Ethics and the SME

The subject of ethics is normally associated with the big businesses and corporations and companies on the stock exchange with an obvious connection to the need to safeguard public interest.

In our part of the world, if not the whole world, the majority of business is carried out by small and medium sized enterprises (SME). It therefore follows that when we speak of business ethics we concentrate also on the subject in relation to SME. There is no written rule or reason why SME should be exempt or excused from applying ethics in the conduct of their business. SME have equally a responsibility towards the public. Being small does not excuse you from responsibility toward the public in what you do. Being private does not provide you with a screen behind which you can hide and feel permissive when carrying out your business.

Working as an SME is a way of working with the public, working for the public and therefore working in the public interest is also relevant to SME.

Authorities are all the time finding ways of simplifying doing business for SME but this does not mitigate the responsibility of doing business ethically. If an SME is allowed to file abridged financial statements, it does not mean that it may file incorrect accounts. Neither does it mean that the financial statements do not need to be true and fair or materially correct in every respect.

Accordingly the subject of ethical values is equally relevant to SME as it is relevant to the large corporations funded by public money. The public is not only interested in businesses using its money. Society is also interested in the businesses that sell things to it, that buy goods from it, that provide employment and jobs, that provide services to it and therefore the connections of the SME to the public are several and continuous. It is not difficult to understand that no SME would exist away from the public. Undoubtedly good governance of small businesses is therefore also a public need.

Running an SME on good governance principles is also important for the businessman himself. Many SME run on the family business model . The family is dynamic as much as the business is. The family evolves and grows. If the growth of the business and the growth of the family are not managed and aligned, the unity of the family itself may be disturbed, creating also a moral dilemma. If many families find themselves in this difficulty then we would have a social problem. Again we see here the importance of good governance within a family business in the interest of society at large. It is not difficult to understand how family harmony and therefore social harmony can be harmed if the family business leader does not conduct business properly, according to rules and regulations or in a reckless manner. The business grows, the children become adults. Lack of control provides lack of transparency which in turn breeds a false sense of freedom with certain members of the family, feeling that they can do what they like with the business, indeed feeling like owning the, or part of the, business without ever having been given that right. Of course this will create division and greed and may even have worse consequences. All can be avoided with a disciplined, orderly and respectful style of management of our own little businesses.

It is also a matter of sustainability. Trying to trade maliciously in products of inferior quality, or fake or unsafe quality will cause harm to society and will eventually harm your own business due to lack of credibility.

Banks are loaded with public deposits. SMEs go to banks to finance their operations. The day to day overdraft is somebody’s hard earned cash. The business loan taken to buy an asset for personal use rather than the intended business use is a misuse of public money. Such misbehaviour may lead to non-recovery of lent money helping a few to benefit at the expense of many.

It is the responsibility of the business owner to safeguard his business. Being able to do business is a talent. It is not an acquisition, a right, a gift for yourself. Consider yourself lucky if you have the talent but an exemplary member of society uses that talent also to help others, to provide society with a good honest service, to provide society with the best product that works and lasts and does what you say it does. Use your talent to safeguard your own business and in the process safeguard a life-long living for your family. Use your talent to make grow other people’s money and not lose it. We therefore see that talent to do business is not a selfish gift but a responsible possession to be utilised for the common good.

Delving deeper into the subject there are many benefits to accrue from SME adopting an ethical line of business conduct. For instance in their quest for growth, SME continuously or occasionally look for work and contracts with larger organisations. The latter are in general concerned and systematically organised for ethical business conduct. They would therefore be keen to do business with suppliers with good ethical credentials which are evidenced. Business ethics help the SME grow and do good business.

Practicing ethics in an SME provides a series of challenges not least how to define ethical conduct and where to start. One can start by ensuring that the owner manager creates a workable and pleasant environment at work. This would entail respect towards employees, fair remuneration, being innovative and investing in new business and methods, reputational concern, cost control to safeguard profitability and last but not least, what in larger entities would be termed as Corporate Social Responsibility that is awareness of the social needs around the business.

So does an SME adopt of set of ethical values? This is first and foremost drawn from the society and ethical environment in which the business operates. It is then a matter of values resident in the character of the owner / manager. Then it is down to being lived, experienced and communicated, if not inculcated into the minds of the members of the business day in day out. Values within an SME would probably be more implicit than expressed in rule books and codes of conduct. Such values would include giving a full day’s work, punctuality, quality of service and goods, respectable pricing, paying suppliers on time, honouring bank terms and conditions, paying taxes due, respecting workers’ rights, avoiding illicit means of developing business, reasonable working times, controlling and managing risk, cautious and controlled business ventures, contact with employees, sharing of decisions, involving personnel in decisions, consideration towards personnel in difficulty, respect for the environment, decent staff facilities, training, learning and development, respect towards all stakeholders, customers, suppliers, contracts and the community, spirit of sharing, integrity, an atmosphere of openness and other fitting qualities.

As SMEs grow and become more sophisticated they may even consider formalising ethics within the organisation firstly as a means of showing to all stakeholders that the business is strengthening and secondly to promote and enforce good conduct and governance across the organisation. More staff meetings on the subject of ethics would become common practice, dissemination of a code of ethics, induction incorporating ethical considerations.

As I had opportunity before to write about the responsibility of accountants in safeguarding the reputation of our country I take the opportunity of this article to emphasise the role of the accountant in the promotion of good governance principles across local SME. It is not surprising to state that the SME of our country form the largest section of our portfolio and it is therefore clear to us all that the opportunity of passing on our ethical training to our clients is not to be missed. Ultimately this would only help our country’s competitiveness through our well-being.

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