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Business owners usually face situations during the course of running their business when their moral or ethical principles will be tested. Small business ethics refers to the same ethical and moral applications, which small business owners can apply in situations where such principles are tested. The importance of small business ethics is simply the manner in which the right ethical or moral decisions affect the relationship of the business with other people and businesses, and the perception of such a business by others.
Small business ethics are not all legally binding in the same sense as business or commercial law, because an ethically or morally wrong business decision may not necessarily be a legally wrong one. The only concern is the manner in which the business decisions are reached and the effect that such decisions have in terms of fostering goodwill or resentment. Due to the effect of intense competition, the drive by companies to make as much profits as they can and other considerations, companies may not be able to fully resist the temptation to take the shortcut, even if it means making an ethically or morally wrong one. For example, the testing of products on animals is not against the law when it is done in the proper manner, though ethically, this may be viewed as cruelty to animals end out condemned. Companies engaging in such practices might say that the tests are necessary in order to gauge the efficacy of their products without resorting to other tests that might be longer and less accurate.
Another critical area where the application of small business ethics is apparent is the relationship of the business owner to the employees engaged by the business. Since small business owners do not have the same level of accountability as big businesses, some of their business practices are not as intensely scrutinized as that of such big companies. This leaves loopholes for unscrupulous small business owners to negate the principles of small business ethics for their own profitability. For instance, a small business owner may employ individuals who may be paid far below what they deserve, but such practices may not be reported for fear by the individuals of losing their jobs, even if they are being exploited.
Since small business owners are often their own accountants, human resource department and manager all rolled into one, the opportunity for falsifying accounts may arise. For instance, the small business owner may claim that an employee worked only seven hours when he or she knows that this is not the case. Here, the application of small business ethics would require the employer to compensate the employee adequately for hours worked, which is clearly not always the case.