Business ethics – why is it important in small business?
There is rarely a person who does not face an ethical or moral dilemma at some point in their business life. Whether that person is the owner of a multinational corporation, a small business entrepreneur, or a new or established employee, it is likely that everyone will have to face such a case eventually. Like a personal ethical dilemma, the individual is faced with making a decision based on how it will affect not only him, but how it will affect the organization as a whole. One of the main problems in dealing with an ethical dilemma in business is that people often subordinate themselves to business profits and the legality of a decision.
The Institute for Business Ethics, whose slogan is “doing business ethically leads to better business”, describes the term business ethics as such.
Business ethics is the application of ethical values to business behavior. It applies to all aspects of business behavior, from boardroom strategies and how companies treat their suppliers to sales techniques and accounting practices. Ethics go beyond the legal requirements for a company and are therefore discretionary. Business ethics refers to the behavior of individuals and to the behavior of the organization as a whole. It’s about how a company does its business, how it behaves internally.
As clear as this definition is, it is certainly open to interpretation. Therefore, it should be understood that the application of business ethics in any situation is entirely subjective.
One can also understand business ethics and ethics of any kind as applying a sense of justice to a given situation. Even with a sense of clarity applied to the use of business ethics, arriving at a just and moral decision can be a complex process for most people. The topic of business ethics has been a source of great debate in recent years, as the heads of large (and small) corporations have been revealed to be less than ethical individuals in both the way they do business and their personal behavior. However, it can be said that any person who does not practice business ethics cannot be personally ethical, although the reverse may not be true. In general, ethics has a long history of applications. Centuries ago, a person’s ethical practices defined who he was as an individual. However, as the population grew, the need to implement best business practices within a company became somehow less important because there was always another customer around the corner and the business owner was rarely the focus of attention in the community the way he or she may have been in the past. The company’s administration took a back seat and hired representatives to deal with any fallout. Ethics relies on several factors, one of the most important of which is culture. Again, like the businessman of old, a culture’s ethical practices will depend largely on the value it places on them. Business ethics have the unattractive conflict of often contradicting what is legal. Often what is “right” is not necessarily what is legal, and businesses must consider this conflict when making ethical judgments. Although there are many in the business world who believe that business has no place for ethics if it is to function competitively, the number of corporate whistleblowers shows that there is still a place for ethics in business.
Western societies place a high value on success. In business, however, there are often conflicts between ethical behavior and business success. This discrepancy is often multiplied for the small business owner. In order to compete with larger enterprises, it can be tempting to abandon ethics just to make an adequate profit. Also, the small business person is relatively autonomous in decision-making; he or she does not have to answer to a large employee base or corporate board of directors. It is also interesting to note that the decisions of the small business manager often affect a larger number of people than the small business employee. For example, a small business owner’s decision can affect his or her customer base as well as his or her employee base. The employee is likely to find that his or her decision will directly affect only his or her immediate circle of colleagues. However, the pressure to succeed is both an internal and an external pressure, and often leads people to make ethical decisions that are based more on these pressures than on their own moral judgment. As consumers become wary of those they do business with, one must understand that there is good reason for such wariness. The cynical American consumer has learned, often the hard way, that there is little room for ethics in business. In a society where the customer was king, the consumer often had a few unpleasant experiences with businesses large and small.
Some experts argue that any focus on profitability is bound to test the limits of ethical practices. They argue that assuming that the primary function of a business is to serve its customer base in an ethical manner is idealistic, and that the nature of a free economy dictates that ethics must take a backseat to maximizing profits. Although there is rarely a conscious intention of a business to harm the public interest, reality dictates that a business’s ability to increase profits will determine its success. Public companies feel additional pressure on this stage. It is difficult to attract investors to a company based on its ethics. Investors are looking for a return on their investment and ethical performance does not equate to dollars. There are economists who argue that in any competitive economy ethics are impossible to maintain; that a company can legally circumvent ethics with the excuse that unethical practices are the only way to make a profit.
Unlike larger corporations, the small business leader is in a unique position to shape the ethical practices of his business. Small businesses have a smaller base of employees to control when implementing ethics policies than larger businesses. It is important to understand that, like the ethical dilemmas of large corporations, although the individual surely knows the difference between the right ethical decision and the wrong path, the choice to throw ethics to the wind is often made because the unethical choice is more profitable. However, this may happen much less often in smaller organizations because the individual or individuals who are harmed by the unethical decision, and someone is always harmed, are more visible to small businesses. Large corporations and their decision-making machines are often far removed from the people their immoral and/or unethical decisions affect. This can make the wrong decision much easier.
The unique position that the small business owner occupies in terms of forming an ethics policy carries great responsibility. The proactive business leader formulates a statement of organizational values that the company’s employees are expected to embrace – at least while performing their duties in the service of the company. An organizational ethics policy is a message to employees, the customer base and the community at large that the business is prepared to manage itself and its practices ethically. Such statements command the respect of all parties involved in doing business with such a company. However, it is imperative that the small business owner does not make the same mistake that larger organizations often do; the ethical policies that the business develops should not conflict with the goals of the organization. It is inherently unethical to develop an ethics policy that an employee cannot follow and keep their job. When faced with the decision between an ethical decision and his or her job, the employee will almost always choose the job.
Therefore, the policy should be reasonably aligned with the organizational objectives of the business. It is just as important, perhaps more important, for the small business leader to lead by example. Employees, especially in a smaller organization, are less likely to behave ethically if they are given implicit permission not to. The end result of such a practice is that the small business owner can be sure that he or she is conducting business in a way that fosters the confidence of his customers as well as his employees. And because consumers have become very wary of doing business with an organization they feel they can’t trust, small businesses can enjoy the benefits of a loyal customer base. A small business owner has an advantage over larger corporations because they can inspire the consumer’s trust by implementing ethical business practices that give the customer the feeling of an equal business relationship, rather than one where the consumer buys based on need alone . There are many who believe that such practices are capable of moving business away from large corporate units and back to a customer-focused business format.
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