Are Small Businesses More Ethical?

I like small businesses. They make me comfortable. My favourite coffee shop is small & independent — I only resort to Starbucks when I have to. My favourite pub is small. My favourite place to buy groceries is a small, independent greengrocer. I’ve never worked for a big company; I find them hard to relate to, hard to interpret. Small businesses are run by real, live people who you can talk to and relate to and understand.

The popular understanding of ethical and unethical behaviour in business happens to line up nicely with my own prejudices. Big businesses are supposed to be evil; small ones, benign. But is there good reason to believe that?

Certainly, I know of no evidence that small business generally behaves more ethically than big business. The fact that big business is responsible for all the business ethics headlines is of course not a reliable measure: Walmart, for example, is monitored much more closely than the thousands of small retailers who try to compete with the retailing behemoth, so you would expect Walmart’s transgressions to be made public more often. Headlines are a lousy measure of ethical conduct in business, just as they’re a lousy measure of airline safety or child abductions or shark attacks.

I was walking through a vibrant Toronto neighbourhood today, with literally hundreds of small retailers about whom I know next to nothing. Are they all ethical? All unethical? A mix? The latter is probably the case, but who knows? If you did investigate thoroughly, and found out that those small retailers were playing fast and loose with employment standards, with paying their fair share of taxes, or with health and safety regs, what would you want to do about it? One solution, of course, would (in theory) be to unite all those hundreds of small businesses into a single, larger business that you could monitor more closely. They’d lose much of their character, that way, much of their charm. They’d be less fun. But would they be less ethical, or more?

11 comments so far

  1. Mrs. A on

    Size doesn’t make a company more or less ethical. Although it is easy to believe that because small business owners have much more exposure to all aspects of their business that unethical behavior is not likely to go unnoticed.

    However in my industry, home restoration, sometimes it is the small guys you have to worry about. Two guys in a truck who take your down payment and never show up again, but a lot of us started out with just two guys and a truck.

    On the other side of things it is the big industry leaders telling everyone it is okay to restore homes that have had drug labs when some of us believe the ethical thing to do is to tear it down and start all over.

    The best solution is to try and be well informed about the products and services you buy.

  2. Nurglitch on

    So what are the relevant distinctions between small and big businesses? I’d suggest that if the relevant distinctions include things like slippage between owner/worker/managerial/consumer motivation, then there’s opportunity to act unethically, and perhaps motive.

    By slippage, I mean that when interests are aligned, no one has any reason to complain about unethical behaviour – people co-operate. But when interests are cross-purposed, or just plain divergent, then there’s reason to complain that some behaviour is somehow unethical.

    An example might be something like the recall formula given in the film “Fight Club”, where Edward Norton’s character explains that if it isn’t worth the company’s time to recall a make of car with a particular defect, then a recall order is not issued. The company’s interests diverge from those of the consumers. The company’s managers have divergent interests from those of the consumers, and so have opportunity and motivation to engage in unethical behaviour.

    If anything the fact that a big business, by the fact of its size, contains a variety of interests suggests that big businesses at least have more opportunity to act unethically as the result of divergent interests on the part of its officers or employees.

    That said, big businesses often have strict controls in place because they understand that the variety of motivations present and opportunities offered will inevitably yield unethical behaviours. In addition, small businesses often operate with comparatively thinner margins due to scale of business, and thus have incentive to cut corners and otherwise act unethically.

  3. Kevin Goodman on

    I think the main difference is that bigger business affects a lot more people. And the way they affect people is also different than the cumulative wrong of small businesses. That’s not saying that one is better than the other but they are fundamentally different in regards to stakeholders.

  4. elaine on

    hi, interesting thoughts. whether a business is small or large, it’s always made up of people. And its people who are ethical (or not) and not businesses. As a business grows in size, the risks of unethical behaviour change, but the relevance of ethical behaviour doesnt. One of the best signs of an ethical business is its transparency, and all businesses can adopt transparent practices in many different ways.
    elaine

  5. Blindscribe on

    I think the subject of your question might be problematic. Businesses are made up of people, so the better question might be are people more or less ethical depending on the size of the business? Then we can scrutinize the condictions that encourage or discourage ethical behavior. For instance, I think certain kinds of businesses tend to attract the unethical, regardless of size. Used car dealerships jump immediately to mind. But my assumption (and attendant prejudices) are the same as yours in this case. I don’t know because I haven’t tested.

  6. Chris MacDonald on

    Blindscribe:

    The questions you pose are good ones, too. But I disagree with your initial premise. Businesses are made up, in part of people — but they’re not just aggregations of people, they’re structured entities with policies, procedures, etc.

    So, I wonder whether the scale of business structures matters — which perhaps isn’t that far from your question about what conditions “encourage or discourage ethical behavior.”

    Chris.

  7. m on

    yes you can say both small and big businesses are made up of people, but might big business feel protected by their status as a large corporation and the fact their ethics are not immediately tied to a single person? I like small businesses because I like feeling that it is a relationship with a “real person” offering a service that they are putting their name on. I guess I’m guilty of assuming big business would too easily have “mob mentality”

  8. Alice C. Linsley on

    You describe my experiences with small versus big companies very well. Big doesn’t automatically mean unethical, but it almost always means impersonal and when I’m no longer a person… well, that’s when my talents, ideas and needs no longer matter.

  9. Paul Abbott on

    Interesting topic – so much so that I am doing a PhD looking at factors that motivate small firms to act responsibly/sustainably. One reason for chosing small firms is that you usually avoind the agency problem – where owner managers can take ethical decisions without conflicting duties to “absentee owners”. Perhaps this feature of small firm governance can make them in general more ethical?

  10. Chris MacDonald on

    Paul:

    Thanks for your comment.
    Of course, to avoid agency problems entirely, the firm has to be very small — and (as I’ve argued elsewhere) very small firms are likely to have other sorts of problems (e.g., very few small firms will ever have the ability Walmart has to track where everything it sells comes from, how it was produced, etc.)

    Regards,

    Chris.

  11. MARIANNE on

    I am a female owner of a small business. I may be biased. I agree that all business are made up of people. However, large businesses are very impersonal. Good small businesses are more apt to have that ethical personal touch. Presently there is a large business attacking a small business that has been in existence for 24 years. The situation is where a Gieco agent (Nickerson) decides it is going to move across the street to attack a small business by unethically contacting the landlord (Darrell Ross, CEO of Ross Simons) to move into the same building that the small agency has been in for 24 years. This is a tactic for the Geico agent to steal business from the small agent in order to have quicker growth. This is typical of two big entities not caring about small business owners who have been loyal tenants. So you see large Businesses are much more ruthless and unethical. I understand that this is just one situation, but this happens everyday. Very unfortunate!


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