Small Business Ethics

Essay by vvasimm December 2010

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Small Business Ethics

Small business ethics refers to social issues and business ethics in small and medium-sized private businesses. Despite the fact that by most measures 99% of private business organizations are small or medium-sized enterprises (SMEs), probably 99% of research on business ethics and society is on large firms and multinationals in particular, giving us a very limited understanding of the relevant issues for small firms.

One of the difficulties of this subject area is the varied approaches to defining "small" business. The usual parameters include number of employees, turnover, sector-specific characteristics, and selfdefinition. The European Union definition is relatively simple, with small and medium-sized firms being defined as having fewer than 250 employees. The Small Business Administration in the United States offers industry-sector-specific definitions, using turnover and employee numbers ranging from 100 (for all wholesale trade industries) to 1,500 (e.g., for the airline industry). In terms of business ethics and society, the most important perspective is the differing processes and character of smaller business organizations compared with their larger counterparts.

The most pertinent perspectives are outlined below.

The Freedom to Act According to One's Own Integrity

In most small firms, the person with ultimate responsibility for running the organization is also the primary owner-that is, he or she is an owner-manager. There may be other shareholders, perhaps family members or business partners, but the convergence of ownership and control of the firm means that the owner-manager acts as both principal and agent. Milton Friedman acknowledges himself that his general maxim of "the business of business is business" does not apply in owner-managed firms since the proprietor has the right to spend company money as she or he sees fit, including bringing personal integrity to bear (e.g., for charitable donations). There is no guarantee that owner-managers will...