Cheat Sheet

Business Ethics For Dummies

From Business Ethics For Dummies by Norman E. Bowie, Meg Schnieder

Business students often object to required courses in business ethics, and the more cynical members of the general public consider the term business ethics to be a contradiction in and of itself. In fact, business ethics — that is, doing the right thing in the way you run your company — makes sound business sense. Ethical lapses can harm a company just as thoroughly (and perhaps even more so) as a garden-variety business mistake. On the other hand, a reputation for ethical behavior can enhance a company’s success and even help a company through tough times. A good reputation is like a good brand: When customers and employees trust a company to do the right thing, the business is more productive inside and out.

Evaluating and Protecting Your Business’s Good Name

Research shows that companies with good reputations can charge higher prices for their goods and services — anywhere from 3 to 8 percent more than their less-reputable competitors.

So how do you figure out what your company’s reputation is and how you can improve it? The Reputation Institute offers an online diagnostic tool to help you find out. Based on your answers to 16 questions, the tool shows how your company rates on reputation management and offers suggested priorities and action items to improve your reputation management.

Of course, you need to protect your reputation, too, and sometimes you have to rehabilitate it. According to public relations agency Burson-Marsteller, corporate executives worldwide believe it takes more than three years for companies to recover from a reputation-damaging crisis. The executives surveyed identified the following top-five key steps to restoring a damaged reputation:

  • Disclose details as quickly as possible. Hiding from a problem doesn’t make it go away, and in today’s instant-news environment, delays in disclosing information can add significantly to reputation damage. Use social media and other outlets to get as much information out to the public as quickly as possible, and provide frequent updates for as long as necessary.

  • Be transparent in your corrective actions. If you don’t tell people what you’re doing to fix the problem, they’ll assume you aren’t doing anything. Let people know what you’re doing right now and what you intend to do in the coming days, weeks, and months to correct the issue.

  • Figure out what went wrong (and how you can prevent it from happening again). In late 2010, Qantas Airways immediately grounded all of its Airbus A380 planes after an engine on one of the jumbo airliners exploded shortly after takeoff. The grounding gave Qantas time to determine whether the problem was with the airplane or the engine (it was the engine) without risking additional incidents. You can’t fix a problem if you don’t know what caused it, so do what you need to do to correctly identify what went wrong in the first place.

  • Strengthen your governance structure to prevent repeat missteps or scandals. Sometimes internal controls don’t work well, allowing mistakes or intentional misbehavior to slip through. Evaluate your policies and procedures to ensure you’re providing adequate checks and balances instead of concentrating too much authority in too few hands.

  • Talk to the media. The media spotlight can be harsh and unforgiving, but hanging out in the shadows can be far worse for your reputation. If you ignore the media, they’ll report on the story anyway — only without your input. View the media as a tool for communicating with your stakeholders, and use the opportunity to tell them what happened, what went wrong, and what you’re doing about it.

The more proactive and open you are in responding to a crisis, whether it’s a simple error or an outright scandal, the less damage your corporate reputation will suffer.

Being Open with Workers to Promote Ethical Behavior from Management Down

Most business leaders face the perennial problem of encouraging their employees to think like owners. Open book management, the practice of sharing financial and other information with your workers, can help you get more from your staff — more productivity, more concern about the company’s well-being, and more ethical behavior.

To get the most out of open book management, be sure to add these elements:

  • Profit sharing: The goal of open book management is to get employees thinking like business owners, and sharing the company’s profits with employees is a common way to foster that sense of ownership.

  • Team or work-group structures: Having cohesive small work groups is one major key to increasing productivity. Employees who feel unconnected to their colleagues are less satisfied with their jobs and may be more prone to misbehave.

  • A culture of top-down respect for each employee’s contributions, skills, and talents: Las Vegas casino mogul Steve Wynn says the most important people in his organization are the door attendants, because they’re the first ones patrons interact with when they come to a Wynn property. Avoid getting hung up on corporate titles, and instead look at what each employee does every day to help your company succeed.

  • A “what can we learn from this” approach to mistakes: Sure, you need to take corrective action when something goes wrong, but don’t limit your corrections to disciplining the person who made the mistake. Invite opinions and ideas on how to prevent repeat incidents without stifling creativity or innovation.

Companies that have successfully implemented open book management include Farm Bureau Mutual Insurance Company, Kindermusik International, and Nucor Corporation.

Mapping Out Stakeholder Interests that Influence Your Business

A stakeholder is any group or individual that can crucially affect or is crucially affected by an organization. For your business, stakeholders include your stockholders, your employees, your customers, and the community in which you operate. Each one of these groups is affected by everything your company does, but what’s good for one stakeholder isn’t necessarily good for the others.

Reducing operating expenses by cutting back on your workforce and using cheaper materials may be good for your stockholders, for example, but it’s not good for your employees. It’s not good for the community you’re based in, either, because layoffs ripple through the local economy, hurting other businesses that depend on spending from your workers. And using cheaper materials may result in a lower-quality product, which isn’t in your customers’ best interests.

Unfortunately, you can’t always do what’s in everyone’s best interests, and deciding which stakeholder interests take priority is one of the biggest challenges of managing an ethical company. Stakeholder mapping, the process of identifying and weighing the interests of different stakeholders, can help you decide which interests should come first.

As you map out the different interests that affect your company, keep in mind the following tips:

  • Sort the group’s interests into categories: financial, social, environmental, political, and so on.

  • Figure out how the different groups interact with and influence each other (such as your employees’ spending money in the community).

  • List the positive and negative impacts of your company’s actions on each stakeholder group.

  • Devise a plan to communicate with each stakeholder group and, if necessary, gain their support.

Mind Tools has a free stakeholder-mapping template, as well as a good description of the process and things to consider.

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