Small Business Ethics

Moral standards play an important role in society. Is your business responsible?

Last November, in my main ethics elective at the MIT Sloan School of Management, I finally asked a question of my MBA’s that I should have asked weeks earlier: “How many of you grew up in a family business?” About one quarter of the 40-plus students in the room—U.S. and other nationals—put up a hand; in a class that routinely has a higher-than-average number of women—40-50% to a schoolwide 31%—more than half of those who put up a hand were women.

In the wake of the spectacular ethical and legal meltdowns at Enron, WorldCom, Tyco, and other corporate giants, we sometimes forget that professional ethics and social responsibility matter equally in the small and medium-size business, the family and the private business. Indeed, I often hear the argument that, when launching a company, one does what’s necessary to survive; ethics comes later. In this view, ethics is a luxury for a start-up or small company: when can you afford to say ‘no’?

I asked my class the question about family businesses when we discussed “The Monkey King”, a novel by the Anglo-Chinese writer Timothy Mo. In Mo’s fictional Hong Kong business family, the patriarch is quietly sorting out a succession plan for his very successful enterprises. His behind-the-scenes manoeuvring raises questions of merit vs. family loyalty, foments intergenerational tension, expresses culturally challenging attitudes on gender, ethnic identity, and religious commitment, and addresses the very nature of business and personal success.

Anyone who has run a family business will recognize these ingredients in their daily operations. In “The Monkey King”, emotional and fiscal squalor mixes with depictions of family growth and business ingenuity: this feels to me like the mildly hyped reality of many small enterprises, whether familyowned or familial simply by virtue of their size. In an earlier iteration of the course, a student once ruefully commented: “This is my family!” His admission combined the pride of achievement with a ruefulness born of knowing intimately the sometimes less-than-admirable or deliberate means by which such success had been secured.

The personal stories that emerged last November, across cultural differences of East and West, mid-20th to early 21st-century business, substantiated his claim. Whether South Asian, or Latin American, or American Midwesterner, the 20 to 30-somethings in the room shared experiences, concerns, and aspirations: how to deal with your or your siblings’ lack of interest in inheriting the business; how to bring parental practices up to date, not just in the obvious areas of change, like cyberspace, but with regard to the pervasive impact of globalization; how to deal with the dead certitude of the previous generation—many previous generations—that women don’t have the skills to lead a business enterprise.

We could easily see these issues as mere manifestations of family or interpersonal dynamics, arguing that this is how families or small communities work. Yet each of these scenarios also expresses a clash of values: for example, the frustration that women in the room expressed about their exclusion from the decision-making process, even when they had the requisite business skills— or had come to business school to prove they could get them—illustrated a concern not so much about feminism as about fairness. They proceeded in their business analysis from the unspoken assumption that merit should or would or could trump gender, in a world where systems success supposedly matters more than personality, where companies look to the bottom line, not the hemline.

Cultural norms? Absolutely. But the commonality expressed in the students’ stories suggests elements of a universal business standard tied to what we now call human rights and social responsibility. In other words, whatever the individual small and family firms’ failings, they had succeeded in highlighting for my students the importance of thinking about the terms on which we do business. Fairness, merit, trust? Few would argue against any of these standards in business practice, and the discussion last November reminded me that standards begin small in an ever-bigger world, and often at home, where it’s up close and personal.

The people who run a small business must behave ethically, and must accept responsibility for their impact on society. Doing so takes the “s” word mentioned earlier—survival—beyond the stereotype: businesspeople do have responsibility for the near-term success of their enterprise at the bottom line, but the thoughtful ones also attend to the long-term psycho-social health and wealth of all individuals and groups involved in and affected by the business. As a global culture, we seem to be moving in this direction, but we still have a way to go. The small enterprise provides the right environment in which to work towards these large effects, and if my students’ concern with ethics measures anything, it indicates that the next generation has already benefited from the experience.