No doubt at some point in our business lives, many of us have come across what we believe to be unethical or immoral practice from others in business – we may even have found ourselves acting in an unethical or immoral way in order to close a sale or gain favour with a potential client.

Bearing in mind that our preconceived notion of what is ethical and moral may be quite different from someone else’s – based on our religious beliefs, family, schooling and learning experiences – it is not always black and white as to what is or isn’t ethical or moral.  Should our own personal ethics and morals have a place in our business?   Should your business have an ethical and moral standpoint?

What are ethics and morals?

Put simply, the study of ethics is a branch of philosophy which addresses questions about morality – what is good and bad, right and wrong, and so forth – which dates back to the times of Socrates and Aristotle.  We often use the term ethics and morality when discussing a whole range of subjects, but it wasn’t until the 1980’s that businesses started to realise the importance of applying ethics to the business world.

Why business ethics?

The need for business ethics arose because business was (and still is, in many cases) being conducted in an unethical manner around the world.  Business does not operate in a vacuum, it interacts with, relies upon, and revolves around the social and natural environment.  Without this, many businesses would not survive, yet many pay lip service to their responsibilities in relation to maintaining these all-important environments.

The Enron scandal

Perhaps one of the most famous incidents where disregard for business ethics led to the collapse of a company relates to the Enron Corporation – an American energy company who employed around 22,000 staff and claimed revenues of nearly $101 billion in 2000.  At the end of 2001 it was revealed that the financial condition of the company was sustained by institutionalised, systematic and creatively planned accounting fraud known as the “Enron scandal” (Wikipedia, 2010) which allowed the company to hide billions on bad debt from failed projects.  The various reports on this scandal make for fascinating reading – I vary between disbelief that such a large company could get away with it, to admiration for those who identified and exposed the fraud that was being committed.

Can business be separated from ethics?

Business practice is by its very nature intertwined with ethics.  No business decision can be taken without ultimately affecting the stakeholders of the business, and every business decision potentially has ethical and unethical options – it is up to the business to decide which they choose to pursue.

In the case of Enron, they could have chosen to publically admit that certain deals or projects had failed, deal with the consequences and learn from the experience.  Instead, they chose to cover up the failings to such an extent that it ultimately resulted in the collapse of the company and criminal convictions for some of those involved in the cover-up operation.

Ethical decisions can be extremely difficult to make, particularly in the context of a business where much is at stake.  Take for example the case of clothing companies who employ people in the third world to make their clothes, paying a very low salary (in comparison to the West) and perhaps in poor conditions.  It is easy to say that they should not be exploiting people in this manner, and to move the manufacturing elsewhere – perhaps back to the West.

The other angle on this dilemma is that this company is providing a livelihood for probably hundreds of families who, without it, would not be able to survive.  This provides them with a means to support and educate their children, provide from their families, and learn a trade.

The balance here would be to consider whether the wages and working conditions could be improved sufficient to meet what we deem to be ‘acceptable standards’– which has given rise to the media campaign that is ‘Fair Trade’.  Other examples include the reduction in use of animal testing, and products declaring that they are ‘environmentally friendly’.  Of course, there are other options which are beyond the scope of this article to consider.

How is this relevant to small and medium sized businesses?

While the concept of business ethics may have started in big businesses, it is just as important and applicable, in my opinion, in smaller businesses.  Reputation is absolutely vital in the world of small and medium sized enterprises (SME’s) – would you rather work with a company who are known for their honesty, integrity and quality than one who is not?

Research has shown that 70% of European consumers believe it is very important that a company shows a high degree of social responsibility when they buy a company’s product, with 58% of the general public across Europe feeling that industry and commerce do not pay enough attention to their social and environmental responsibilities.  1 in 5 of the respondents would have been willing to pay more for a product which was environmentally and socially responsible (MORI, 2000).

Further research has demonstrated that business leaders are the least trusted, with 62% of British adults not trusting business leaders, and 48% of the global public having little or no trust in large companies (Voice of the People, 2002).

While we may have some kind of fuzzy aspiration to run our business in an ethical way, we are not bound to it or expected to behave in that way if we haven’t expressly stated that we do so, which makes it easier for us to side-step when convenient.  In my experience, businesses who take honesty, integrity and quality seriously tend to succeed.  Showing consideration for something other than your financial bottom line demonstrates that you are not solely focused on profit – your customers will value this and respect you for it.

Benefits of being ethically aware

There can be many benefits of being ethically aware and running your business with ethics in mind.  Having an awareness of resource use and waste can help the environment, but also reduce your costs – in some cases it is a regulatory requirement, such as the disposal of electrical equipment.

Having a good reputation can make it easier to win business – and also if you employ staff, it can be a positive point in your advertisement which may help to attract new employees.  Involvement with local community projects are often an ideal opportunity to generate positive press coverage for your company, while building relationships with local authorities.

Having an understanding of the wider impact of your business may also help you to identify areas for development, new products and services.  It can also make you more competitive, and reduces the risk of sudden damage to your reputation and hence sales.

Companies who take their ethical responsibilities seriously will often require those that they work with to have their own policies, recently I have seen this appear in more and more tender processes as a requirement, from small local jobs through to local council and government tenders – do you have them in place for your company?

It may interest you to know that 87% of the British public would expect to see a copy of any social or partnership report if they were a shareholder, and 44% reported that they would not expect to see one as a customer, but it would improve their perception of the organisation (MORI, 2001)

Creating your Corporate Social Responsibility Policy

Ethical policies are often collected under the heading of a Corporate Social Responsibility (CSR) policy.  If you are considering writing a CSR policy for your organisation, here are some useful tips as to what it should contain, adapted from Business Link’s website.  The policy may include (depending on the relevance to your industry):

• Aims and objectives
  • Environmental
  • Social & Community
  • Ethical – e.g. importing from countries or dealing with companies who have poor records with regard to human rights/child labour
  • Sustainability
  • Business relationships – paying on time, code of conduct, etc

• Implementation
  • What you need to do to achieve the aims and objectives
  • Relationships with local, regional or national social causes relevant to your business
  • Identify “champions” within your team to work with you, suggest ideas
  • Find out about local social issues and what you might be able to do to help

• Risk management
  • Don’t forget to include risk management – you’re accountable for your business’ environmental, social and economic activities.
  • Identify the most significant risks, and how you are going to control and manage them
  • Ensure this doesn’t become a piece of paper on a shelf.  It should be a dynamic document, taking into account new and developing risks and potential issues such as newly recognised environmental concerns.  Review it at least annualy.

• Roles and responsibilities
  • Ensure that someone is nominated who takes responsibility for driving your CSR – and delegate specific roles where necessary to the appropriate managers.

• Integration
  • This policy doesn’t stand alone, it should integrate with many of your existing policies such as
    • Health & Safety
    • Human resources
    • Procurement
  • Ensure that your CSR policy doesn’t conflict with your existing policies.

Don’t forget to tell people about your policies!  Have them on your website and be proud of your stance on these important issues.  If you want to join other businesses who are committed to improving business ethics, you could consider telling others about this article.  We would love to hear about how you put ethics into practice in the real world!

Resources

http://www.benjerry.co.uk/ourvalues/ - a great example of ethical awareness in business

http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1075408468 – A useful resource from Business Link about Corporate Social Responsibility

http://www.bitc.org.uk/resources/publications/cr_business_case.html The business case for Corporate Social Responsibility

Bibliography

MORI, 2000. European Study on CSR (Survey of 12,162 members of the general public across Europe). MORI.

MORI, 2001. Annual Report. MORI.

Voice of the People, 2002. Voice of the People - Trust Survey. [Online] Gallup International Available at: http://www.voice-of-the-people.net/ContentFiles/docs%5CVoP_Trust_Survey.pdf [Accessed 24 August 2010].

Wikipedia, 2010. Wikipedia. [Online] Available at: http://en.wikipedia.org/wiki/Enron [Accessed 24 August 2010].