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Adopting ethical business practices is about more than just sleeping well at night; it also makes good business sense. Domini Stuart talks to business owners who regularly take stock of their ethical obligations, and finds that doing the right thing can also be profitable financially.

Active ImageIn the late 1980s business ethics took a dive. For a while it seemed greed really was good, as business after business jostled to embrace Milton Friedman’s belief that profits must always come first.

Then came the fallout. Australian entrepreneurs such as Alan Bond and Christopher Skase began toppling from their pedestals. And the collapse of international corporate giants such as Worldcom, HIH and Enron sent shockwaves around the world, rocking share prices, business and consumer confidence, and international economies.

Duncan Schultz, principal of Pacific Growth, believes one positive outcome has been the effect of these disasters on today’s business leaders. “They’ve seen the effects, and some may even have been burned themselves,” he says. “As a result, they’re making a conscious decision that they’re going to do the right thing.”

If business is pushing towards higher ethical standards, consumers are starting to pull with equal force. “Today, the average consumer is a lot smarter, and there’s a lot more information at their disposal,” continues Schultz. “If you behave unethically, it could be round the internet in eight minutes!”

So where do SMEs begin? “For any business, a written code of ethics is an important starting point,” says Dr Sandra Lynch, lecturer in philosophy at Sydney’s Campion College. “It may need adjusting from time to time but it does give a guideline to refer back to when difficult situations arise. A gut feeling won’t provide you with a justification others can accept—and feelings can get mixed up with self interest.

“There are two approaches you can take to compliance,” she says. “Black letter law is prescriptive and so must identify and veto every possible wrong doing. Fuzzy law is more general, putting the onus for ethical behaviour on stakeholders and emphasising their responsibility to make judgements about what’s right or wrong.”

Lynch uses a sporting incident to illustrate the weakness inherent in the black letter law approach. “During a scrum in an international rugby match, a player picked up the ball and hid it under his jersey. While his mystified opponents were looking for it, he ran across the line, pulled out the ball and placed it down for a try. There was nothing in the rules to say this wasn’t allowed, but few people would argue that it was an ethical way to play.

“Black letter law is easier to act on because it is very precise. But when stakeholders, and particularly employees, are given more responsibility they demonstrate higher degrees of ethical awareness and report greater job satisfaction. A combination of the two approaches is generally the best solution.”

Business Standards

Schultz’s company helps SMEs establish an advisory board, and will appoint a professional director to lead them. “Everyone wants to be a non-executive director—it sounds like such a great job,” he says. “We believe that means our standards need to be particularly high.

“From the industry point of view, we follow the Australian Institute of Company Directors (AICD) code of ethics, but we have always treated that as a starting point. For instance, I made the decision at the outset that I would never charge for our 14-day training program. If someone doesn’t come up to scratch, I need to be able to tell them without feeling I have some moral obligation to sign off on them. And I need to be able to tell our clients that no one has bought anything. We’re not selling a franchise or a licence; the people we recommend have been selected absolutely on their merits.

“On top of that, we have agreed that no one person in the company can act alone to recommend a candidate. Everyone must be interviewed and independently invited by another of our four directors.”

In their study Does Business Ethics Pay?, the US Institute of Business Ethics (IBE) found companies displaying a clear commitment to ethical conduct consistently out-perform companies that do not. “Not only is ethical behaviour in business life the right thing to do in principle, we have shown that it pays off in financial returns,” says IBE director, Philippa Foster Black.

As owner of Starr Partners Parramatta, Mark Hurley has no doubt that a principled approach has been fundamental to his success. Real estate is hardly synonymous with ethical behaviour, but he has gained real commercial benefits from swimming against the tide. “Four years ago, I sold my Fairfield business and set up Starr,” he says. “We’re still very much the new kid on the block here, but we’re already rated in the top three out of 85 local real estate agencies. That’s quite an achievement, and I’m sure most of it is due to the way people are treated here.”

Like Schultz, Hurley built the foundations by following industry standards—in this case the voluntary Real Estate Institute Code of Ethics. This is overlaid by Hurley’s insistence that all 24 of his employees treat everyone who walks through the door with exactly the same respect.

“There’s an attitude in real estate that, if you’ve got something to sell you’re treated like a god, but if you’re a tenant you’re treated poorly,” he says. “Even from a purely commercial point of view this doesn’t make sense to me. We get a significant amount of business from people who were treated well when they were renting and then come back when they’re buying or selling. Every day we have people telling us that they appreciate how fairly we do business, and most of them tell their friends. I have no doubt that word-of-mouth referral has been the key to our growth.”

International Business Ethics

As an independent organisation fighting for a poverty-free Australia, the Brotherhood of St Laurence was recently confronted by an ethical dilemma of its own. “In 2000, we acquired Mod-Style, a commercial enterprise that imports and wholesales optical frames,” says Emer Diviney, the ethical business division’s research and policy officer. “Mod-Style sources the majority of its frames in China, and we were concerned about labour and environmental conditions in Chinese factories. We had to ask ourselves whether raising funds to help low-income earners in Australia would mean exploiting workers overseas.”

As they set about managing this complex issue, profits from Mod-Style were quarantined for two years. At the same time, the Brotherhood established an ethical business project with the intention of documenting the Mod-Style supply chain, researching labour conditions in China, and considering the opportunities for improvement.

The Board quickly recognised a need to integrate the project into their overall operations. “We also have a fashion label, Hunter Gatherer, and through this we became aware of the conditions suffered by many outworkers in Australia,” says Diviney. “In Victoria alone, there are an estimated 144,000 home-based outworkers being paid as little as $3.70 an hour with no sick leave, annual leave, superannuation or work cover. Many are working more than 14 hours a day, six to seven days a week.” In response to their findings in this area, the Brotherhood signed the Homeworkers Code of Practice and became the first fashion brand in Australia to be accredited as a No SweatShop Label manufacturer and retailer.

Many business owners find that the best of ethical intentions can be tested by cost.

“Doing the right thing is often more expensive in the short term,” says Schultz. “When fixing a problem is going to cost $5,000 and ignorin
g it costs nothing, it’s tempting to go for option B. This is where what I call the 60 Minutes test can be helpful.

“I imagine the 60 Minutes team are on my doorstep, and ask myself: could I go out in front of the public and hold my head reasonably high? Would most of them agree I’d done the right thing?

“This process might not provide an easy answer, but it can lead to the right answer—and it definitely can help you sleep at night.”


Seven-Step Foundation 

US business strategist and author, Robert Moment, has created a checklist of seven principles to help businesses stay on an ethical track:

Active Image1.    Be trustworthy: Customers want to do business with a company they can trust; when trust is at the core of a business, it’s easy to recognise.

2.    Keep an open mind: Ask for opinions and feedback from both customers and team members.

3.    Honour your obligations and commitments.

4.    Have clear documents: Make sure they are clear, precise, and professional and, most importantly, do not misrepresent your business in any way.

5.    Become involved with your community.

6.    Maintain accounting control: A hands-on approach to accounting and record-keeping helps you gain a better feel for the progress of your company. You will also be able to spot any dubious activities quickly and put a prompt end to them.

7.    Be respectful: Always treat other people with professional respect and courtesy regardless of any difference in position, title, age or background.

* Source: www.sellintegrity.com

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