How do entrepreneurs use their resources to start businesses?
In 2007, Facebook, the social-networking Web site, launched an advertising system called Beacon. Under this system, every time a Facebook user purchased a product from a partner company, such as eBay or Amazon, the user’s Facebook friends were automatically notified. Many Facebook members saw this as a violation of privacy. For example, one member bought a diamond ring for his wife, and the surprise was spoiled when his wife and all his friends were informed. Thousands of members signed online petitions protesting the new system.
At first Facebook, which stood to gain huge revenues from advertisers through Beacon, refused to change the system. But when the controversy prompted three big advertisers to threaten to pull out, CEO Mark Zuckerberg did an about-face. He apologized to users and modified the system so that a user could turn off Beacon. Threatened with the loss of revenue, he gave in to his customers’ demands.
Zuckerberg’s missteps with Beacon raised an interesting question: What rights do businesses have when it comes to using information about their customers? In a free enterprise system, businesses clearly have many of the same rights that individuals have. These include the right to own property and to enter into and enforce contracts. Following are other specific rights of business.
The right to advertise. The First Amendment’s guarantee of freedom of speech did not originally protect the right of businesses to advertise. In recent decades, however, courts have ruled that advertising is “commercial speech.” As such, it is protected under the Constitution. With certain exceptions, such as ads for alcohol and tobacco, the government places few restrictions on how companies can market their products.
The right to hire arid fire employees. Most states have “employment at will” regulations that protect a business’s right to hire or fire employees as its needs change. They also protect an employee’s right to quit a job for any reason. The main exception to this rule is when a contract exists between a business and an employee. Unless the contract states otherwise, the employee cannot be fired until the contract ends.
The right to screen employees. Businesses have a legal obligation to provide a safe workplace for their employees and clients. To do so, they have the right to perform background checks on job candidates as well as drug testing on job applicants and employees.
The right to be fairly compensated for property. The Fifth Amendment prohibits the government from taking private property for public use without paying a fair price for it. This right to fair compensation applies to businesses as well as individuals. It ensures that business owners and shareholders will not lose their investment should the government need to take over their property.
The right to protect intellectual property. Businesses are free to use patent, copyright, and trademark laws to protect their exclusive rights to intellectual property. A trademark is a distinctive name or symbol that identifies a firm and its products or services and that has been legally registered as the property of that firm. Other forms of protected intellectual property include trade secrets, company logos, designs, and inventions-in short, any intellectual product that has commercial value.
The list of rights does not answer the question raised by Facebook users about Beacon and its use of information related to their shopping habits. Nonetheless, the users who Signed protest petitions clearly felt that Zuckerberg had a responsibility to act on their privacy concerns.
Businesses. like individuals. have many responsibilities. Some are based on our expectations about how a business should behave. Others are enshrined in law.
Obtaining licenses and permits. Businesses must obtain all licenses and permits required by law. For example, a business that uses or stores hazardous materials is required to get a fire department permit. People practicing certain trades or professions, such as plumbers, electricians, and doctors, must be licensed. Such regulations are intended to ensure public safety.
Paying taxes. Business owners are responsible for paying all taxes that apply to their businesses. These may include income, sales, and property taxes. Businesses that do not pay their taxes are subject to penalties and fines.
Dealing honestly. Businesses have a responsibility to deal honestly with their customers and suppliers. Businesses that intentionally misrepresent facts, conceal information, publish false or misleading ads, or otherwise try to cheat people are committing fraud. Business fraud is against federal and state law and is subject to prosecution.
Honoring contracts. Businesses, like individuals, may choose whether to enter into a contract. However, once entered into, a contract is legally binding. Businesses thus have an obligation to honor their contracts with customers, suppliers. and others. When a contract is broken, the injured party may take legal action.
Creating an equal opportunity workplace. Federal law requires businesses to treat all employees equally. Discrimination on the basis of race, gender, age, ethnicity, religion, or disabilities is illegal. Companies have a responsibility to make sure their employment practices such as hiring, firing, pay, and promotions are nondiscriminatory.
Protecting whistle-blowers. An employee who reports an employer’s misconduct to legal authorities is known as a whistle-blower. In the past, whistle-blowers were often fired for speaking out. However, federal and state laws now protect them from such retaliation.
Ensuring product safety. Businesses are responsible for making sure the products they sell are safe. Federal and state laws govern product safety. When a product is found to be unsafe or defective, the manufacturer may be held liable for any harm it may have caused.
In our free enterprise system, businesses are legally permitted to do a great many things. Cosmetics companies may test products on animals. Farmers may use pesticides on crops. Retail stores may pay wages that are too low for employees to live on. But does that mean businesses should do these things’ On the other hand, there are a great many things that are not required by law-such as giving to charity. But does that mean businesses should not do them.
As these questions imply-and as Zuckerberg learned in the Facebook controversy-there is often a difference between what is legal and what is ethically or morally right. This distinction lies at the heart of the growing corporate responsibility movement.
Corporate responsibility is the idea that businesses should take responsibility for the impact of their actions on society. It requires looking beyond a firm’s responsibility to its shareholders and considering the needs of its stakeholders. A stakeholder is anyone who has an interest in, or is affected by, a company’s actions. Stakeholders include employees, customers, suppliers, competitors, and the community in which the business operates.
A growing number of businesses are striving to be good “corporate citizens” by considering the interests of stakeholders. Stonyfield Farm is one example. This organic yogurt manufacturer gives 10 percent of its profits to groups that work to protect the environment.
Many companies address issues of corporate responsibility by creating codes of business ethics. Business ethics are principles of right and wrong that guide the actions of a company and its employees.
Visualscope Studios, a company that provides Web site design and search engine services to businesses, created the code of ethics below.
We honor and respectfully exercise any authority and/or privileges provided to us by our clients.
We will be upfront with our rates and fees from the project initiation, so you will be clear on what our roles and expectations are.
We will maintain a high level of competence, as well as staying current with new trends in the web design and development industry.
We will always work to the best of our abilities to ensure the timely delivery and success of every web project,
We will protect sensitive information given by clients and customers as private and confidential.
Are ethical business practices important to Americans? The answer seems to be “yes.” In a 2008 study, people were asked how much they were willing to pay for a pound of coffee based on what they knew about the company’s ethical standards. The study showed that they would pay, on average, $9.71 for coffee produced by a company that treated its workers fairly and followed eco-friendly production practices. In contrast, they would pay only $5.89 for a pound of coffee from a company that ignored business ethics. In addition, companies known as socially responsible may have an edge when it comes to attracting a talented and local workforce.
Studies have shown that ethical business practices are important to clients and consumers. Firms with a reputation for high ethical standards also attract talented employees, giving those firms a competitive edge in the market.
At this point in your life, business ethics are probably not something you need to think much about. But as you move into the world of work, that may change. Later on, you will explore the business world from the working person’s perspective. You will also learn about human capital, the labor market, and how you might fit into the labor market one day.