When individuals are able to act in an ethical manner systematically, habitually, and without struggling to decide how to act or what to do in difficult situations, they have internalized that moral compass. However, Edison preferred DC technology and was not supportive of Tesla’s ideas. This includes the ability to recognize and identify both ethical dilemmas and legal issues that might arise. Incorporating too late, and issuing inexpensive stock to the founders at the same time that much more expensive stock is being sold to investors, can create tax problems when the IRS argues that the difference in stock price is actually income to the entrepreneur. Interested in improving your business? Copyrights 3. #7: Failing to make a timely Section 83 (b) election. As a result, in 2009, Eli Lilly was fined $1.4 billion by the office of criminal investigation of the US Department of Justice.11. Imagine that upon graduation, you have the good fortune to face two entrepreneurial opportunities. citation tool such as. It can be said that these individuals possess a good character, are able to earn trust, and have qualities that are deemed necessary for leadership. So seek allies. Common areas rife with potential legal issues include contracts, torts, employment, intellectual property, conflicts of interest, full disclosure/truthfulness in product or service claims and performance, and antitrust/competition law ( Figure 3.2 ). A moral compass is a state of mind where an individual has developed the needed capabilities to differentiate between right and wrong, or between just and unjust in challenging circumstances. Everywhere else, if the invention is sold or publicized prior to filing the patent application, the invention is unpatentable in that country. We are committed to transparency and effective engagement with shareholders. He was in a classic conflict of interest position.10 Similar cases involving business reporters and potential conflicts of interest include The Wall Street Journal, Business Week, Time magazine, and the L.A. Herald Examiner. It also means that the entrepreneur should be concerned with the nontechnical aspect of IP, which is to develop a culture of creativity that enables the organization to deliver a continuous stream of new IP. Some professions, such as medicine and the law, have traditional and established codes of ethics. Merck CEO Ken Frazier Discusses a COVID Cure, Racism, and Why Leaders Need to Walk the Talk, How Gender Stereotypes Kill a Woman’s Self-Confidence, Minorities Who 'Whiten' Job Resumes Get More Interviews, What the Stockdale Paradox Tells Us About Crisis Leadership. While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. Which of these opportunities would you pursue and why? This could be as simple as using company time or resources to work on a personal project that has not been sanctioned and will not add value to the company. In addition, Bagley teaches the second year elective course, "Legal Aspects of Entrepreneurship," which covers the waterfront of issues typically faced by entrepreneurs in starting and running a business, including securities and intellectual property law issues. What would acting ethically and with personal integrity in this situation look like? "Lawyers tend to be risk averse, and if you delegate to them you will usually stay out of legal trouble but can often compromise your business objectives. However, these concepts are not interchangeable and call for different standards of behavior. This group of stakeholders might include employees (profit sharing), shareholders (dividends), the local community (time), and social causes or charities (donations). Instead, there might be sufficient profits to distribute a portion of them to other stakeholders in addition to yourself—for example, those who are important because they have helped you or are affected one way or another by your business. Most employers understand they run a risk that their employees may commit a tort, and that they are responsible when employees cause harm to others (customers or coworkers) while on duty, working on company property, and using company equipment. For example, as an IT consultant, do you recommend to a client that they buy a software product, when unknown to them, you own stock in that company? Intellectual property (IP) rights are created by federal law and protect small businesses from problems such as this. When you put the two together, you can easily make your work the sole focus of your life. Legal Issues for the Entrepreneur 1. Essentially, a commitment to treat with honesty and integrity customers, clients, employees, and others affiliated with a business. What central point might constitute such a code? Inception of an Entrepreneurial Venture A. Due to the fundamental role that small business owners play on the African economy, the fact that it is lagging behind should be a matter of concern. The study found that challenges faced by local Muslim entrepreneurs in the franchise industry in Malaysia include the issues of the prohibition against the same business, financial concern, and monopoly by the franchisor. At the same time, the challenge to meet these expectations can create temptations and ethical pressures as entrepreneurs make a variety of decisions. These responsibilities include understanding, differentiating between, and dealing with the different types and technical aspects of a firm’s IP. This period of protection ranges from fourteen to twenty years, and is essentially a government-granted monopoly, after which, protection usually expires and competition is opened up to anyone (e.g., generic drugs). Ignorance of the law is no excuse. Simply put, vesting protects the members of the founding team who take the venture forward. Legal entrepreneurs are circumnavigating antiquated regulations to respond to these challenges. Many of the points made here are problems that can't just be patched up later. Business plans should expressly state on the cover page that they are confidential and proprietary. In what ways might company contributions to a cause carry more power to impact the cause? You need to nurture an environment in which every member of your organization is able to be creative, add value, and be engaged in the continuous improvement of the firm. Often, ethical thought precedes and sets the stage for changes in the law. Success may also mean treating employees, customers, and the community at large with honesty and respect. The Protestant work ethic looks at the decision from the viewpoint of capitalism, free markets, and a sense of duty to ensure maximum return on investment. Disclosure describes sharing the needed facts and details about a subject in a transparent and truthful way. The challenge: Cash flow is essential to small business survival, yet many entrepreneurs struggle to pay the bills (let alone themselves) while they’re waiting for checks to arrive. On September 15, 2017, the company’s chief information officer and chief of security retired. How important an attribute is income, and at what point would a higher income override for you the nonmonetary benefits of the lower-compensated opportunity? Having a successful business takes a lot of work. Which elements of this case might involve issues of legal compliance? Employees, for example, have an interest in producing expected work for their employer. Behaving ethically requires that we meet the mandatory standards of the law, but that is not enough. These virtues consist of trust and derivatives of trust such as truthfulness. The legal challenge calls on the Government to urgently action the allowing of gatherings of up to 100 people, the reopening of schools, and to commit to a review the lockdown restrictions every two weeks. A code of ethics acts to guide conduct and may be derived from a variety of sources. This creative work can result in a product idea, a new invention, an innovative pivot, or an improvement in an existing product or service. Such values often serve as the foundation for the creation of ethical codes, or codes of conduct. Learn about fresh research and ideas from Harvard The challenges facing entrepreneurs in … For example, if the invention is publicly disclosed to a Japanese national visiting a tradeshow in the United States, then under Japanese patent law, if no patent application has been filed, that disclosure makes the invention unpatentable in Japan. Social entrepreneurs are individuals with innovative solutions to society’s most pressing social, cultural, and environmental challenges. One must ask, what's the reputation of this firm? Acting with integrity means we adhere strongly to a system of ethical values. This concept refers to proprietary information, processes, or other internal knowledge that contribute to an organization’s competitive advantage in a market. To develop a sustained competitive advantage, an entrepreneur is responsible to protect, provide the needed safeguards, and continually grow a firm’s IP. Cash flow management. It is absolutely synonymous. Without such protection, any competitor can legally, even if not ethically, copy the invention, put their own name or company brand on it, and sell it as if it were their own. For example, if the decision to raise the price of a lifesaving drug by 5,000 percent is moral and if it is intended to add value, then an individual is obligated to raise the price. A trademark can be protected for an unlimited number of ten-year renewable terms as long as it is still in use. If you are redistributing all or part of this book in a print format, This is changing, however, as evidenced by the array of codes of conduct and mission statements many companies have adopted over the past century. Common areas rife with potential legal issues include contracts, torts, employment, intellectual property, conflicts of interest, full disclosure/truthfulness in product or service claims and performance, and antitrust/competition law (Figure 3.2). Or at least seek out […] The . IP can take the form of a patent, a copyright, a trademark, or a variation thereof called a trademark secret. We recommend using a When Martin Shkreli decided to increase the price overnight of a lifesaving HIV drug from $13.50 to $750 per pill, the public immediately characterized his actions as unethical. These acts were created to encourage competition and provide options for consumers. Investing in our employees. It could also mean using the tangible and intellectual resources of a company on something that will benefit your private interests instead of your employer’s. Entrepreneurs today need to focus not only on complying with the letter of the law but also on going above and beyond that basic mandatory requirement to consider their stakeholders and do what is right. And what type of firm has long-term customers and employees? Torts are a potential area of risk for entrepreneurs. Financial liability often results from the assumption of and exposure to risk; therefore, this is an important issue for entrepreneurs to manage. This view, known as the “shareholder primacy” doctrine, stems from a famous Michigan Supreme Court case involving the Ford Motor Company and two shareholders named the Dodge brothers (who would go on to form the Dodge Motor Company).3 This case established a precedent that lasted for decades, built on the premise that the only thing that should matter to a CEO and their company is shareholder profits. A corollary of truthfulness is fairness, which means to be impartial, unbiased, and in compliance with rules and standards of right and wrong behavior. Table 3.1 summarizes the contributions of these acts to supporting antitrust efforts. Nearly all systems of moral, ethical, spiritual, and/or religious beliefs stress the building blocks of engaging others with respect, empathy, and honesty. 1. OpenStax is part of Rice University, which is a 501(c)(3) nonprofit. Bagley recently met with Harvard Business School's New Business magazine, and talked about the legal issues commonly faced by entrepreneurs, as well as her thoughts on how to successfully deal with them. INTELLECTUAL PROPERTY 4. The company’s shares fell nearly 14 percent after the announcement, but few expect Equifax managers to be held liable for their mistakes, face any regulatory discipline, or pay any penalties for profiting from their actions. This is especially true for the concept of vicarious liability, which is the area of the law that imposes responsibility upon one person for the failure of another, with whom the person has a special relationship (e.g., employer and employee) to exercise reasonable care. 9 . That way, if a dispute arises, you’ll have documentation to fall back on. This also means that the organization, as a total system, provides consistent, meaningful, and timely consequences for unethical behavior and irresponsible actions. A legal patent gives an exclusive right to its patent holder or proprietor to use the invention in any shape or form they deem necessary. The loneliness often turns into fear and doubt. Entrepreneurship is constantly made out to be "all about the money," but the truth is, that's rarely the real driver behind why we do what we do. Common examples of normative ethical theories are utilitarianism, duty-based ethics (also known as Kantian ethics and/or deontology), and virtue ethics. Excellent legal talent can be retained for relatively little money up front at the early stages. That would severely curtail the entrepreneur’s ability to make money off a product that s/he invented. It is also a fundamental basis for developing and maintaining trust, which is vital to all contractual and informal commitments between businesses and all their key stakeholders. While it remains with the courts to determine the underlying intent, legal implications, and consequences of Shkreli’s decision, evidence from this and other case studies shows that some corporate leaders have not developed ethical capabilities, or they have not internalized a moral compass that enables them to differentiate between right and wrong. This responsibility will enable the entrepreneur to develop a sustained competitive advantage. Knowing what … Read the Ten Principles of the United Nations Global Compact that urges corporations to develop a “principled approach to doing business.” The principles cover human rights, labor, the environment, and corruption. Legal and regulatory challenges for entrepreneurial ventures. Thus, business ethics guides the conduct by which entrepreneurs and their companies abide by the law and respect the rights of their stakeholders, particularly their customers, clients, employees, and the surrounding community and environment. A common factor for all entrepreneurs is the challenge of starting a business, be it through inventing something, looking for a new idea within a business, finding the right opportunity to break into a business or buying into a franchise.And these entire take planning – organizing all the aspects so that the entrepreneur can reach his or her goals. Financial constraint is found out as a general challenge to entrepreneurs of the small enterprises. It will cost much less to get it right at the beginning than to try to sort it all out later and correct it. To introduce the importance of legal issues to entrepreneurs 2. Chapter 9: Legal Challenges for Entrepreneurial Ventures. Serving as a Mentor, Consultant, or Champion, Business Roundtable Official Statement on the Purpose of a Corporation, There are many legal issues facing entrepreneurs, including intellectual property, contracts, antitrust laws, fraud, employment, and torts. However, many employers are not aware that employers can actually be liable for harm caused by an employee if that employee caused harm within the scope of his or her job duties. For Middle East-based entrepreneurs, particular obstacles exist in terms of the lack of larger funding levels and follow-on investment. Which elements illustrate acting legally but not ethically? The IRS then calculates the difference between the price paid at the outset and the fair market value at that later date, then taxes this difference as ordinary income. To review copyrights and their relevance to entrepreneurs 4. But, that would be a mistake. Even just incorporating may spark a lawsuit from the current employer. This may be due to a variety of reasons, including what researchers term a positive effect on business culture, stakeholders, and reputation.6 In other words, being ethical beneficially influences employees, investors, and customers. A few examples of utility patents would be Nikola Tesla’s electric magnetic motor, dynamo-electric machine, electrical transmission of power, and his system of electrical distribution patents. There's a tendency to think, "Once I get my funding, once I'm up and running, then I've got time to hire the lawyers; right now, I'm running as fast as I can to get my business plan done and raising money." This starts with compensating them fairly and providing important benefits. This requires a very high duty of conduct and full disclosure, one that prohibits being involved in both sides of a transaction. This means you should not be satisfied with an occasional spark of creativity from a designated individual, department, or functional area within your organization (such as research and development). Learn vocabulary, terms, and more with flashcards, games, and other study tools. At the end of each year, the company plans to donate to numerous social and environmental causes. While all this is true, challenges faced by entrepreneurs are still common. Older business owners have the advantages of a history of good credit and years of networking under their belt, making it easy to find investors and secure loans and contracts. Laws governing intellectual property 1. Any deliberate attempt to hide, change, or bend the truth is an unethical and irresponsible action subject to criminal investigation. They have a great idea, they know how to execute it, and once they decide to start, no one can stop them. #1: Thinking any legal problems can be solved later. 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