Cowboys, criminals and visionaries: from 'can do' to 'should do' in entrepreneurship
NEIL E. BÉCHERVAISE
Divine Word University
COLIN G. BENJAMIN
Australian Graduate School of Entrepreneurship
From pirates and warlords to accountants and corporate raiders, successful business practice has always incorporated a degree of volatility. At the same time, business leaders have too frequently neglected social responsibility in their pursuit of expanded reach, market advantage and, ultimately, increased profit. In a climate of immediate economic uncertainty, the need for responsible practice has become central to recovery from an ongoing global recession. Strategic differences between commercial, moral and social entrepreneurs point to the need for a more integrated theory of entrepreneurship.
Successful entrepreneurial activity is based in sound moral principles. As a consequence, this paper observes that exploitation, corruption and criminality may masquerade as business in the short term but are unsustainable in the longer term because they detract from the common good. Instead, it is argued, innovative business is good business when it generates a net increase in social capital. As such, it is necessarily grounded in morally accountable and socially beneficial behaviour.
For some, this position seems untenable. It appears to neglect market turbulence, opportunity exploitation and the moral relativism that is claimed, increasingly, to be an essential feature of political survival. For others, it creates a justification for not-for-profit adventurism.
This paper argues that the economic focus of most entrepreneurial activity is misplaced; that effective entrepreneurship has its basis in promoting a net increase in social capital. In consequence, effective definitions of entrepreneurship must be grounded in that social advantage from which economic advantage must necessarily arise.
With specific reference to a range of entrepreneurial activity ranging from criminal to opportunistic, from well intentioned to visionary, this paper explores the increasing demand for transparency in business activity and the necessary demand for a sound moral position undergirding innovation within a culture of socially responsible entrepreneurship.
MORAL AND SOCIAL ENTREPRENEURSHIP
Sometimes it takes years of debate for philosophers to discover what they really disagree about. Sometimes they talk past each other in long series of books and articles, never guessing at the root disagreement that divides them. But occasionally a day comes when something happens to coax the cat out of the bag. "Aha!" one philosopher exclaims to another, "so that's why you've been disagreeing with me, misunderstanding me, resisting my conclusions, puzzling me all these years!" (Dennett, 1988)
As celebrated cases of the neglect and abrogation of moral responsibility emerge increasingly from the international business community, public awareness of the entrepreneur as a socially responsible actor and agent has become increasingly sensitive.
In this climate of growing interest, Bechard’s (2006) demonstration of evolving patterns of research convergence offers at least an awareness of those earlier cries of Shane and Venkataraman (2000) and Low (2001) for more coherent approaches to entrepreneurship research; a response to what Benjamin (2006) has identified as the pursuit of a new market space under conditions of Pareto Optimality with Nash Equilibria (Benjamin, 2006).
Hannafrey’s (2003) review of literature reveals that, in the last twenty years of the twentieth century, there was an explosion of interest in entrepreneurs and the social impact of their activities, indicating that:
Entrepreneurs face uniquely complex moral problems related to basic fairness, personnel and customer relationships, distribution dilemmas and other challenges. (Hannafrey, 2003:p99)
Fisscher, Frenkel, Lurie and Nijhoff (2005) point towards an intense love-hate relationship between entrepreneurship and ethics in which, on the one hand:
… entrepreneurs, who are regarded as creative innovators, are praised for their contribution to the development of society … [while] on the other hand, entrepreneurs are often criticised for a one-sided pursuit of business success and being willing to compromise moral values. (Fisscher, et al., 2005:p207)
Kao (1995) extends this positive subjective stance with the notion of consequences and cost-benefit perspective in which both the individual and society must stand to gain from the processes of change and innovation. Introducing a critical social dimension, Kao observes that:
We want to fit entrepreneurship within our own terms, and hence, drug traffickers, criminal bosses, people in business who deliberately harm others for financial gains, and people exploiting the earth for the simple sake of making a profit and regardless of the future, consider themselves to be entrepreneurs ...Therefore, entrepreneurship is not merely about business, it must be considered as an individual’s attitude, and a way of life. (Kao, 1995, pp. 83)
Accepting the centrality of success in business to social well-being, nevertheless, Kao argues that: “The wealth-creating and value-adding responsibility is not just for business persons, but also for every single individual on earth.” (Kao, 1995, pp. 83)
In this context of moral responsibility, Kao proposes that:
Entrepreneurship is the process of doing something new (creative) and something different (innovative) for the purpose of creating wealth for the individual and adding value to society. (Kao, 1995, pp. 83-84) (Our emphasis in italics)
As early as 1928, Schumpeter had asserted that:
The essence of entrepreneurship lies in the perception and explanation of new opportunities in the realm of business...it always has to do with bringing about a different use of national resources in that they are withdrawn from their traditional employ and subjected to new combinations. (Schumpeter, 1928, p. 361)
Schumpeter’s position suggests that entrepreneurial activity provides a break from equilibrium pathways toward the creative destruction of a prior equilibrium state by reducing its personal risk and lowering its uncertainty, through novel and hence market space-creating activity.
For Schumpeter, the greater ability to recognize opportunities was a function of a person’s creativity, whereas for Knight (1921), it had been a function of a person’s intelligence and foresight (Shane, 2003). Having introduced the critical dimension of ‘social value’ to address issues of relationship between the individual and society in managing wants, values and demand, Schumpeter (1909) further observed that these contribute to social marginal utilities as an influence on achieving a social equilibrium outcome.
Almost half a century and an economic depression later, Milton Friedman (1970) offered a more Machiavellian, less morally intrusive and, for many, more appealing interpretation to entrepreneurial freedom which stressed the objective, dispassionate stance of making as much money as possible while conforming to the basic rules of society, such that:
There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. (Friedman 1962, p133) (Our emphasis in italics)
Friedman’s range of technically acceptable behaviour provides no basis for setting ethical and moral boundaries. What can and cannot be accepted as entrepreneurship appears innocent of the unethical behaviour of corporate cowboys, criminals and possibly well-meaning social entrepreneurs seeking to promote their own private values or the special interests of their particular cause.
DEFINITIONS OF ENTREPRENEURSHIP
Following Friedman’s (1970) dictum, commercial entrepreneurship need only aim to creating profitable operations resulting in increased profits - within the constraints of what is legal and what can be sustained over time.
Social entrepreneurship is the underlying drive to create social value, rather than personal and shareholder wealth (e.g., Zadek & Thake, 1997; Béchervaise & Bourke, 2003) as a means of redressing a perceived social imbalance.
The central driver for social entrepreneurship is the social problem being addressed. The particular organizational form a social enterprise takes becomes, necessarily, a decision based on which format would most effectively mobilize the resources needed to address that problem (Wei-Skillern, 2006).
In seeking to redress imbalance, to right wrongs or to reduce inequality, social entrepreneurship offers a deficit model that maintains an often-acute consciousness of the potentially undesirable consequences of changes in the previous status quo. Despite its focus on redressing imbalances between rich and poor, currently evolving definitions of social entrepreneurship retain a profit focus while redefining the intended beneficiary (e.g. xxxxxx, date).
In essence then, the fundamental purpose of social entrepreneurship is delivery of a net social reduction in the disparity between identifiable groups within society – albeit promoted by well-intentioned ‘voluntary’ or, at least, Not-for-profit organisations such as World Vision, Medicin sans frontierres or The Salvation Army.
In contrast with social entrepreneurship, the central driver for moral entrepreneurship is a promulgation of alternative patterns of thought and behaviour that may not have the support of the current majority of the population or even widespread community acceptance. More importantly, they may demand an uncomfortable paradigm shift from the quantitative ‘certainty’ of identifiable profit (and loss) towards a qualitative intention to increase social well-being.
This shift from profit towards social well-being highlights questions of moral behaviour and social responsibility that extend beyond Friedman’s minimalist and essentially amoral position towards the apparently completely amoral definition proposed by Stevenson (1983) which reduces entrepreneurship to, “The pursuit of opportunity without regard to resources currently controlled.” (Stevenson, 1983, p. 131)
Upon reflection, Stevenson (2004) considers that his definition takes into account both the individual and the society in which the individual is embedded. The individual identifies an opportunity to be pursued, and then, as an entrepreneur, seeks the resources from the broader society. Stevenson suggests that his 1983 paper and subsequent works emphasise the ‘how’ of entrepreneurship rather than the ‘who’ or ‘what’ (Stevenson, 2004).
A successful appreciation of entrepreneurship in the context of moral responsibility, beyond working within the law while still making the highest possible profits, must involve intentions concerning the dynamic fit between a set of individuals, an opportunity derived from a particular context and the social consequences of the deals they make.
For the moral entrepreneur, an ultimate increase in individual and social well-being, regardless of monetary profit, represents successful entrepreneurship. How this success might be quantified remains irrelevant to the intention of the act or its impact on the specifically disadvantaged social groups who focus the intentions of the social entrepreneur – with such a definition, poverty might be simply eliminated by removing the poor or, as American President Donald Trump has suggested, ring-fencing and deporting them! .
While the individual entrepreneur need only become aware of an emerging opportunity to capture personal benefits, both social and moral entrepreneurs must look beyond the short-term gain to the longer term social impact of intervention in the market process on behalf of those with less power and influence. Because the social entrepreneur has identified a quantifiable difference between a selected group and others in society, any reduction in the deficit between groups may be represented a success. For the moral entrepreneur, success may be less tangible, in the shorter term at least.
Withdrawing the primacy of the financial profit motive, the fundamental purpose of moral entrepreneurship becomes effective delivery of a net social improvement to the public good.
SOME THEORETICAL CONSIDERATIONS
The paradigm shift from a purely profit-driven perception of entrepreneurial activity towards a wider social commitment and then to the apparently visionary and altruistic moral pursuit proposed in this paper requires entrepreneurship to deliver benefits for both the individual and society as a whole. Meanwhile, triggers for entrepreneurial activity and measures of entrepreneurial success remain predicated in projections of individual or shareholder return. More explicitly, factors impacting economic return are accepted as factors impacting social well-being. After all, it is argued, social well-being depends on access to an ever-expanding range of consumer products and services! How these ‘factors impacting economic return’ might be impacted by a shift to moral entrepreneurship can only be considered, at this point, in essentially self-referencing terms.
Market failure: It has been argued that social-purpose organizations emerge from perceived market failure. When commercial market forces do not meet a social need such as equality of access to services or benefits (Weisbrod, 1975, 1977), e.g. the inability of those needing goods and services to pay for them, or the failure of contracts to be fulfilled (Nelson & Krashinsky, 1973), social welfare agencies become essential to maintaining basic services.
In the market failure scenario, a problem for the commercial entrepreneur is an opportunity for the social entrepreneur who is looking for non-tangible benefits that may justify intervention in the process of free market forces. Where the market failure represents a failure to maintain essential services, as in widespread famine, fire or flood, the opportunity for social entrepreneurship appears more generally attractive.
Resource mobilization: Commercial entrepreneurs need to gain access to resources beyond their immediate control by persuading other people of the benefits that might be captured by bringing forward profits to be derived from first mover advantages in opportunity exploitation. The persuasion of an indigenous group to cede mineral rights over ancestral land to a miner, of a tenant group to their expropriated accommodation rights or farmers to the crops they choose to grow regardless of market demand offer unambiguous examples of resource mobilisation.
Moral and social entrepreneurs must also give consideration to the levels of risk and uncertainty about outcomes for both the individual and society that may arise at some later stage due to inadequate consideration of community and societal impacts of market intervention. Embryo stem-cell research, in-vitro fertilisation and human drug testing offer simple examples carrying immediate profit and longer-term social implications. Clear-fell logging and open-cut mining provide less obvious examples when they are countenanced to maintain expanding social services.
While commercial, social and moral entrepreneurship may each improve the benefits to be derived from any given access to resources, the moral and social consequences of choices have significantly different time and scope imperatives.
Performance measurement: Commercial entrepreneurs can apply their superior alertness and capacity to capture private benefit from changes in social infrastructure, economic and social changes and breakthroughs from publicly funded research and development initiatives. Moral and social entrepreneurs face the greater hurdles of probity, transparency and establishing public trust that they will not seek private gain at the expense of the public purse. Again, the differences are not in the measurement of performance of alternative applications of resources but in the identification of the moral and social implications of opportunity costs and alternative use of scarce resources.
Entrepreneurial intention: Many different and useful approaches have been used to describe and to analyse entrepreneurship. These have tended to fall within three main streams of research, which include a focus on:
· the results of entrepreneurship,
· the causes of entrepreneurship, and
· entrepreneurial management
(Stevenson & Jarillo, 199l)
The causes and results of entrepreneurship are each predicated upon the intention of the entrepreneur to make a profit. In contrast, the management of entrepreneurship may offer scope for moral decision-making in planning the entrepreneurial act.
RESULTS OF ENTREPRENEURSHIP