Doing Good Business

by Domini Stuart, Dynamic Business

In the late 1980s business ethics took a dive. For a while it seemed greed really was good, as business after business jostled to embrace Milton Friedman's belief that profits must always come first.

Then came the fallout. Australian entrepreneurs such as Alan Bond and Christopher Skase began toppling from their pedestals. And the collapse of international corporate giants such as Worldcom, HIH and Enron sent shockwaves around the world, rocking share prices, business and consumer confidence, and international economies.

Duncan Schultz, principal of Pacific Growth, believes one positive outcome has been the effect of these disasters on today's business leaders. "They've seen the effects, and some may even have been burned themselves," he says. "As a result, they're making a conscious decision that they're going to do the right thing."

If business is pushing towards higher ethical standards, consumers are starting to pull with equal force. "Today, the average consumer is a lot smarter, and there's a lot more information at their disposal," continues Schultz. "If you behave unethically, it could be round the internet in eight minutes!"

So where do SMEs begin? "For any business, a written code of ethics is an important starting point," says Dr Sandra Lynch, lecturer in philosophy at Sydney's Campion College. "It may need adjusting from time to time but it does give a guideline to refer back to when difficult situations arise. A gut feeling won't provide you with a justification others can accept - and feelings can get mixed up with self interest.

"There are two approaches you can take to compliance," she says. "Black letter law is prescriptive and so must identify and veto every possible wrong doing. Fuzzy law is more general, putting the onus for ethical behaviour on stakeholders and emphasising their responsibility to make judgements about what's right or wrong."

Lynch uses a sporting incident to illustrate the weakness inherent in the black letter law approach. "During a scrum in an international rugby match, a player picked up the ball and hid it under his jersey. While his mystified opponents were looking for it, he ran across the line, pulled out the ball and placed it down for a try. There was nothing in the rules to say this wasn't allowed, but few people would argue that it was an ethical way to play.

"Black letter law is easier to act on because it is very precise. But when stakeholders, and particularly employees, are given more responsibility they demonstrate higher degrees of ethical awareness and report greater job satisfaction. A combination of the two approaches is generally the best solution."

Building Standards

Schultz's company helps SMEs establish an advisory board, and will appoint a professional director to lead them. "Everyone wants to be a non-executive director - it sounds like such a great job," he says.

"We believe that means our standards need to be particularly high. "From the industry point of view, we follow the Australian Institute of Company Directors (AICD) code of ethics, but we have always treated that as a starting point. For instance, I made the decision at the outset that I would never charge for our 14-day training program. If someone doesn't come up to scratch, I need to be able to tell them without feeling I have some moral obligation to sign off on them. And I need to be able to tell our clients that no one has bought anything. We're not selling a franchise or a licence; the people we recommend have been selected absolutely on their merits.

"I imagine the 60 Minutes team are on my doorstep and ask myself: could I go out in front of the public and hold my head reasonably high?"

"On top of that, we have agreed that no one person in the company can act alone to recommend a candidate. Everyone must be interviewed and independently invited by another of our four directors."

In their study Does Business Ethics Pay?, the US Institute of Business Ethics (IBE) found companies displaying a clear commitment to ethical conduct consistently out-perform companies that do not. "Not only is ethical behaviour in business life the right thing to do in principle, we have shown that it pays off in financial returns," says IBE director, Philippa Foster Black.

As owner of Starr Partners Parramatta, Mark Hurley has no doubt that a principled approach has been fundamental to his success. Real estate is hardly synonymous with ethical behaviour, but he has gained real commercial benefits from swimming against the tide. "Four years ago, I sold my Fairfield business and set up Starr," he says. "We're still very much the new kid on the block here, but we're already rated in the top three out of 85 local real estate agencies. That's quite an achievement, and I'm sure most of it is due to the way people are treated here."

Like Schultz, Hurley built the foundations by following industry standards - in this case the voluntary Real Estate Institute Code of Ethics. This is overlaid by Hurley's insistence that all 24 of his employees treat everyone who walks through the door with exactly the same respect.

"There's an attitude in real estate that, if you've got something to sell you're treated like a god, but if you're a tenant you're treated poorly," he says. "Even from a purely commercial point of view this doesn't make sense to me. We get a significant amount of business from people who were treated well when they were renting and then come back when they're buying or selling. Every day we have people telling us that they appreciate how fairly we do business, and most of them tell their friends. I have no doubt that word-of-mouth referral has been the key to our growth."

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