Ethical Entrepreneurism: Is It Possible?

Wednesday 13th May 2020 Dave Sharp Start Ups!

Within the bigger picture, many large corporate companies have ethical standards and programs and most likely have an employee(s) dedicated to enforcing, managing and assessing the effectiveness. If the entrepreneur has worked within a corporate environment then its likely they have had some experience of these initiatives and can therefore carry forward some of that knowledge into their new start up. But what if this isn't the case? How does the uninitiated entrepreneur establish what ethical code they should use and how to manage it?

With the plethora of other things to worry about its unlikely that formalising the companies ethics or appointing someone dedicatedly to this is going to be realistic for the start up. However, there are a number of points that a start up can work with to get the company culture and attitude towards certain issues resolved to give the start up its opening stance towards ensuring best practice:

#1. Early Stage Questions
The reality of the situation most start ups find themselves in highlights the pressure and stress to cut corners and just "get it done somehow". There are some early stage questions that form the base of the moral dilemma:

  • How much do you overplay things when speaking to potential investors?

  • What is the fair and equitable equity split for founders, early employees etc?

  • How robust is the product really versus how robust you tell potential customers and investors?

  • How creative should you be with your accounts when potential investment may ride on how they read ?

  • When the business plan is failing and the company needs to pivot, how quickly do you tell the board and investors?

  • How far can you afford to go with employee perks from the beginning?

#2. Write it down!
Saying it is one thing, and an important factor in setting ethics into the company culture. Writing it down is just as important. The ethical stance of the company should be evident in all the documentation - business plans, mission and vision statements, company employee hand book and all the companies policies and procedures.

#3. Make it Real
Saying it and writing it down are only a small part of behaving ethically. It has to be backed up with actions. Not giving false or misleading information to investors or accountants is an action in its own right. This has to be consistent, not on odd days or when the entrepreneur feels like it.

#4. Ethics are Transparent
There are inevitably going to be moments in the life of a start up where the notion of being ethical is going to create a pressure point. If you need to attract some talent to the company, you're probably not going to get the right person with "every day is a struggle, we sometimes don't turn the heating on to save money and our printer is on its last legs".

These pressure points need to be discussed openly with the people directly involved and in an open and transparent way. Agreeing how to describe different situations and scenarios to 3rd parties so that everyone is comfortable with the wording and the more importantly, the tone is a key approach to creating an ethical feel to the company.

Further down the line this can be formalised into company lore.

#5. Open Door Policy
Not everything that has an impact on ethics is obvious and there will be different levels of understanding within the staff: an open door policy is often the best way to resolve these adhoc issues. It also allows whistle-blowing, a contentious but necessary aspect of behaving ethically,

Its important that the staff feel that nothing is beyond debate and that uncomfortable decisions and behaviours can be discussed. Paying suppliers on 45 days versus the contracted 30 is a common scenario operationally but doesn't fit with the ethical approach. An open door to a discussion around issues like this fits with the desire to create ethics right through the business.

#6. Conflict of Interests
The globalisation of business through the internet and cheap travel has been singularly one of the most transformational innovations for business in history. This has given birth to a raft of new potential scenarios for start up businesses with many choosing to form partnerships and strategic alliances almost on day one. The internet now means that companies on different continents can be in a collaborative relationship in minutes.

This capacity is a double-edged sword. The opportunities give more scope for conflict of interest; the entrepreneur or employee can create ways to fill their own pockets at the expense of the company, the founders and the investors.

Its very important for entrepreneurs and company founders to take a strong stance against any form of nepotistic or questionable attitude within the company and therefore compromise the ethical position of the company.

#7. Maintaining Values
Ethics within a business need to be persistent. The company can change rapidly, new staff joining, pressure and stress means that some staff may have forgotten (no never heard in the first place) the ethical position of the company verbalised.

Its very important for the entrepreneur or founder to take every opportunity to maintain the ethical theme and reiterate it at every point where its relevant. This level of reinforcement ensures that the business ethics are a constant and running theme within the company culture.

#8. Employees
Recruitment of the best people that the company can afford is often the difference between success and failure within a start up. If ethics are going to be a unique selling point of the company then the belief that company financial success or personal financial success cannot be the main company value.

Weeding out employees that do not share the company's ethical stance may sound draconian. An employee may be a whizz at his job and not believe the ethics to be necessary or important. The negative impact of this employee may come through damage to the companies reputation via actions that are seen as unethical - the cost in the long term could be enormous.

Founders should always take the time to make sure that employees understand the different negatives ways that unethical behaviour can effect the company, as with most things - education is vital.

#9. Check the Rear View Mirror
There are moments when taking a look in the rear view mirror will provide a retrospective understanding of how the ethical side of the business has impacted on the companies fortunes.

Speak with customers and suppliers and ask them if they feel that the start up has been open, honest and transparent with them. Hopefully the answer is yes, but if not, use this as an opportunity to evolve the ethics of the company to cover anything highlighted to you as less than ideal. Investors will always be quick to shout if something is not quite right, but suppliers may not - fearing that anything they put forward might be held against them. There has to be zero blame applied and all feedback honestly given is accepted and acted upon and not used as fuel for an argument or dispute,

#10. Renew
As the business develops and matures it will see the world differently and have different concerns and constraints. Over time it might be that the companies ethical policies and procedures become more specific, more resolute, more important and more valuable in a commercial sense.

Renewing the ethical stance of the company yearly, publicly and throughout the companies suite of documents would seem to be prudent and responsible.

Closing Summary
The benefits of being an ethical start-up are too numerous to list. For me, employee satisfaction and well-being are high on the list, along side company reputation and the engendered trust. Workers who feel free to act ethically and to deal with others ethically feel better about themselves. The reduction of staff turnover and potential productivity increases are secondary benefits, but there are more.

Entrepreneurs must not under-estimate the power of reputation; ethical dealing can cement partnerships and relationships, decreasing the likelihood of having to replace supply chain companies and the transaction costs and risks of managing a replacement supplier. We've all seen deals done on a handshake. This takes trust and recognition of someones ethics - reputation is everything.

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