Can SMEs afford to be ethical?

The value of small and medium enterprises (SMEs) is widely recognised in terms of the contribution this sector makes to the economy and job creation. It is thus pertinent to ask how ethics fares for SMEs and whether ethics is less relevant for small scale operations.

An argument against following an ethical approach is that SMEs cannot afford the cost and time that this incurs. However this view mostly equates ethics solely with compliance. Legal and regulatory compliance can be burdensome and both the time and cost warrant being minimised. But that should not be confused with running a business ethically, which entails actions and choices that reflect honesty, responsibility, accountability, fairness and respect. Instead, SMEs should view ethics as a strategic advantage that differentiates them from their competitors.

Another relevant factor is the high failure rate of entrepreneurs who start businesses, with figures as high as 80% within the first 18 months. The very real challenge of survival brings with it the risk that the pursuit of survival can lend itself to cutting corners. This can lead to unethical behaviours such as overcharging customers to sustain positive cash flow or paying a bribe to obtain a contract to support the company’s continued existence.

An ethic checklist is a useful tool to manage ethics more effectively. Pertinent questions include:

1. Is the proposed action/choice/decision legal?
2. Could the action be shared with others without shame or guilt?
3. How would the action be defined if viewed by outsiders, for example by the press?
4. Does the action set a sound precedent for the future?

Adding to this, the most powerful factor is the leader’s ethics. That leadership is the most powerful influencer of ethics is particularly relevant in SMEs because, unlike their counterparts in larger organisations, leaders in SMEs are generally not subject to formal governance structures. Therefore ethical leadership matters even more.

So, is ethics less relevant for small business? No, not at all. In fact, it matters more for SMEs than larger organisations since they would rarely be able to claim that the misconduct occurred without the business owner’s knowledge and complicity.

By Cynthia Schoeman
Posted on PRISA Newsletter, Jan 2015