Write to The Ethics Coach at ethics@entrepreneur.com.
Q: I'm the sole proprietor of a property management business that has grown rapidly since I started it in 2011. I have several clients and manage more than 300 units. For maintenance and construction projects, I call contractors to put in bids, but their response times are slow and prices are high. I want to start a maintenance company so I can improve turnaround and quality of work for my property management business. It would be a separate entity for tax and liability purposes.
Is this ethically acceptable? As the owner of both, I will have the inside track on competitors' bids and make the hiring decisions. Can I source the work to another company I own if I know I am providing customers better service at better rates than they would otherwise get? Regarding disclosure, should I tell clients I own the other business or ask for forgiveness later? Or is this too self-serving, and I should avoid starting the company altogether?
A: "Self-serving" is an understatement. You've described a huge conflict of interest. Beware of the self-deceptive thinking that fools you into believing you can make a bid and review competitors' bids objectively. Customers won't buy it--nor should they. Further, your disclosure doesn't create an ethical playing field, either. Research indicates that disclosure of a potential conflict can actually increase bias in decision-making, because it leads you to feel you have permission not to be objective, according to attorney Rebecca Walker of Santa Monica, Calif.-based Kaplan & Walker. As an alternative solution, she suggests that your management company agree to perform maintenance and construction services for clients at a predetermined rate.
"Rather than creating conflicts, this is simply another business arrangement with existing customers, assuming that your two companies enter into the agreement after full disclosure of all ownership interests and other relevant issues," Walker says. All the better, she adds, "if the captive construction company uses a fair and verifiable pricing process that the client approves, such as coming in at or below a competitive bid solicited within the last year."
Getting Personal
Q: One of the reasons I started my administrative and personal support company is that I believe it isn't ethical for C-suite executives to add personal tasks to executive assistants' to-do lists. Executives are using company funds to pay EAs to do personal work; further, the practice puts the company at risk in terms of public image should private information leak. What do you think?
A: Company leaders should focus on creating optimum organizational performance and success. An EA supports that objective by decreasing the boss's distractions and helping increase his or her productivity. C-suite leaders need to make sure EAs are engaged members of the team who feel that the aggregate of what they do has meaning and adds value to the business.
Ethical considerations show up in situations where there is a lack of transparency and respect; leaders can avert these problems through an awareness of how they treat their team and how they communicate. From the outset, leaders (or anybody who conducts job interviews on their behalf) need to be transparent and clear about their expectations for the role--including whether personal tasks are involved. Leaders who work to unite each team member in service of the organization's purpose and make EAs and others feel valued help drive the organization to optimum performance.
This story appears in the June 2013 issue of Entrepreneur. Subscribe »
