Small Business Ethics

The Freedom to Act According to One's Own Integrity

In most small firms, the person with ultimate responsibility for running the organization is also the primary owner—that is, he or she is an owner-manager. There may be other shareholders, perhaps family members or business partners, but the convergence of ownership and control of the firm means that the owner-manager acts as both principal and agent. Milton Friedman acknowledges himself that his general maxim of “the business of business is business” does not apply in owner-managed firms since the proprietor has the right to spend company money as she or he sees fit, including bringing personal integrity to bear (e.g., for charitable donations). There is no guarantee that owner-managers will be inherently ethical, but the frequent (though not universal) requirement to maximize profit for shareholders is less valid in the small owner-managed firm than in shareholder-owned organizations.

Not Seeking to Maximize Profit

Most owner-managers are not seeking profit maximization but are motivated by factors such as the independence of running their own firm, challenge, and providing a standard of living for themselves and their families. Acting as profit satisficers rather than maximizers may enable more ethical behavior, although there is no absolute clear causal effect, or indeed inverse effect, between ethical activity and profit.

Close Moral Proximity

Small businesses are often embedded in local communities, although there are cases that speak against this—for example, firms operating remotely from their business partners or in virtual networks. Nevertheless, for many small businesses and certainly those whose customers are locally based, physical proximity may translate to moral proximity. Furthermore, the size of the firm, lacking anonymous individuals in vast departments, means that there is nowhere to hide. If a mistake is made or a questionable action taken, it will be simple to identify who is responsible, ending very quickly with the ownermanager. This moral proximity with community and customers can focus the mind considerably on ethical behavior. Owner-managers of small firms often cite employees as their most important stakeholders, in contrast to large firms. Informality and a lack of bureaucracy is usual, with familiarity with the personal circumstances of employees the norm. Accordingly, owner-managers personally feel the burden of maintaining employees' livelihoods. Again, there is no guarantee that this results in ethical behavior, but genuine commitment to employees is very high on the agenda of small businesses, not least because the costs of replacing someone is proportionately substantial.

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