Developing an Ethics Policy
The small business owner is in a unique position to set the ethical tone for the business.
Employees will follow the lead of the owner when executing their duties and tending to their
responsibilities, so it is critical that the owner establish an ethical work
environment. [22] Establishing anethics policy (code of conduct or code of ethics) is an important
step in creating that environment. Employees who work in companies with active ethics
programs; who observe leaders modeling ethical behavior; and who see honesty, respect, and
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trust applied frequently in the workplace have reported more positive experiences that include
the following: [23]
• Less pressure on employees to compromise ethics standards
• Less observed misconduct at work
• Greater willingness to report misconduct
• Greater satisfaction with their organization’s response to misconduct they report
• Greater overall satisfaction with their organizations
• Greater likelihood of “feeling valued” by their organizations
These positive work experiences would be even more notable in small businesses because of the
smaller number of employees.
Employee perceptions of their organization’s ethical leadership may well be the most important
driver of employee trust and loyalty. [24] Having an ethical culture should, therefore, be a top
priority for every small business.
Many small business owners may feel that a code of ethics is unnecessary. However, the benefit
of having such a code is higher employee morale and commitment, more loyal customers, and a
more supportive community. Even the nonemployee small business benefits. A code of ethics
puts your business in a more positive, proactive light, and it spells out to customers and
employees what behavior is and is not appropriate. [25]
There is no recipe for developing an ethics policy. Its development may involve no one other
than the small business owner, but it should involve several people. The contents should be
specific to the values, goals, and culture of each company, and it should be “a central guide and
reference for users in support of day-to-day decision making. It is meant to clarify an
organization’s mission, values, and principles, linking them with the standards of professional
conduct.” [26] Small-business owners must decide what will make the most sense for their
companies. Jeff Wuorio offered the following eight guidelines: [27]
1. Focus on business practices and specific issues. The content of one company’s code of ethics will
differ from that of another.
2. Tailor it to fit your business. One size does not fit all. Make sure your code of ethics reflects the values
and mission of your company.
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3. Include employees in developing a code of ethics. A mandate from the small business owner will
not be effective. Get input from your employees whenever possible. They will be more accepting of the
ethics policy.
4. Train your people to be ethical. The extent and nature of employee education and training will
depend on the size of the small business. Even the smallest business, however, will benefit from some
ethics training.
5. Post your code of ethics internally and set up a reporting system. Employees need a way to let
someone know about ethics violations. Both an open-door policy and an anonymous reporting system will
be helpful.
6. Consider appointing a compliance person. This would probably not be appropriate for the very
small businesses. However, it would be worth considering if the business has fifty or more employees.
Having someone to whom employees can report suspected ethical problems would make things much
simpler.
7. Follow up on any ethics violations you uncover. Make sure that everyone understands the
ramifications of ethics policy violations. Include an appeals process. If a small business owner fails to act
on ethics violations, employees will not take the policy seriously.
8. Live it from the top down. The small business owner must walk the talk. No one should appear to be
above the code of ethics. Good role modeling is critical.
The actual development of a code of ethics can be done by starting from scratch, hiring a
consultant, or customizing a code from another organization. Before making a choice, it would
be worth doing some research. A good place to start would be www.conductcode.com, a website
that looks at codes of conduct from a practitioner approach. A search of the Internet will provide
examples of codes of ethics, but there is a bias toward larger companies, so small business
owners will have to pick and choose what will be best suited to their respective companies. Ethical Behavior Survey
The Ethics Resource Center conducted a survey of employees at large and small businesses and
found the following:
• Fifty-six percent of the employees had witnessed misconduct by other employees that violated the firm’s
ethics standards or policies or the law.
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• Fifty-four percent of the employees who had witnessed misconduct believed that reporting the
misconduct would not lead to corrective action.
• Forty-two percent of the employees who had witnessed misconduct reported it. The percentage rose to 61
percent for employees whose employers have a well-implemented ethics and compliance program.
• Thirty-six percent of the employees who had witnessed misconduct but did not report it cited fear of
retaliation as their reason for not reporting it. [28]
KEY TAKEAWAYS
• Ethics are about doing the right thing. They are about standards that help us decide between right and wrong. They are not the same as our feelings, religion, the law, cultural norms, science, or values.
• Ethics are important because they provide structure and stabilization for society.
• Business ethics are about applying the virtues and discipline of ethics to business behavior. They set the standard for how your business is conducted and define the value system of how you operate in the marketplace and within your business.
• Companies that “outbehave” the competition ethically tend to outperform them financially.
• Ethical behavior in business improves the workplace climate and will ultimately improve the bottom line. The cost of unethical behavior can be staggering.
• Small-business owners have the opportunity to set the ethical tone for their companies. Modeling ethical behavior is key. The community and peers heavily influence small business ethics.
• Establishing an ethics policy is critical for creating an ethical work environment. The contents of the policy should be
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specific to the values, goals, and culture of each company. One size does not fit all.
EXERCISES
1. MaryAnn’s marketing team just presented a “Less Sugar” ad campaign to the cereal brand manager for three of her brands. The packages shouted “75% LESS SUGAR” in large and colorful type so that it would catch the parent’s eye and increase sales. With all the recent attention about childhood obesity, the company thought that parents would purchase the cereal to help their children attain and keep a healthy weight. A side-by- side comparison of the less-sugar and the high-sugar versions of the cereals, however, revealed that the carbohydrate content of the cereals was essentially the same. At best, the less-sugar version had only ten fewer calories per bowl. It offered no weight-loss advantage. The brand manager correctly concluded that the marketing campaign was unethical. [29] Was the campaign illegal? What should the cereal brand manager do?
2. An office supplies business with fifty employees has been doing well, but lately there have been suspicions by some of the employees. No names are known, but it is known that merchandise has been disappearing without explanation, and expensive gifts have been accepted from some vendors. The owner thinks it is time to create and implement a code of ethics. She has asked you for advice. You told her that it would be important to involve the employees in the development of the code, but you committed to do two things for her in preparation for that involvement: (1) search the Internet for a
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code of ethics that could be tailored to her needs and (2) prepare a preliminary list of topics that should be included in the code. She thanked you and asked that you submit your ideas within the week. She reminded you that her business is small, so a code of ethics for a large corporation would not be suitable.
[1] Manuel Velasquez et al., “What Is Ethics?,” Santa Clara University: Markula Center for Applied
Ethics, 2010, accessed October 7, 2011,www.scu.edu/ethics/practicing/decision/whatisethics.html.
[2] Daniel J. Brown and Jonathan B. King, “Small Business Ethics: Influences and Perceptions,” Journal of
Small Business Management 11, no. 8 (1982): 11–18.
[3] “A Framework for Thinking Ethically,” Santa Clara University: Markula Center for Applied Ethics,
2009, accessed October 7, 2011,www.scu.edu/ethics/practicing/decision/framework.html.
[4] Milton Rokeach, The Nature of Human Values (New York: Free Press, 1973), 5, as cited in Wayne D.
Hoyer and Deborah J. MacInnis, Consumer Behavior (Boston: Houghton Mifflin, 2001), 416.
[5] Jeff Landauer and Joseph Rowlands, “Values,” Importance of Philosophy, 2001, accessed October 7,
2011, www.importanceofphilosophy.com/Ethics_Values.html.
[6] Jeff Landauer and Joseph Rowlands, “Values,” Importance of Philosophy, 2001, accessed October 7,
2011, www.importanceofphilosophy.com/Ethics_Values.html.
[7] “Business Ethics,” Small Business Notes, accessed October 7,
2011,www.smallbusinessnotes.com/operating/leadership/ethics.html.
[8] Richard McGill Murphy, “Why Doing Good Is Good for Business,”CNNMoney.com, February 2, 2010,
accessed October 7, 2011,money.cnn.com/2010/02/01/news/companies/dov_seidman_lrn.fortune.
[9] Simon Webley and Elise More, “Does Business Ethics Pay?,” Institute of Business Ethics, 2003,
accessed October 7, 2011,www.ibe.org.uk/userfiles/doesbusethicpaysumm.pdf.
[10] Simon Webley and Elise More, “Does Business Ethics Pay?,” Institute of Business Ethics, 2003,
accessed October 7, 2011,www.ibe.org.uk/userfiles/doesbusethicpaysumm.pdf.
[11] “The Hidden Costs of Unethical Behavior,” Josephson Institute, 2004, accessed October 7,
2011,josephsoninstitute.org/pdf/Report_HiddenCostsUnethicalBehavior.pdf.
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[12] Terrence Shulman, “Employee Theft Statistics,” Employee Theft Solutions, 2007, accessed October
7, 2011, www.employeetheftsolutions.com.
[13] Leslie Taylor, “Four in 10 Managers Have Fired Employees for Theft,” Inc., September 1, 2006,
accessed October 7, 2011,www.inc.com/news/articles/200609/theft.html?partner=rss.
[14] Mary Paulsell, “The Problem of Employee Theft,” MissouriBusiness.net, October 10, 2007, accessed
October 7, 2011,www.missouribusiness.net/sbtdc/docs/problem_employee_theft.asp.
[15] Karen E. Klein, “Making the Case for Business Ethics,” Bloomberg BusinessWeek, April 26, 2010,
accessed October 7,
2011,www.BusinessWeek.com/smallbiz/content/dec2008/sb20081230_999118.htm.
[16] Jeffrey S. Hornsby et al., “The Ethical Perceptions of Small Business Owners: A Factor Analytic
Study,” Journal of Small Business Management 32 (1994): 9–16, adapted.
[17] “Business Ethics,” Answers.com, 2001, accessed October 7,
2011,www.answers.com/topic/business-ethics.
[18] Jim Blasingame, “Small Business Ethics,” Small Business Advocate, August 13, 2001, accessed
October 7, 2011, www.smallbusinessadvocate.com/motivational-minutes/small-business-ethics-22.
[19] Daniel J. Brown and Jonathan B. King, “Small Business Ethics: Influences and Perceptions,” Journal
of Small Business Management 11, no. 8 (1982): 11–18.
[20] Terry L. Besser, “Community Involvement and the Perception of Success among Small Business
Operators in Small Towns,” Journal of Small Business Management 37, no. 4 (1999): 16–29.
[21] Daniel J. Brown and Jonathan B. King, “Small Business Ethics: Influences and Perceptions,” Journal
of Small Business Management 11, no. 8 (1982): 11–18.
[22] “Business Ethics,” Answers.com, 2001, accessed October 7,
2011,www.answers.com/topic/business-ethics.
[23] Natalie Rhoden, “Ethics in the Workplace,” Articlesbase, November 5, 2008, accessed October 7,
2011, www.articlesbase.com/human-resources-articles/ethics-in-the -workplace-629384.html.
[24] Jennifer Schramm, “Perceptions on Ethics,” HR Magazine, November 2004, 176.
[25] Jeff Wuorio, “Put It in Writing: Your Business Has Ethics,” Microsoft Small Business, 2011, accessed
October 7, 2011, www.microsoft.com/business/en-us/resources/management/leadership-training/put-
it-in-writing-your-business-has-ethics.aspx ?fbid=WTbndqFrlli.
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[26] “Why Have a Code of Conduct,” Ethics Resource Center, May 29, 2009, accessed October 7,
2011, www.ethics.org/resource/why-have-code-conduct.
[27] Jeff Wuorio, “Put It in Writing: Your Business Has Ethics,” Microsoft Small Business, 2011, accessed
October 7, 2011, www.microsoft.com/business/en-us/resources/management/leadership-training/put-
it-in-writing-your-business-has-ethics.aspx ?fbid=WTbndqFrlli.
[28] Reported in Jeff Madura, Introduction to Business (St. Paul, MN: Paradigm Publishing, 2010), 52.
[29] J. Brooke Hamilton III, “Case Example 1: ‘Less Sugar’ Marketing,”Operationalizing Ethics in Business
Settings, 2009, accessed June 1, 2012,ethicsops.com/LessSugarMarketingCase.php.
1.5 The Three Threads
L E A R N I N G O B J E C T I V E S
1. Define customer value and explain why it is important to small business competitiveness.
2. Define digital technology and explain its role in small business competitiveness.
3. Define e-business and explain why e-business is important to small businesses.
4. Define e-commerce and explain why e-commerce should be integrated into small businesses.
There are three threads that flow throughout this text: customer value, cash flow, and digital
resources and e-environments. These threads can be likened to the human body. Cash flow is
the circulatory system, without which there can be no life. Digital technology and e-business are
the internal organs that carry out daily processes. E-commerce is the sensory system that
enables business to observe and interact with the external environment. Customer value is
overall health. These threads must figure prominently in all small business decision making.
Although they are necessary but not sufficient conditions for small business survival, the
chances for survival will be reduced significantly if they are not used.
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Customer Value
In 1916, Nathan Hanwerker was an employee at one of the largest restaurants on Coney Island—
but he had a vision. Using his wife’s recipe, he and his wife opened a hot dog stand. He believed
that the combination of a better tasting hot dog and the nickel price, half that of his competitors,
was his recipe for success. He was wrong. Unfortunately for Nathan, Upton Sinclair’s book The
Jungle a decade before had made the public suspicious of low-cost meat products. Nathan
discovered that his initial business model was not working. Customers valued taste and cost, but
they also valued the quality of a safe product. To convince customers that his hot dogs were safe,
he secured several doctors’ smocks and had people wear them. The sight of “doctors” consuming
Nathan’s hot dogs gave customers the extra value that they needed. It was all about the
perception of quality. If doctors were eating the hot dogs, they must be OK. Today there are over
20,000 outlets serving Nathan’s hot dogs. [1]
