Why Are Business Ethics Important?

You are a small business person with 5 customers.  Why would business ethics be important to you?  Let me take you down the road of possibilities:

1. You can find yourself in a legal dilemma

What laws are relevant to you?  There are many and you need to be aware of them.  You can only market business opportunities in certain ways.  Certain products can only be marketed in certain ways (i.e. Dietary supplements cannot make medical claims).  You have legal obligations to your shareholders if you are incorporated.  You have legal obligations to your employees.  You may have legal obligations to the government or your community.

Note that the written law does not make something illegal.  We are under common law, which means that ultimately the courts can decide what is legal and what is not based on the constitution, written law, and past court decisions.  In addition, people can sue for legal damages if you break a contract, whether written or verbal, or if you cause them harm through neglect or intention.

2. You can find yourself in a moral dilemma

You are a (religion of your choice) and are subject to the moral absolutism that you place yourself under.  Moral absolutism means that you believe that killing is wrong no matter what the circumstance, or that lying is wrong regardless of the circumstance.  So the moral dilemma becomes, what if it is a choice between lying or killing?  Or lying or stealing?  Or stealing or killing?  Often people take on the responsibility of the consequences for their actions, and you must live with those consequences.

For instance, let’s say your company sells advertising, and allows advertising for cigarettes and alcohol.  Is your company responsible for lung cancer and drunk driving deaths?  Or let’s say you work for Bayer and Bayer sells asprin.  Is the company responsible for people that die from asprin overdose?  Companies had a hard time selling small airplanes at one time because people would crash, and then their families would sue the manufacturer.  I know for a fact that Cessna and other manufacturers go to great lengths to provide quality training, and the government goes to great lengths to ensure that airplanes are maintained, but crashes still happen.  Should small airplanes not be made?

A company may make a product that people die or are severely injured using.  Perhaps the company did not recognize, in the beginning of their company, that someday they would have a large enough customer base that 1 in 100,000 customers would use their product improperly and become permanently disabled because of it.  If these kinds of problems were considered at the very beginning, when the company was just starting out, maybe the odds could have been improved to 1 in 1 million or better.

3. You could find yourself in an ethical dilemma

Doing the right thing is the goal, but doing the right thing for whom?  A logging company wants to make their shareholders a good profit, but at the expense of the environment?  Could you imagine McDonalds selling Big Macs in India, where the cow is sacred?  What if you lost your biggest customer, would you lay people off or go bankrupt?  Being prepared in advance of these kinds of dilemmas is key – what is your company’s priority?

Small businesses are not exempt from tough ethical decisions.  You offer a 30 day money-back guarantee… do you give the customer back his money on day 31?  Do you allow product returns from a customer who never ordered from you?  Do you process a return for a customer who says they never received the product, even though you have his signature on delivery returned?  These are customer versus owner ethical decisions, and the policies need to be in place before a problem arises.  Then you may even need to allow more flexibility.  Are your customers generally honest?  How do you prevent fraud without creating an adversarial customer service environment?

You usually cannot think through every ethical quandry you are going to have before it happens.  It is usually a good idea to allow customer service people some flexibility and then consider the situation after it is resolved to see how it can be done better.  You may have to give a little away, but you can improve your processes as time goes on.

As for the larger ethical issues, you just need to consider over and over what the right thing to do is.  Consider all of your stakeholders and try to come up with the best solution for all parties.  Do the best you can and make a decision, however hard it is.  That is what business people do.  Just make sure to do it with a cool and level head.

Introduction To Business Ethics

In business ethics our goal is to do the right thing.  Period.  However, this isn’t always easy because sometimes we are faced with some extremely tough choices.  And we don’t just serve ourselves and our customers, we also serve our shareholders, employees, communities, and country.  Often different choices favor one group over another group.  Choosing the best choice for the situation is often labeled moral relativism because morals are typically absolute do this or do that with no exceptions.  Sometimes we do get stuck between morals and we cannot just walk away, we have to make a decision that we are going to have to live with.

As an example, we had heard that our dietary supplement may have caused serious health consequences and or death long before we stopped selling it.  Who did we hear this from?  Mainly we heard it from the media.  Based on the information we had at the time, we believed the news stories were directed at other dietary supplements that contained similar ingredients, and they were just referencing our product because it was the most popular dietary supplement at the time that contained the ingredients.  We had also questioned the MLM company president about it and we were assured that nobody was reporting health consequences from taking the product.  In addition, only one of our customers had reported health side-effects from taking the product and we sold a ton.  The one customer in question believe that the health problem was related to taking the product, but we knew based on the particular problem that it could not have been the product.  In fact, the product probably saved their life by bringing the problem front and center.

So we were pretty sure that our product was causing virtually zero health problems and it was helping tons of people lose weight.  Several people reported that it was helping them control their diabetes and lower their blood pressure.  One customer asked their doctor if it was ok to take and the doctor told them that it couldn’t hurt.  Overall, the information that we had is that the product was benefiting the public and not harming anybody.  We stayed on the safe side and advised our customers to take the product only as directed.

Many companies face ethical choices, especially in a tough economy.  Should we risk bankruptcy or lay people off?  Should we accept money from the government (or give people bad mortgages) or lose competitive advantage?  Should we sell this product when we know that some people will die from using it?  For the last question, consider automobiles.  Auto manufacturers know that some people will die because of automobile accidents, yet they still manufacture them.  Does it make sense to shut down the company because of automobile accidents?  Perhaps a better choice is to make the car safer and eliminate any safety defects.

It is very important to follow the law even when it is hard.  Still, management at large companies have found themselves in hard situations.  Should I report the correct numbers or save my shareholders from a huge loss?  Remember that some company shareholders are retirees and pension plans, not just rich people trying to get richer.  Still, in this case we are preventing future shareholders from a serious loss because we are disclosing correct numbers.

The goal of ethics in business is to do the right thing.  We must do the legal thing.  We are obligated to do the best thing we can for all of our stakeholders such as owners or shareholders, management, bond holders or lenders, our employees, the community, and our country.  It is not always easy but we gather all of the information we can and make the best decision possible.