A guide to business ethics: How to navigate ethical issues in small business

In this article:

• Business Ethics Definition
  • Ethics vs Morals, Values, and the Law
• Ethics for Small Business
• Creating a Code of Ethics
• Common Ethical Dilemmas and Solutions
  • Corporate Social Responsibility
  • Customer Service
  • Discrimination
  • Employee Theft
  • Going Green: Ethics and Sustainability
  • Health and Safety
  • Nepotism
  • Social Media and Business

A guide to business ethics: How to navigate ethical issues in small business

Whenever money changes hands, there’s a risk for conflicts of interest. From the self-employed contractor to the company with hundreds of employees, being in business requires a plan to deal with these conflicts of interest. Fail to please customers and you risk going out of business; fail to protect employees, and you risk losing invaluable human resources. But how can you ensure the interests of everyone are being served equally, while still operating your business effectively and profitably?

This is where business ethics come in. In business, ethics are meant to protect all stakeholders, from clients and customers to managers, employees, and even the community where a business operates. From the enterprise corporation to the mom and pop shop, ethics are critical to running businesses in a way that is not only profitable, but safe and fair to everyone. No matter how small, new, or well-intentioned your business may be, business ethics deserve to be a part of your business plan and your marketing message if you want your business to both survive and thrive.

Business ethics definition

Simply put, business ethics are rules or guidelines for behavior designed to protect all stakeholders. From customer service to logistics to management, every decision or action a business takes affects people, and requires stakeholders to make decisions. Business ethics helps influence these decisions to ensure there are clear best practices and safeguards to protect everyone’s interests.

In practical terms, a business’s ethical standard can be central to its reputation management strategy, since protecting both customers and employees ensures everyone has a positive, equitable experience interacting with a company. Negative customer interactions can easily lead to negative online reviews and a bad reputation; likewise, unhappy or burned-out employees can make it harder for a company to recruit and retain talent. An ethical business makes it clear how everyone involved is protected, respected, and treated fairly.

Ethics vs. morals, values, and the law

The terms “ethics” and “morals” are often used interchangeably. However, they can sometimes differ. “Ethics” is used to speak of external guiding principles, while “morals” refers to our own personal code of conduct. In this way, our morals may not always line up with what is considered ethically right for us to do. In these cases, it’s important to study particular ethical problems — such as ethical dilemmas in business — carefully in order to make sure that we aren’t blinded by our own personal morals.

For example: one of the oldest recorded ethical guidelines is the Hippocratic Oath, traditionally taken by all medical doctors. The tenet of “first do no harm” could mean that, ethically, doctors are obligated to care for all patients, even if they find a patient — for instance, a convicted criminal — to be morally repugnant. Professional ethics guide their behavior where morals might be more ambiguous. 

Values are also closely related to ethics, although not quite the same. Once again, it’s helpful to distinguish between what’s externally valuable and what we believe to be valuable. In business ethics, our aim is to get at what’s externally valuable — considerations like fairness, honesty, and generosity. In doing so, we might avoid being guided by our own personal values, instead making business decisions with higher objectives in mind.

Finally, what’s ethical and what’s legal are often closely related. Laws are often made with ethical considerations in mind, as a way of compelling individuals or organizations to act in the interests of the world and people around them, instead of exclusively acting in their own self-interest. However, what’s legally required doesn’t always align with what’s ethically sound. For example, all businesses retain the right to refuse service to anyone, yet anti-discrimination laws protect customers against being excluded by a business. Ethical guidelines can help direct employees toward understanding when they can or cannot refuse service, clarifying where the law may be confusing or too general to apply in a specific circumstance.

Ultimately, morals and values can vary widely from person to person, and businesses need clear guidelines to inform how all employees behave, both around one another and in public-facing roles. The law may apply to everyone in theory, but in practice can be confusing, and no business wants to have to deal with law enforcement to reconcile a simple customer interaction. Clear ethical standards can help prevent disputes from escalating, and guide employee behavior and customer expectations to ensure everyone is treated equitably.

Ethics for small business

Big businesses have ethics officers and committees because they have a lot to lose and the resources to prevent it.

Small businesses may not have the same resources, but they still have a lot to lose if they don’t protect their employees and the public they serve. Small businesses live and die by reputation, and the power of the Internet means that even one dissatisfied customer or disgruntled employee can be amplified through online review platforms and overtake even the best marketing message. As the saying goes, an ounce of prevention is worth a pound of cure, and taking the time to create your own code of ethics can go a long way toward preventing negative interactions, damage to your reputation, or even just uncertainty on the parts of stakeholders wondering what they can or can’t expect from your business.

Business ethics aren’t just for preventing conflict or avoiding a negative reputation. Being public and transparent about your efforts to be ethical can make you look more invested in the community, or like a positive alternative to a large corporation. A proactive approach to ethics can attract customers who want to feel their choices make a positive impact, from creating good local jobs to protecting the environment. Demonstrating that you are committed to being ethical can make customers feel better about spending their money with you. Failure to demonstrate a commitment to ethics can drive customers away and feed the competition.

Consumers today have a lot of options for almost any product or service, and price isn’t always the ultimate factor in making a decision for them. If your customers care about ethics, then as a small business owner you need to build ethics into your reputation and marketing strategy.

Creating a code of ethics

Creating your own code of ethics to guide the actions of your company and your employees can be tough, but it is vital. Having a code of ethics demonstrates both to customers and to your employees that your business values integrity, that you have a desire to uphold and follow the law, and it clearly outlines the level of professionalism expected from your employees. In order to help you through the process, try to make sure that your ethics guidelines exhibit the following qualities:

• Impartiality: Anyone who writes a code of ethics for a company that they work at (or own) is likely going to be just a little bit biased. In order for your code of ethics to really keep you out of legal trouble, rather than serving your own biases, it’s important that you remain impartial when establishing these guidelines. It may help to imagine yourself as a nondescript employee within your company or as a consumer, looking from the outside in. If you were in these positions, what would you expect of a company? 
• Equitable: Your code of ethics should treat everyone equitably. It doesn’t just apply to one set of employees or only to certain customers — it applies to everyone. As you write your guidelines, think about the scope of each one. Avoid language that pegs particular guidelines to particular positions and embrace language that treats everyone equally.
• Actionable: A code of ethics needs to be actionable in order to be meaningful. This means creating rules and guidelines that have clear steps to follow and clear repercussions in case they are not followed.
• Exhaustive: It’s probably not possible to anticipate every ethical dilemma that your business might encounter, but you should be able to anticipate many of them as you write your rules. A good code of ethics should capture many of the common ethical dilemmas that businesses in your domain face and provide solutions that will work for your company.

Once your code of ethics is written, it’s time to introduce it within the company and train employees on its specifics. Ethics training meetings can establish incentives for employees who demonstrate exemplary ethical behavior in the workplace or when dealing with clients. They can also present a chance for you to explain why specific guidelines were chosen or worderd the way that they were, perhaps citing past incidents of unethical behavior, hypothetical scenarios, or current events related to business ethics.

Common ethical dilemmas and solutions

It’s impossible for a code of ethics to anticipate every dilemma that a business might face, but it can easily account for some of the most common scenarios. These are situations in which businesses are often expected to behave ethically, and the guidelines that you create for your own business should cover them. 

Corporate social responsibility

Corporate social responsibility (CSR) deals with the obligations that businesses have to both their customers and to society at large. This practice makes sustainable development an integral part of a company’s business model. Investing in the environment, volunteering within the community, or donating to a charitable organization are all examples of CSR in action. It is widely believed that businesses have some duty to give back to the communities that host them, and this kind of generosity on the part of a business can be an excellent public relations tool.

CSR is often thought of as an ethical dilemma because it asks businesses to invest their profits differently than they otherwise would. Businesses may prefer to invest profits back into their own operations, or to create rainy day funds for periods of reduced income. CSR considerations often ask businesses to use their time or money for a cause that likely won’t result in direct or concrete ROI.

Even so, CSR is still a pillar of business ethics. Under this purview, companies have a duty to support the communities that they operate in. Nevertheless, CSR may also have some auxiliary benefits. It can help to build a feeling of inclusions among your team as you all work together for a good cause. It can also improve your public image, as consumers tend to prefer companies that are ethically engaged.

Examples of CSR practices

While certainly not exhaustive, below are just a couple of ways an organization can practice good corporate social responsibility:

• Encouraging employees to volunteer for the sake of local nonprofits or other good causes
• Donating a portion of proceeds to a nonprofit organization in need
• Donating time and services to nonprofit organizations

Customer service

Working with customers can be difficult. People in customer service positions at your company may have to handle abusive, disrespectful, or even violent behavior from disgruntled customers. Your code of ethics should establish clear guidelines for how to handle these problematic customers.

The guidelines that you establish should exist to protect customers from employee retaliation, protect employees from abrasive customer behavior, and protect the company itself from difficult legal situations. For these reasons, your guidelines should include information about how customers should be treated, what steps employees can take if they are being treated rudely by a customer, and how the company as a whole should interact with difficult customers.

These guidelines can include information about when a company may refuse to do business with a difficult customer — however, it’s important that these processes are standardized. When the company refuses to do business, it should be for consistent and well-documented reasons.

Examples of ethical problems in customer service

Ethical dilemmas present themselves everywhere, including during customer interactions. Here are a couple of examples of problems businesses might face:

• A customer service representative is being insulted by a customer. How do you treat the customer respectfully without letting your staff fall victim to abuse?
• One of your employees is being rude in their engagements with a customer. How do you apologize to the customer and deal with the inappropriate behavior on the part of the employee?
• An employee is being yelled at over the phone by an irate customer. Without the added benefit of a face-to-face conversation with the customer, how do you provide support to your employee while professionally handling the upset individual on the other line?
• While on the clock and assisting other customers, a customer asks an employee on a date, which makes the employee feel extremely uncomfortable. What is the best course of action to take that assists your employee immediately, while also managing the tension with the customer professionally?
• A loyal, repeat customer has started harassing certain employees regularly. How do you address this situation appropriately on all fronts? 

Discrimination

Discrimination based on particular traits of a person is not only illegal, but it’s also unethical. Currently, it’s illegal to discriminate against a person in employment based on the following characteristics:

• Age
• Disability
• Genetic Information
• National Origin
• Pregnancy
• Race or Skin Color
• Religious Affiliation
• Sex

In many states, laws also exist that protect employees from discrimination based on sexual orientation and gender identity. Although no similar anti-discrimination law exists at the federal level, bills proposing such protections have been put forth in recent years.

If your business or company is discriminating against your current or prospective employees, you may experience any number of the following consequences:

• Discrimination complaints filed against your company/business with the Equal Employement Opportunity Commission (EEOC)
• Reduced employee morale
• Poor company/business reputation
• Lawsuits

Addressing discrimination in your code of ethics can help you to avoid lawsuits from employees who believe they have been discriminated against, which could costs thousands of dollars, and can help to ensure that everyone in your company is treated fairly.

Examples of discrimination

Some examples of discrimination that you may encounter in the workplace include:

• A business that refuses to employ a woman who is pregnant, or may become pregnant, when her pregnancy has no bearing on her ability to do her work
• A business that fires an employee because of their religious affiliation
• A business that refuses to serve customers of a particular skin color

Employee theft

Theft may seem like a clear-cut issue, but for many employees it’s not always evident what constitutes workplace theft, and what specific actions are considered wrong. Similarly, there are cases in which it’s possible for an employer to steal from their employees. A code of ethics should be sure to spell out exactly what constitutes workplace theft, including examples and standardized repercussion.

When writing your code of ethics, draw attention to which uses of company property count as theft and which do not. Obviously, taking home a company computer without permission counts as theft — but what about taking a pen from the office? On the other hand, if the company offers bottled water to employees to help them stay hydrated throughout the day, is it wrong for an employee to bring their half-finished bottle home with them?

Your code of ethics should draw clear distinctions. It should identify what things belong to the company and when, if ever, it’s appropriate to remove company property from the workplace.

Finally, a code of ethics should speak to the concept of time theft. This may involve an employee stealing company time by conducting personal business on the clock. However, it might involve the company demanding time from an employee without paying for it. It’s important, then, to be aware that time theft can work both ways, and both sorts of time theft should be identified and addressed in your code of ethics.

Examples of theft in the workplace

It’s not always obvious what constitutes workplace theft, while other times, it’s glaringly obvious. Here are a couple of ways that employees and employers alike may be committing theft in the workplace — whether they’re aware of it or not:

• An employee taking company equipment without permission
• An employee taking money from the cash register at a business
• An employer forcing employees to work off the clock for any reason
• An employee making personal phone calls during business hours, when they are expected to be working

Going green: Ethics and sustainability

Sustainability is an element of CSR (mentioned above), but it is such an important issue that it warrants its own mention. “Going green,” or adapting a business model to be more sustainable can be an excellent way of demonstrating a serious commitment to CSR in the eyes of consumers. Companies like Tesla, for example, have based their business models on sustainability and the kind of impression that it leaves on consumers. Furthermore, as the issue of climate change is becoming a more seriously discussed topic in both social and political arenas, it behooves companies to get ahead of the curve and institute their own sustainability measures — before potential progressive legislation requires them to do so anyway.

Depending on the domain that you work in, going green might be easier said than done. However, it’s still important to nest these principles of sustainability into your code of ethics. Let this be your guiding light and, once you’ve had time to brainstorm, you can start to implement specific sustainability practices. Small businesses might not be able to deliver the same level of marketing impact with their efforts to go green, but these efforts can still trickle into social media and online reviews.

Examples of going green

Instituting CSR and sustainability measures are a sign that your company or organization cares more about profits and revenue; it indicates that people, regardless of whether they are customers or not, as well as the world they live in, are worth more than money. Examples of these measures might include:

• Switching over to more energy efficient equipment, such as computers with lower power demands or a more efficient refrigerator for the office
• Using less paper and communicating digitally when possible, as well as the initiative to recycle what must be printed out, when possible
• Encouraging employees to use alternative transportation (biking, carpooling, public transit) when traveling to and from work

Health and safety

We’ve talked about the duty that companies have to treat consumers well, but it’s also important not to neglect the health and safety of employees. As the Occupational Safety and Health Administration points out, workers are entitled to a workspace free of health and safety hazards. There are laws designed to keep the workplace safe, but it’s better to stay ahead of them so you can avoid costly litigation and fines.

You can start with the OSHA guidelines that apply to your type of work. However, you should also be aware of hazards that might be specific to your workplace. In your code of ethics, state your dedication to creating a safe place to work, and identify the avenues that employees can take if they have concerns about workplace safety. Be sure to stress that there is no retaliation against employees who bring forth genuine health and safety concerns.

Examples of workplace hazards

The types of hazards present in a workplace will vary from business to business, and from one industry to another. Some of these hazards may include:

• Poor lighting, which can present a hazard itself if employees are unable to see where they are walking, putting them at risk of tripping over things such as loose wires or furniture
• A broken climate control system can be hazardous if temperatures become too hot or cold for employees to work comfortably
• Tripping hazards, such as misplaced chairs or wiring that isn’t taped down
• Fire hazards, such as toasters or unsecured equipment that operates at a high temperature

Nepotism

Nepotism involves using one’s position of power in a business to grant favors to friends and family. That might come in the form of giving a job to a friend or family member over another, better qualified candidate. It may also involve choosing to do business with, or creating special business relationships with, friends or family, especially when this presents a clear conflict of interest.

Anti-nepotism guidelines in the workplace should stress the importance of qualification in employment decisions and lay out in plain language that no person shall be given a job, promotion, or  special business arrangement based on their relationship with management. In your hiring process, be mindful of potential conflicts of interest and take steps to avoid them, such as recusing yourself from the process of deciding whether or not to promote a family member of yours who also works at the company. Transparency in this regard can help to ensure that employees don’t feel nepotism is a concern in the workplace.

Examples of Nepotism

Similar to discrimination, nepotism is defined by business decisions made based on prejudice instead of qualification. Here are a couple of examples to look out for:

• Hiring your children for positions that they are unqualified for over more qualified applicants
• Giving a promotion to a longtime friend over a more qualified employee that you aren’t personally close to

Social media and business

Social media usage is becoming more and more important for businesses. One 2014 survey found that 88 percent of American companies were using social networks in some capacity. For some business, social media represents the backbone of a key marketing strategy.

The upsides of social networks are relatively clear. They can give you a platform to share your message, connect with consumers, and advertise your products. A viral Tweet or video can turn into free advertising that reaches millions of consumers with little to no effort on the part of business. However, social media also requires that businesses be aware of how they are representing themselves, both professionally and ethically.

As such, you should treat your social media like you do your customer service, and apply the same guidelines for customer service representatives to your social media managers. Create clear guidelines about how your social media marketers and managers should and should not engage with consumers. Otherwise, you may need to clean up your online reputation later.

In addition to company branded social media, many businesses may have concerns about how their employees use their personal social media accounts. This is especially true for individuals who are in senior management positions, and whose identities may be closely associated with the company itself. It may be tempting to delve deep into the social media postings of your senior management and police their online activity, but this can set a precedent for how your company treats its employees.

Instead, you can use your code of ethics to remind employees that they potentially represent the company in their social media postings, even if that is not their intention. Ask that your employees carefully consider the things that they post online if their names are associated with the company, rather than checking up on their platforms.

Examples of improper social media behavior

In the digital age, a business’s moral and ethical transgressions can often be seen by the entire world. This is especially true when dealing with social media, where a single Tweet written in poor taste before an international flight can stir up a conversation and result in an employee’s firing — all before the flight has even landed. Behavior to watch out for may include:

• Using your social media platforms to speak negatively or harass people who have left negative reviews for your company
• Using a company social media account to post disturbing or inappropriate material
• Policing the social media activity of your employees, such as demanding that they take down specific posts or post advertorial material for the company on private accounts.

Business ethics: Problematic, yet vital

As any college philosophy professor can tell you, the subject of ethics is not a simple one. When discussing ethics, it is important to attempt to put one’s personal biases, background, and morals aside, and attempt to create a more objectively valuable system of behavior. This is not an easy thing to do, as we all are heavily influenced by our personal biases and experience.

It can be helpful to start with what is legal as a baseline, and then add appropriate guidelines, using the suggestions above as discussion points, to help your business’s management and employees clearly understand the proper, ethical course of action when dealing with each other and with customers.