarded as creative innovators are often praised for their contributions to the development of society by creating new products and employment opportunities and thus opening new possibilities for all of us. On the other hand, in their pursuit of business success, it is possible that entrepreneurs might be willing to compromise ethical values if needed (Covin and Miles, 1999).

Furthermore, Covin and Miles (1999) further suggest that entrepreneurship involves the process of discovering and developing opportunities in order to create value for a new organization. This creation of a new concept may create special ethical issues for the entrepreneur. For example, entrepreneurs may encounter new ethical dilemmas with the introduction of products based on new technologies (Hannafey, 2003). This new technology may bring with it questions regarding the desirability of the newly created situation including environmental impacts and the disruption of existing businesses. Therefore, Brenkert (2002) suggests that an entrepreneurial society is one of change, and this change may have ethical implications that need to be examined.

Yet, despite the criticism toward entrepreneurs and their possible unethical conduct, it has been found that entrepreneurs are both more sensitive to the expectations of society and more critical of their ethical conduct than the general public (Humphreys et al., 1993). There are also other studies that suggest that entrepreneurs are likely to be more ethical than corporate managers. For example, Teal and Carroll (1999) found that entrepreneurs exhibit moral reasoning skills at a slightly higher level than middle-level managers or the general adult population.

Another study by Bucar and Hisrich (2001) compared the ethical attitudes of American entrepreneurs to managers working in corporations. They found that the two groups did differ with regard to their views on ethics. For example, the research showed that managers were more likely to sacrifice their personal values for the organization and that entrepreneurs showed higher ethical attitudes in internal dealings of their companies. In particular, entrepreneurs were less likely to take longer than necessary for a job and less likely to use company resources for personal use. Bucar and Hisrich (2001) suggest these findings are consistent with the stakeholder-agency theory and the theory of property. For example, stakeholder theory suggests that corporate managers are non-owners who could take advantage of their companies if appropriate constraints (corporate governance) are not in place. On the other hand, theory of property suggests that entrepreneurs, due to ownership and equity in their companies, will demonstrate higher levels of ethical thinking with regard to the use of company assets (Becker, 1977; Donaldson and Preston, 1995; Hill and Jones, 1992).

Another explanation for differences in the ethical views between entrepreneurs and managers is posited by Cialdini (1988). It is suggested that the entrepreneur is the primary decision-maker in the emerging organization and, given this "authority," he/she will assume greater responsibility for ethical decision-making. Another explanation is from Humphreys et al. (1993) who suggest that entrepreneurs will rely more on their personal views on ethics and to avoid internal contradiction will act more ethically. The entrepreneurs' corporate counterparts, on the other hand, will be influenced by considerations other than their personal values system including organizational dynamics (Jackall, 1988). Thus, in this study it is hypothesized that Canadian entrepreneurs will exhibit higher levels of ethical thinking compared to Canadian corporate managers when it comes to business dealings and the use of company resources.

Methodology

In order to assess entrepreneurs' attitudes and perceptions of business ethics, a survey instrument was developed and administered to Canadian entrepreneurs attending an entrepreneurial training workshop in Eastern Canada. These individuals were the founders and operators of their businesses and intent on pursuing venture growth. Therefore, the subjects were entrepreneurs in the true sense of the word. This is an important distinction to make since past research has involved definitional inconsistencies with regard to the research subjects (i.e. use of the terms small business owners, self-employed, and entrepreneurs interchangeably) which may explain the different results found in such studies (see Bucar and Hisrich, 2001).

The same instrument was also administered to a group of corporate managers who were attending a series of executive education programs in the same region. All participants at the workshops also voluntarily completed the questionnaire, anonymously. All 60 Canadian entrepreneur attendees and all 55 corporate manager attendees completed the survey, resulting in a total of 125 respondents. The instrument contained 18 survey item statements and respondents were to indicate whether or not they believed, from their perspective, that the behaviors outlined in the item statements were ethical or unethical. These binary response items had been used previously in other research and were determined to have face validity (Bucar and Hisrich, 2001). Analysis of variance (ANOVA) was utilized as the statistical method for making a comparison between the mean values on each of the individual item statements provided by the entrepreneurs and corporate managers. In this case, ANOVA is analogous to a t-test when it applies to only two distributions. Moreover, ANOVA has been found to be a robust test when making comparisons between these types of data sets (Alreck and Settle, 1985; Anderson, 1972).

Findings

Table 1 presents the survey statement items and the responses provided by the entrepreneurs and corporate managers. It should be pointed out that there were no significant differences (at the 0.05 level) between the two groups in terms of the respondents' age, gender, education level, or years of experience in business. Moreover, there were no significant differences (at the 0.05 level) in responses to the survey items between male and female respondents, the age of respondents, or the educational level of respondents within the respective sample groups. These findings are important to note since past research has indicated that differences in socio-demographic variables can be negatively and/or positively correlated with ethical attitudes (Bucar and Hisrich, 2001; Smith and Oakley, 1994). However, this study did not find such results. Thus, it can be argued that any significant differences in the responses between the two groups cannot be attributed to socio-demographic differences.

Overall, there was a great deal of consensus between the groups regarding their perceptions of the behaviors/practices posed in the item statements. In fact, there were no statistically significant differences between entrepreneurs and corporate managers on 12 of the 18 statements. Moreover, the overwhelming majority of entrepreneurs and corporate managers believed that most of the survey item statements posed in the survey were clearly unethical practices. For example, 99% of corporate managers and 100% of entrepreneurs considered blaming errors on innocent coworkers as unethical. Furthermore, 98% of both corporate managers and entrepreneurs perceived claiming credit for a coworker's work; falsifying reports; and exaggerating the company's financial performance as unethical practices. Also, 98% of corporate managers and 97% of entrepreneurs believed overstating expense accounts by more than 10% was an unethical practice, while more than 95% of respondents in both groups believed divulging confidential information on customers was unethical. Over 90% of respondents in both groups also believed overstating expenses by less than 10%; knowingly overcharging customers; and using company supplies for personal use were all unethical practices.

However, at least 15% of respondents in both groups believed calling in sick in order to take a day off was ethical. Moreover, not disclosing product defects to customers was considered ethical by 10% of entrepreneurs and 12% of corporate managers. A little more troubling was the fact that 10% of entrepreneurs and 12% of corporate managers believed purchasing/selling shares using insider information was ethical, despite it being both an unethical and illegal practice.

There were also some statistically significant differences in responses, to certain survey statement items, between the entrepreneurs and corporate managers. For example, corporate managers were more likely to agree that using company services for personal use was ethical compared to entrepreneurs (i.e. 19% of corporate managers versus only 8% of entrepreneurs). Corporate managers were also more likely to believe that doing personal business on company time; taking extra personal time/breaks at work; and taking longer than necessary to do a job were ethical compared to entrepreneurs. It seems that the concept of "time theft" from the organization was more acceptable for corporate managers compared to entrepreneurs and this may reflect the theory of property discussed earlier in the paper. That is, since entrepreneurs have a greater sense of ownership they may be reluctant to take time from their company especially if they believe it could be harmful to the viability of their enterprise. Finally, corporate managers were also more likely to believe that exaggerating the performance of the company's products/services to customers and unfairly criticizing competitors products were ethical practices compared to entrepreneurs.

Conclusions and Implications

This study appears to confirm some of the findings in the previous American study (Bucar and Hisrich 2001). Specifically, like the American study, there was a strong similarity between the entrepreneurs and corporate managers on most of the items posed (12 out of 18). Furthermore, like the American study, it appears that perhaps similarity in the culture, legal, regulatory environmental variables, as well as strong similarity in the socio-demographic backgrounds of both groups may help explain these findings. Also consistent with the American study, Canadian entrepreneurs appear to hold stronger ethical attitudes toward some practices compared to their corporate manager counterparts. For example, like the American entrepreneurs, the Canadian entrepreneurs were more likely to believe that using company services for personal use and taking time from the company for personal use were unethical practices.

However, unlike the American study which found differences between entrepreneurs and managers regarding padding expenses (with entrepreneurs believing it was more unethical), there were no differences found between the groups in this study regarding this issue. Both groups were equally likely to perceive this practice as unethical. Also, unlike the American study, there were no differences between Canadian entrepreneurs and Canadian corporate managers regarding the ethics of falsifying reports; again with both groups equally likely to believe this practice to be unethical.

Entrepreneurs' ethical attitudes toward taking company services for personal use or taking time from their companies could be grounded in the theory of property. This may be something that leaders of corporate organizations may need to consider. In other words, offering corporate managers a greater sense of ownership (e.g. profit sharing) may provide an incentive for managers to demonstrate greater respect for the intangible assets of the firm, including the use of time. At the same time, entrepreneurs may not have wellestablished organizational cultures to rely upon when making ethical decisions. Therefore, entrepreneurs will need the support of family members, mentors and teachers to help shape their ethical decision-making and ethical standards. The notion of offering courses or modules in entrepreneurial ethics in the business school curriculum may also warrant consideration since this might provide further ethical guidance for the potential entrepreneur.

There are several limitations to the study that must also be pointed out. First, the sample sizes for the two groups are relatively small and there is a regional skew to the sample population. Therefore, caution must be used when generalizing the findings of the study to a larger, more national population. Also, the study is based on self-reports and the attitudes indicated may not reflect the actual behavior of the respondents.

Still, notwithstanding the limitations of the study, the research does appear to point out that contrary to the negative portrayal of business people in the media, both the entrepreneurs and corporate managers in this study appear to exhibit a high level of ethical awareness and ethical concern, with very few exceptions. In particular, given the high ethical attitudes of the entrepreneurs in this study, it does seem possible that the entrepreneur can set an elevated ethical tone for this new entrepreneurial society. As Brenkert (2002) asserts, entrepreneurship is not simply about how one creates a business. It is far more about how we organize today's society and that society must include ethical imperatives at its core. It seems that entrepreneurs may play a central role in achieving this task.

Contact Information

For additional information on this article, contact:

Frederick G. Crane, Executive Professor, Entrepreneurship & Innovation Group, College of Business, Northeastern University, Hayden Hall, Boston, MA 02115

Tel.: 617-373-5047

Email: f.crane@neu.edu

References

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Anderson, N. 1972. "Scales and Statistics: Parametric and Nonparametric," in R.E. Kirk (ed.), Statistical Issues. Monterey, CA: Brooks Cole.

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Cialdini, R. 1998. Influence. Science and Practice, 2nd ed. New York, Harper Collins.

Covin, J. and M. Miles. 1999. "Corporate Entrepreneurship and the Pursuit of Competitive Advantage," Entrepreneurship Theory and Practice 23: 47-63.

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Frederick G. Crane, Entrepreneurship & Innovation Group, College of Business, Northeastern University, Boston, MA
Table 1. Ethical Perceptions regarding the Item Statements

                                   % Indicating Behavior was Ethical

                                                   Corporate
                                   Entrepreneurs   Managers    Sign *

1. Using company services for            8            19         S
personal use

2. Using company supplies for            4             7        NS
personal use

3. Overstating expense accounts          3             2        NS
by more than 10%

4. Overstating expense accounts          4             6        NS
by less than 10%

5. Doing personal business on            9            17         S
company time

6. Blaming errors on innocent            0             1        NS
coworkers

7. Claiming credit for a                 1             2        NS
coworker's work

8. Calling in sick in order to          15            16        NS
take a day off

9. Taking extra personal time/          11            19         S
breaks at work

10. Purchasing/selling shares           10            12        NS
using insider information

11. Falsifying reports                   1             2        NS

12. Divulging confidential               1             3        NS
information on customers

13. Taking longer than                   3            10         S
necessary to do a job

14. Knowingly overcharging               4             6        NS
customers

15. Exaggerating the performance        12            20         S
of the company's products/
services to customers

16. Not disclosing product              10            12        NS
defects to customers

17. Unfairly criticizing                11            20         S
competitors' products

18. Exaggerating the company's           1             2        NS
financial performance

* sign @ the 0.05 level or better

NS = non-significant

Respondents were instructed: Please indicate whether or not you feel
the following behaviors are ethical or unethical.
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Author:Crane, Frederick G.
Publication:Journal of Small Business and Entrepreneurship
Geographic Code:1USA
Date:Jun 22, 2009
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