Small Business

Are Today's Entrepreneurs Less Ethical?


By David E. Gumpert An American entrepreneur I know was telling me recently about his plans to sell prescription drugs in the U.S. over the Internet from a Central American country. The drugs can be obtained at much lower prices south of the border, he explained, so he can sell them at significant discounts on U.S. prices, and still make hefty margins. I told him it sounded a lot like what is already going on from Canada. Yes, he said, but he would be able to offer many drugs, and do so even more cheaply, than Canadian suppliers.

My first, instinctive reaction was to wonder about the law. It's generally illegal to sell or import prescription drugs from outside the U.S. Well, he said, he'd be operating "under the radar" and would thus be unlikely to encounter trouble. Besides, he'd be doing lots of American consumers a big favor by enabling them to bypass high American prices.

KEY QUESTIONS. The Robin Hood explanation aside, is this entrepreneur's business activity ethical? Can any business that knowingly violates existing laws and regulations, no matter how questionable, be ethical?

That question was brought home to me recently by a posting on the listserv of the Academy of Management, an organization primarily of business-school professors, seeking input for a research paper examining "new business formation using Internet technology, where the basis for the business raises ethical questions." Two examples cited by the researcher were Canadian-based Internet pharmacies selling to American consumers and file-sharing that makes available popular music for free. Concluded the researcher: "I'm seeing this as? new venture whose very essence puts it at the edge (or over) of ethical behavior."

Since that posting went up at the end of August, I have found myself thinking an awful lot about it as I read the news, and also realizing that the answers to the questions I raised aren't as open and shut as I initially thought. Contradictions abound. Even as the FDA has launched a campaign to shut down Canadian-based Internet pharmacies, Illinois is pushing a proposal to get around the restrictions so the state can shave millions in healthcare expenditures by supplying its current and retired workers with drugs purchased from across the border. In Springfield, Mass., the city government has actually been buying Canadian drugs for its employees, and has received warnings from the FDA.

GUILT-FREE.?Recording companies are suing individuals who download free music from the Internet to avoid purchasing CDs. Yet the highly publicized effort has the appearance of sticking a finger in the dike, as millions of ordinary individuals continue the practice, apparently fully able to suppress any guilt feelings that might arise.

Another such example, one not even touched on by the researcher is online gambling. Gambling is illegal in most states, except in certain government-sanctioned areas or for particular activities, like lotteries. Yet Internet gambling is now estimated to be a $6 billion-plus industry, with nearly half of that amount coming from Americans. As Visa and Mastercard, along with PayPal have discontinued doing business with online gambling sites (presumably as expressions of their ethical standards), gambling entrepreneurs have turned more attention to Europe and Asia, though Americans still find other ways to support their online habit.

Can the contradictory practices we're seeing with legally marginal online businesses be traced to unethical entrepreneurs? It's natural to want to point to easily identifiable villains. Yes, I sense that is too simplistic. The questionable ethical behavior we are witnessing could be viewed as an inevitable offshoot of the new freedom enabled by the Internet. In the matters of prescription drugs and the recording industry, it could also be seen as the entrenched behemoths finally getting their comeuppance. It's possible as well to blame corporate chieftains at companies like Enron and Worldcom for setting bad examples for would-be entrepreneurs.

WINNER TAKE ALL. Some experts claim our business schools aren't doing enough to teach ethics. It really shouldn't be surprising that entrepreneurs are pushing legal limits in the ways they use the Internet to exploit opportunity. We're a society that encourages people to go heavily into debt to buy SUVs and big-screen televisions as part of a national obsession to drive GDP growth ever higher, ever faster. We're a society in which, increasingly, it's not about how you play the game, but whether you win.

Bottom line, entrepreneurs are about serving markets. Entrepreneurs who provide products or services in demand by particular markets stand a good chance of successfully launching and growing their businesses. Sometimes, though, government regulations and practices aren't as clear as they should be, or don't adequately anticipate technological or other changes. I remember a successful entrepreneur who, some years ago, was complaining about excessive government environmental regulations. "I don't care what decisions they make about the rules, just tell me what the rules are," he told me.

Right now, the growth of the Internet has rendered a number of rules much less clear than they used to be. That researcher trying to make a connection between legally questionable businesses and entrepreneurial ethics may find himself on a deadend path. David E. Gumpert is the author of Burn Your Business Plan: What Investors Really Want from Entrepreneurs and How to Really Start Your Own Business. Readers can e-mail him at david@davidgumpert.com


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