URL: http://www.entrepreneur.com/magazine/entrepreneur/1998/july/16106.html

Because we believe the subject matter is so important, over the next two months 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. He's made ethics a consideration in putting together guidelines for his salespeople. 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 scorn to ridicule. 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 ethics within their companies--and within themselves--with the hope that doing good business will be good for business.

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

What's behind the current buzz about ethics? A number of factors, really. On the evolutionary front, 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--Ben and Jerry, thank you very much.

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."

Meanwhile, your company's ethics may have a direct impact on employee loyalty. In a 1997 Walker Information survey of 1,694 employees, 86 percent of respondents who had favorable opinions of their companies' ethics were strongly committed to their organizations; only 14 percent of those who rated ethics low felt likewise. A full 42 percent of respondents said a company's ethical integrity would directly influence their choice of employers.

No longer can you assume that your competition is ethically challenged, either. Of 747 human resource professionals interviewed for a 1997 Society for Human Resource Management/Ethics Resource Center survey, 73 percent of respondents said they work in organizations that have written standards of ethical business conduct. Nearly four in 10 work for organizations that provide ethics-related training; 31 percent work for companies that have either an ethics office or an ombudsperson.

And there's more. 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."

Not wanting to get clobbered in court is another motivation for cleaning up your act. According to ethics consultant Victoria Wesseler, president of Ethics & Compliance Strategies, a consulting firm in Indianapolis, federal sentencing guidelines that went into effect in 1991, which apply to companies with as few as 10 employees, provide financial incentive to companies that make a concerted effort to prevent and police unethical conduct within their organizations. (See "Code Of Conduct" on page 121.) "I would hope the primary motivator for improving a company's ethics would not be to meet these guidelines--there are other reasons to become more ethical," says Wesseler. "But [companies that meet the guidelines] may see a reduction in [criminal] fines of up to 95 percent."

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."

Deciding to embrace ethics is one thing. Figuring out how to incorporate ethics into your business is another. Yet improving your company's moral posture 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. "Identify your stakeholders," says ethicist Hartman. "Is the customer your highest priority? Or do your employees come first?" Down the road, this kind of distinction might help you choose between, say, lowering prices (in consideration of customers) or taking a cut in profits (in favor of employee benefits).

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 the company's decisions. "Whenever we have to make a tough judgment, we refer to our mission statement," he says. "Putting things down on paper helps set in stone what your standards are."

• Use company policies and procedures to bolster your case. If you don't already have a clear and specific policy manual for your employees, create one--and make sure ethical issues such as sexual harassment and employee theft are addressed. Beyond the basics, look for procedures that will help guide your company through the kinds of dilemmas it faces daily.

• Get advice. Don't try to 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."

• Foster an ethical work environment. As you work to clarify your company's ethical positions, don't forget to walk the walk. Bear in mind that unwritten, unspoken messages can be powerful, too.

Jack Donner, owner of America's Best Self Storage in Torrance, California, believes one of the best ways to encourage ethical behavior is to treat employees well. "Maintaining an adversarial relationship between yourself and your employees is very shortsighted," Donner says. "[If that's your approach,] you'll get compliance only when fear or the threat of punishment is there. Otherwise, you won't."

Thus Donner's ethical agenda begins with fair terms of employment. "I'm here to help the employees, and they're here to help me," says Donner. "I pay top wages. I make my employees partial owners of the business by offering them a commission structure. I expect them to operate with the highest degree of ethics, but I'm also interested in functionality, not theory. If you hire unethical people or you don't pay them enough, people are going to do what's in their best financial interest."

• Provide a forum. No matter how thorough you are, predicaments will arise and violations will occur. Toward that end, make sure employees have a set procedure for raising concerns. And consider soliciting their advice on decisions you're making; they'll often have perspectives you don't.

• Avoid hypocrisy at all costs. Suppose you don't care about your employees, and you have no compunction about lying to clients. You lay off staffers on a whim, cook the books at tax time, and, worst of all, you have no interest in changing your ways.

Whatever you do, don't promote yourself to clients and staff as a paragon of virtue. Don't put glorious words about social responsibility in your mission statement. Don't institute sweeping reforms throughout your company. You'll only create bitterness among your staff and make a mockery of your authority.

"People are a lot more observant than you realize," says Wilson. "You've just got to be [ethical]--you can't lie about it."

If bulking up your company's moral fiber seems like a lot of work, consider the alternative. Imagine your company dogged by disgruntled clients, renegade employees, 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--if for no other reason than the fact that unscrupulous behavior 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 your company early on. Clarifying ethical standards--for yourself as well as others--is a critical step toward entrepreneurial maturity. "A code of ethics gives the people in a company a structure within which to make decisions," explains Thrope.

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 long-term interests to appreciate what they're doing and to feel good about what they're accomplishing here. Otherwise, what's the point?"

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 that 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.

• 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: Ethical perceptions of men and women overlapped by 84 percent.

The fines against corporations found guilty of violating laws regarding ethics are hefty under current federal sentencing guidelines. However, the fines can be reduced substantially if a company has an effective program in place before a violation occurs.

Although there's no formula, the government has issued recommendations on the components that make up an "effective" compliance program. The recommendations, as summarized by Victoria Wesseler, president of Ethics and Compliance Strategies in Indianapolis, are:

• The development of standards and procedures reasonably capable of reducing the prospect of criminal conduct

• Appointment of a senior-level individual within the company to monitor standards and procedures

• Care taken to prevent hiring individuals with a propensity toward criminal misconduct

• Communication and training regarding standards for all employees

• Monitoring and auditing the system, including an internal mechanism for employees to report violations

• Consistent reinforcement of standards

• And, in the case of a violation, timely responses to curtail the activity and prevent future occurrences.

Wesseler also suggests integrating standards into employee performance reviews.

Even the smallest white lie can cause major damage to your reputation.

By Laura Tiffany

swear to tell the truth, the whole truth and nothing but the truth." It can be difficult to abide by such a vow, especially at work. But the temptation to cut seemingly innocent corners in the truth department can damage your business's reputation--especially if your reputation is the major product of your business.

"I'd bet everyone in business makes at least one ethical decision a day without even knowing it. I do. All I have to sell in my business is my word and my integrity," maintains Rhonda Sanderson, owner of Sanderson & Associates Ltd., a Highland Park, Illinois, public relations firm that specializes in franchises and small business.

But it's not always easy when your client--the person who signs your checks--requests you tell a little white lie. "I've had clients say to me `Can't you just tell them we'll have 44 units open by then?' when they only have 11 open at the time but have sold 33," says Sanderson. "It's my job to tell the client this just isn't the way we do it. Not only will [the press] remember, but they're never going to write about you again, and they're going to say bad things about you.

"In my early days of PR, the company I worked for lost a client because I would not lie for [the client]. That was one of the reasons I left that firm. I won't lie to the press. I need the press--they're my bread and butter," Sanderson explains.

Sanderson started her own company after that 1984 incident but still faces similar ethical challenges as the boss. "I [dropped] a client because he lied to his franchisees. [Ethics is] truly a business decision. If a client treats franchisees or customers badly, or says `Ha, they'll never know,' [that client will] do it to you, too. Many respectable companies still work on a handshake. I don't think I could trust someone I couldn't work with on that level."

Contact Sources

America's Best Self Storage, (425) 861-7050

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

Ethics & Compliance Strategies, (317) 849-1411, http://www.ethicscompliance.com

Sanderson & Associates Ltd., 2310 Skokie Valley Rd., #204, Highland Park, IL 60035, (847) 432-2370

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

Society for Human Resource Management/Ethics Resource Center, (202) 434-8461, ethics@ethics.org

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