Ethical Behaviour

A strong corporate ethic has effects deep into the stakeholder community.

Owner-managed businesses are under increasing pressure to ensure that their conduct as corporate citizens and the conduct of their employees as private citizens meet certain standards of ethical behaviour. It is all too easy for owner-managers to forget, however, that even though their business is run behind closed doors, the stakeholder community that buys its goods and services and on which it depends for employees, suppliers and financing have expectations about how it and its employees should behave.

Unfortunately it is only when an employee steps outside the unwritten but publicly assumed framework of expectations does the owner-manager or the employee understand that an ethical standard has been breached.

Business behaviour that may raise ethical eyebrows among stakeholders includes:

• Toleration of swearing, bullying, sexism or sexual harassment
• Bypassing environmental protocols, safety standards or employment standards
• Hiring practices based not upon qualification but gender, nationality or race
• Remuneration based on subjective evaluations rather than performance measurement
• Advancement based not upon evaluation but favouritism
• A reward system based strictly upon closing the deal rather than satisfying client needs
• An attitude that employees are there to be exploited rather than developed and rewarded
• An attitude of indifference to the law and employee safety and welfare

Business Ethics

Business ethics may be defined as codes of principles and values that govern decisions and actions within an organization.

Corporations large enough to have an HR department may have a written mission statement and code of ethics; smaller businesses may just assume a code of some sort to be an unwritten part of the corporate culture. As the age, gender, ethnic, educational and other factors in the employee mix change with the company’s growth, however, owner-managers may find it necessary to create a coded business ethic for all employees. A Google search of business ethics turns up about 20 million results, a measure of the extent of debate around this issue. Obviously, no magic formula exists to create a company ethic. There are, however, two approaches to corporate ethical behaviour that should be part of any in-house debate.

Approach 1

Owner-managed businesses answer the same question posed by their larger counterparts: “Is the purpose of our business solely to make profit for the shareholders or are we responsible as well to the greater good of our broader stakeholder community?” When shareholders (owners) instil in management a philosophy that their only purpose is to provide a return to the shareholders, concerns for employees, third-parties such as suppliers, customers or society in general, may go out the window. This bottom-line approach can lead to money saving methods that reduce workplace safety, jeopardize product safety, or endanger the community.

Approach 2

An organization shows the flip side of “profit at any cost” when shareholders instil in management the requirement to consider the needs of all stakeholders within the influence of the company. Stakeholders are not just the shareholders; they include everyone who derives value from the survival of the business: employees, suppliers, customers and all those other small businesses such as the local grocery, clothing or appliance store, or even the movie theatre that survive on the personal spending of employees.

The scope and breadth of influence, of course, depends upon the size of the community and the ownership of the business. A small retail store owned by generations of the same family may be willing to allow political posters in its window at election time because the owner wants to be part of the debate over local issues.

On the other hand, a national franchise with stores coast to coast may not want its name to appear associated with any issue and therefore prohibits local franchisees from displaying anything concerning the community. The national franchise’s inaction creates pockets of silence and excludes itself from the very community upon which it depends for its business. Is its behaviour ethical or merely self-serving?

Owner-managers and their employees should consider whether their actions may be perceived as ethical or unethical.

In a world constantly influenced by social media, owner-managers must be aware that any action within their sphere of influence may have a butterfly effect upon local, regional and federal governments, the community and its residents. For this reason, owner- managers and their employees may wish to consider whether any action or inaction may be perceived as ethical or unethical.

Businesses and the stakeholder community in which they operate have a symbiotic relationship: the business needs the support of the community and the community needs the business for its prosperity. When a business is perceived as unethical all community members suffer. The challenge for owner-managers and employees is to consider the potential ethical consequences of their actions.

Four Questions

Perhaps if employees asked themselves these four questions before making decisions, incidences of unethical behaviour would be fewer:

1. Is my decision based upon my knowledge of the truth?
2. Will my decision be fair and respectful of all stake holders?
3. Will my decision add to the goodwill my company enjoys in the community?
4. Would I be ashamed if my decision became public knowledge?

As much as we detest written procedures, a written code of ethics raises to consciousness what employees used to take for granted. It is the framework any busness needs to show all employees what is expected of them by the company and by the law. Without formalized procedures a business could discover it has not performed the due diligence required to protect third parties from unethical acts committed by the business and its representatives.

A World without Madoff

If rules and regulations could control human conduct and prevent unethical behaviour, the Quebec-based Earl Jones and the USA-based “Bernie” Madoff ponzi schemes might never have happened. In the final analysis, corporate ethical behaviour must reflect the ethical values of stakeholders in order to be acceptable. It is the owner-manager’s job to ensure the ethical behaviour of all within the business meets or exceeds the expectation of this community.

Disclaimer:

BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

BUSINESS MATTERS is prepared bimonthly by The Canadian Institute of Chartered Accountants for the clients of its members.

Richard Fulcher, CA – Author; Patricia Adamson, M.A., M.I.St. – CICA Editor.