How Important are Ethics to Small and Medium Sized Business Owners?

For the past decade till today, I have interacted with several business owners and managers of different sizes. Some of these firms are really small with one staff and others, large organisations with over 500 employees. As I learn from these businesses, one of the many things that have been most intriguing to me is how to harmonise Ethics and Business growth. This is not to be confused with Ethics and compliance as we’ve seen very many unethical businesses scoring highly in compliance.

Starting with a simple definition, business ethics are moral principles that guide the way a business behaves. The same principles that determine an individual’s actions also apply to business. Business ethics involves personal, professional and corporate behaviour. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations. Particularly, it involves examining suitable constraints on the hunt for self-interest, or profits, when the actions of persons or firms negatively affect others. Acting in an ethical way involves distinguishing between “right”, “wrong” and “right-when-no-one’s-looking” and then making the “right” if not “better” choice.

Business ethics is a huge issue in our society today. In this digital age, business has never called for more transparency than before. Someone else always is going to find out whatever you did when no-one-was-looking and it will spread to their immediate networks. Eventually, before you know, it will have gone viral. With a strong desire to not only grow but most often to survive, both start-ups and existing businesses seeking growth face ethical decisions every day. To just share with you, sometime last year on a day out with one of my business mentors, who is a re-known business guru in town with a very inspirational rags-to-riches story had this to say to me “Brian, this is an industry practice and you must either pay bribes or you’ll be forced out of business.” This is not to qualify unethical behaviour but to bring out the reality of how hard it may be to absolutely enforce ethical approach to business.

A client of ours who shared his story confessed that being unethical caused a big psychological cost that may even stifle growth. In his words “When I started my last business in 2007, I remember that our first customer wanted to visit our office. We had no employees or furniture at the time. We thought this would hurt our credibility. A few days before our customer came; we borrowed some furniture from a friend’s office. We had our computers dial our phone system to make it seem like we were a busy company receiving a lot of calls. We also “hired” a few good friends for the day to make it seem like we had at least a few employees. After we sent all the furniture back, we faced another problem. The customer wanted to come back a month later to visit us again!” He then started to see the cost of being unethical. This is his story and you well may know many other stories.

As I thought through this article, I asked a few of our clients whether they are ethical people and almost all of them were quick to answer with a very strong “YES”. In only moments after asking them on some situations where their ethics were tested and I asked the same question, the results to the question were interesting. Most of them still gave the same answer but now with a lot of hesitation and in a low tone. This was an indication of the gravity of the subject matter and the probable approach by many of them.

From my experience, business ethics issues always start small. Each small decision you make builds the kind of business person you are and the kind of company you run. We need to realize that most of these decisions produce both good and bad results. Like most vices when you find yourself off track, it is rarely because you made a conscious decision to do something dishonest or marginally honest but most often, it has been caused by a series of snap decisions made on the spur of the moment that gradually move you in a wrong direction.

Speaking of how hard it may be to be practice good ethics, why the hustle?

Businesses with strong ethics programs have found that these efforts have a couple of benefits and they include;

  • Potential Avoidance of Fines: Businesses and their employees are required to comply with national, international, and local laws governing their operation. Failure to comply with these standards can be costly in terms of time, resources, brand image and employee and customer loyalty. In addition, the development of strong ethics initiatives can greatly reduce the chance of fines resulting from wrongful, fraudulent, discriminatory or illegal activities.
  • Decreased Vulnerability: As companies develop and widen their geographical operations, decentralise their business functions, and empower their workforce, it is imperative for them to develop ethics practices that provide the necessary training and tools to assure that their employees across board can make ethical decisions. This decreases a company’s vulnerability to misconduct and the harm it can cause to profitability, brand image and management focus
  • Improved Brand Image and Reputation: A couple of studies on the link between CEOs and corporate reputation reported that a CEO’s ethical reputation enhances a company’s ability to attract investment capital, recruit the best employees, and earn a company the benefit of the doubt in times of crisis.
  • Access to Capital: Be it debt or equity, businesses with good business ethics always stand better chances than their counterparts with poor ratings when it comes to raising capital. Banks and investors are always keen as they conduct assessments to inject capital into businesses to ensure good records.
  • Financial Performance: As early as 1988, a study by The Business Roundtable in the U.S., “Corporate Ethics: A Prime Business Asset,” reported that “a strong corporate culture and ethics are a vital strategic key to survival and profitability in a highly competitive era” and that “sound values, purposes, and practices are the basis for long-range achievement.” More recently, some academic studies have shown a positive link between the existence of corporate ethics programs and financial performance.
  • Employee Commitment: A company’s ethical integrity directly influences their decision to work at the company. It is well known that the most important factors for employees in deciding where to work were employee treatment and business practices, ahead of quality, service, or price. So, for a business to attract and retain quality employees, it is imperative that the business owners and managers are highly ethical among other factors.
  • Customer Loyalty: A couple of studies have also reported that business ethics matter to consumers. There is always a tendency for customer to be more loyal to products and services that are provided by businesses they think are ethical in their business approach.

For anyone striving to live ethically, just know that it is a continous effort with costs in the short-run and benefits in the long-run.

By Brian Ahabwe Kakuru

BrianBrian is the Managing Director at BLEGSCOPE®, and has over 9 years of management consultancy experience notably in the finance and banking industry, MSMEs, FMCG companies and in the service industry.
You can follow him on twitter: @BrianAhabweK

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