Ethics in Family Businesses and Venture Capital Firms : How managers manage ethical considerations and steer behavior

Abstract: Business ethics is a fragmented and well covered scientific field. This Master thesis study concerns two type of organizations, namely family businesses (FB’s) and venture capital firms (VCF’s), in relation to the ethical decision-making process, which is a relatively undiscovered field. The study is conducted in the way it sheds a light on the influences on a manager when taking decisions concerning ethical considerations. Important scholars such as Colby and Kohlberg (1987) and Rest et al. (1999) framed the field of moral development of individuals, and what makes managers unaware of their unethical decisions (Bazerman, 2008). However, a manager’s possibility to take decisions is also influenced by organizational factors and actors. The type of management and ownership structure, and the expectations these actors have with regard to profits, as well as situational factors such as business strategy, maturity of the company, human and financial resources and market position are shaping the environment and possibility for managers to pursue ethical behavior because they affect the decision-making process.The purpose of this study is to understand how managers in FB’s and VCF’s manage ethical considerations. The creating of the conceptual framework was used as a foundation to visualize how ethical behavior is constructed, while the focus laid on the influences and possibility to take decisions including ethical considerations and content. While performing this research, we have conducted eight semi-structured interviews with managers in three VCF’s and two FB’s in Sweden. The respondent companies and interviewees remain anonymous. We did that to increase the chance of honest and unbiased answers since we saw a risk to receive adjusted and image improving responses.The empirical findings show that the VCF’s do not pay attention to ethical considerations in the same extent as FB’s do. Discovered reasons were lack of time and know-how, financial and human resources, business maturity and the fact that they were to generate a high ROI to the venture capitalist. Such a relationship makes the managers focus on profit maximization and short term objectives rather than ethical considerations. The two FB’s did have an ethical code of conduct with the employees and was constructed in order to fulfill acceptance, integration and efficiency with this management tool. The ethical codes of conduct were created with the goal to steer behavior and ensure ethical commitment in certain areas of interest. The major finding is that situational factors either suffocate or give room for ethical considerations in companies when taking decisions.In particular, this research contributes to the field of business ethics and VCF’s in general, but also with regard to FB’s. The results of this thesis are constructed in the decision-making model which is different than the ethical decision-making model we constructed based on the theoretical research. However, reality did not allow us to recognize the fragmented patterns we interpreted from the theory. We therefore created a new top-down model which takes the need for a decision in companies into account, the actors and factors in the organization, the situational factors that influence the happenings in the organization and the outcome of the decision, which possibly contains ethical considerations and content. With the improved model we visualize the decision-making process while taking influences towards ethical decision-making into consideration and visualize organizational reality as we discovered it.Key words: business ethics, ethical considerations, ethical code of conduct, moral awareness, ethical decision-making, ethical behavior, family business, venture capital firm, profit maximization, shareholder preferences.