Goodwill Hunting Who cares about socially responsible business practices? Seventy percent of consumers, that's who.

Because we believe the subject matter is so important, over thenext two months Entrepreneur Media is running the followingarticle, examining the question of ethics for small business, inthree of our publications: Entrepreneur, Business Start-Ups andEntrepreneur's HomeOffice.

Charlie Wilson is trying to run an ethical business. He'smade social responsibility part of the mission statement at his$1.6 million Houston-based salvage company, SeaRail InternationalInc. He's made ethics a consideration in putting togetherguidelines for his salespeople. And he's made"self-actualization"--not wealth--his ultimate goal as anentrepreneur.

But don't mistake Wilson for some born-again hippie ormoralistic stick-in-the-mud. For him, it's all about success."Ethics is what's spearheading our growth," saysWilson. "It creates an element of trust, familiarity andpredictability in the business. We're in an industry where alot of people cut corners. It's easy to misrepresent productsand be less than upfront with customers about the condition ofgoods. I just don't think that's good for business. Youdon't get a good reputation doing things that way. Andeventually, customers won't want to do business withyou."

For years, ethics and business had a rocky marriage. If youasked entrepreneurs to talk about ethics, the responses would rangefrom scorn to ridicule. It's a dog-eat-dog world out there,they'd say, and I'm just trying to survive. But it wenteven deeper than that. Here are folks who--by definition--likebreaking the rules. Suggesting that entrepreneurs follow apredefined set of edicts was about as popular as asking them toswear off electricity.

But this attitude may be changing. Whether people are hung overfrom the freewheeling '80s or reflective about the comingmillennium, talk about ethics, values, integrity and responsibilityis not only becoming acceptable in the business community, it'spractically required.

"This looks to me just like the quality movement of 20years ago," says Frank Walker, chairman of Indianapolis-basedWalker Information Inc., a research and consulting company thattracks customer satisfaction and business ethics. "In anyfree-enterprise system, customers need a way to differentiate onefirm from another." For years, the dominant point ofdifferentiation has been quality. Now, says Walker, everyone candeliver quality, so businesses need to step up to a higherplane.

Are the nation's entrepreneurs ready to ascend to newheights of ethical literacy and compliance? Well, sort of. Althoughmost entrepreneurs still aren't trying to unseat the likes ofSocrates and Plato, many are giving serious thought to improvingethics within their companies--and within themselves--with the hopethat doing good business will be good for business.

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

Ethics, Schmethics

What's behind the current buzz about ethics? A number offactors, really. On the evolutionary front, the days when one couldargue that conscience and business don't mix are gone for good.Although the social responsibility movement of the late 1980s andearly '90s hardly qualifies as news anymore, its message hasbecome part of our popular consciousness: Businesses need not existfor the sake of greed alone. Consider the bar permanentlyraised--Ben and Jerry, thank you very much.

As standards have gone up, public awareness has alsointensified. "It's not necessarily that we care more aboutethics today," says Laura Pincus Hartman, director of theInstitute for Business & Professional Ethics at DePaulUniversity in Chicago, "but that, because of [bettercommunication], we know more about companies than we once did. Withthe World Wide Web, more information gets out to more people thanever before. Anyone can log on to the Internet and find out almostinstantaneously about libel suits, harassment suits and all kindsof information that would have been difficult to uncover in thepast."

Meanwhile, your company's ethics may have a direct impact onemployee loyalty. In a 1997 Walker Information survey of 1,694employees, 86 percent of respondents who had favorable opinions oftheir companies' ethics were strongly committed to theirorganizations; only 14 percent of those who rated ethics low feltlikewise. A full 42 percent of respondents said a company'sethical integrity would directly influence their choice ofemployers.

No longer can you assume that your competition is ethicallychallenged, either. Of 747 human resource professionals interviewedfor a 1997 Society for Human Resource Management/Ethics ResourceCenter survey, 73 percent of respondents said they work inorganizations that have written standards of ethical businessconduct. Nearly four in 10 work for organizations that provideethics-related training; 31 percent work for companies that haveeither an ethics office or an ombudsperson.

And there's more. When Walker Information polled 1,037consumers in 1994, 47 percent indicated they would be much morelikely to buy from a "good" company if quality, serviceand price were equal. On the other hand, 70 percent of consumerswould not buy--at any price--from a company that was not sociallyresponsible. "Apparently you get some credit for beinggood," says Walker, "but you really get clobbered forbeing unethical."

Not wanting to get clobbered in court is another motivation forcleaning up your act. According to ethics consultant VictoriaWesseler, president of Ethics & Compliance Strategies, aconsulting firm in Indianapolis, federal sentencing guidelines thatwent into effect in 1991, which apply to companies with as few as10 employees, provide financial incentive to companies that make aconcerted effort to prevent and police unethical conduct withintheir organizations. (See "Code Of Conduct" on page 121.)"I would hope the primary motivator for improving acompany's ethics would not be to meet these guidelines--thereare other reasons to become more ethical," says Wesseler."But [companies that meet the guidelines] may see a reductionin [criminal] fines of up to 95 percent."

For ethicist Robert C. Solomon, professor of philosophy andbusiness at the University of Texas, Austin, and author ofIt's Good Business: Ethics & Free Enterprise for the NewMillennium (Rowman & Littlefield), these various threadsweave together into a single truth: Ethics is at the very core ofsuccessful commerce. "Ethical managers and ethical businessestend 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 toincorporate ethics into your business is another. Yet improvingyour company's moral posture doesn't have to be painful orcomplicated. Here are some steps to get you started:

• Set priorities. The first and perhaps simplestthing you can do to delineate your company's values is tocreate a clear mission statement. "Identify yourstakeholders," says ethicist Hartman. "Is the customeryour highest priority? Or do your employees come first?" Downthe road, this kind of distinction might help you choose between,say, lowering prices (in consideration of customers) or taking acut in profits (in favor of employee benefits).

Wilson included the following words in his company's missionstatement: "We put social responsibility in front ofprofit." Although this is not exactly a specific plan ofaction, it guides many of the company's decisions."Whenever we have to make a tough judgment, we refer to ourmission statement," he says. "Putting things down onpaper helps set in stone what your standards are."

• Use company policies and procedures to bolster yourcase. If you don't already have a clear and specificpolicy manual for your employees, create one--and make sure ethicalissues such as sexual harassment and employee theft are addressed.Beyond the basics, look for procedures that will help guide yourcompany 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 codeof ethics; the information it contains may help you establish yourcompany's policies and procedures. At the very least, it willhighlight important issues to consider.

When faced with an individual dilemma, Wilson consults fellowbusiness owners at the Greater Houston Partnership, which issimilar to a chamber of commerce. "Sometimes you don'tknow what's best," Wilson says. "That's when ithelps to turn to your peers."

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

Jack Donner, owner of America's Best Self Storage inTorrance, California, believes one of the best ways to encourageethical behavior is to treat employees well. "Maintaining anadversarial relationship between yourself and your employees isvery shortsighted," Donner says. "[If that's yourapproach,] you'll get compliance only when fear or the threatof punishment is there. Otherwise, you won't."

Thus Donner's ethical agenda begins with fair terms ofemployment. "I'm here to help the employees, andthey're here to help me," says Donner. "I pay topwages. I make my employees partial owners of the business byoffering them a commission structure. I expect them to operate withthe highest degree of ethics, but I'm also interested infunctionality, not theory. If you hire unethical people or youdon't pay them enough, people are going to do what's intheir 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. Andconsider soliciting their advice on decisions you're making;they'll often have perspectives you don't.

• Avoid hypocrisy at all costs. Suppose youdon't care about your employees, and you have no compunctionabout lying to clients. You lay off staffers on a whim, cook thebooks at tax time, and, worst of all, you have no interest inchanging your ways.

Whatever you do, don't promote yourself to clients and staffas a paragon of virtue. Don't put glorious words about socialresponsibility in your mission statement. Don't institutesweeping reforms throughout your company. You'll only createbitterness among your staff and make a mockery of yourauthority.

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

The Rewards Of Virtue

If bulking up your company's moral fiber seems like a lot ofwork, consider the alternative. Imagine your company dogged bydisgruntled clients, renegade employees, hapless decision-makingand a poor reputation.

Not exactly your vision of success? In fact, it's hard toenvision any company being successful under these conditions. Andwhile it's believed that virtue offers its own spiritualrewards, the rewards of running an ethical business usually involvefinancial gain as well--if for no other reason than the fact thatunscrupulous behavior generally leads to havoc.

This is why business consultant and business owner David Thrope,founder of Boston Knish Inc. in Acton, Massachusetts, believes thatcodifying your ethics should be part of the strategic planning ofyour company early on. Clarifying ethical standards--for yourselfas well as others--is a critical step toward entrepreneurialmaturity. "A code of ethics gives the people in a company astructure within which to make decisions," explainsThrope.

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

"I think about how I'm going to feel when I'm mymother's age--and my grandfather's age," says Wilson."What will I think of the decisions I've made? How will Ifeel 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 ineveryone's long-term interests to appreciate what they'redoing and to feel good about what they're accomplishing here.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 businessprofessors whose complex analysis of past research revealed someinteresting differences in the ways that men and women perceiveunethical behavior.

Dr. Deborah Crown, associate professor of management, and Dr.George R. Franke, associate professor of marketing, found that onaverage, men and women go into the work force after college withdifferent perceptions about ethics. Differences are most pronouncedamong college students and gradually decrease with work experienceuntil, after being in the work force for about 21 years, thedifferences 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 involvingmoney than those involving nonmonetary issues.

• Ethical standards rise over time: "Junior workers maycross an ethical line without even realizing it," says Franke."With work experience comes a better understanding of what isappropriate and inappropriate behavior."

• There's more agreement than disagreement: Ethicalperceptions of men and women overlapped by 84 percent.

Code Of Conduct

The fines against corporations found guilty of violating lawsregarding ethics are hefty under current federal sentencingguidelines. However, the fines can be reduced substantially if acompany has an effective program in place before a violationoccurs.

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

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

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

• Care taken to prevent hiring individuals with a propensitytoward criminal misconduct

• Communication and training regarding standards for allemployees

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

• Consistent reinforcement of standards

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

Wesseler also suggests integrating standards into employeeperformance reviews.

Truth Or Consequences

Even the smallest white lie can cause major damage to yourreputation.

By Laura Tiffany

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

"I'd bet everyone in business makes at least oneethical decision a day without even knowing it. I do. All I have tosell in my business is my word and my integrity," maintainsRhonda Sanderson, owner of Sanderson & Associates Ltd., aHighland Park, Illinois, public relations firm that specializes infranchises and small business.

But it's not always easy when your client--the person whosigns your checks--requests you tell a little white lie."I've had clients say to me `Can't you just tell themwe'll have 44 units open by then?' when they only have 11open at the time but have sold 33," says Sanderson."It's my job to tell the client this just isn't theway we do it. Not only will [the press] remember, but they'renever going to write about you again, and they're going to saybad things about you.

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

Sanderson started her own company after that 1984 incident butstill 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 orcustomers badly, or says `Ha, they'll never know,' [thatclient will] do it to you, too. Many respectable companies stillwork on a handshake. I don't think I could trust someone Icouldn'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 ResourceCenter, (202) 434-8461, ethics@ethics.org

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