E-Magazine
Katherine Bradshaw
Is doing business ethically a luxury reserved for optimistic economic times? Or do periods of austerity make it even more important for owner /managers to consider the potential risks to their business posed by poor ethical standards in the workplace?
The Institute of Business Ethics (IBE) believes that business, and all organisations, should ‘do the right thing’ because it is the right thing to do. In addition, there is research demonstrating the benefits enjoyed by businesses that take their ethical values seriously:
• It is good for staff for morale to work in an open culture, with possible benefits of increased productivity and staff loyalty. These are vital ingredients in the current climate when staff may be pushed to the limit. An organisation known for fair and responsible practice is likely to attract high quality employees and ‘stand out from the crowd’.
• Demonstrating sound ethical practices can often be a condition for tendering for contracts with large customers needing to ensure the integrity of their supply chain. Good relationships with customers based on a commitment to honesty and transparency will enhance a company’s reputation. SMEs that are familiar with these demands will have a competitive advantage.
• IBE research found that companies with codes of ethics are consistently recorded as being more admired by their peer group in the Most Admired Companies list published by Management Today, than those with no code. We also showed that companies that train their staff in ethical standards financially out perform those that don’t (see Does Business Ethics Pay? (IBE, 2004) and Does Business Ethics Pay revisited (IBE, 2007)).
Those owners/managers of SMEs that have been on the receiving end of unethical business practices or have suffered a reputation hit will understand the importance of having good, trusting relationships with customers, employees, suppliers and the community.
So what is business ethics?
The IBE defines business ethics as the application of ethical values, such as fairness, honesty, openness, integrity, to all business behaviour. In short it is about how an organisation does its business. Does it treat its employees with dignity and respect? Does it support them to ‘do the right thing’? Does it treat its customers fairly? Does it pay its suppliers on-time? Is it open to dialogue with its local communities? Does it acknowledge its responsibilities to wider society?
You do not have to be a social enterprise to take ethics seriously. Essentially, business ethics is about the organisation’s culture. It involves doing all things ethically; not just doing some ethical or socially responsible things.
Let’s look at some dilemmas which a member of your staff could face:
• “My sales figures are low; I really need my bonus. I’m going to have to make this sale, even though this product is wrong for this old lady.”
• “I might be fired if we don’t get this contract. I’ll have to pay a kickback to make sure we do.”
• “We’ve got to meet this deadline, but it’ll mean cutting a few corners …”
• “I know that one of my colleagues is stealing from the till, but I daren’t tell anyone in case my colleagues turn on me.”
The IBE’s 2008 Ethics at Work Survey showed that around a quarter of employees (23%) were aware of conduct they thought violated the law or their organisation's ethical standards, but only 58% of them reported it to a manager.
A business is made up of its employees, most of whom make decisions every day that require a choice about what is the right thing to do. If they use their own values to make that judgement, these values may not be the same as the owner/managers.
Staff need support to do the right thing. Offering training in how to solve ethical dilemmas can help, not only by giving practical tools, but also in sensitising staff to issues and ‘integrity risks’ to the business which may arise. Using e-learning tools such as that offered by the Institute of Business Ethics is a cost-effective way to do this.
The importance of leadership
Strong leadership is essential in embedding ethical values in any size of organisation. But it is particularly important for SME owner/managers to ‘walk the talk’ if they hope for their staff to behave ethically. In ‘Priorities, Practice and Ethics in Small Firms’, 100 small firms in the UK were surveyed on their social and ethical concerns (IBE, 2000). The results showed that owner/managers run their businesses in ways which are consistent with their own values and principles and that employees tend to follow the lead of the owner/manager in how they behave in their own role.
SME owners/managers will have dilemmas of their own: the pressures of cash flow and limited resources can mean that they are frequently confronted with pressures to cross an ethical line. Consider:
• “My cash flow is limited - do I delay payment to my suppliers and to the Inland Revenue?”
• “Should I meet a deadline to supply a key customer even though I know the product is faulty? If I don’t meet the deadline I may lose the customer.”
• “My business may not survive if I don’t accept this contract – but I don’t feel comfortable with what they want us to do. What are my options?”
Doing business ethically, makes for better business
Many companies make the mistake of only tackling ethical behaviour once a problem has arisen. A reputation takes years to build, but can be lost overnight following an ethical lapse. Talking about ethical issues and training staff, can help to encourage an ethical culture, where employees do the right thing, because it is the right thing to do.
Companies which create a supportive culture may find they are the ones that ride an economic downturn best with their reputation, their books and their integrity intact.
For further information, see ‘Business Ethics in SMEs’, a Briefing produced by the Institute of Business Ethics. It is available to download from: www.ibe.org.uk/publicationsand provides a useful overview of the topic, best practice and points to an array of other useful resources.
Katherine Bradshaw, Institute of Business Ethics