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's HomeOffice, Entrepreneur and Business Start-Ups.

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 born-again hippie or moralistic stick-in-the-mud. For him, 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. It's easy to misrepresent products and be less than upfront with customers about the condition of goods. I just don't think that's good for business. You don't get a good reputation doing things that way. And eventually, customers won't want to do business with you."

For years, ethics and business had a rocky marriage. If you asked entrepreneurs to talk about ethics, the responses would range from silence to scorn. It's a dog-eat-dog world out there, they'd say, and I'm just trying to survive. But it went even deeper than that. Here are folks who--by definition--like breaking the rules. Suggesting that entrepreneurs follow a predefined set of edicts was about as popular as asking them to swear off electricity.

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

"This looks to me 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. "In any free-enterprise system, 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 serious thought to improving their ethics, with the hope that doing good business will be good for business as well.


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

Ethics, Schmethics

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 1980s and early '90s hardly qualifies as news anymore, its message has become part of our popular consciousness: Businesses need not exist for the sake of greed alone. Consider the bar permanently raised thanks to conscientious companies.

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. With the World Wide Web, more information gets out to more people than ever before. Anyone can log on to the Internet and find out almost instantaneously about libel suits, harassment suits and 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 indicated they would be much more likely to buy from a "good" company if quality, service and price were equal. On the other hand, 70 percent of consumers would not buy--at any price--from a company that was not socially responsible. "Apparently you get some credit for being good," says Walker, "but you really get clobbered for being unethical."

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

Put A Moral In Your Story

Deciding to embrace ethics is one thing. Figuring out how to incorporate ethics into your business is another. Yet it doesn't have to be painful or complicated. 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 is your highest priority? Wilson included the following words in his company's mission statement: "We put social responsibility in front of profit." Although this is not exactly a specific plan of action, it guides many of Wilson's decisions. "Whenever I have to make a tough judgment, I refer to our mission statement," he 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. To a homebased entrepreneur with no employees, writing a policy manual may seem unnecessary. In reality, putting guidelines on paper will not only help you make decisions now but will also guide the employees you may someday have.

Look for procedures that help guide you through the kinds of dilemmas you face daily. In Iris Salsman's public relations business, St. Louis, Missouri-based Salsman Lundgren Public Relations Inc., credibility is key. "We're putting ourselves out on a limb, asking the media to portray [clients] as certain kinds of people," Salsman explains. "If they aren't that kind of person, [that discrepancy] affects our reputation." So Salsman performs careful client interviews and does a little investigating online and with contacts to make sure the story a prospective client gives her 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. Don't reinvent the wheel. Ask one of your industry's trade associations if it has a code of ethics; the information it contains may help you establish your company's policies and procedures. At the very least, it will highlight important issues to consider.

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

  • Avoid hypocrisy at all costs. Suppose you have no compunction about lying to clients, you cook the books at tax time and, worst of all, you have no interest in changing your evil ways. Whatever you do, don't promote yourself to clients and the community as a paragon of virtue. "People are a lot more observant than you realize," says Wilson. "You've just got to be [ethical]--you can't lie about it."

The Rewards Of Virtue

If bulking up 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 exactly your vision of success? In fact, it's hard to envision any company being successful under these conditions. And while it's believed that virtue offers its own spiritual rewards, the rewards of running an ethical business usually involve financial gain as well. Unscrupulous behavior, on the other hand, generally leads to havoc.

This is why business consultant and business owner David Thrope, founder of Boston Knish Inc. in Acton, Massachusetts, believes that codifying your ethics should be part of the strategic planning of an organization early on. Clarifying ethical standards--for yourself as well as others--is a critical step toward entrepreneurial maturity. "A code of ethics gives [you] a structure within which to make decisions," says Thrope. As your business grows, that code will help ensure everyone in the company is on the same wavelength.

In any business, developing and preserving ethics is an ongoing process--and an imperfect one. And while it's not necessary to cover every base and perform flawlessly in every situation, it is important to try.

"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? How will I feel about the things I've done? If I can't feel [proud], what good is it to have made a lot of money? It's in everyone's interests to appreciate what they're doing and to feel good about what they're accomplishing. Otherwise, what's the point?"

Battle of the Sexes

Do women have higher ethical standards than men? In general, yes. That's according to two University of Alabama business professors whose complex analysis of past research revealed some interesting differences in the ways men and women perceive unethical behavior.

Dr. Deborah Crown, associate professor of management, and Dr. George R. Franke, associate professor of marketing, found that on average, men and women go into the work force after college with different perceptions about ethics.

Differences are most pronounced among college students and gradually decrease with work experience until, after being in the work force for about 21 years, the differences practically disappear.

Other findings:

  • Women were more likely to perceive rule-breaking as unethical. However, men were no more likely to break rules than women were.
  • Men were more likely to recognize ethical problems involving money than those involving nonmonetary issues.
  • Ethical standards rise over time: "Junior workers may cross an ethical line without even realizing it," says Franke. "With work experience comes a better understanding of what is appropriate and inappropriate behavior."
  • There's more agreement than disagreement: Overall, the ethical perceptions of men and women overlapped by 84 percent.

There's A Place...

By Laura Tiffany

Juliette Mills-Lutterodt had no fear when zoning department representatives visited her business: She didn't know she was operating illegally.

The surprise visit came about a month after she launched her homebased nanny placement agency, Agence Georgette, in the basement of her Montclair, New Jersey, home. "I had no idea I was violating any zoning codes," says Mills-Lutterodt, who started her business in July 1997 so she could be with her 6-year-old son.

After ordering her to discontinue the business, the zoning board wrote to her duplex management company, which threatened to evict her if she continued her fledgling agency. "[Ethics] was one of my main concerns," she recalls. "It was important to me not to create any trouble but to get more information about how I could go about [doing business] quietly."

Mills-Lutterodt quelled the concerns of the zoning department by meeting nanny applicants in local coffee shops and continuing her regular practice of interviewing clients in their homes, thereby stopping the flow of traffic to her home. She also joined the Home Based Business Council in Neptune City, a local association working to change the zoning laws in New Jersey. "I really hope something can be done, and we can continue to talk about the laws on this issue. I almost felt I should leave Montclair because of the zoning restrictions. The one or two people who came to [my office] each day could have easily been my friends, and because of that, I can almost feel eyes on me when I have company."

Mills-Lutterodt admits it would be easier for her to meet with applicants in her office with her computer nearby. But until the law changes or she can afford separate office space, she will continue to meet applicants at coffee shops to keep her business legal.

Contact Sources

Agence Georgette, (973) 783-4788

Boston Knish Inc., (978) 264-0107,