Learning Objectives
- Define ethics.
- Explain business ethics.
- Describe small business ethics.
- Understand why a small business should have an ethics policy.
Ethics are about doing the right thing. They are about well-based standards of right and wrong that prescribe what humans ought to do—usually in terms of rights, obligations, benefits to society, fairness, or specific virtues.Manuel Velasquez et al., “What Is Ethics?,” Santa Clara University: Markula Center for Applied Ethics, 2010, accessed October 7, 2011, www.scu.edu/ethics/practicing/decision/whatisethics.html. They serve as guidelines for making decisions about how to behave in specific situations; they also guide us in evaluating the actions of others.Daniel J. Brown and Jonathan B. King, “Small Business Ethics: Influences and Perceptions,” Journal of Small Business Management 11, no. 8 (1982): 11–18. Hopefully, they will provide us with a good understanding of how to react to situations long before those situations occur.
What Ethics Are Not
It is important to understand what ethics are not.“A Framework for Thinking Ethically,” Santa Clara University: Markula Center for Applied Ethics, 2009, accessed October 7, 2011, www.scu.edu/ethics/practicing/decision/framework.html.
- Ethics are not the same as our feelings. Our feelings are not always accurate indicators about a particular action being unethical (e.g., taking a long lunch or spending too much personal time on the Internet while at work). We all develop defense mechanisms to protect ourselves, so we may not feel badly about a particular unethical act. Some people may actually feel good about behaving unethically.
- Ethics are not the same as religion. Most religions champion high ethical standards, but not everyone is religious. Ethics apply to everyone.
- Ethics are not necessarily synonymous with the law. There will be instances in which ethical behavior and the law are the same (e.g., in the cases of murder, discrimination, whistleblower protection, and fraud). Such instances are illustrative of a good legal system. There will, however, be times when the law takes a different path than ethics—the result being ethical corruption that serves only the interests of small groups.
- Ethics are not about following cultural norms. Following cultural norms works only for ethical cultures. Although most cultures probably like to see themselves as ethical, all societies have been and will be plagued with norms that are unethical (e.g., slavery in the United States prior to the Civil War and sweatshops in developing countries).
- Ethics are not synonymous with science. Science cannot tell us what to do. The sciences can provide us with insights into human behavior, but ethics provides the reasons and the guidance for what we should do.
- Ethics are not the same as values. Although values are essential to ethics, the two are not synonymous. Values are enduring beliefs that a given behavior or outcome is desirable or good.Milton Rokeach, The Nature of Human Values (New York: Free Press, 1973), 5, as cited in Wayne D. Hoyer and Deborah J. MacInnis, Consumer Behavior (Boston: Houghton Mifflin, 2001), 416. They create internal judgments that will determine how a person actually behaves. Ethics determine which values should be pursued and which should not.Jeff Landauer and Joseph Rowlands, “Values,” Importance of Philosophy, 2001, accessed October 7, 2011, www.importanceofphilosophy.com/Ethics_Values.html.
Why Ethics Are Important
Ethics are important because they provide structure and stabilization for society. They help us to understand what is good and bad, and this helps us to choose between right and wrong actions. Without ethics, our actions would be “random and aimless, with no way to work toward a goal because there would be no way to pick between a limitless number of goals.”Jeff Landauer and Joseph Rowlands, “Values,” Importance of Philosophy, 2001, accessed October 7, 2011, www.importanceofphilosophy.com/Ethics_Values.html. Ethics do not provide easy answers to hard questions, but they do provide a framework within which to seek the answers.
Business Ethics
Business ethics is applying the virtues and discipline of ethics to business behavior. They set the standard for how your business is conducted and define the value system of how you operate in the marketplace and within your business.“Business Ethics,” Small Business Notes, accessed October 7, 2011, www.smallbusinessnotes.com/operating/leadership/ethics.html. They are relevant to any and all aspects of business conduct: workplace issues, product and brand, corporate wrongdoing, professional ethics, and global business ethics. They apply equally to the individual who works for the company and to the company itself because all ethical and unethical business behavior eventually finds its way to the bottom line. It is almost a certainty that someone will encounter an ethical dilemma at some point in his or her professional life
Do Business Ethics Pay?
Asking whether business ethics pay may be the wrong question to ask. Behaving ethically should happen because it is the right thing to do. However, companies large and small are in the business of making money, so the question is not an unreasonable one. Good ethics carry many benefits, not the least of which is financial good health. Companies that “outbehave” the competition ethically will also tend to outperform them financially.Richard McGill Murphy, “Why Doing Good Is Good for Business,” CNNMoney.com, February 2, 2010, accessed October 7, 2011, money.cnn.com/2010/02/01/news/companies/dov_seidman_lrn.fortune. According to an Institute of Business Ethics report, companies with a code of conduct generated significantly more economic value added and market value added than those companies without a code, experienced less price to earnings volatility, and showed a 50 percent increase in average return on capital employed.Simon Webley and Elise More, “Does Business Ethics Pay?,” Institute of Business Ethics, 2003, accessed October 7, 2011, www.ibe.org.uk/userfiles/doesbusethicpaysumm.pdf.
Business ethics also pay in other ways that will improve the workplace climate and, ultimately, positively impact the bottom line. They can “reduce incidents of corruption, fraud, and other malpractices; enhance the trust of customers, suppliers and contractors; enhance the credibility of buyers and salespersons; and enhance the loyalty and goodwill of employees, shareholders and customers.”Simon Webley and Elise More, “Does Business Ethics Pay?,” Institute of Business Ethics, 2003, accessed October 7, 2011, www.ibe.org.uk/userfiles/doesbusethicpaysumm.pdf.
The Costs of Unethical Business Conduct
By contrast, the costs of unethical business behavior can be staggering. Some of the costs include the loss of physical assets, increased security, the loss of customers, the loss of employees, the loss of reputation, legal costs, the loss of investor confidence, regulatory intrusion, and the costs of bankruptcy. According to a report by the Josephson Institute,“The Hidden Costs of Unethical Behavior,” Josephson Institute, 2004, accessed October 7, 2011, josephsoninstitute.org/pdf/Report_HiddenCostsUnethicalBehavior.pdf. unethical business behavior has an adverse impact on sales, stock prices, productivity, the performance of the highly skilled employees, efficiency, communication, and employee retention and recruiting plus the risks from scandal and employee fraud.
The costs of employee theft are particularly daunting. An estimated 75 percent of employees steal from the workplace, and most do so repeatedly. One third of all US corporate bankruptcies are caused directly by employee theft; US companies lose nearly $400 billion per year in lost productivity due to “time theft” or loafing; and an estimated 20 percent of every dollar earned by a US company is lost to employee theft.Terrence Shulman, “Employee Theft Statistics,” Employee Theft Solutions, 2007, accessed October 7, 2011, www.employeetheftsolutions.com. Office supplies, money, and merchandise are the most frequently stolen items.Leslie Taylor, “Four in 10 Managers Have Fired Employees for Theft,” Inc., September 1, 2006, accessed October 7, 2011, www.inc.com/news/articles/200609/theft.html?partner=rss. Employee theft may be even more of a concern to small businesses because many small businesses operate so close to the margin. It has been estimated that theft by small business employees totals nearly $40 billion each year.Mary Paulsell, “The Problem of Employee Theft,” MissouriBusiness.net, October 10, 2007, accessed October 7, 2011, www.missouribusiness.net/sbtdc/docs/problem_employee_theft.asp.
Learning Objectives
- Ethics are about doing the right thing. They are about standards that help us decide between right and wrong. They are not the same as our feelings, religion, the law, cultural norms, science, or values.
- Ethics are important because they provide structure and stabilization for society.
- Business ethics are about applying the virtues and discipline of ethics to business behavior. They set the standard for how your business is conducted and define the value system of how you operate in the marketplace and within your business.
- Companies that “outbehave” the competition ethically tend to outperform them financially.
- Ethical behavior in business improves the workplace climate and will ultimately improve the bottom line. The cost of unethical behavior can be staggering.
- Small-business owners have the opportunity to set the ethical tone for their companies. Modeling ethical behavior is key. The community and peers heavily influence small business ethics.
- Establishing an ethics policy is critical for creating an ethical work environment. The contents of the policy should be specific to the values, goals, and culture of each company. One size does not fit all.
Exercises
- MaryAnn’s marketing team just presented a “Less Sugar” ad campaign to the cereal brand manager for three of her brands. The packages shouted “75% LESS SUGAR” in large and colorful type so that it would catch the parent’s eye and increase sales. With all the recent attention about childhood obesity, the company thought that parents would purchase the cereal to help their children attain and keep a healthy weight. A side-by-side comparison of the less-sugar and the high-sugar versions of the cereals, however, revealed that the carbohydrate content of the cereals was essentially the same. At best, the less-sugar version had only ten fewer calories per bowl. It offered no weight-loss advantage. The brand manager correctly concluded that the marketing campaign was unethical.J. Brooke Hamilton III, “Case Example 1: ‘Less Sugar’ Marketing,” Operationalizing Ethics in Business Settings, 2009, accessed June 1, 2012, ethicsops.com/LessSugarMarketingCase.php. Was the campaign illegal? What should the cereal brand manager do?
- An office supplies business with fifty employees has been doing well, but lately there have been suspicions by some of the employees. No names are known, but it is known that merchandise has been disappearing without explanation, and expensive gifts have been accepted from some vendors. The owner thinks it is time to create and implement a code of ethics. She has asked you for advice. You told her that it would be important to involve the employees in the development of the code, but you committed to do two things for her in preparation for that involvement: (1) search the Internet for a code of ethics that could be tailored to her needs and (2) prepare a preliminary list of topics that should be included in the code. She thanked you and asked that you submit your ideas within the week. She reminded you that her business is small, so a code of ethics for a large corporation would not be suitable.
