Chapter 13

Management,
Leadership, &
Ethical Practices

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 Chapter Learning Objectives
1. Identify leadership styles.
2. Describe the basic tasks handled by managers.
3. Develop your organizational culture.
4. Determine your organizational structure.
5. Understand the functions of human resources
management.
6. Pursue ethical leadership to build an ethical organization.
7. Incorporate social responsibility into your company.

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The Entrepreneur as Leader

leader - a person who gets things done through influence, by

guiding or inspiring others to voluntarily participate in a
cause or project.
• No matter who you hire to manage your company, you will
set the tone for how the business operates.
• Are you disorganized and chaotic? Chances are your
company will be, too. Are you honest and straightforward?
• Your managers and employees are likely to behave
similarly.

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Leadership Styles That Work
• As your business grows, the
type of leader you are will be
reflected throughout your
company.
• Some leadership styles are
more conducive to internal
competition, whereas others
foster teamwork and a
collaborative environment.
• Companies like Wal-Mart and
Home Depot invest significant
sums to create a work
environment that inspires and
motivates their employees.

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Leadership Styles That Work
According to researcher Daniel Goleman, the principal styles
and their advantages and drawbacks are:

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How Entrepreneurs Pay Themselves

• Before you hire employees, figure out how to pay your

first employee—yourself.
• Once your business is breaking even, decide how you
will distribute the profit on a cash-available basis.
• The decision you make will affect your financial record
keeping and your taxes, so think it through.

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How Entrepreneurs Pay Themselves
• The choices are:

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 Manage Your Time Wisely

• Leaders learn how to manage their time, so that they can

accomplish more with less.
• One of the most important things you can do is to learn
how to manage your time efficiently.
• Getting more done in less time can contribute to success.
• Time-management issues are also more difficult for
leaders who cannot let go of decision making and
involvement in every aspect of the company, even when
they should delegate responsibilities.

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Manage Your Time Wisely

Some tips that can assist in increasing such effectiveness

include:
• Prioritize. Know what is important.
• Set realistic daily goals, allowing for customer contact,
meetings, and some flexibility for surprises.
• Don’t spend too much time on e-mail. It is easy to
become distracted by nonessential correspondence.
• Avoid letting your attention get caught up in portable
electronic devices.

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 Manage Your Time Wisely

• Schedule sit-down meetings only when they will be more

efficient than other less time-consuming methods of
communication.
• Only accept meeting invitations where your presence is
required in order for progress to occur.
• Delegate responsibility and authority and trust your team;
hire the best people for the job and support them in their
success.
• Remember to allow yourself downtime, play time, and
creative thinking time.

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Business Management: Building a Team

• As a business grows, it reaches a point where the

entrepreneur and a few employees can no longer handle
operations efficiently.
• At that stage, the company will need professional
management.
• Many successful entrepreneurs are creative individuals
who get bored with the everyday details of running a
business.
• Or, they simply dislike managing employees or recognize
that their strengths lie elsewhere.

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What Do Managers Do?
There are numerous descriptions, conceptions, and
misconceptions about what managers do and do not do with
their time. Their four primary functions are:

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What Do Managers Do?

Three types of planning:

strategic plan - typically a three- to five-year overall
design to achieve long-term growth, sales, and
positioning goals for a business.
tactical plan - a short-term (one year or less)
implementation that has limited, specific objectives.
operational plan - the stated short-term methods for
achieving tactical goals.

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Adding Employees to Your Business

recruitment - the act of finding and hiring employees.

• One of the most important things a business owner
does is to bring in capable, motivated people.
• It is a major decision to become responsible for the
wages and salaries of others.
• For many entrepreneurs, the decision to hire is an
agonizing one because they fear having to let the
individual go at a later date or are not comfortable
giving up some control.

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 Adding Employees to Your Business

Some possible ways to bring

good employees into your
business are:
• Bring them in as partners.
• Hire experts to accomplish
specific tasks on a
contractual or hourly basis.
• Hire someone as a part-time
or full-time regular
employee.

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Adding Employees to Your Business
There are specific steps in the recruiting process:

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Adding Employees to Your Business

job profile - identification of the knowledge, skills, and

abilities required to perform the specific tasks of an
employment position.
position description - the explanation of the knowledge,
skills, and abilities of a job profile, as well as the
position’s reporting and working relationships, plus its
goals and objectives.
interview guide - a document to assist in question
development regarding an individual’s knowledge, skills,
abilities, and interests.

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Adding Employees to Your Business

behavioral interview - dialogue designed to determine the

fit of a prospective employee with the requirements of a
position, using prior-experience examples.
job offer letter - a formal written invitation extended by an
employer to a candidate selected for hiring that states
basic employment terms, such as the position offered,
starting date, and salary.

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 Growing Your Team
• Once you decide to add employees to your company, it
could take considerable time and effort to identify and hire
the right talent.
• Even in times when the economy is weak and
unemployment is high, qualified candidate pools may be
thin.
• You may have to find individuals to bring into your
organization, rather than waiting for them to come to you.
• If you are growing rapidly and are looking for a skilled,
educated workforce or if you are hiring executives,
recruitment may be the key to successful hiring.

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Growing Your Team
Some ways to find the employees that will fit your company
include the following:

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Creating and Managing Organizational Culture

• A primary role of the founding entrepreneur is to convey

the vision for the company and to foster its culture.
• The culture of an organization is the shared beliefs,
values, and attitudes—informally referred to as “how
things are done around here.”
• The culture of an entrepreneurial firm can be its
competitive advantage.
• The culture you create for your business should be a
strategic translation of your vision and mission into
norms, values, and behaviors.

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 Determining Organizational Structure

• As you create and grow your company, you will change its
organizational structure for your evolving requirements.
• Initially, you may be a one person band, handling all
responsibilities yourself.
• Or you may have a founding team that is a centralized locus
of control, with team members serving in multiple roles.
• Whatever organizational structure you choose for your
company at each stage of growth, it should be a strategic
decision.

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 Determining Organizational Structure

line organization - a business structure in which each person

reports to a single supervisor.
line and staff organization - a business structure that
includes the line organization, plus staff specialists (such as
attorneys) who assist management.
span of control - the number of direct reports for a manager
or supervisor.
chain of command - hierarchy of reporting and
communications.

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Determining Organizational Structure

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Getting the Best Out of Your Employees

• When you hire people, treat them fairly and with

respect.
• Respect for individuals, diversity, and a balance of
work and family will create a culture that affirms the
value of employees.
• Employees who are valued are likely to want to go the
extra mile for their employers.

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Getting the Best Out of Your Employees
Follow these basic guidelines to be a good to excellent
employer:
• Get the right people.
• Taking the time and effort to fill positions with
personnel who fit is at least half the battle.
• Know each employee’s knowledge, skills, abilities,
interests, and character traits.
• Provide a competitive salary and superior working
conditions.
• Share your vision for the company and create an
environment that encourages buy-in to your goals.

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 Getting the Best Out of Your Employees

• Give employees incentives to work effectively.

• Ensure that the incentives match the company’s goals and
objectives and do not skew results.
• Empower employees by giving them control over their work.
• Provide career opportunities and training and development.
• Communicate expectations and goals clearly, and provide
ongoing feedback and recognition.

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Human Resources Fundamentals

human resources the segment of a business that hires,

trains, and develops a company’s employees.
• Human resources is commonly referred to as HR,
human capital, casting (Disney’s term), or personnel.
• For a business just starting out, it may not be practical
to have a director of human resources, and the
founding entrepreneur will handle these tasks.
• A company will probably not need a full-time human
resources professional until it has 20 or more
employees.

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Human Resources Fundamentals
For companies of sufficient size, each of the following areas
might represent one or more full-time jobs in the HR
department.

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 Human Resources Fundamentals

Among the laws and tax issues of concern:

• Payroll taxes
• Equal Pay Act of 1963
• Fair Labor Standards Act
• Title VII of the Civil Rights Act of 1964
• Age Discrimination in Employment Act (ADEA)
• Americans with Disabilities Act (ADA)
• Immigration Reform and Control Act of 1986 (IRCA)

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Performance Management

performance appraisal - the formal process used to

evaluate and support employees’ work performance.
• You can maintain and build your team through appraisal
and thorough follow-up.
• The keys to valuable performance appraisals are
planning and consistency.
• Performance appraisal is an opportunity to communicate
goals, establish training and development needs, and
provide feedback to increase productivity and employee
retention.

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Firing and Laying Off Employees

severance - pay that is continued for a limited time to an

employee who has left a company.
• Sometimes you hire someone and it just does not
work out, even after repeated attempts to fix the
problems.
• If you have to let someone go, you should document
the reasons as they occur.
• You can be sued for wrongful termination, or breach of
contract, if an employee believes he or she was fired
for no good reason.

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Firing and Laying Off Employees

• The rules for termination vary from state to state, so it

is essential to know your state’s laws.
• Protect your company from wrongful-termination
claims by conducting regular employee-performance
reviews.
• If an employee is violating rules, give notification in
writing (and keep a copy for your records) and work on
corrections as the problems arise, rather than waiting
for a performance review.

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Ethical Leadership and Ethical Organizations

ethics - a system of moral conduct and judgment that

helps determine right and wrong.
• True leadership comprises all of the actions and
attributes that have been noted, plus the personal
values underlying them.
• The Golden Rule, “Do unto others as you would have
others do unto you,” is a well-known and widely
accepted ethic.
• Ethical business behavior is not only moral but makes
good business sense.

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An Ethical Perspective

• For a business, ethics are individual and organizational

moral principles applied to actions and issues within the
company context.
• To create an ethical organization, the values and
standards of conduct must be clearly and broadly
understood and accepted.
• Often the choice is not between right and wrong, but
rather between partially right and partially wrong, so that
making a choice is difficult at best.

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 Establishing Ethical Standards

code of ethics - a statement of the values of a company.

code of conduct - a set of official standards of employee
behavior for a company.
code of ethics and business conduct - a combination of a
written statement of values with official standards of
employee behavior.
ethical relativism - situation where ethical standards are
believed to be subject to interpretation.
ethical dilemma - a circumstance in which there is a conflict
of ethical values, which thus muddies decision making.

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Establishing Ethical Standards

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 Corporate Ethical Scandals

• The issue of business ethics exploded in 2002 when

several large corporations were found to have published
inaccurate financial statements.
• Top executives at Enron, WorldCom-MCI, Tyco, Global
Crossing, and other well-known firms had inflated
corporate earnings so that they would receive huge
bonuses, while misleading shareholders and employees.
• Enron collapsed and thousands of employees lost their
jobs and saw their pensions reduced to nothing; Tyco was
split into four different companies.

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 Corporate Ethical Scandals

corporate governance - rules and

safeguards to ensure that
executives behave legally and
ethically.
tax evasion - the deliberate
voidance of an obligation to pay
taxes; may lead to penalties or
imprisonment.
advisory board or council - a group
that provides advice and counsel,
but does not have the
responsibilities of a board of
directors.

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Corporate Ethical Scandals
Even early in developing your business, think about how you
will guarantee that your company remains both ethical and
legal as it grows.

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 Doing the Right Thing in Addition to Doing
Things Right
• As a business, ethical practices involve doing the right
things and doing them ethically.
• Profit maximization is one of the most common challenges
to ethical behavior.
• A clearly defined and commonly shared code of ethics and
business conduct can go a long way toward incorporating
ethical decision making into strategic priorities.
• This will facilitate incorporating “doing the right thing” into
company strategy from the start, thereby avoiding ethical
conflicts.

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Balancing the Needs of Owners, Customers,
and Employees

• Although it may seem simple and straightforward to

retain your integrity, it can become more complex as you
add partners, customers, and employees to the equation.
• What seems just, right, and fair to one person may seem
unjust, unfair, and wrong to another.
• Often, this is caused by the conflicting needs of owners,
customers, and employees.
• As a business owner, for example, you may have to
make a choice between paying a vendor in accordance
with the credit terms, or as otherwise promised, and
having sufficient cash to cover the employee payroll.
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Social Responsibility and Ethics

corporate social responsibility - the ethical obligation of a

company to its community.
social entrepreneurship - the sale of products or services
on a for-profit basis to benefit a social purpose.
in-kind donation - a contribution of products or services that
may include time or goods, rather than cash.
• Companies exhibit their commitment to the communities
they serve through a variety of means and with varying
motivations.

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 Leading with Integrity and Examples

• Leading by example is the best way to command the

attention and respect of others.
• If you refuse to accept inferior goods, your employees will,
too.
• If you give voice and form to company values and
demonstrate integrity, the workplace will become and
remain a community of stakeholders that values integrity,
honesty, and open communication.

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 Encourage Your Employees to Be Socially
Responsible
sustainable - referring to a scenario in which current needs
are met while preserving future resources.
• As you have read, early in the twentieth century, Madam C.
J. Walker motivated her employees by encouraging them to
get involved in helping their communities, and in the
process she became the first African-American millionaire.
• Entrepreneurs can use their businesses to contribute to
society in many ways.
• By running your company in a way that is consistent with
your ethics and core values, you will develop a socially
responsible business.

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 Encourage Your Employees to Be Socially
Responsible

Ways to make your business socially responsible include:

• recycling paper, glass, and plastic;

• donating a portion of your profits to a charity;
• refusing to use animal testing on products;
• offering employees incentives to volunteer in the community; and
• establishing a safe and healthy workplace.

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