Do Large Business Have an Affect on Small Business Essay

Considering the normative statement that both large and small businesses should follow the same ethical and moral standards, this paper analyzes the perceptions of individuals based on the relative ethical behavior of small business as compared to large business. The study of ethics focuses on the differences between what is right and what is wrong in society which affects both small business and large business due to their obligation to the public and their stakeholders. Both entities are guided by the same standards and both are expected to meet all legal regulations and ethical standards. The analysis employs surveys to gauge the public’s perceptions of the ethical decision making by management in both small business and large business. The survey also analyzes the role of those ethical decisions within scenarios and their impact on the individuals’ patron behavior in small business as compared to large business. Statistical analysis has been utilized to test the authors’ overall hypothesis that the public is generally less concerned about ethical decision making of small business relative to large business. The implications of these findings for both large and small businesses are provided with the analysis and suggestions to correct the disparity between both entities. Introduction During the past decades it has been evident that ethics has become the hot topic in business. However, much of the talk is not comprised of all types of business it involves primarily the large corporations. Large corporations such as Enron have caused much grief to those around them and everyone that they employed. Due to this reason regulations such as the Sarbanes- Oxley Act have been enforced to hold large businesses accountable. While these regulations have focused solely on large corporations, efforts to regulate small businesses have been small. It is estimated that small businesses make up over 80% of all business in the United States of America. That is a huge sector which is unregulated due to its size. While the adverse actions of each entity do not do great harm to the economy; the cumulative damage of all components of the group could have devastating impacts on the general economy. Literature Review Businesses today are completely different than the businesses of years past. Today, business ethics has become an area of great concern in both corporate culture and academia. Companies such as WorldCom and Enron have caused people to reevaluate philosophy and business. Ethics can be defined by the morals that people and companies hold. Although internal and external forces influence businesses, there are three issues that affect issues in business. These three issues are systematic, corporate, and individual. To truly understand each factor one has to understand how each of these issues differs and how they influence the business itself. Systematic issues analyze ethical values in economic, political, legal, and other social systems in which the business operates (Velasquez, 2006). An example of this would be a question of morality about the current laws pertaining to accounting systems. Laws influence the actions of people because they stem through consequences with the local or federal government. People tend to be scared of a higher authority more than self punishment. 2010 Small Business Institute ® National Conference Proceedings Vol. 34, No.1 – Winter 2010 293 The second factor is corporate issues which are issues of morality of internal activities such as policies, practices, and organizational structure (Velasquez, 2006). Corporate issues are based on corporate cultures. If a company treasures capital gains more than human capital the company would then lay off employees to save money. On the other hand, a company that treasures its employees is more likely to take a cut and keep their employees. To say that one company is more ethical because of their decision lays in a company’s moral standards. The idea of moral standards stems from the third type of issue which is the individual issues. Individual issues are issues that are based on individuals within a company along with their behaviors and decisions (Velasquez, 2006). This includes the moral standards of individuals. Moral standards are standards that are set by the individuals themselves and by no other governing body. Hence, each individual has a right to stand for what they believe in. It may be simple to take these three factors and state that this is common sense information; however, it is just as complicated to say that there can be one rule that can apply to every situation that is similar. In cases where individual morals differ from those of corporate or systematic, it is easy to assume that one would no longer pay attention to their place of business or the entity that is different. However, humans are prone to being victims of society and need to supply for their family. Knowing that something unethical is occurring at a place of business does not mean that the person will just walk away whether they have worked in small or large firms. Decisions of a business affect all tiers of the organizational structure which in turn affect the lives of all stakeholders of the company. Therefore, ethical standards have risen due to the current corruption in many large businesses. News reports of Nike and Merck have grabbed the attention for case studies and have become the top selling stories. The news ran the stories that exposed the fragile nature of the corporate worked to their affect on the country’s economy. Due to the global impact of large corporations the public’s eye is primarily on large businesses; however, ethical issues arise in small businesses as well. Lisa Miller states that small businesses â€Å"were overlooked when Wall Street’s mega-scams and scandal came to light (Miller, 2003). For people that analyze and teach ethics â€Å"business ethics have almost invariably concerned the doing, indeed generally the misdoings, of large companies (Quinn, 1997).† Quinn noted that in the late 20th century there has been an increase in the economic activity of small businesses (Quinn, 1997). He states that not only do the managers have to be observed so do the employees. The employees have want approval of their peers which is also accepted by the manager/owner (Quinn, 1997). In large businesses it seems easier to separate you personal ethics from businesses ethics. In small businesses the relationship with one’s coworkers becomes a sub-family relationship making it that much harder to make â€Å"ethical† decision. The overall factors that influence business ethics derive from personal ethics and how those ethics affect others. Miller points out that it is an assumption that small businesses do not need a code of ethics however, they have a bigger temptation to b involved in â€Å"dubious business practices (Miller, 2003). 2010 Small Business Institute ® National Conference Proceedings Vol. 34, No.1 – Winter 2010 294 In Mark Schwartz essay A Code of Ethics for Corporate Code of Ethics, Schwartz finds that over ninety percent of large corporations have a code of ethics (Schwartz, 2002). He concluded that there a six universal moral standards in four different sources. The moral standards that he looked at included trustworthiness, respect, responsibility, fairness, caring, and citizenship (Schwartz, 2002). Due to these criteria Schwartz states that a code of ethics should be constructed on factors that could be audited. His study provides a normative foundation for evaluating a corporation’s code of ethics. In a 1981 an article by Brown and King analyzed the influences and perceptions of small business ethics. In their foundational work Brown and King realized the disparity in public awareness between small business ethics and large business ethics. Brown and King surveyed a small group of individuals consisting of â€Å"small business† respondents and â€Å"other† respondents who were mostly employed by large corporations. Brown and King’s research sought to answer three questions. First, the research asked â€Å"How high are the ethics of small business people perceived to be?† Second, â€Å"Compared to others, what causes the behavior of people in small business to be more or less ethical?† Finally, â€Å"What are the prevailing small business attitudes concerning ethical issues?† (Brown and King, 1981). Brown and King found that there was a surprisingly small difference in the responses between the two subgroups of respondents. The research conducted by Brown and King examined the perspectives of those in the various sized business. The research left a gap in the general public’s perceptions of the ethical actions between large and small business. The Center for Business Ethics surveyed Fortune 1000 industrial and service companies to see how they have instilled their ethical values to compare their results from the study they performed in the mid 1980s. Their survey showed some progress but, not enough (Center for Business Ethics, 1992). Ethical standards fall in line with legal regulations. Sandra Malach, et al. believe that incorporating legal planning into business planning to avoid legal issues and to protect the businesses most important assets (Malach, Sandra et al, 2006). While legal action is important it is important to focus on consequences in a workplace outside o f the any punishments. To further analyze ethical dilemmas it is important to observe the consequences at a workplace. One consequence that business can apply is a zero tolerance policy in a workplace. This ethical dilemma is especially interesting when applied in a small business setting, and contrasted with techniques applied in large corporations. The ethical compass of the theory for the zero tolerance policy is Kant’s Categorical Imperative. Kant’s Categorical Imperative is defined by the rule that people should â€Å"Act in such a way that you treat humanity, whether in your own person or in the person of any other, always at the same time as an end and never merely as a means to an end (Stanford, n.d.).† Kant’s Categorical Imperative is a very restrictive rule to live by and cannot practically be applied to everyday life. However, when discussing ethical dilemmas in the workplace, the Categorical Imperative should not be overlooked. The Zero Tolerance Policy embodies the Categorical Imperative in the sense that everyone must ask himself/herself whether they would be willing to have the same behavior applied to them if the roles were reversed. In the business setting the Categorical Imperative has a special value; it helps mitigate moral hazard. 2010 Small Business Institute ® National Conference Proceedings Vol. 34, No.1 – Winter 2010 295 Moral hazard was once described as â€Å"a situation in which a party is insulated from the consequences of its actions†¦Thus protected, it has no incentive to behave differently (Ahrens,2008).† In the business setting, moral hazard can be devastating to the culture of the company and can eat away at the profit margin. Consider an employee who is discovered to be â€Å"moonlighting† or working an untaxed second job during hours in which the employee should be giving full attention to their actual job. This behavior may seem harmless and may only warrant a verbal warning, but when the other employees discover how easy it is to get by with unethical behavior they are incentivized to act unethically. This slippery slope scenario results only in the necessary termination of the unethical employee. When an employer establishes that unethical behavior will not be tolerated the result is the strengthening of the corporate culture and the avoidance moral hazard. However, this scenario might work differently in a small business. In a small business the cost of a zero tolerance policy can be devastating. The costs associated with replacing an employee in a large corporation is easily spread across the entire entity as a fixed cost of doing business; this is not the case in the small business. The employer-employee relationship in the small business, by nature, is more flexible and more personal. This flexibility can allow for a more informal agreement, between management and employees, to be made. Finding a â€Å"win-win† solution allows for Kant’s Categorical Imperative to be upheld and moral hazard can be avoided. In a large publically traded company this kind of arrangement cannot be made because not all of those who are residual claimants (owners) can be spoken for. In the large publically owned company the zero tolerance policy should be followed, but in a small privately owned company a modified zero tolerance policy can be applied. Kant’s Categorical Imperative can be a useful tool when designing corporate policy in publically traded companies. The zero tolerance policy should be applied in publically traded companies. In addition, Kant’s Categorical Imperative should still be applied to design a modified zero tolerance policy in small private companies. To solve the issue of what the zero tolerance policy entails, the company needs to implement a code of ethics in their organization. Eberhard Schnebel and Margo A. Bienert state that a code of ethics strengthens an organizations success therefore improving the overall value of the company (Schnebel & Bienrt, 2004). The value that is added is the public’s perception that the business is there to benefit the community. L. Spence studied a similar phenomenon as this essay explores. In a 1999 study L. Spence found that there is a lack of information on any correlation between small businesses and their ethical standards. The reason for this is because small firms receive little attention by the media which makes them a quick oversight (Spence, 1999). Four years later L. Spence wrote an editorial with R. Rutherfoord to explore the sociological perspective in the field of ethics (Spence & Rutherfoord, 2003). Due to these two studies we have been motivated to explore the issue further and gain insight on why there is a lack of information on the issue. 2010 Small Business Institute ® National Conference Proceedings Vol. 34, No.1 – Winter 2010 296 Hypotheses As discussed earlier, the objective of this pilot study was to examine the differences in respondents’ perceptions of ethical dilemmas and ethical standards in small business as compared to large business. In order to facilitate the primary research objective the following working hypotheses were formed: H1: The size of the business will have no impact on consumers’ shopping decisions when ethical dilemmas are present. H2: The size of the business will have no impact on the actions of employees when ethical dilemmas are present. H3: The size of the business will have no impact on the respondents’ perception of the incentives associated with acting ethically. H4: In general, respondents believe that small businesses should be held to the same ethical standards as large corporations. These hypotheses are based on the supposition that individuals will be more lenient or forgiving of the shortcomings of small businesses relative to their large counterparts. Methodology The study was initiated with the creation of a preliminary (alpha) survey. The alpha survey resulted in fourteen respondents and was conducted by means of convenience sampling. The alpha survey was a paper based survey consisting of thirteen questions. The survey included demographic questions as well as analysis questions. There were mixed results on the alpha survey mostly due to the confusing survey design associated with strict time constraints. While the alpha survey did not provide sufficient data, it was useful as a tool in the creation of a secondary (beta) survey. The beta survey instrument consisted of two separate surveys. One survey was specific to small business while the other was specific to large business. The surveys were created and distributed electronically using Survey Monkey. The goal for the beta survey was a total of 100 respondents for each survey resulting in an overall total of 200 respondents. The small business survey yielded 105 useable returns, a 94.6 percent return rate. The large business survey yielded 107 useable returns, an 84.3 percent return rate. Each survey included five common demographic questions, two common questions pertaining to ethics, and eight questions relating specifically to either small business or large business. The survey was distributed broadly across various social networking sites and throughout the Christopher Newport University community. Due to time and budgetary constraints the beta survey consisted mostly of opportunity sampling and snowball sampling. The authors recognize the drawback of an opportunity sample; however, the research question in this pilot study can be adequately answered using this technique. The analysis questions on both the small business and large business surveys consisted entirely of binomial data. The respondents were limited to either â€Å"Yes or No† or â€Å"I agree or I disagree.† For the purpose of testing the hypotheses (H1, H2, and H3) statistical analysis will be used to measure the difference between the proportions of the two samples. For the final hypothesis (H4) the analysis will simply state the overall proportion of respondents in both surveys who answered favorably and interpret the results. Hypotheses H1, H2, and H3 will be tested at ÃŽ ±=.10, ÃŽ ±=.05, and ÃŽ ±=.01 levels of significance.