We have seen Conrad Black, Martha Stewart, Enron, Tyco, WorldCom, and countless others in the headlines as their career or business is examined to see “what went wrong?” Newspaper headlines scream about insider trading, companies cooking their books, and other scandals involving business executives at mostly major corporations. Even today, many are questioning the ethics of lenders and investors in the sub-prime market as people are losing their homes to foreclosure and investors are losing their money through direct or indirect involvement. Why was money lent to people who could not afford payments when normal market rates would come into effect? Why would lenders package these loans without identifying the inherent risk of them to the purchasers?



Scandals such as these tarnish the reputations of business in general, including the small business owner. Investors perceive higher risk, customers are more wary, and the financial industry gets reluctant to extend credit. In spite of this, many small-business owners think a written code of ethics unnecessary. There are even more home businesses that would not believe that a code of ethics is necessary for them. This assumption is simply false. There is a huge benefit to having a written code of ethics for the small business including your home business.

A code of ethics will identify to suppliers, customers, contractors, and employees what behavior is up to standard and what is not. We will come across ethics violators in the normal course of business and we must stand firm to our code of ethics and avoid dealing with these people.

A written code of ethics identifies those basics that you consider essential in operating a business of integrity and character. Communicating this on your website and other informational material will give you an advantage in the marketplace. If you live by it, you will have the added benefit of being able to sleep at night.

A useful code of ethics will have some basic ingredients such as adherence to applicable laws, conflicts of interest to avoid, sexual or other harassment, workplace safety, environmental concerns, industry rules, regulations and practice as well as accuracy of financial information. Be careful however, as one culture or society's norms may not be the same as yours. For example, some locales require that “special inducements” be paid in order to obtain or carry on business. Or it may be that oppression against people exists where the business will occur. What will the rules be around this? The code of ethics should address these issues.

The code of ethics must fit with the personality, values, and mission of the particular small business. As confusing as it may sound, ethics are a very personal thing. For example, one person may think it unethical (at least to that person) to sell a product of questionable value, while another will say that the determination of value is made by the buyer and to withhold the good from sale would be unethical. (This example assumes that no fraud or misrepresentation occurred.) It will help if you can include your stakeholders in developing appropriate pieces of your code of ethics, thereby gaining a second opinion.

In the examples stated above, a code of ethics was in place, but they were ignored, not understood, or the people involved justified their transgressions as being “in the greater good”. So simply having a code of ethics is not enough. Post your code of ethics, and set up a reporting system that could include accepting anonymous reports. While you don't want to encourage a culture of "tattle-tales", stakeholders will need a way to inform someone about any ethics violations they may see. Most important is to show others that you live by the code of ethics yourself. Living by a set of high values will garner trust and confidence in the business and you. They will be then willing to discuss areas of concern with you.

Failing to act on ethics violations will disable even the best intentioned of your efforts just as failing to announce and endorse your code of ethics to your stakeholders renders it practically meaningless. When formulating your code of ethics policy, specify what consequences go with lapses and breaches. Your leadership skills will be tested as you strive to holding people to ethical conduct. But it is worth the peace of mind.

Copyright © Mark Styranka