3.0 Social and Ethical Issues

8/21/2019 3.0 Social and Ethical Issues

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Small Business Management: An Entrepreneurial Emphasis

3.0SOCIAL AND

ETHICAL ISSES

hile unethical practices do exist, many small firmsstrive to achieve the highest standards of

truthfulness, fairness, and trustworthiness in theirbusiness relationships. In the business community, and particularly in the world of small business, idealism andenlightened behavior are the rule.

W

S!"ial #esp!nsi$ilities an% Small Business

An ethical business is one that not only treats customers andemployees honestly but also acts as a good citizen in its community.

It is generally understood that social responsibility includesthe obligations of a business to protect the interests of its

customers, employees, suppliers, and the general public.

Small firms, as well as well as large corporations, mustreconcile their social obligations with the need to earn profits.Meeting the expectations of society can be expensive, butfortunately, many types of socially responsible action can beconsistent with a firm’s longterm profit ob!ective. Some degree ofgoodwill is earned by socially responsible behavior. A firm thatconsistently fulfills its social obligations ma"es itself a desirable

member of the community and may attract customers because ofthat image.

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Challenges !) En*ir!nmentalism an% C!nsumerism

#wo movements of immediate concern to small businessesare$

Environmental issues.

%nvironmentalism is the effort to preserve and redeem theenvironment. It affects all business organizations.

#he interests of small business owners and environmentalistsare not necessarily, or uniformly, in conflict. Some small

businesses have actually been in a position to benefit from thegeneral emphasis on ecology. &or example, those firmswhose products are harmless to the environment aregenerally preferred by customers over competitors whoseproducts pollute.

Consumer issues.

'onsumerism is a movement that stresses the needs ofconsumers and the importance of serving them honestly andwell.

#o some extent, small firms stand to gain from the consumermovement. Attention to customer needs and flexibility inmeeting those needs have traditionally been strong assets ofsmall businesses.

Small firm managers have close relationships with their

customers and thus are able to determine and respond totheir needs. #o the extent that these positive features havebeen realized in practice, consumerism has strengthened theposition of small businesses.

Ethi"s an% Small Businesses

In the daytoday activities of small businesses, decisionma"ers face ethical dilemmas and temptations to compromise

principles for the sa"e of business or personal advantage.

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%thical issues involve (uestions of right and wrong. Such(uestions go far beyond what is legal or illegal. Many situations callfor decisions regarding what is honest, fair, and respectful.

)ne glaring example of unethical behavior by small firm

management is fraudulent reporting of income and expenses forincome tax purposes. #his conduct includes s"imming * that is,concealing some income * as well as improperly claiming personalexpenses as business expenses.

+hen ma"ing mar"eting decisions, a business owner isconfronted with a variety of ethical (uestions. Advertising contentmust sell the product or service but also tell the truth, the wholetruth, and nothing but the truth-. Salespeople must wal" a fine line

between persuasion and deception.

#he (uality of managerial ethics in a firm is reflected in therespect or lac" thereof given to employees. Showing proper respectfor subordinates as human beings and as valuable members of theteam is an essential ingredient of strong ethical management.

In reporting financial information, an owner must decide the

extent to which he or she will be honest and candid. #he ownershould recognize that outsiders such as ban"ers, investors, andsuppliers depend on a firm’s financial reports to be accurate.

In some cases, employees engage in unethical behavior at theexpense of their employer. At the most basic level, they may fail intheir ethical obligation to do an honest day’s wor"-. Someemployees have feigned in!uries and drawn fraudulent wor"ers’compensation chec"s, thereby inflating their employer’s insurance

costs. %mployee theft and embezzlement cost employers millions of dollars each year.

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Buil%ing An Ethi"al Business

#he goal of an ethically motivated entrepreneur is to have abusiness that operates honorably in all areas. #o achieve ethicalperformance, management must provide the "inds of leadership,culture, and instruction that support ethical behavior$

Strong underlying values.

#he business practices that a firm’s leaders or employees viewas right or wrong reflect their underlying values. nderlyingvalues are unarticulated ethical beliefs that provide afoundation for ethical behavior in a firm.

%ntrepreneurs who are deeply committed to underlying ethicalvalues operate their businesses in ways that reflect theirpersonal interpretation of those values.

A deep commitment to basic values affects business behaviorand gives rise to ethical business principles that are widelyappreciated and admired. +ithout a strong commitment tointegrity on the part of small business leadership, ethicalstandards can easily be compromised.

Ethical leadership.

%ntrepreneurs who care about ethical performance in theirfirms can use their influence as leaders and owners toencourage and even insist that everyone in their firms displayhonesty and integrity in all operations. %thical values areestablished by leaders in all organizations, and those at lowerlevels ta"e their cues regarding proper behavior from the

pronouncements and conduct of toplevel management.

#he personal integrity of the founder or owner is the "ey to afirm’s ethical performance. #he dominant role of this oneperson gives that person a powerful voice in the ethicalperformance of the small firm.

A supportive culture.

'onsistently strong ethical performance in a business re(uiresa supportive organizational culture. #here is a need to

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articulate and reinforce ethical principles in ways thatsupplement the personal example of the entrepreneur.

#he ownermanager of a firm should formulate a code ofethics. #his code should express the principles to be followed

by employees of the firm and gives examples of theseprinciples in action.

If a code of ethics is to be effective, employees must be awareof its nature and convinced of its importance. At the veryleast, each employee should read and sign it. As a companygrows larger, employee training becomes necessary to ensurethat the code is well understood and ta"en seriously.

It is also imperative, that management operate in a manner

consistent with its own principles and deal decisively with anyinfractions.

/ecause unethical operations reflect adversely on honestmembers of the business community, privately owned businessfirms in many cities have !oined together to form /etter /usiness/ureaus. #he purpose of such organizations is to promote ethicalconduct on the part of all business firms in the community.

Specifically, a /etter /usiness /ureau’s function is twofold$

01 It provides free buying guidelines and information aconsumer should have about a company prior to completing abusiness transaction.

21 It attempts to resolve (uestions or disputes concerningpurchases.

As a result, unethical business practices often decline in acommunity served by a /etter /usiness /ureau.

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3.0 Social and Ethical Issues

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