600-800 word answer

Integrating Pragmatism and Ethics

in Entrepreneurial Leadership

for Sustainable Value Creation Gita Surie

Allan Ashley

ABSTRACT. The relationship between entrepreneur-

ship and ethics has largely been characterized as anti-

thetical. In this article we develop a conceptual model

integrating pragmatism, a philosophical approach that

emphasizes experimentation and action characteristic of

entrepreneurial leadership, with ethics to suggest that the

two are not incompatible and that sustaining entrepre-

neurial leadership for value creation necessitates ethical

action to build legitimacy. Case studies from the United

States and India highlight the necessity of infusing prag-

matism with ethics for sustainable entrepreneurial lead-

ership.

KEY WORDS: ethics, entrepreneurial leadership, prag-

matism, legitimacy, sustainable value creation

Entrepreneurial leaders are often perceived as

eschewing ethics and values because of their strong

focus on goals and achievement. Yet the most suc-

cessful entrepreneurial leaders are able to integrate

efficiency1 with ethics. Conversely, the importance

of the efficiency dimension, essential for adaptation

and survival in environments characterized by rapid

change, may be overlooked, given the current

emphasis on the ethical, value-oriented, and spiritual

dimensions, highlighted as a result of the excesses of

leaders of large corporations such as Enron,

Worldcom, and Tyco in the U.S. and Parmalat,

Ahold, and Vivendi in Europe. We suggest that an

efficiency and pragmatic orientation is not incom-

patible with ethics. Pragmatism in entrepreneurs is

related to innovation and accomplishment, while

disciplined attention to the ethical dimension enables

the entrepreneurial leader to gain the legitimacy

required for value creation, discovery, and change.

Our intent is to address the lack of emphasis on

ethics in organizations by developing a conceptual

foundation that characterizes entrepreneurial lead-

ership and then demonstrate that ethics is a critical

part of this foundation.

Perspectives on entrepreneurial leadership

While theories of leadership abound, we focus on

three recent cross-cultural perspectives of leadership

that are relevant to entrepreneurial leadership – that

is, leadership capable of sustaining innovation and

adaptation in high velocity and uncertain

environments.

First, neo-charismatic/transformational leadership

focuses on how leaders evoke super-ordinate per-

formance from followers through a transcendence of

self-interested behavior (Avolio and Bass, 1987; Bass,

1985; Burns, 1978; Howell and Frost, 1989; House

et al., 1991) in contrast to the instrumental and

transactional role of the leader emphasized in earlier

leadership theories (House, 1971; Podsakoff et al.,

1982). As Burns (1978, p. 20) observes, the neo-

charismatic transformational leadership act ‘‘binds

leader and follower together in a mutual and

continuing pursuit of a higher purpose.’’

Second, team oriented leadership research, such as

Leader–Member Exchange theory, focuses on inter-

actions between leaders and group members, high-

lights role exchanges and emphasizes the ability of

leaders to elicit heightened levels of group involve-

ment and participation (Graen and Cashman, 1975;

Graen and Uhl-Bein, 1995). Field studies suggest that

leader–member exchange may predict outcomes such

as team performance (Graen et al. 1982), and mana-

gerial progress (Wakabayashi and Graen, 1984; see

Graen and Uhl-Bien, 1995 for a review).

Journal of Business Ethics (2008) 81:235–246 � Springer 2007 DOI 10.1007/s10551-007-9491-4

Third, value-based leadership (House and Aditya,

1997) suggests that such leaders articulate a vision

and mission derived from super-ordinate values.

They also behave in a manner that reinforces the

mission by communicating high expectations to

followers and conveying confidence in their ability

to meet such expectations (Conger and Kanungo,

1987; Shamir et al., 1993).

Each of these theories of leadership focuses on the

extraordinary commitment elicited from followers.

Shamir et al. (1993) suggest that humans are not

merely instrumental-calculative but self-expressive

and motivated to enhance and maintain self-worth

and identity. Thus, charismatic and transformational

leaders achieve profound effects on followers and

elicit high levels of effort by engaging followers’ self-

concepts in the interests of the mission through

moral justification and appeals to identity.

However, such a view of leadership draws

attention away from the pragmatic or problem-

solving dimension, which determines the type of

leadership exhibited. It also focuses on the expressive

aspects of leadership rather than on concrete activi-

ties, one implication being that moral appeals are

sufficient to elicit desired behavior. While this may

be the case at a particular juncture in the history of a

society, the nature of the problem may be different

in contemporary organizations, particularly in those

facing rapid change. Moreover, the charismatic

leadership literature does not emphasize the indepen-

dent effects on identity of problem-solving and participation

in practice. Finally, research on charismatic leadership

focuses on the effect on followers, while paying little

attention to leaders’ motivations.

While entrepreneurial leadership is similar to

other types of leadership in its ability to evoke

extraordinary effort, this ability is founded in the

context of the firm’s need to adapt to emerging

environmental contingencies. A basic challenge that

entrepreneurial leaders face is to create a willingness

in followers to abandon conventional but career-

secure activities for riskier, entrepreneurial action,

failure at which could have negative career impact

(Gupta et al., 2004). We suggest that entrepreneurial

leadership is pragmatic and focused on problem-

solving and value creation in the market. However,

without appeal to values and ethics, sustaining action

and gaining legitimacy for the group to ensure its

survival may be difficult.

The difficulty of reconciling ethics with value

creation and efficiency has led to criticism of

entrepreneurship for its emphasis on willingness to

compromise ethics and moral values in the oppor-

tunistic pursuit of business success (Fisscher et al.,

2005; Mintzberg et al., 2002). Fassin (2005) suggests

that unethical practices are a consequence of

increasing individualism, emphasis on money and

material consumption (Capra, 2003), centralization

of power resulting from globalization, dominance of

finance in business, and the pervasive use of con-

tracts in business. Unethical actions also stem from

psychological motivations such as the desire to avoid

failure or acquire celebrity status (Fassin, 2005).

While the centrality of ethics in entrepreneurial

action is indubitable, the debate persists over whe-

ther and how much moral responsibility publicly

held firms must bear in addition to the fiduciary

obligation to act on behalf of their owners (Miles

et al., 2004). For example, Miles et al. (2004) argue

that when firms adopt a quality of life orientation the

firm’s customers tend to pay a price premium, em-

ployee earnings are reduced, investors tend to earn

lower risk adjusted returns, fewer jobs are created

and social welfare is often diminished. Moreover,

citing the Protestant work ethic (Shane and Venk-

ataraman, 1996; Weber, 1992) they advocate that, in

general, publicly held corporations should not invest

in projects without a probability of earning for their

principals a market based, risk adjusted rate of return

even if an investment has great social benefits. In

contrast, Ray (2005) argues in favor of making

intellectual property rights attached to potentially life

saving or sustaining innovations public goods when

markets are unwilling or unable to pay for the cre-

ation of intellectual property.

An emerging alternative perspective is that ethics

and entrepreneurship are not necessarily disassoci-

ated. Several prominent thinkers have held that

moral agreements are necessary for markets to

function well and that ethics is critical for the

practice of capitalism (Arrow, 1974; Fukuyama,

1995; Smith, 1981/1776). Others argue that capi-

talism may ‘‘implode’’ if its central moral founda-

tions erode or are lost (Caeldries, 1993). In his

elaboration of the free market system Knight (1923)

noted that entrepreneurial leaders are not only

engaged in creating and producing goods and ser-

vices but also in producing new values which

236 Gita Surie and Allan Ashley

emerge as a result of altered relations between

existing and new economic agents. Moreover,

entrepreneurial leaders encounter ethical dilemmas

in introducing products based on new technologies

and innovative production methods because existing

values are challenged and changed through entre-

preneurial activities (Fisscher et al., 2005). Moral

decision-making and entrepreneurship are inter-

linked because they each require similar qualities of

imagination and creativity necessary for envisioning

and bringing new products and services to market

(Buchholz and Rosenthal, 2005). Thus, ethical

dilemmas can be resolved through ‘‘ethical entre-

preneurship’’ and by focusing on the creative process

by which new values emerge (Wempe, 2005).

However, Wicks and Freeman (1998) note that

despite its relevance, there is insufficient emphasis on

ethics within mainstream organizational literature

possibly because of the predominance of positivist

epistemology, which posits that a value-free scien-

tific approach is qualitatively superior to non-sci-

entific methods. They propose pragmatic

experimentalism as a method of advancing inquiry in

the realm of ethics and organization. Drawing on the

epistemology of key figures in pragmatism such as

John Dewey, William James, Charles Sanders Pierce,

and Richard Rorty, they note that pragmatism offers

the view that the purpose of knowledge is to ‘‘gain

the understanding necessary to deal with the prob-

lems as they arise’’ rather than to ‘‘uncover the

antecedently real’’ (Dewey, 1988; vol. 4, p. 14). The

key question for pragmatists is whether or not

information is useful in helping people to cope with

the world better or to create better organizations. It

is not, however, a pseudonym for utilitarianism but

contains a broad injunction that is adaptable to a

wide range of value systems that may differ sub-

stantially from utilitarianism. The value of theorizing

arises from practice, is informed by practice and its

aim is to clarify, coordinate and inform practice. By

focusing on scrutinizing the practical relevance of

ideas in context, the pragmatist approach shifts

attention to the ethical dimension.

Despite the growing acceptance of the connec-

tion between entrepreneurship and ethics, how

integrating economic value creation with ethics is

good business practice is insufficiently emphasized.

In the next section we develop a conceptual

framework to show that by viewing entrepreneurial

action through the lens of pragmatism entrepre-

neurial leaders can integrate ethics into decision

making. Moreover, we suggest that such integration

is essential for gaining legitimacy upon which the

growth of the firm depends. We provide case studies

of organizations from U.S.A. and India to illustrate

the integration of entrepreneurial leadership and

ethics.

Conceptual framework: reconciling

pragmatism and ethics in entrepreneurial

leadership

Entrepreneurship has long been recognized as a

leading driver of development in local, regional, and

national economies (Schumpeter, 1934), and the

entrepreneur a ‘‘key agent’’ in explaining the market

system in neo-classical theory (Bhide, 2000, p.7) by

creating value through innovation and employment.

Schumpeter popularized the view of the entrepre-

neur as an innovator who undertakes ‘‘new combi-

nations of productive means,’’ creating new

products, methods of production or forms of orga-

nization (Bhide, 2000, p. 6).

Entrepreneurship is also an important factor in the

development and growth of established firms

increasingly beset by competition. Firms with an

entrepreneurial orientation take action to adapt their

capabilities to meet emergent competition through

flexible resource deployment, which enables the

firm to ‘‘use or expand companies’ resources and

thus raise long-term capacity’’ (Kanter, 1982).

Entrepreneurially oriented firms also enable corpo-

rate change (Ghoshal and Bartlett, 1996) by trans-

forming emergent options into platforms for

continuous value creation. A potential result of this

transformation is firms that can move new products

rapidly into the marketplace, and thus gain first-

mover advantage in emerging product and market

domains (Kuratko and Hodgetts, 1989).

The entrepreneurial literature suggests at least four

conditions that encourage entrepreneurial action in

the firm. These include the effective communication

of an entrepreneurial vision, processes to nurture

innovation, processes to secure resources and

expertise for entrepreneurial efforts, and the capacity

to facilitate continuous exploration and idea gener-

ation (Jelinek and Litterer, 1995). Consequently,

Integrating Pragmatism and Ethics in Entrepreneurial Leadership 237

entrepreneurially oriented firms require leadership

that is committed to encouraging entrepreneurial

‘‘action’’ within the firm for the ‘‘discovery and

exploitation of strategic value creation’’ (Gupta

et al., 2004).2

Since entrepreneurial leadership involves a crea-

tive and proactive response to environmental

opportunities (Brown and Duguid, 1991), such

leaders can be viewed as innovators or creators in

their domain of ‘‘activity.’’ A social construction

view of innovation and learning (Lave and Wenger,

1991; Wenger, 1998) suggests that innovation and

learning arise from participation in ‘‘activity within a

community-of-practice’’ in which learners acquire

expertise through socialization and by engaging in

the tasks of the community. Mastery involves

acquiring increasingly complex skills in these tasks

and becoming a member of the community. From

this perspective, entrepreneurial leaders are experts

who have learned which problems are relevant to

their domain and how to solve them and employ

their knowledge to create a social context that

facilitates problem-solving and value creation.

Similarly, research on creativity suggests that

innovation also results from the ability to engage in

sustained trial and error and the abandonment of

conventional approaches. Entrepreneurs are realists

who want their ideas to work in order to improve

value creation for their organizations. Hence, they

tend not to be ideological, but, rather, willing to

change their approach if it is flawed. In addition,

entrepreneurial leaders use a discovery-driven

approach for specifying problematic limits, and

mandating strategic commitment to new business

development that results in value creation. As a re-

sult, team members feel that they have ‘‘not only the

right but the obligation to seek out new opportu-

nities and to make them happen’’ (Gupta et al.,

2004). Thus, entrepreneurial leaders are creative

innovators who are committed to action and value

creation in the market.

The view of entrepreneurial leadership as action

and problem-solving oriented is not new. A seminal

study by McClelland (1959) suggests that accom-

plishments and achievements are important moti-

vations, particularly for entrepreneurs, and that these

influence not only the individual, but also societal

performance. Additionally, the appeal of action was

recognized early in the notion of economic activity

as a game (Knight, 1923). It should be recognized

that entrepreneurial problem-solving and value

creation are not limited to the for-profit sector, and

consequently a similar approach to leadership would

be appropriate for non-profit organizations in the

social sector since this division is artificial. In fact,

just as sustaining economic value in the market

necessitates that for-profit firms generate some value

for society, creating enduring value in the social

domain requires value generation of the type that

enables participation in the market economy. Thus,

social entrepreneurship3 and business entrepreneur-

ship in the private arena are not necessarily dichot-

omous but rather a continuum. Moreover, the

entrepreneurs’ choice among various actions is

related to a particular value or ethical system.

The primary purpose of an ethical or value system

is to serve as a guide for choosing amongst various

possibilities for action (Knight, 1923). Thus, it is

human action that shapes and reveals to us our ideals

and ethical vision, a view endorsed by Sartre (1943,

1947) and supported by the social constructionist

view of learning and innovation (Lave and Wenger,

1991; Wenger, 1998). While individualism and the

free market system may be useful in obtaining effi-

ciency, the need for intervention to ensure equity

and access (for example, in the field of education) is

evidence of the failure of the price system. In

addition, values are endogenously determined by the

economic system, which deals with the allocation of

resources to satisfy individuals’ preferences, and,

hence with the question of which wants and whose

wants are to be satisfied. The activity of the eco-

nomic system extends both to the creation of wants

as well as to the means for their gratification, which

are products of the system. Knight (1923) charac-

terizes business as a competitive game and suggests

that while competitive imitation, a key motive of

business, adds to the pleasure of participating in the

game of business, it is not necessarily conducive to

raising character and morals. Since values emerge

through action within the system, understanding

how a system that is efficient in the moral arena can

be designed is critical.4

Pragmatism in ethics extends an action-oriented

problem-solving approach to the moral arena by

rejecting epistemological assumptions about the

nature of truth, objectivity and rationality, and

emphasizing practice over theory.5 Pragmatism in

238 Gita Surie and Allan Ashley

ethics emphasizes the primacy of habit and repetition

in shaping behavior, including habits of thinking.

Habits are socially constructed and shaped by prior

experience; habits give us the power to think and act

and yet circumscribe us. Changing our habits

requires deliberation and altering the social envi-

ronment to diminish, eliminate, or strengthen them

and, thereby, indirectly guiding new ‘‘action.’’ John

Stuart Mill emphasizes the centrality of practice by

stating that ‘‘the deliberative and the moral, like the

muscular powers, are improved only by being used’’

(Mill, 1978). Thus, pragmatists claim that morality is

a habit that has the same structure as other habits.

Moral evolution occurs when shifts in the social

environment force us to move into new moral ni-

ches. While moral theorizing is an essential element

of inquiry, it is not divorced from practice and grows

out of experience. Thus, familiarity with a range of

practical moral problems through theories or litera-

ture is likely to be helpful in finding reasonable

solutions to problems for practice and moral insight

can only be advanced through dialogue and conflict

with other ideas and experiences (Lafollette, 2001).

As James (1904) notes, the pragmatist ‘‘clings to facts

and concreteness, observes truth at work in partic-

ular cases, and generalizes. Truth, for him, becomes

a class-name for all sorts of definite working-values

in experience. For the rationalist it remains a pure

abstraction…’’ Truth is not, therefore, fixed and

immutable, but, rather, malleable, an instrument to

guide action. Durkheim’s (1983) observation that for

pragmatism, ‘‘thought has as its aim not the repro-

duction of a datum, but the construction of a future

reality’’ suggests that its dominant attitude of

empiricism is not merely compatible with but is part

and parcel of the spirit of entrepreneurial leadership.

Sustaining entrepreneurial leadership

through legitimacy

Therefore, the central importance of value creation

and problem-solving in entrepreneurial leadership in

developing innovative new products and services

suggests that these same orientations are likely to be

applied in the domain of ethics. While we may, for

the purpose of analytical distinction, differentiate

between value creation, efficiency and ethics, in

practice, efficiency outcomes cannot be separated

from the moral sphere. For example, focusing on

quality is an important factor in achieving customer

satisfaction, loyalty, and trust. Histories of entre-

preneurial leaders and founders of organizations such

as Wedgewood in fine china, Heinz in food pro-

cessing, or Estee Lauder in cosmetics, suggest that

most built the reputation of their firms by differen-

tiating their products on the basis of quality (Koehn,

2001). The spirit of rivalry and emulation in business

indicates that value creation by other entrepreneurial

leaders requires that they too ensure that their

organization or team delivers quality products or

services. Moreover, a large part of the value created

by the entrepreneurial firm often lies in its brand

identity which encompasses being an ‘‘ethical’’

member of the business community, one that ob-

serves certain norms with regard to its treatment of

employees, for example. This impact on brand value

is increasingly being recognized in most companies

and senior executives have been assigned to head

corporate social responsibility (CSR) initiatives.

Inattention to practices that ensure adherence to

ethical standards may lead to loss of credibility in the

market as exemplified by college students’ demon-

strations upon discovering Nike’s exploitive labor

practices in Indonesia, which led to a significant

drop in sales. Moreover, in a technologically inter-

connected world in which most firms are embedded

in alliance networks, unethical action can rapidly

destroy a reputation and brand value that has taken

years to build. Thus, efficiency and market consid-

erations are not separate from ethical ones.

Thus, while entrepreneurial leaders need not

espouse conventional ideology, they do require

legitimacy in order to enact their vision. Research

studies suggest that new ventures suffer from the

liability of newness and often fail from lack of

legitimacy and resources (e.g. Singh et al., 1986) and

alliances with large organizations with legitimacy can

help to mitigate this problem (Powell et al., 1996).

Entrepreneurial leaders who start new ventures or

change the existing organization through the

development of a new product or innovation are

catalysts for change and engaged in the process of

creating a new reality (MacGrath and Macmillan,

2000). Consequently, they are likely to communi-

cate their vision in language that makes these new

values more salient to followers. To the extent that

the ideal of rationality and the value system of

Integrating Pragmatism and Ethics in Entrepreneurial Leadership 239

competitive markets is dominant in Western socie-

ties, entrepreneurial ideas, while different, if com-

municated logically and in harmony with the style of

the dominant values of the system are likely to gain

support. However, in traditional societies lacking a

well-developed free market system, a stronger appeal

to values and ethics may be necessary, particularly

when the knowledge underlying a particular entre-

preneurial vision or innovation is not widely

disseminated or well understood.

If the working of the competitive economic sys-

tem leads to too high a level of inequity, a correction

would require appeals to morality and ethical values

and result in regulatory changes to prevent such

outcomes in the future. In such a climate, a focus on

ethics gains salience since the credibility of business

leaders is, in general, rather low.

While appeals to values and ethics may be just an

exercise in public relations and gaining legitimacy,

organizational performance over the long-term may

be difficult to achieve without earning the trust of

stakeholders. Organizations that focus solely on effi-

ciency considerations may thus lack the wider support

necessary to gain resources for sustained growth.

This position is supported by Hosmer (1994) who

argues that ethics are good for business because they

entail positive externalities and are a prerequisite for

building trust with various internal and external

stakeholders which, in turn, is a prerequisite for

long-term cooperation. However, Schwab (1996)

observes that the existence of widespread corrup-

tion, lax standards and the presence of laws and

regulations to enforce compliance with ethical

standards suggest that ethics and business are not

necessarily viewed as synonymous. Moreover, he

concludes that being ethical is not always easy, and

may be costly given that ethical behavior is only

valuable when it is visible to others. Also there is

greater flexibility in the absence of ethical standards.

Arguments de-linking ethics from business prac-

tice notwithstanding, entrepreneurial leaders who

wish to build an organization that is sustainable must

be able to gain the commitment of followers or

organizational members. Although ethical behavior

may be costly and incentives to avoid the burden

may not be detrimental in the short term, over the

long-term failure to elicit commitment can lead to a

lack of legitimacy. This may limit access to resources

and impede growth suggesting that there may be a

significant cost associated with unethical behavior.

Long-term commitment is based on trust (Arrow,

1974; Fukuyama, 1995), a moral virtue among a host

of others recognized by leading theorists as a key

contributor to the capitalist system. Thus, entre-

preneurial leaders, in building trust and legitimacy,

can also contribute to making ethics salient to the

wider community (see Figure 1).

Case studies of entrepreneurial firms

We include four case studies of entrepreneurial leaders

drawn from industry and the non-profit sector and

from different cultures (the US and India) to support

our conceptual model and perspective. In each of

these examples, entrepreneurial leaders focused on

pragmatic ethics and values, on creating value through

system productivity and on creating a stable organi-

zational community to make this feasible. In most

cases, entrepreneurial leaders developed an over-

arching vision that appealed to organizational mem-

bers, building linkages with various stakeholders such

as customers, employees, the government and other

institutions to gain access to resources and to ensure

that the vision could be enacted.

Heinz

Henry Heinz, the entrepreneurial founder of the

food processing company established in 1876,

focused on providing the purest prepared foods

Entrepreneurial leadership and sustainable value creation

Organization pays attention to all or most stakeholders but insufficient attention to value creation

Organization pays attention to creating value & to stakeholder interests

Organization builds little value and pays no attention to ethical issues

Organization is innovative but with little attention to ethical issues E

nt re

pr en

eu ri

al le

ad er

sh ip

, et

hi cs

a nd

le gi

ti m

ac y H ig

h L

ow

HighLow

Figure 1. A conceptual model of entrepreneurial lead-

ership, ethics, and sustainable value creation.

240 Gita Surie and Allan Ashley

such as pickles and condiments to gain the trust of

housewives who were accustomed to preparing

these items themselves. The credibility of the Heinz

brand depended on using the finest and purest

ingredients to ensure that the products were of

consistent quality at a time when food adulteration

was common. Henry Heinz was one of the most

outspoken proponents of a strong law governing

food production, labeling and sales. In early 1905,

he sent three company executives, including his

eldest son, to seek President Theodore Roosevelt’s

backing for federal action. Heinz’s involvement in

the campaign for food regulation grew out of his

personal commitment to producing safe and healthy

food. In addition, he believed that stringent

guidelines for food manufacturing would enhance

the reputation of the overall business. Hence, the

firm’s standards for ingredients, production pro-

cesses, and cleanliness were among the highest in

the industry. Moreover, the quick adoption of

innovations such as the pressure cooker, and con-

tinuous canning technology helped to increase the

efficiency of operations. The company also held

conventions to ensure that salesmen were steeped

in the organization’s values so that they enhanced

the perception of quality associated with the Heinz

brand and increased the legitimacy of the company

in the eyes of customers (Koehn, 2001).

Ashoka: innovators for the public

Founded by William Drayton in 1981, Ashoka is a

non-profit organization that champions the idea of

‘‘social entrepreneurship’’ and a venture-capital firm

(minus the monetary profits to investors) that funnels

private donations from individuals and foundations

to ‘‘Ashoka Fellows’’ who currently number about

1,200. Fellows run projects in fields such as educa-

tion and prison reform, rural development, drug

rehabilitation, reproductive rights, technology, and

AIDs treatments throughout Latin America, Africa,

Asia, central Europe and the United States. The

fellows are people who have passed Drayton’s

‘‘knockout idea’’ test – something completely ori-

ginal that has systematic impact – and who possess

personal ‘‘entrepreneurial’’ qualities such as passion,

drive, creativity and integrity. Drayton describes a

social entrepreneur as a ‘‘change-maker,’’ someone

who cannot be a happy person until they have

changed the whole society. Drayton’s epiphany was

that with a small investment (the organization’s en-

tire budget was $12.5 million in 2001) and carefully

selected projects, it is possible to make significant

changes in social structure. For example, J. B. Sch-

ramm, elected one of Ashoka’s Fellows in 2000, has

found a simple way to allow 100,000 young

Americans go to college each year (who would not

otherwise do so), thereby shifting them from the

margin into the middle class. Discovering that most

of his high school classmates did not go on to col-

lege, not for lack of capability, but for lack of family

and school support, Schramm developed a simple,

low cost approach to address the problem. It focuses

on the 80 plus percent of students who are in the

middle of their class, in average or poorly perform-

ing schools whose parents typically did not go to

college. Since school guidance counselors are unable

to teach this majority because of their preoccupation

with the top few and the troubled, Schramm takes

peer groups of high school juniors to ‘‘intense, four-

day workshop sessions at colleges and universi-

ties…where they are learning how to fill our

paperwork including the all-important essay that can

be key for a student…and having a taste of what

college is like.’’ They are also mentored by trained

volunteers, and on returning to high school, the

school’s homeroom teachers are engaged to provide

help. Schramm also works with college admission

offices, providing applications before deadlines.

Among those who attend the four-day campus

immersion, overall college enrollment is 75%, more

than twice the average for low-income high school

graduates. Schramm is beginning to move the Col-

lege Summit model across the country after working

in 10 cities. Other Ashoka Fellows around the world

have worked in areas as diverse as eliminating child

labor in India, particularly in the carpet industry,

waste and garbage removal and recycling in Peru,

and rural electrification in Brazil (Bornstein, 1998;

Harvard Magazine, March–April, 2002).

Tata industries

A nation-building mission was assumed by Jamshetji

Tata, the entrepreneurial founder of the Tata group

of industries who created organizations such as the

Integrating Pragmatism and Ethics in Entrepreneurial Leadership 241

Tata Steel (1904), Tata Motors (1945), the Tata

Hydroelectric Power company (1890) and the Indian

Institute of Science (1903) to ensure that local

capabilities were built in manufacturing, electricity

production, and in science and technology. A com-

munity orientation and national mission remains

prominent in these flagship organizations despite the

current imperative to downsize and become leaner

and more efficient. We describe the efforts of Tata

Steel and other Tata companies to link entrepre-

neurship and ethics.

In addition to being one of the best in class

producers of quality steel worldwide, Tata Steel

retains its reputation for community building by

continuing to provide employees with high quality

healthcare and a clean environment. Among its

many achievements, the company has won the

JRD QV award for business excellence in 2000,

the National Energy Conservation award (1995,

1997, 2000, and 2001) and the CII-EXIM award

for Business Excellence in Indian Industries in

2000. The company is also a leader in setting

standards for worker welfare and for its relations

with labor unions; it was among first to introduce

labor welfare measures that were subsequently

legalized. Among the welfare measures introduced

were an eight hour working day, free medical aid,

establishment of a welfare department, works

committees, leave with pay, workers’ provident

fund, an accident compensation scheme, a training

institute for apprentices, craftsmen and engineering

graduates, profit sharing, maternity benefits, and a

pension scheme (Tata Steel, 2005). Despite rising

competition in the post-liberalization period (1991

onwards) leading to workforce reduction, Tata

Steel’s management did not compromise on pro-

viding medical facilities. The company has also

taken steps to inculcate environmental conscious-

ness in employees and the community through

training and education, and to use the most

sophisticated methods and technologies to manage

energy, waste and pollution, and conducts envi-

ronmental audits at regular intervals by indepen-

dent agencies. The company’s steel works, mines

and collieries and civic services in Jamshedpur are

ISO 14001 certified for Environment Manage-

ment. Tata Steel’s works is the first in the world

to be conferred the SA 8000 certification for work

conditions and improvements in the workplace

and its Ferro Alloys and Minerals Division is also

SA 8000 certified.

It is the first Indian company to initiate a regional

environmental impact assessment (EIA, during 1992–

1994) covering a radius of 15–20 km around the city

of Jamshedpur to develop a blueprint for the

sustainable development of the region. In addition,

the township which was the first planned industrial

city in India continues to be maintained by Tata Steel;

the city of Jamshedpur was chosen to participate in the

UN Global Compact Cities Pilot Program. More-

over, the company has been recognized for its pio-

neering work in the field of HIV/AIDS awareness. At

the same time, Tata Steel is committed to remaining

the lowest cost producer of steel and providing value

to its shareholders (it is one of the few steel companies

in the world that is EVA positive6).

Similarly, Tata Motors, is India’s largest automo-

bile manufacturer with revenues of $5.5 billion in

2005–2006 and subsidiaries in engineering and

automotive solutions, construction equipment

manufacturing, auto finance, automotive vehicle

components manufacturing, machine tools and fac-

tory automation solutions, and high-precision tool-

ing. Like the other group companies, Tata Motors is

committed to corporate social responsibility. It is a

signatory to the United Nations Global Compact,

and engages in community and social initiatives on

human rights, labor and environment standards in

compliance with the principles of the Global

Compact. Simultaneously, it also plays an active role

in community development, serving rural commu-

nities adjacent to its manufacturing locations.

Thus, pragmatism and problem-solving encom-

pass both value to the market as well as value to

employees and community members. Tata Electric

remains a major supplier of power to Mumbai while

the Indian Institute of Science continues to conduct

pioneering scientific research. In addition, as Tata

Steel and Tata Motors have begun to expand glob-

ally their expertise in community building is viewed

as an attractive feature for other developing coun-

tries, particularly in Africa. Tata Steel has made new

investments in Thailand, South Africa, Bangladesh,

U.K. and Australia. Tata Motors’ commercial and

passenger vehicles are marketed in several countries

in Europe, Africa, the Middle East, Australia, and

Asia and the company has assembly operations

in Malaysia, Kenya, Bangladesh, Spain, Ukraine,

242 Gita Surie and Allan Ashley

Russia, and Senegal. All group companies adhere to

the Tata code of conduct. Thus, the reputation of

Tata CEOs as industry leaders focused on achieving

national goals remains intact and is the legacy of the

founder (Lala, 1981; Surie, 1996).

Lincoln electric

The Lincoln Electric Company was founded by Mr.

Lincoln and his brother almost a century ago, and

during that time its U.S. operations have never lost

money or had a layoff. Its basis for success for has

been the ‘‘innovative’’ approach to a strategy of

continuous improvement of productivity, lowering

costs, and passing on these benefits to its customers.

Lincoln Electric’s primary products are arc-welding

equipment and associated products, and giant firms

such as G.E. and Westinghouse have been unable to

compete with it. The innovativeness of their system

is that it does not utilize either a typical mass pro-

duction assembly system or a lean production sys-

tem. The system relies extensively on a piece rate

compensation system that encourages hard work and

also gives incentives to continually increase one’s

output. The production system is designed to enable

work to be individually paced, thus obviating the

possibility of a traditional assembly line (or team

organized work) that does not normally tolerate any

major changes in the pace of work among individ-

uals. To facilitate the differences in individual output

rates, the system also has to accommodate significant

amounts of work in progress, an anathema to a lean

production approach.

What makes the innovations in an old piecework

production system work are the policies imbedded

in the organization. One of the problems that has

characterized the traditional piecework system is the

fact that the very strong incentives given for

increasing quantity discourage the employee from

allocating ‘‘productive’’ time to other valuable

activities. These include activities such as maintain-

ing or improving quality as well as assisting other

workers, e.g., training and accepting temporary jobs

to deal with emergencies. However, Lincoln em-

ploys an individual bonus approach in order to

overcome problems with quality and cooperation.

The amount of the individual bonus is determined

by the employee’s supervisor, and is based on the

employee’s output quality as well as other factors

such as perceived cooperation. The bonus is

substantial and can double the employee’s base

earnings from piece rate. Furthermore, the quality

issue is addressed by holding each employee

accountable for the quality of each individual piece

that is produced. This is accomplished by stenciling

the employee’s name on each product produced. If a

product suffers an internal failure, e.g., a piece is

found to be defective before it leaves the plant, the

employee is expected to repair it on his/her own

time. If the product exhibits an external failure, i.e.,

it fails in the field, the employee’s bonus may be

reduced by up to 10%.

However, the most serious deficiency with piece

rates systems involves employee distrust of manage-

ment, and their belief that the rates will be lowered

once management discovers how productive they can

really be. The leaders at Lincoln Electric have re-

sponded to this concern with a series of ethical actions

that have developed a bond of trust between

employees and management. The company promises

that rates will not be decreased or rates readjusted

unless there is a product change or a work methods

change. Lincoln Electric’s leadership empowers

employees to challenge any new rates and have them

recalculated. Furthermore, the company is primarily

employee-owned, i.e., employees, managers, and the

Lincoln family hold most of the voting stock. This

arrangement neutralizes the possibility that outside

investors who do not understand or accept the value of

this commitment might violate it. Lincoln Electric has

been run by the Lincoln family (until 1965) and by

career Lincoln employees who were and are person-

ally committed to their employees and understand the

logic and the ethics involved in honoring the workers’

trust.

The Lincoln organization has also pursued a series

of symbolic policies that have led to increased trust

of management by its employees. There are no

executive assigned parking spots, no separate exec-

utive dining facilities, reasonable executive com-

pensation, and Spartan management offices. These

factors, although symbolic, reduce the ‘‘us versus

them’’ mentality. Lincoln Electric is a company that

has successfully integrated both innovation and

continuously improving productivity with ethics and

values. The results are a company that has achieved

world-class status (Roberts, 2004).

Integrating Pragmatism and Ethics in Entrepreneurial Leadership 243

Conclusion

Ethics and entrepreneurial leadership can be inte-

grated by applying a pragmatic, action oriented ap-

proach to the moral arena to generate trust and

commitment for sustaining innovation and value

creation. One implication is that entrepreneurial

leaders must consider all actions in light of their

impact on long-term credibility not simply expedi-

ence. By addressing the question of values on a

continuous basis in the process of achieving their

goals, entrepreneurial leaders are likely to alter cur-

rent norms and evolve new ones. In this way, ethical

behavior is reinforced through practice and standards

evolved as in other domains. The cases outlined in

this paper provide a glimpse of how some entre-

preneurial leaders have implemented the integration

of ethics in their organizations. Further research

using a large sample of organizations is necessary to

determine the impact of such experimentation on a

wider scale and to study the extent to which dif-

ferent societies encourage such experimentation

(Shane et al., 1995).

If a prime motivation of business is emulation and

competition, the evolution of the value system and

its efficiency in generating desirable values depends

on how effectively and rapidly such values are made

salient and disseminated. The case on the Ashoka

Foundation suggests that these values are being dif-

fused globally through the concept of ‘‘social

entrepreneurship.’’ Similarly, the long history and

reputation of social responsibility to the community

of the Tata Group in India has helped its subsidiaries

in other countries like Africa reinforce the view that

serving the community is also good business. Thus,

by incorporating competition in the social and moral

realm, it may be possible to ensure that the game of

business also produces greater interest in pursuing

virtue.

Notes

1. We use the word efficiency in the economic sense

to indicate the highest level of productivity achievable

with a particular allocation of resources such as the mar-

ket system (as in Knight, 1923). 2. Entrepreneurial leaders include founders of new

firms as well as leaders of business units within existing

organizations who develop and take the business in new

strategic directions. 3. We use the term ‘‘social entrepreneurship’’ (Bill

Drayton, the founder of the Ashoka Foundation popu-

larized this term; see case on Ashoka in this article) to

refer to entrepreneurship in the public arena; we refer

to entrepreneurship in the private arena as business

entrepreneurship. 4. Efficiency in the moral arena refers to the efficiency

of the system in using its available resources in creating

the values which it recognizes, that is, in producing the

largest quantity of ‘‘goods’’ as measured by its standards

(Knight, 1923, p. 585). 5. This is not to deny the existence of ideals or an

absolute ethics; Rorty (1961) notes that although prag-

matists like Pierce emphasize practice rather than ideal-

ized conceptions, they do so because they wish to avoid

resorting to a mechanistic understanding of things by

taking the context into account. 6. EVA refers to economic value added, a measure of

financial performance that takes into account the cost of

capital.

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Department of Management, Marketing and Decision

Sciences, School of Business,

Adelphi University,

Hagedorn Hall, Room 307A, One South Avenue,

Garden City, NY, 11530, U.S.A.

E-mail: [email protected]

246 Gita Surie and Allan Ashley