Journal of Business Ethics (2005) 60: 265–279
DOI 10.1007/s10551-005-0134-3
The Reasons behind Non-ethical
Behaviour in Business and
Entrepreneurship
ABSTRACT. Despite the recent increase in interest in
corporate social responsibility and the propagation of
corporate governance in both business and academic lit-
erature, from observations of actual practice, the author
has seen at all company levels, in everyday operations,
instances of non-ethical behaviour vis-à-vis the whole
gamut of stakeholders. This state of affairs is linked with:
pressure from stakeholders, short-term tactics, hegemony
of financial considerations, ‘juridisation’ of business, the
tyranny of communications and the media and the diffi-
culties in translating strategy into practical implementa-
tion. The paper scrutinises the motivation and the
psychology of entrepreneurs and business people, and their
behaviour is compared to other professional groups and
confronted with the decline in ethics in society as de-
scribed by some important observers. The conclusion
drawn is that the recent positive evolutions do not provide
sufficient ethical guidelines for the day-to-day activities of
middle managers and entrepreneurs in the present com-
petitive environment. Managers will always be confronted
by difficult choices with ethical dilemmas. There will
always be a tension between theory and pragmatism, but
progress can be made with the effective implementation of
the ethical discourse in companies. To achieve this, ethical
management should not be confined to the large strategic
issues but also applied to the small practical matters of
everyday business life. Ethics in business and entrepre-
Yves Fassin (  Ghent, Belgium) combines an entrepreneurial
career with an academic activity. He was director of the
Industrial Liaison Office of the University of Ghent and
Secretary-General of the European Venture Capital Asso-
ciation. He is now managing director of a small company and
board member or advisor of some other SMEs and start-ups.
He was a part-time professor at different institutions and he is
a guest professor at the Vlerick Leuven Gent Management
School. His research interests include innovation, en-
trepreneurship, venture capital and IPOs, and business ethical
and corporate governance issues in these fields.
Ó Springer 2005
Yves Fassin
neurship requires more than corporate governance and
corporate social responsibility (CSR).
KEY WORDS: Business ethics, unethical practices,
corporate governance, CSR, entrepreneurship, fairness.
Are ethics progressing in business since the
recent financial scandals?
In recent years, the reputation of business has been
seriously damaged by a range of financial scandals.
Virtually all countries have had their Enron (Elliot and
Schroth, 2002), Parmalat, Ahold, Vivendi, Lernout
and Hauspie or MCI-Worldcom. We have seen cases
with false accounts, manipulation of information,
questionable initial public offerings, corruption of
public agents, personal enrichment of top managers
(Buelens, 2002, p. 15; Byrne et al., 2002). Many of
these cases have led to bankruptcy, personnel being
dismissed and financial losses for the individual
investors. A common feature is unethical behaviour
by high-level managers and entrepreneurs, and also by
professionals – accountants, lawyers, bankers – fol-
lowing conflicts of interests (Hamilton, 2002).
As in most things, only a small proportion of
companies have been guilty of misconduct. A
minority of opportunistic unethical entrepreneurs,
dishonest managers and corrupt business leaders have
damaged the reputation of entrepreneurship as a
whole, despite most businesses being unaffected by
these scandals. Indeed most have put corporate gov-
ernance high on their agenda. Concepts such as
corporate social responsibility (CSR), triple bottom
line, accountability and sustainable development are
gaining importance.
266 Yves Fassin
Can we therefore conclude that, after this series of
scandals, business is again on the ethical path – or
were they just the tip of the iceberg? Are ethics in
business in the twenty-first century progressing or
not? This question was raised during informal dis-
cussions with entrepreneurs in various economic
circles, with industrial federations, with engineering
associations and with business school alumni.
Unethical practices and their actors
Based on observations – and we are not happy to
have to say it – our answer to the above question
must be no: business ethics are receding. Despite the
propagation of corporate governance and the
regained interest in CSR in business and academic
literature; despite numerous conferences on these
issues in industry federations and in business circles
involving the top-level of the larger companies, we
see an increasing number of cases of unethical
behaviour, at all company levels, in their day-to-day
activities vis-à-vis all stakeholders.
This situation seems paradoxical. Press articles pay
attention to corporate governance and CSR more
than ever before, and convey supportive statements
from business leaders on these topics. Business jour-
nalists tend to conclude from this positive evolution
that ethics in business must be improving. They base
this view on the decrease in scandals following the
series of huge financial scandals that had never been
seen before. However, such a superficial analysis gives
an incomplete and biased view of the ethical health of
business. There have undoubtedly been considerable
improvements in corporate governance and in CSR.
However, the reality experienced by entrepreneurs
and managers in day-to-day business life is quite dif-
ferent from the image presented in the press. Indeed,
corporate governance and CSR cover only some as-
pects of business ethics. Improvements are only
apparent in some areas, and the decrease in major fraud
cases should not hide the frequent use of unethical
practices at lower company levels, cases that do not
reach the press.
The numerous cases (see Case Studies) of unethical
practices reported from entrepreneurs’ personal
experiences illustrate various forms of unethical atti-
tudes by entrepreneurs and managers, in a range of
management fields: marketing, negotiation, person-
nel management, supplier–customer relations, gov-
ernment relations. Dubious practices include lies and
deception, breaches of promise, passive corruption,
unfair competition, personal advantages for manage-
ment and the manipulation of communication.
Managers will sometimes transgress their own com-
pany’s code of conduct.
During negotiations, dubious practices are abun-
dant, especially with regard to mergers and acquisi-
tions. Another entrepreneurial field with numerous
unethical practices in recent years has been the start-
up sector with, for example, the dot.com hype.
Ethical issues are involved in the different steps of the
start-up process for innovative companies, from idea
or research project to successful company, concerning
intellectual property, confidentiality of information,
negotiation, marketing and insider trading (Fassin,
2000). Especially the exercise of raising funds and the
final step, listing on the stock exchange, lead to
enormous conflicts of interest.
Some reported cases indicate a high degree of
unethical behaviour, but other dubious practices are
commonplace and sometimes happen unconsciously
but all too frequently. The cases discussed illustrate
real-life stories. Actors are entrepreneurs and manag-
ers, from small companies to multinationals. Some are
CEOs from highly respected companies with their
own ethical codes; others are distinguished represen-
tatives of ‘high finance’. Some have won awards such
as ‘‘Oscar for Export’’, or for ‘‘Enterprise’’ or
‘‘Manager of the Year’’ and have been extolled in the
press. In many cases, the people involved are highly
respected businesspeople, sometimes important
members of employers’ federations, some are mem-
bers of service associations with codes of conduct; but
apparently they apply other principles in their business
attitudes than in their private and social life: rules that
do not accord with their philosophy or their religious
faith.
The secrecy around unethical practices
Unfortunately, such stories are not exceptional. If
one asks entrepreneurs whether they have encoun-
tered cases of unethical behaviour, they will be able
to tell you many stories like these. Perhaps surpris-
ingly, most of these activities seldom get into the
press or media. Most do not go in court. Only a few
cases of large fraud have reached the headlines of the
financial and general press. Most entrepreneurs and
 Reason behind Non-ethical Behaviour
managers decline to participate in interviews and
surveys on ethical issues, citing their busy schedules.
Researchers must also deal with the general hesi-
tancy of business people to participate in ethics
studies (Hannafey, 2003). This situation can be
compared to that of the victims of crimes who are
fearful of being judged as naı̈ve. They do not want
publicity. Moral muteness makes managers decide to
keep quiet and not speak out in situations where
they disagree with circumstances at work (Hem-
ingway, 2004). Entrepreneurs avoid whistle-blow-
ing, probably because they think a press article on a
dispute will be interpreted as a negative message
about both parties, even for the innocent one.
Moreover, it is difficult to write about this because
often there is no way to prove your version of events
(Marshall, 2003). The false player will have made
promises while ensuring that no written traces can
be found that could lead to juridical consequences, a
perfidious effect of the Anglo-Saxon litigation
approach. Apparently, entrepreneurs have learned to
live with this negative trend, and choose to
concentrate on new opportunities.
The major classes of unethical practices
Business life is confronted with an enormous range
and complexity of ethical problems. Unethical prac-
tices appear in many forms (Figure 1); besides out-
right fraud one finds: unfair competition, unfair
communication, non-respect of agreements and
unfair attitudes towards and treatment of stakeholders
(Freeman, 1984) through the abuse of power or due to
conflicts of interest (Crane and Matten, 2004, p. 51).
It is important to try to understand the reasons that
can lead managers and entrepreneurs towards uneth-
ical behaviour. We will thus analyse the motives of
entrepreneurs and their psychology, and refer to other
Figure 1. Main unethical practices in business.
- fraud
- unfair competition
- unfair communication
- non-respect of agreements
- unfair attitude towards, and treatment of, stakeholders
by the abuse of power
in conflicts of interest: personal interests vs stakeholders interests
267
groups in society. Before this, and without entering
into a complete inventory of unethical practices, we
will discuss two major unethical practices that cover
most of the reported cases: the abuse of power and
conflicts of interest between personal interests and
stakeholder interests.
The abuse of power
The abuse of power has increased with globalisation
and with the economic crisis that has placed additional
pressure on managers. Abuse of power is often related
to size: it especially occurs in the relationship between
larger, often multinational, companies and their
smaller suppliers. The practice is frequent in the price
negotiations between customers and suppliers. A
handful of very large supermarket chains dominate
each national market (Crane and Matten, 2004, p.
310) and use their bargaining power to lower prices,
and to stiffen conditions. For many suppliers, super-
markets constitute a significant share of their turnover,
and the buyers know that the supplier can have serious
problems if they lose a major customer. Another
critical sector is the construction business where large
general contractors, generally multinationals, try to
make additional profit by squeezing the prices of their
subcontractors, with little regard to quality and
sometimes for safety. In many industrial sectors,
consolidation and regrouping are ongoing. As a result,
the ten leading companies in the world in many
critical sectors, such as raw materials and industrial
products, now control 50–80% of the market. A re-
cent example of questionable practice is found in the
steel sector, where the three remaining European steel
producers agreed not to raise their production in order
to maintain price levels following an increase due to
the growing Chinese demand. In fact, they adopted
the methods of the oil cartel.
268
With the globalisation of the world’s economy,
new ethical problems have arisen on a world level:
multinational companies seem prepared to shift
production units from one country to another with
lower salary costs. As a result, many factories in
Western Europe have cut numerous jobs, while
working conditions in subsidiaries, or at subcon-
tractors in the newly industrialised countries, are
significantly inferior (Klein, 2000; Ziegler, 2002).
Among the most powerful companies are the
financial institutions. Cases of abuse of power by
banks are frequent. They have a lot of money at their
disposal, funds which some entrepreneurs desperately
need. Too often, with precise timing at some critical
moment, they make use of this power to obtain
warranties, more than are really needed, or in some
cases to force decisions onto entrepreneurs. In some
cases, they leave them no other choice but to sell
their company. In their defence, banks have also been
abused by unethical entrepreneurs who gave the
bank misleading or false information.
Conflicts of interest
In all actions, there is a duality between the common
interest and personal interest. In business, this reflects
the contradiction between company interest and the
interest of the individual. Some external parties try
to use this dilemma to obtain better conditions for
their organisation by giving some personal advantage
to the contact person. Small gifts, presents, invita-
tions to an event or a trip are incentives used in
normal business life, in order to promote a better
understanding and friendship. A buyer who is reg-
ularly treated by the seller may not be looking out
for the best buy for his company, but to optimise
their personal benefit. Some selling methods go too
far and lead to bribery and corruption. The seeking
of personal advantage is to the detriment of the best
interest of the buyer’s organisation, company or
public service. Pharmaceutical companies offer
important travel incentives to medical doctors, in the
belief that they will then favour the prescription of
their drugs, and also to university medical professors
who can influence the doctors.
Conflicts of interest between private companies
and politicians are numerous in some countries.
Lobbying activities are necessary to obtain contracts
Yves Fassin
with public services, or to be taken into consideration
when entering a bid. In many countries, there is even
collusion between some politicians and large com-
panies that fund the political parties in the expectation
or hope of an economic return. The boundaries be-
tween lobbying and corruption are sometimes trans-
gressed, making use of ingenious systems of indirect
payments through overpaid consultancy reports or
other indirect favours to the family of the politician or
to his community. In the case of public tenders, var-
ious methods can be used to reject some contractors
and to favour others, who are then often in a position
to impose expensive supplemental charges (Borman).
Difficult conflicts of interests are found in the
overlaps between business and government, with
politicians being offered director’s seats on the
boards of large companies, and with businesspeople
active in politics at the highest levels (Economist,
1999; Crane and Matten, 2004, p. 402).
An important conflict of interest has emerged in the
last decade through bonus and stock option schemes,
culminating in the dot.com hype. The apparently fair
idea was to link the management’s objectives to the
company’s objectives. Good results would give a
significant bonus to management and, later, stock
options were introduced following the example of the
start-up companies and venture capital investments.
This unfortunately resulted in questionable practices,
with a focus on very short-term gains. ‘‘Through lies
and deception, the inner circle achieved personal
goals of greed and focused on managing the stock first,
the business second, and strategic value last’’ (Elliot
and Schroth, 2002, p. 13).
One can also question the role of investment
bankers and venture capitalists (Fassin, 1993), and
their advisors, consultants, lawyers and accountants, in
important IPO (initial public offerings) and M&A
(mergers and acquisitions) activities in recent years.
Other conflicts of interests arise in small and med-
ium-sized companies, and especially in family busi-
nesses. Vehement disputes between shareholders over
power and control of companies have caused great
damage. The unequal treatment and the consequently
different remuneration of active and non-active family
members is a common source of conflict. Minority
shareholders are often unfairly treated or eliminated
through questionable methods. Such problems fre-
quently occur after the retirement or death of a
founder who has not prepared their succession.
 Reason behind Non-ethical Behaviour
The rise of unethical practices in business
We have observed that non-ethical behaviour occurs
at all levels in business. Most cases, fortunately, do not
have the magnitude of the scandals seen in the press,
but they exist in a range of forms. Somewhat unfair
attitudes are multiplying rapidly in business, especially
when times are difficult. A danger is that people do not
even realise their behaviour is inappropriate. The
fading away of norms has perfidious effects. Some
managers even believe that certain ‘dirty tricks’ are
good management practices: delaying payment to
suppliers to improve the cash flow is seen as efficient,
even if a different agreement was made. Just-in-time
management has led, in some cases, to the extreme
situation that, in order to win the contract, a supplier
will promise to deliver on time, knowing in advance
that he cannot deliver, and that he will have to find an
excuse or hope the customer’s behaviour will justify
the delay. An honest entrepreneur who admits that he
cannot meet the extreme requests will have no chance
of the contract and excludes himself from the com-
petition.
Another danger is the snowballing effect: if a sup-
plier is not paid on time, he in turn is unable to pay his
own suppliers. In some extreme cases, the only de-
fence measure is to refuse to deliver, again a rather
unethical practice, and in some cases approaching
blackmail. Thus, unethical behaviour encourages and
breeds other unethical practices in business.
This may lead to the simplistic conclusion that
business is bad; and business cannot be ethical. Such a
judgement is too easy, especially when coming from
the protected position of the academic or ethicist.
Business is not bad, it is just difficult – and, in difficult
times, the first goal of a business is to survive. This is
valid for a company, and also for an individual, and
thus for the individual within a company: the manager
or the entrepreneur.
It is therefore worthwhile to analyse the reasons
behind non-ethical behaviour in business.
The roots of non-ethical behaviour in
business
There are different sets of reasons for the rise of
unethical behaviour in business (see Figure 2): some
are the consequence of the general evolution of
269
society, others are basically due to the evolution of
the business environment and to its internal orga-
nisation.
The evolution of society in recent decades has
been characterised by the increasing individualism of
people. The Anglo-Saxon dominant business model
has increased the importance of money in society
and the glorification of material consumption
(Capra, 2003, p. 230). In our modern society, the
media have acquired a disproportional importance.
The role models offered by television have not
always constituted good examples, on the contrary:
media reality shows and political talk shows often
favour superficiality and show, rather than thor-
oughness and honesty.
The globalisation of the economy has had harmful
side effects. It has led to larger structures, with more
centralisation, and a greater concentration of power.
The race to increase productivity leads to deper-
sonalisation as the distance between head office and
the anonymous workers increases. It is easier for a
CEO of a multinational to close a factory and to lay
off thousands of workers far away from the head
offices in Paris or Detroit, than for the boss of a small
family company to lay off people he knows per-
sonally from having worked with them for several
years.
The dominance of financial considerations is
another evolution in business and society. The sys-
tem is now focused on the short-termism of the
stock market. This favours immediate results.
Financial communication is gaining in importance.
Business leaders have learnt to use the system, and in
the financial media we can see a prevalence of show
over content. Shareholder value is the ultimate value
of the business: harsh decisions are taken with the
excuse of shareholder value, hiding behind the
anonymity of the individual investor.
Another consequence of the dominance of the
Anglo-American business model is the ‘juridisation’
of business. Every important deal is signed and laid
down in a contract. Here again, a perfidious side
effect is that many business people use the letter of
the contract rather than the spirit of the contract.
Worse, the contract is often invoked over some-
thing that is not explicitly stated in the contract,
rather than trying to solve the problem. To avoid
being sued, managers are very prudent when per-
petrating unethical acts: they make sure that
270 Yves Fassin

Figure 2. The reasons behind non-ethical behaviour in business.

the pressures from stakeholders: shareholders, personnel, customers, suppliers, banks,
government, media, environment

the evolution of society - the individualism of people - norms

the globalisation of the economy
the short-term tactics
the dominance of financial considerations
short-termism of the stock market – anonymity of the individual investor
the 'juridisation' of business – Anglo-Saxon model
the inefficiency of the juridical system for business: time and cost

the disproportional importance of communication/media

the prevalence of show versus content: bad examples
the role models - television: media reality shows – politics - sport
the reward and evaluation system of business and of managers: results – stock price
the difficulty to translate a strategy from the top into practical implementation

the motives of business: money and power, achievement and success, honours
the psychology of entrepreneurs - rationalisation

nothing is written down and that their responsi-
bility cannot be proved.
Paradoxically, the inefficiency of the law, the slow
pace of justice, is another reason for the recent
increase in unethical practices. Some claims are
legally defendable, others are not because they are
based on good faith, on promises without written
agreement. However, even with the law on your
side, it is very difficult, costly and time-consuming
to win a court case. Even then, it will not restore the
harm done to the company, especially the oppor-
tunity costs of a lost contract at a given time. It
cannot restore the lasting harm done to people who
have lost their jobs because of a missed order.
Some entrepreneurs deliberately abuse the imper-
fections of the juridical system to perpetrate unethical
actions. They know that the cost of a lawsuit is dis-
proportionate to the loss of a deal, especially with
international transactions. They will sometimes use
this to negotiate a discount under pressure. In such
situations, litigations are long and costly: moreover,
they take time, and absorb a lot of management’s
energy which should be directed to the development
of the business.
On the other hand, many instances of unethical
behaviour are not illegal: ethics goes beyond the law.
Other cases are difficult to prove, and the imper-
fections in the justice system are a real handicap in
encouraging business ethics.
Some of the reasons for non-ethical behaviour are
features of the internal organisation: the rewards and
evaluation systems of business and of managers are
not always in line with the long-term vision. Fur-
ther, there is considerable difficulty in translating the
strategy set at the top into practical implementation
at the lower levels. Contradictions are not easily
handled by more junior managers.
Entrepreneurs operate in a dynamic environment
with many uncertainties such as changes in compe-
tition, changes in technology, supply and demand
fluctuations, labour issues, legal and public envi-
ronmental regulations (Hannafey, 2003). Modern
business is subject to pressures from all stakeholders
on top of time pressures, scarce resources, social and
financial pressures, and stiff competition. Share-
holders want better value and a better stock price;
managers look for their bonuses, and the personnel
strive for higher wages and better working condi-
 Reason behind Non-ethical Behaviour
tions; customers expect a higher quality at a lower
price; suppliers seek to raise their prices; banks look
for interest and guarantees; the government antici-
pates collecting taxes and imposes constraints on
business. All these stakeholders exert some pressure
on the entrepreneur, who thus has to juggle with all
kinds of constraints and contradictory expectations
such that ‘‘Entrepreneurs experience powerful
competitive market pressures so keenly that these
forces may alter their perspectives on ethics’’
(Hannafey, 2003; referring to Chau and Siu, 2000).
The motives of businesspeople and
entrepreneurs and their psychology
One should not forget an important factor that
strongly influences the ethical behaviour of compa-
nies: the motives driving businesspeople and entre-
preneurs. Business is about money and power.
Entrepreneurship is about achievement and success.
Business is working with people – and people are
not perfect. Research on negotiation has identified
three major dimensions that may lead individuals to
unethical conduct: first, greed and the pursuit of
profit; secondly, the nature of competition and the
desire to beat the other party in a competitive
environment; and thirdly the need to insure or
restore some standard of justice that may have been
violated (Levicki et al., 1994, pp. 379 & 404).
Managers pursue advancement, sometimes at the
expense of others (Andrews, 1989). Entrepreneurs
strive for success and some are very opportunistic.
The power game and short-term tactics are impor-
tant instruments they may use, or misuse, in business
competition.
As in all human activity, the psychological side is a
very important facet in business. Entrepreneurs want
to succeed; the last thing they want to do is fail.
Given the predominant cultural values, failure in
business – a very realistic possibility in many start-
ups – has a very negative connotation in our
European society. Unlike in America, a second
chance is seldom offered. Entrepreneurs will con-
sequently try to avoid failure by virtually all means
open to them. Nevertheless, they may be confronted
with a crisis situation, where the life of the company
is at stake. In these situations, pressures from all sides
are tremendous: social pressures from the workers
271
and their unions; pressures from suppliers and their
lawyers and bailiffs who want to be paid; financial
pressures from banks that may hold guarantees
against personal or family property, and result in
added pressures from the family. Commonly, the
biggest fear is having to admit failure to friends,
relatives and to the community in which they live.
Overnight, the privileged status of a successful
businessperson is transformed into that of a loser.
Without condoning, one can understand that even
an honest entrepreneur, facing such difficulties and
pressures alone, who can see a possible last-resort
solution to what is seen optimistically as a temporary
problem, may be tempted to an ethically question-
able expedient as the least worse option. In fact,
‘‘numerous rationalisations lead to unethical behav-
iour from usually intelligent, honest people who
transgress the border between right and wrong’’
(Gellerman, 1986).
On the other hand, some entrepreneurs have a
large ego and seek media attention and honours. The
increasing interest of the media in business has also
extended the star system to vainglorious entrepre-
neurs. ‘‘Business leaders, like many of their financial
journalist friends are part of the celebrity movement.
Some CEOs often act like rock stars during inter-
views with the financial media. It is show biz for
business’’ (Elliot and Schroth, 2002, p. 125). The
press became less critical of business, and created the
image of the CEO as hero, while ‘‘leading business
schools played a role in legitimising the culture of
easy money in the late 1990s’’ (Coutu, 2003). Some
well-known CEOs got involved in many side
activities, some linked to other investments, on
boards of directors, some in activities close to their
interests in sports or culture (another potential
source of ethical dilemmas concerning sponsorship
etc.). In this media frenzy, some were diverted from
their main task as CEO by the highlights of the jet-
set society, sometimes with unfortunate conse-
quences for their main business. Some of these
reputable managers secured their own retirement
plans with huge premiums and additional highly
profitable consultancy agreements. These advantages
were mostly accorded without shame or scruples,
legally but with little transparency (Buelens, 2002, p.
15).
For some opportunistic entrepreneurs the slogan
is: ‘get on, get honest, get honours’. At the start of
272 Yves Fassin
their careers they are very rude, very aggressive;
once they have grown rich, they get more honest to
gain respectability, may even do charity and phil-
anthropic work; and finally they gain honours. From
the alcohol trade during prohibition in the US, to
the Russian oligarchs, the history of business is full of
success stories where the founders have built their
fortune on ethically questionable businesses or
dubious business methods. Many new entrepreneurs
in countries that have recently adopted the free
market economy, such as China, Russia and other
Eastern-European countries, have taken advantage
of the absence of regulations to build fortunes in a
very short time without taking ethical considerations
into account.
The decline of ethics
Some observers argue that one cannot expect better
because, in business, the law of the jungle prevails.
This is an oversimplification: rules and regulations
have been introduced in business practice precisely
in order to make trade and exchange possible –
business needs an environment of trust. Former
Chairman of the IBM Board, John Akers, stated that
‘‘any competitive system requires ethical standards to
remain viable over the long term’’ (1989, cited in
Levicki et al., 1994, p. 377).
We are conscious that we have perhaps painted a
rather negative and pessimistic view of business. As in
any profession, a small minority create a bad image of
the whole community. Fortunately, not all entre-
preneurs and managers are unethical. Most are
dependable, in fact the vast majority of them. How-
ever, due to the external pressures and to the ambition
to succeed, unfair and unethical practices have in-
creased in daily business, at all levels of the company.
The business community reflects the wider soci-
ety. It shows the same diversity in its composition,
from serious people to less serious ones: many
honest, incorruptible people, and some crooks. We
observe the same diversity in ethical behaviour
within other influential professional groups such as
medical doctors, academics, civil servants, politi-
cians, lawyers, journalists and sportsmen. Managers
and entrepreneurs may be more action-driven, more
dynamic, more ambitious than the average person.
They combine ingenuity and innovation with
management vision and entrepreneurial talent.
Entrepreneurs have a drive to succeed and seek
constant challenges. Most of them want to be the
best in their field, just as others in their chosen
professions; and most of them are hard and serious
workers. Entrepreneurs may be more pragmatic and
more opportunistic than many. Money may be a
greater motivation in their values scale and objec-
tives, although one can see the same opportunism
and greed for money among representatives of the
other professions.
Entrepreneurs want, above all, to be successful –
just as in other professions. Some are capable of
anything in order to achieve this goal, just as are some
sportsmen, some politicians and some other profes-
sionals. Some people are ready to use all means, even
to tread on corpses to achieve their ambitious goals.
Ethics are, in the final analysis, a very personal issue:
they are related to the personal integrity of the
individual, to their values scheme, and to their
resistance to pressures (Andrews, 1989). Hisrich has
suggested that core values implanted by family
members, teachers and mentors in early life may
influence or even determine an individual entrepre-
neur’s ethical standards (cited in Hannafey, 2003).
We can find the same variations in ethical attitudes
within another important group: undergraduate stu-
dents – the managers and leaders of the future. Ethical
studies have shown that – notwithstanding their
strong disapproval of ethical misconduct in business –
they seem to be more indulgent in their own ethical
attitudes towards such practices as cheating in exams
(Grimes, 2004; Lawson, 2004). It is alarming to note
that students from business schools scored lower in
ethical attitude tests than others (Smyth and Davis,
2004). One may fear that without appropriate sensi-
tising to these issues during their education, and later
in their work, that they will appeal to similar ratio-
nalisations when confronted with ethical dilemmas in
their professional life.
Some observers also comment that some people do
not always behave in a completely ethical way in their
private and social life. Some people cheat in amateur
sports and in games. Why then should one expect
them to be wholly ethical in business situations? Most
social observers believe there has been a significant
moral decline in our society, and an increased fre-
quency of ethical violations by businesspeople, poli-
ticians and public figures, in the worlds of sports,
 Reason behind Non-ethical Behaviour
religion, business, politics and even academic circles
(Levicki et al., 1994, p. 487). Umberto Eco is any-
thing but optimistic about the future of ethics, not
only in business but also in general. He observes that
the role models of the past – heroes, saints and sages –
people whose morality stood above the rest of man-
kind, have been replaced by the mediocre personages
of soaps and reality shows with low moralities (Eco,
2000). Other researchers such as Capra see the
changes in the value system underlying the global
economy as the greatest challenge of the twenty-first
century (Capra, 2003, p. 229).
Ethics in business and entrepreneurship
requires more than corporate governance
and CSR
The practical experiences of entrepreneurs and the
analysis of the reasons for the increase of unfair
practices in modern business and entrepreneurship
lead towards our conclusion: ethics has a long way to
go in business.
However, we do see recent positive events. The
response of the financial and business world to the
financial scandals of recent years has seen increased
attention given to corporate governance, for corpo-
rate social responsibility and sustainability. However,
the positive impact of this renewed attention is any-
thing but universal. The field of application is rather
limited. Corporate social responsibility focuses mainly
on social issues. Corporate governance is primarily
focused on the functioning of the board of directors,
although it also includes executive accountability and
control, and executive remuneration.
While these are strategic policies at the top level,
they do not provide an adequate response to the small
practical matters of everyday activities in business life.
Corporate governance and CSR do not provide
adequate practical ethical guidelines for middle
managers and entrepreneurs in the present competi-
tive environment. Codes of conduct and even ethical
charters have limited impact. Their implementation
within an organisation is not always thorough. Many
unethical practices have been observed in companies
with a code of conduct, with an ethical charter, with
corporate governance or with CSR.
In our analysis, we have identified internal, external
and personal reasons to explain – but not to justify or
273
to approve – why managers and entrepreneurs
sometimes make use of unethical practices. It seems as
if the CSR policies and codes of conduct were
introduced in corporations during prosperous times
but that, when business becomes harder and more
difficult, they tend to be forgotten and seen as a luxury.
It seems that a corporation has to be economically
successful to meet its social and environmental
responsibilities.
We must also accept that there will always remain
difficult choices for managers regarding ethical
dilemmas, and especially so in difficult times. There
will always be tension between theory and prag-
matism. However, progress can still be achieved,
even in ethical matters in business.
Conclusions
Business ethics goes beyond the individual policies of cor-
porate governance or CSR: ‘‘Business ethics is the
application of moral principles to everyday business
problems’’ (Hanson and Brady, 2000).
Paraphrasing the definition of corporate gover-
nance as ‘‘doing the right things, and doing the
things right’’ (Tim Melville Ross, 1996), we would
define business ethics as doing the correct things, and doing
the things correctly; doing honourable business, and doing
business honourably.
Managers also have to realize that ethics goes
beyond the strict requirements of the law. The fair
treatment of all stakeholders should be the ultimate
objective of an ethical company. What business
needs is real and effective business ethics: a renewed
ethical attitude is necessary at all levels. Ethical
management cannot be confined to the big strategic
issues: it also concerns the small practical matters of
everyday business life.
Ethics in business and entrepreneurship requires more
than corporate governance and CSR. Entrepreneurs’
circles, industrial federations and business schools
should all support critical thinking about business
practice. Business leaders should implement the
ethical discourse throughout their entire organisa-
tions. It is their role to align the firm’s culture with
the core values of society.
A key action is to reinstall fair play in business and to
promote fair trade practices in relation with all stake-
holders. It starts with an appropriate attitude by and
274
towards all individuals in the entire organisation.
Respect of agreements and respect of one’s word,
are sound business practices in accordance with a
sense of honour in the business community.
Case studies in ethical misconduct in
business and entrepreneurship
Literature offers numerous definitions of ethics.
Crane and Matten (2004, p.8) define business ethics
as ‘‘the study of business situations, activities, and
decisions where issues of right and wrong are ad-
dressed’’. Based on Jones‘s definition of ethical
decisions (Jones, 1991, cited in Chau and Siu, 2000),
here we define an ethical practice as a practice ‘‘that
is both legal and morally acceptable to the larger
community, while an unethical practice is a practice
that is illegal or morally unacceptable to the larger
community’’.
In the following cases, we will present a number
of situations where questionable ethical behaviour
occurred. They are based on real business life situ-
ations, but for the sake of conciseness and respect of
anonymity, the cases have been adapted, simplified
and sometimes combined. Most of the cases were
reported from the experiences of fellow entrepre-
neurs, with a few cases taken from the press.
They illustrate events in a range of management
fields: negotiations, personnel management, sup-
plier-customer relations, government relations and
marketing. As a reader, you can judge the ethical
behaviour of the actors in the situations described in
the various cases.
The first series of cases illustrate payment prob-
lems, contradictions between a CEO’s external
message and internal directives, passive corruption,
unfair competition, unfair treatment of suppliers,
fraudulent bankruptcy, personnel issues, personal
advantages for top management and the manipula-
tion of communications.
Case A 1 – Payment problems
A contractor receives an order for the fitting of doors and
windows, after a final negotiation round in which the
CEO of the general contractor proposes paying cash pro-
vided he is allowed a 2% discount. The work is done, and
the contractor sends in his bill. After one month, there is no
news. In a telephone follow-up, several excuses are given.
Yves Fassin
After two months, the general contractor claims a technical
problem as the reason for non-payment. After a final reg-
istered letter, the customer pays, and still deducts the 2%.
The same CEO of the general contractor man-
aged to eliminate his partners through questionable
practices in another company, active in soil remedial
work; a company that holds a certificate issued by an
ethical society.
Case A 2 – Supplier-customer relations
A mechanical engineering company specialising in quality
welding produces stainless steel frames as a subcontractor to
a machine constructor. This latter company is acquired by a
world class company, quoted on the Belgian stock ex-
change. On the occasion of its 25th anniversary, the cus-
tomers and suppliers are invited for a celebration. In his
speech, the CEO of the group, a former ‘‘Manager of the
Year’’, assures: ‘We want partnerships with our customers,
with our suppliers’. Two weeks later the supplier is sum-
moned by the operational manager of the plant; and in a
rather rude and blunt style he is told: ‘You have to reduce
your prices by 15%. This is an order from top manage-
ment’. The company was trying to impose equal cost
savings across the board, not only in the electronics business
where prices were generally falling but also in other sectors
where margins were tight. Moreover, the customer had not
fulfilled previous agreements with his supplier concerning
quantities and payment terms.
There was a clear mismatch between the external
message and the practical implementation, a con-
tradiction between the CEO’s policy and the
internal directives.
Case A 3 - Corruption
A contractor is in competition for an important public
contract. His competitor is a friend of the head of the
purchasing department of the public service. This official is
invited every year to spend two weeks in his competitor’s
villa in Saint-Tropez, on the French Riviera. In return,
the competitor receives in advance – and informally of
course - some important information which enables him to
put in a better bid.
Case A 4 – Newcomer
A few years ago, a new telecom operator wanted to enter a
foreign market. He approached personnel from various com-
petitors offering them a substantial salary increase and a
stylish car. This resulted in a twenty-five percent salary raise
 Reason behind Non-ethical Behaviour
in the sector. Two years later the company withdrew from the
country.
Case A 5 – Subcontracting and personnel
A multinational telecoms company had worked for many
years with a local subcontractor for completing mechanical
jobs. A new, important project for the Ministry of Defence is
under discussion and, as in the past, the multinational invites
the subcontractor to submit a price range for the job. The
proposed bid is accepted. The project, however, is delayed for
a few years. When the project is finally launched, the sub-
contractor is invited to submit operational plans and a detailed
price offer, with an explicit (oral) assurance that, as in the
past, he remains the multinational’s preferential partner.
Relying on his positive experiences, the subcontractor does not
insist on a letter of intent. Times are rather difficult, the
defence budget is limited and the multinational is under
pressure. Once the detailed price offer has been received, the
multinational starts shopping around and exploring other
sources. They propose to split up the job and to substantially
reduce the subcontractor’s part. Moreover, they request the
subcontractor to hand over the detailed drawings so as to be
able to include them in the official offer. In good faith, the
subcontractor delivers but, for months, silence prevails. What
has happened? The subcontractor’s project manager was hired
by the multinational. They used the drawings and detailed
offer to shop around, and divide up the job. The subcon-
tractor, for years the multinational’s preferential partner,
received no compensation for the effort put into the technical
study.
The company claims integrity in their employee’s
behaviour as a major value in its mission statement.
Case A 6 – Fraudulent bankruptcy
The financial situation of a company is deteriorating rap-
idly: sales are declining, banks refuse additional loans and
suppliers want cash payment. Bankruptcy is inevitable.
The weekend before declaring bankruptcy to the court, all
the machinery is removed from the workshop during the
night. A few weeks later, with the help of puppet figures,
the entrepreneur starts up again, in different premises,
taking on only the best workers, leaving the curator with
unpaid debts to the bank and to the suppliers, but without
any assets to realise.
Case A 7 – Management and shareholder
A general manager of an important industrial company
enters into conflict with his chairman, the main shareholder.
A deal is finalised, involving the legal councils of both
275
parties, to put an end to their collaboration. Two months
later, the chairman refuses to execute the terms of the
agreement, arguing that he was not entitled to sign on
behalf of this specific company.
A few years earlier, the chairman had received a
lot of press coverage for introducing corporate
governance in his group, inviting well-known and
respected businessmen and even a former minister to
join his board of directors.
Case A 8 – Company funds for private works
A classical accounting trick is realising works for private
purposes at the company’s expense. This trick is not re-
served for small companies. In 1995, Pierre Suard, CEO
of Alcatel in Paris, was investigated for the abuse of social
funds due to the lavish expenditure on the protection of his
private residence, but ironically not for an important stock
option package at a very favourable price he had benefited
from previously. He was sentenced and had to resign
(Economist, 1995 & 1999).
Case A 9 – Marketing, public relations and financial
communication
The Flemish high-tech company Lernout & Hauspie,
specialising in speech recognition software, made clever use
of several marketing and public relations techniques in its
financial communications in order to support the stock price.
The founders were awarded the title of ‘‘Manager of the
Year’’. On regular occasions, important guests, ministers
and even the Crown Prince were invited to visit the com-
pany, with wide press coverage. The Belgian astronaut
Dirk Frimout was hired as manager for education.
Important well-known people were invited to have a seat on
the Board of Directors of a daughter company, among them
a former Belgian prime minister. The company worked
with lots of universities on R&D projects, and with top
consultants, auditors and lawyers, giving an impression of
professionalism. All these actions reinforced the credibility of
the company, building up an image of good corporate
governance. A new CEO, with high-level experience with
Apple, was hired, and it was announced that he had
bought 25 million worth of shares, as evidence of his
commitment and belief in the company’s bright future. The
communication of this information to the financial press
reinforced the reputation of the group for thousands of
private investors. When the group collapsed a few months
later, the communication policy turned out to be pure
manipulation (NRC, 2000).
276 Yves Fassin
The criterion for distinguishing good from bad
behaviour can either be the law or an ethical
standpoint. Some entrepreneurs and managers con-
sider their attitudes as correct provided no law is
transgressed. The borderline between the legal and
the ethical points of view may be rather fuzzy. Ethics
is not always black or white; there is a grey area in
between. In many situations, managers regularly
experience ‘‘ambiguity, incomplete information,
multiple points of view and conflicting responsibil-
ities’’ (Andrews, 1989). Moreover, ethics evolve
over time and are influenced by cultural elements.
What prevails: the letter or the spirit of the contract?
In some of the following cases, management’s ac-
tions may be legally correct; but nevertheless one can
question the ethical attitudes of the actors. The cases
concern false play by a bank, the use of the small
print in a service contract, false play in international
tenders, and a credit stop by a bank.
Case B 1 – Influence of the bank
Two years after a management buyout, the financial results
of a textile company are not very good. The bank feels
uneasy and refuses an additional credit line. After several
discussions, they suggest that the manager of the firm
contacts the investment bank of their group to look for a
financial partner. The entrepreneur accepts the proposal and
has to pay a start-up fee. A few days before the study is
finalised, the bank transforms its mortgage mandate into a
firm one, with significant additional costs and without
informing the entrepreneur, in contrast to the previous oral
agreements with the bank’s director.
A week later, the study is presented to the entrepreneur.
It argues that his company has lost its intrinsic value, and
that it will be very difficult to find a partner. It advises the
entrepreneur to sell the business for a very low price to a
competing group with available cash and with experience in
turning businesses around. The bank applies additional
pressure to force through such a deal, in reality to solve the
bank’s potential problem and to transfer the risk to a
company with a lower risk, all this of course at the expense
of the entrepreneur.
The bank has Chinese walls in its internal rules;
which forbid the transfer of information between
departments.
Case B 2 – Architecture contract
An architecture company is awarded the architectural con-
tract for a new building for a local business school. The
architect produces a plan that exceeds the original budget by
more than fifty percent. The school, supported by local
industrial sponsors, does not want to make use of debt
financing, and decides to stop the project and move to hired
facilities. The architect refers to his standard contract which
stipulates that, in case of non-execution of the project, half
of the architect fee is due: even if the decision not to build
was partly due to the architect exceeding the budget. He
refused to drop this claim, referring to the contract, and only
accepted a minor abatement.
Case B 3 – Compensation or penalties
An international firm was awarded a contract for the supply
of helicopters to the Army. The bid was selected on the
basis of their proposal which promised a considerable vol-
ume of subcontracting to local manufacturers. However, the
head office had calculated that it was cheaper to pay the
stipulated penalty than to effectively use local subcontract-
ing. In doing so, the international firm reneged on its
obligation, and unfairly took the contract away from its
competitors who would have respected the agreement.
Case B 4 – Credit stop
A company is planning to construct a new building for its
offices and workshops, and a financial loan is agreed, long
in advance. However, the time involved in the acquisition
of the site is lengthy due to administrative problems. In the
meantime, the company has the opportunity to move to
new hired premises and decides to suspend its new office
building project. After the initially agreed period has ex-
pired, the bank sticks to the ‘‘small print’’ and annuls the
contract claiming the missed interest payments in compen-
sation for the non-observance of the contract. Despite the
initial oral agreement, the bank refuses any change or
transfer of the loan to other investment projects of the
company, cashing in the money without any risk.
A decision in total contradiction to the bank’s
marketing campaign promoting its flexibility.
Negotiations frequently lead towards discussions
between commercial partners. Here also, dubious
practices are abundant. Every entrepreneur will
recognise the following dirty tricks, applied in var-
ious forms, according to the business.
Oral agreements are made between the salesperson and
the customer. The written offer that follows does not include
all the points of the discussion. When executed, the com-
pany sends a bill to cover the supplements promised by the
salesperson, but not included in the written offer. The final
 Reason behind Non-ethical Behaviour
price is higher than other, comprehensive, offers that were
rejected.
A customer invites a price quotation based on ten units,
then orders only three, but at the reduced price for ten. In
other cases, an additional order of twenty pieces is promised,
provided you agree to deliver the first three at a discount.
The additional order, of course, never comes.
The price for an important contract is based on initial
discussions. Once the price is agreed, the client sends a
contract of fifteen pages, with a lot of warranties and
penalties, and payment conditions, which where never
discussed before.
Your company has the best qualitative offer in a public
tender: it is complying with the various requirements of
quality certification, accreditation as an entrepreneur, etc.
However, in the end, a lower offer is accepted although it
does not meet the specified qualifications.
Your company employs well-trained qualified personnel
and you comply with all the legal obligations. Your com-
petitor is more flexible, uses less-qualified labour from
foreign countries and pays part of the salary in a flexible
way, avoiding the 150% salary premium for overtime
hours.
In matters of ethical misconduct, mergers and
acquisitions deserve a special mention. How many
surprises are discovered after acquisitions, with
information that was distorted, problems that were
hidden, shortcomings that were not mentioned by
the seller and which lead towards claims and law-
suits? Conversely, breaches of promise by buyers are
countless. Confidentiality is crucial in many deals,
especially in merger and acquisition negotiations, but
although confidentiality clauses are signed, they are
all too often ignored.
The following three cases illustrate: bad practices
in a takeover, the refusal to discuss warrantees after
acquisition, and the use of information obtained for
other purposes.
Case C 1 – Integration policy
An investment banker approaches a local stockbroker in
order to extend his network in the north of the country. A
common strategy for integration is agreed and signed. After
several meetings between the president of the stockbroker’s
board and the investment banker’s management to assure
the agreed strategy would be followed, the deal is finalised.
One year later, the integration model that was agreed is
abandoned in favour of the banker’s previous strategy. In
fact, it appears that the investment banker’s strategy was
277
just to gain market share. A similar case on the multi-
national level was the merger of Mercedes-Benz with
Chrysler, initially presented as a merger of equals. A year
later, the German CEO revealed in an interview in the
Financial Times that he had never intended to have
Chrysler as an equal partner in the long run, but wanted
the American company as a part of the German con-
glomerate (Crane and Matten, 2004, p.186). In the
meantime, his own salary had been increased to American
standards.
Case C 2 - Warranties after acquisition
A financial group is divesting its industrial activities. An
SME (small or medium sized enterprise) is in the running
for their acquisition. All information requests are handled
correctly. The seller even signals an important piece of bad
news during the negotiation phase – the failure of an
important customer - and consequently agrees to a down-
ward adjustment to the initial price. A contract is signed
including the usual warranties. A few months later the
SME wishes to invoke one of the warranty clauses. Since
the negotiations had proceeded satisfactory, the simple oral
communications to the seller’s representative were not
backed up in writing. Further discussion is delayed because
of timetabling problems with the seller’s contact person.
Months later, the SME learns that the CEO of the
financial group has withdrawn all authority to negotiate
from his contact person. The SME’s general manager re-
quests a meeting with the CEO of the group which is first
refused but then agreed to. Then, the CEO delegates this
issue to his secretary, but without any decision-making
power, who then invites the SME boss to state his claims in
writing. The response from the CEO states that the con-
tractual period for invoking the warranty clause has expired.
The CEO of this group is also an independent
board member of several distinguished financial
institutions, all with ethical codes.
Case C 3 – Customer-supplier relations
A large French listed company proposes acquiring its
Spanish subcontractor, after a successful partnership of
twenty-five years, because of its strategic value. A memo-
randum of understanding is signed and considerable infor-
mation is exchanged between the partners. A price is
agreed, subject to due diligence and the usual warranties. A
few meetings later, the manufacturer informs the subcon-
tractor that the project is delayed by one year because of
other priorities. Two months later, the management of the
French company is removed. The subcontractor requests a
278 Yves Fassin
meeting with the new French manager. This is refused, and
on the question of the future of the agreement, the response
is frank and brutal: ‘all your discussions with my prede-
cessors are invalid. Nothing is signed’. A few weeks later,
the purchasing manager puts additional pressure on the
subcontractor to obtain lower prices.
The stock exchange listed company lists ethical
behaviour as one of its priorities on its website.
Another entrepreneurial field with numerous
dubious practices in recent years has been the start-up
sector, with the dot.com hype. The first case study in
start-ups presents an instance of theft of intellectual
property; the second case illustrates the use of mis-
leading information in the business plan for fundrais-
ing and the elimination of minority shareholders.
Case D 1 – Patenting – intellectual property
A university laboratory had developed a new biotechnology
technique. A business plan for a start-up company was
established with the governmental investment company,
and with two private companies, active in chemicals and
petrochemicals. At the same time, one of the engineers of
the chemical company was taking action to establish a
patent in his company’s name, without informing the
laboratory and the other partners.
Case D 2 – Start-up and investors
A start-up entrepreneur had developed a new software
package for the printing of labels, an innovation with
commercial potential in the distribution sector. With the
help of a consultant, he wrote a business plan, which he
then presented at a meeting of the ‘‘business angels’’ net-
work. The business plan foresaw sales starting in the second
quarter and breakeven after two years of operations.
The entrepreneur convinced two industrial companies
and two business angels to invest in this start-up. After two
months, it transpires that the software is far from completed,
and that additional investments are needed, as well as extra
manpower. Further technical problems cause a delay of
more than one year. Additional capital is provided by a
new industrial partner who joins the team. The new
partner delegates one of his managers to support the
entrepreneur. After three months, he proposes a new
strategy with simultaneous introductions of the product in
several countries, in order to quickly gain market leadership.
This accelerated strategy would require significant addi-
tional investment, including a guarantee for the main
supplier. The original investors are not able or not willing
to invest extra funds in the company. Two of them leave,
and sell their shares to the new investor; the third will not
reinvest but accepts dilution; the fourth hesitates and waits
for more detailed information, but refuses to sign any
guarantee and requests application of corporate governance
principles.
The new investor saw this new activity as a core business
for his group and wanted control of the young company. He
threatened to withdraw his efforts which would lead to
bankruptcy. In a rude and aggressive style, he further
menaced the initial partners and attacked them for being
responsible for this potential bankruptcy.
After a few weeks of discussions, the two initial
investors, who did not want to live with permanent
infighting, decided to regretfully resign and sell their
shares.
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Yves Fassin
Vlerick Leuven gent Management School,
Reep 1,
B 9000,
Gent,
Belgium.
E-mail: y.fassin@skynet.be