From the August 1998 issue of Startups

Because we believe the subject matter is so important, Entrepreneur Media is running the following article, examining the question of ethics for small business, in three of our publications: Entrepreneur, Business Start-Ups and Entrepreneur's HomeOffice.

Charlie Wilson is trying to run an ethical business. He's made social responsibility part of the mission statement at his $1.6 million Houston-based salvage company, SeaRail International Inc. And he's made "self-actualization"--not wealth--his ultimate goal as an entrepreneur.

But don't mistake Wilson for some moralistic stick-in-the-mud. It's all about success. "Ethics is what's spearheading our growth," says Wilson. "It creates an element of trust, familiarity and predictability in the business. We're in an industry where a lot of people cut corners. I just don't think that's good for business. You don't get a good reputation doing things that way. And eventually, customers don't want to do business with you."

For years, ethics and business had a rocky marriage. Ask entrepreneurs to talk about ethics, and the responses ranged from scorn to ridicule. Here are folks who--by definition--like breaking the rules. Suggesting that entrepreneurs should follow a predefined set of edicts was about as popular as asking them to swear off electricity.

But this may be changing. Whether people are hung over from the freewheeling '80s or reflective about the coming millennium, talk about values, integrity and responsibility is not only becoming acceptable in the business community, it's almost required.

"This looks just like the quality movement of 20 years ago," says Frank Walker, chairman of Indianapolis-based Walker Information Inc., a research and consulting company that tracks customer satisfaction and business ethics. "Customers need a way to differentiate one firm from another." For years, the dominant point of differentiation has been quality. Now, says Walker, "Everyone can deliver quality, [ so businesses] need to step up to a higher plane."

Are the nation's entrepreneurs ready to ascend to new heights of ethical literacy and compliance? Well, sort of. Although most entrepreneurs still aren't trying to unseat the likes of Socrates and Plato, many are giving considerable thought to improving their ethics, with hopes that doing good business will be good for business as well.


Gayle Sato Stodder covers entrepreneurship for various publications. She lives in Redondo Beach, California.

Why Bother?

What's behind the current buzz about ethics? A number of factors, really. The days when one could argue that conscience and business don't mix are gone for good. Although the social responsibility movement of the late '80s and early '90s hardly qualifies as news anymore--and, in fact, some of its icons have hit tough sledding--its message has become part of our popular consciousness: Businesses need not exist for the sake of greed alone. Consider the bar permanently raised.

As standards have gone up, public awareness has also intensified. "It's not necessarily that we care more about ethics today," says Laura Pincus Hartman, director of the Institute for Business & Professional Ethics at DePaul University in Chicago, "but that, because of [better communication], we know more about companies than we once did. Anyone can log on to the Internet and find out instantaneously about libel suits, harassment suits--all kinds of information that would have been difficult to uncover in the past."

Awareness translates into action. When Walker Information polled 1,037 consumers in 1994, 47 percent said they'd be much more likely to buy from a "good" company if quality, service and price were equal, and 70 percent of consumers would not buy--at any price--from a company that wasn't socially responsible. "Apparently, you get some credit for being good," observes Walker, "but you get clobbered for being unethical."

For ethicist Robert C. Solomon, professor of philosophy and business at the University of Texas at Austin and author of It's Good Business: Ethics & Free Enterprise for the New Millennium (Rowman & Littlefield, $18.95, 800-462-6420), these threads weave together into a single truth: Ethics is the very basis for successful commerce. "Ethical businesses tend to be more trusted and better treated, and to suffer less resentment, inefficiency, litigation and government interference," says Solomon. "Ethics is just good business."

Put a Moral In Your Story

Incorporating ethics into your business doesn't have to be painful. Here are some steps to get you started:

Set priorities. The first--and perhaps simplest--thing you can do to delineate your company's values is to create a clear mission statement. What's your highest priority? "Whenever we have to make a tough judgment, we refer to our mission statement," Wilson says. "Putting things down on paper helps set in stone what your standards are."

Start now to create company policies and procedures that guide you. When you're just starting out, writing a policy manual may seem premature. In reality, now's the best time to start crafting policies that will guide you as you grow.

Use procedures that help you with the kinds of dilemmas you face each day. In Iris Salsman's public relations business, Salsman Lund-gren Public Relations Inc. in St. Louis, credibility is key. "We're asking the media to portray [clients] as certain kinds of people," Salsman says. "If they aren't that kind of person, [the discrepancy] affects our reputation." Salsman performs careful client interviews and investigates online and with contacts to make sure the story a prospective client tells is in line with the client's reputation. "We're not saying we won't accept a client who's had problems in the past," says Salsman, "but we don't want to be taken by surprise."

Get advice. Your industry's trade association may have a code of ethics that will help you establish your own company's policies and procedures.

When faced with an individual dilemma, Wilson consults fellow business owners at the Greater Houston Partnership (similar to a chamber of commerce). "Sometimes you don't know what's best," he says. "That's when it helps to turn to your peers."

Avoid hypocrisy. Suppose you have no compunction about lying to clients, you cook the books and--worst of all--you have no interest in changing your evil ways. Go with that. But don't promote yourself to clients as a paragon of virtue. "People are a lot more observant than you realize," says Wilson. "You can't lie about being ethical."

The Rewards of Virtue

If tending to your company's moral fiber seems like a lot of work, consider the alternative. Imagine your company dogged by disgruntled clients, hapless decision-making and a poor reputation.

Not your vision of success? It's hard to envision any company being successful under these conditions. And while it's true that virtue offers its own spiritual rewards, the rewards of running an ethical business usually include financial gain as well--if for no other reason than that unscrupulous behavior generally leads to havoc.

That's why business consultant and business owner David Thrope, founder of Boston Knish Inc. in Acton, Massachusetts, believes "codifying one's ethics should be part of the strategic planning of an organization early on." Clarifying your company's standards is a critical step toward entrepreneurial maturity. "A code of ethics gives [you] a structure within which to make decisions," says Thrope. Later, when you have employees, that code will help ensure everyone in your company is on the same wavelength.

"I think about how I'm going to feel when I'm my mother's age--and my grandfather's age," says Wilson. "What will I think of the decisions I've made? If I can't feel [proud], what good is it to have made a lot of money? It's in everyone's long-term interest to appreciate what they're doing, to feel good about what they're accomplishing. Otherwise, what's the point?"

Sticky Situation

By Laura Tiffany

Leaving your employer to start your own business can be one of the best--and most difficult--decisions of your life. But what if you call your former boss "Dad"?

"It's awkward to walk into a family dinner and say you want to leave [the company], but I wanted my own business," recalls Jay Tapper, 29, owner of Tapper Candies Inc. in Cleveland and former employee of Cap Toys Inc., the company his stepfather, John Osher, formerly owned and is now co-president of.

Tapper worked for Cap Toys for two and a half years as head of its newly developed candy division. Leaving might not have been so sticky for Tapper if he hadn't chosen to go into the candy business himself. To soften the blow, Tapper gave nine months' notice and helped pick his successors.

The two companies aren't such fierce competitors as they may seem at first glance. "[The interactive candy industry] is a big market. By focusing on innovation, we're not really competing. [Cap Toys is] trying to maintain their market share, and we're trying to pioneer a whole new category," Tapper says. Innovations from Tapper Candies include the Original Goody Bag, a plastic bag with toys, candy and activities, and the Candy Cam, a toy videocamera that dispenses candy.

Tapper sees his leaving as an act that played fair to both sides. "If I'd wanted to sabotage them and give them a two-week notice, they would have been hurt in the short term and it would have hurt my reputation. People who cut ethical corners--it comes back to them in the end. I'm not advocating being a pushover--you need to be tough and to negotiate your own deals--but ethics and integrity and honesty are just as important."

The karmic theory of ethics Tapper follows seems to be panning out well for his company. In 1997, Tapper Candies brought in sales of $5 million, and Tapper expects to double that this year.

As for his family ties with his stepfather? It's become a healthy, but not too sugary, competitive relationship: Tapper invited Osher to be his best man when he got married last year, but the two refused to be photographed together in an article in The New York Times in 1997, lest they promote each other's companies.

Contact Sources

Boston Knish Inc., (978) 264-0107, bosknish@earthlink.net

Salsman Lundgren Public Relations Inc., (314) 726-6111, fax: (314) 726-6511

SeaRail International Inc., (713) 223-0022, fax: (713) 223-0729

Tapper Candies Inc., 15551 NEO Pkwy., Cleveland, OH 44128, (888) GOODY-90

Walker Information Inc., (800) 231-4904, http://www.walkerinfo.com