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Ethics for entrepreneurs

Article · May 2022

DOI: 10.20935/AL5418

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 ACADEMIA Letters
Ethics for entrepreneurs
Ronald Jean Degen, Faculdades Ibmec - RJ

In his book Capitalism, Socialism, and Democracy, Schumpeter introduced his famous term
“creative destruction” to explain why capitalism will prevail over socialism. He explains that
capitalism, contrary to socialism, promotes creative destruction, constantly sweeping out old
products, old enterprises, and old organization forms, replacing them with new ones. The
entrepreneur, he posits, is the pivot on which everything turns, whether they operate in big
firms or small ones, old companies, or startups. They are the agents of innovation and cre-
ative destruction. Their projects are the wellsprings of new jobs, higher incomes, and general
economic progress. However, in releasing their creative energies, rising entrepreneurs shove
older ones aside, destroying their dreams and often their fortunes. Sooner or later, most busi-
nesses will fall victim to creative destruction, sometimes damaging whole communities as
well as individuals (Schumpeter, 2013; McCraw, 2007).
Schumpeter further explained that capitalism also developed the seeds of its destruction
—not for economic reasons, but for social ones. At its worst, capitalism can reduce all human
relationships to crass calculations of personal costs and benefits. It can elevate material values
over spiritual ones, despoil the environment, and exploit the foulest aspects of human nature
(Schumpeter, 2013; McCraw, 2007).
However, suppose capitalism can somehow be balanced, argues McGraw, with noble hu-
man purposes. In that case, it becomes the economic equivalent of the famous old adage about
democracy often credited to Churchill, democracy is the worst possible system except for all
the others. For despite its flaws, capitalism alone has fostered the scientific, technical, and
medical innovations necessary to lift humanity out of a life that was poor, nasty, brutish, and
short (Schumpeter, 2013; McCraw, 2007).
As agents of creative destruction, entrepreneurs have constantly created innovations that
have changed how we live and interact with organizations, companies, and society. Two ex-

Academia Letters, May 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ronald Jean Degen, rjdegen@gmail.com

Citation: Degen, R.J. (2022). Ethics for entrepreneurs. Academia Letters, Article 5418.

1
amples illustrate the impact of innovations on our lives. Mark Zuckerberg created Facebook
in 2004, which pioneered today’s social media trend. The smartphone was invented by Steve
Jobs in 2007. Together with social media, this changed how we interact with our environment,
particularly the way we interact with our families, friends, and colleagues.
Unfortunately, not all the changes brought by innovations are positive. Instead of bringing
people together, smartphones and social media are distancing them. It is sad to see people
sitting at a dinner table viewing their smartphones instead of using the opportunity to talk to
each other. Everywhere, if we see somebody alone, they are using their smartphone instead
of reading a book or using their imagination to think. The smartphone encourages a rapid,
distracted sampling of small bits of information from many sources without the need to think
or use imagination and creativity (Carr, 2010). It promotes what Carr (2010) labeled the
shallow society.
Additionally, McLuhan (1964) explains that popular media mold what people see and how
they see it – and eventually, if they use them enough, it changes who they are as individuals and
within society. By contrast, a conversation or reading a book focuses on a subject, encouraging
imagination, creativity, and critical thinking. In essence, discussions and books enhance a
person’s knowledge over the collective knowledge induced by the media.
The paper’s purpose is not to criticize smartphones or social media; it illustrates that
innovations like smartphones and social media can positively impact society. However, if
not adequately managed by the entrepreneurs that created them, it may also have significant
negative impacts. To avoid these negative impacts, entrepreneurs must understand what is
right and what is wrong for society and the environment from an ethical point of view. This
paper aims to expose this ethical point of view to help entrepreneurs create, develop, and
manage their innovations.
Schumpeter was right in his pessimism about the future of capitalism. Today’s share-
holder capitalism, championed by Friedman (2020) and the Chicago School of economists,
was responsible for the tremendous economic progress over the past few decades, especially
in the United States. On the other hand, it has also brought about significant social, eco-
nomic, and environmental downsides. The focus of shareholder capitalism lies exclusively
on the profit of shareholders, ignoring all other stakeholders of the enterprises, which leads to
rising inequalities in terms of wealth, income, and opportunities. This, in turn, increases the
tensions between the haves and the have-not, and above all, causes mass degradation of the
environment (Schwab, 2021).
The wealth and income inequality produced by shareholders capitalism build on one an-
other and create a vicious cycle of grooving inequality (Chancel et al., 2022). An example is
the American wealthiest 1% who grew their control over corporate America in the last decades

Academia Letters, May 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ronald Jean Degen, rjdegen@gmail.com

Citation: Degen, R.J. (2022). Ethics for entrepreneurs. Academia Letters, Article 5418.

2
and now own more than half the stocks held by US households, according to Goldman Sachs
(Wigglesworth, 2020, February 11). Additionally, the relentless pursuit of profit of the share-
holder’s capitalism has led to increasing degradation of the environment and overproduction
of waste and pollution (Schwab, 2021). To counter wealth and income inequality and envi-
ronmental degradation, Schwab (2021) proposed that we substitute shareholder capitalism for
stakeholder’s capitalism, where corporate decisions should be optimized to benefit all stake-
holders rather than only to benefit shareholders.
When conceiving of an innovation, developing a venture, or managing one, entrepreneurs
must understand that simply targeting profits is not enough in today’s world to succeed. To-
day’s more conscious consumers, investors, and shareholders expect that new ventures con-
tribute positively to reducing inequality by giving a fair share of gains to all stakeholders,
particularly collaborators and local communities, and contributing significantly to reducing
environmental degradation, waste, and pollution (Schwab, 2021).
For entrepreneurs to find the right balance of making sure that benefits are distributed
among all shareholders when creating, developing, or managing a venture under the umbrella
of shareholders capitalism, Dunham et al. (2008) recommended that they use Aristotle’s
“practical wisdom.” In his classic book Nicomachean Ethics, Aristotle explains that ethics
is not about establishing moral rules. It is about making fundamental social choices, and
making the right choices requires wisdom. Ethical practices can help decisions only in so far
that they can tell entrepreneurs how to make the consistent interpretation, and balancing of
benefits that is part of their everyday work (Schwartz & Sharpe, 2010).
Entrepreneurs need to understand that they must wisely follow their proper ethical aims
and goals. Practical wisdom combines will with the ethical skills of entrepreneurs. Skills
without a will, the desire to achieve the appropriate ethical aims, can lead to manipulation to
serve certain interests. Furthermore, will without skills leads to ineffectual fumbling around.
There is no recipe or formula for entrepreneurs to become practically wise. Entrepreneurs’
ethical skills are learned through experience, and will is acquired through the commitment to
ethical aims (Schwartz & Sharpe, 2010).
Paul and Elder (2019) explained that, to develop ethical skills, entrepreneurs must use
ethical reasoning to evaluate their acts, those which enhance the well-being of others—that
warrant praise—and those that harm or diminish the well-being of others—and thus warrant
criticism. The authors point out that developing ethical reasoning skills is crucial because
human nature bears a strong tendency toward egotism, prejudice, self-justification, and self-
deception. They wrote, “At the root of every unethical act lies some form and degree of self-
delusion. And at the root of every self-delusion lies some flaw in thinking” (Paul & Elder,
2019).

Academia Letters, May 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ronald Jean Degen, rjdegen@gmail.com

Citation: Degen, R.J. (2022). Ethics for entrepreneurs. Academia Letters, Article 5418.

3
 Ethics is frequently confused with other divergent modes of thought, leading to failure to
act with ethics while assuming ethics. It is essential to distinguish the fundamental ethical
principles from social conventions, religion, and the law in order to avoid this. When ethics
are confused with these different modes of thinking, it is typical for conflicting social values
and taboos to replace the fundamental ethical principles (Paul & Elder, 2019; Degen, 2018).
As agents of innovation and creative destruction, entrepreneurs promote the economic
development of regions and countries and, at the same time, are responsible for the positive
or negative impact of their innovations on our society and environment. The decisions they
make in creating, developing, or managing their businesses have consequences for the welfare
of all the stakeholders in the business, our society, and the environment. These decisions can
increase or decrease the quality of their stakeholders’ lives and our society and preserve or
degrade the environment.
Entrepreneurs must understand and evaluate how their decisions positively or negatively
impact their stakeholders, our society, and the environment. To understand the impact of
their decisions, they must put themselves imaginatively in the place of their stakeholders and
ordinary people to recognize how the decisions will affect them and the environment if another
entrepreneur acted as they are planning to act (Paul & Elder, 2019).
Entrepreneurs make decisions under great uncertainty about the future. Consequently,
they must use imagination to see the various possible impacts of their decisions, have the
necessary empathy to imagine what others are thinking and feeling, and visualize the possible
consequences for the environment. Aristotle emphasized two capabilities in his practical skill:
to deliberate about decision choices and to perceive what is ethically relevant in each circum-
stance. Good deliberation and discernment are at the heart of Aristotle’s practical wisdom
(Schwartz & Sharpe, 2010).
Empathy, the capacity to imagine what someone else is thinking and feeling, is critical for
the kind of entrepreneurs’ perception that practical wisdom demands. According to Swartz
and Sharpe (2010), such empathy involves cognitive skills—the ability to perceive situations,
brought about by their decisions, as others perceive them—and emotional skill— the capacity
to understand what others are feeling.
Practical wisdom demands more than the skill to be perceptive about others, as Schwartz
and Sharpe (2010) explained. The authors posited that it also requires of entrepreneurs the
capacity to perceive themselves clearly, assess their own motives for their decisions, admit
failure when things go wrong, and figure out what has worked and or not and why.
Schwartz and Sharpe (2010) pointed out psychology has brought evidence that entrepreneurs,
like all human beings, are born with the capacity to be wise in the sense that they can develop
the ethical skill of just the kind that wise judgment requires. The authors elucidate that the

Academia Letters, May 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ronald Jean Degen, rjdegen@gmail.com

Citation: Degen, R.J. (2022). Ethics for entrepreneurs. Academia Letters, Article 5418.

4
raw materials to act ethically are in every entrepreneur, waiting to be developed. However,
this capacity must be cultivated by entrepreneurs who want to act ethically by living out the
good experiences in their lives.
Unfortunately, people have a powerful tendency to judge the world from a narrow, self-
serving perspective (Paul & Elder, 2019). Entrepreneurs are no exception. For this reason,
Degen (2018) proposed that business professors orient future entrepreneurs and corporate
leaders toward understanding how to behave and decide when confronted with the myriad of
ethical dilemmas of the business world and build the foundations of practical wisdom .

Academia Letters, May 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ronald Jean Degen, rjdegen@gmail.com

Citation: Degen, R.J. (2022). Ethics for entrepreneurs. Academia Letters, Article 5418.

5
 References
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Chancel, L., Piketty, T., Saez, E., & Zucman, G. (2022). World Inequality report 2022. World
Inequality Lab. Retrieved from: https://wir2022.wid.world/

Degen, R. J. (2018). How business school professors can assist in reducing today’s lack of
ethics in business. Revista Ibero-Americana de Estratégia - RIAE, 17(2), 6-17.

Dunham, L., McVea J., & Freeman, R. E. (2008). Entrepreneurial wisdom: Incorporating
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Academia Letters, May 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Ronald Jean Degen, rjdegen@gmail.com

Citation: Degen, R.J. (2022). Ethics for entrepreneurs. Academia Letters, Article 5418.

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