Enron, WorldCom and Tyco are just a few names that have become associated with fraudulent business practices. Over the past decade many managers and top executives have faced charges related to unethical business practices. Most of these practices are linked to accounting and financial statement preparation. The usual scenario is that companies misrepresent earnings or expenses, do not account for certain gains or losses or “lose†balance sheet or income statement items.
Fortunately, often times the fraud is discovered, but the stocks plummet and shareholders lose money. Dishonest accounting practices and dishonest business practices in general are harmful to the business. They put employees in uncomfortable and even dangerous predicaments; they destroy careers and put companies out of business. Bottom line is – it’s not worth it.
Business owners should be mindful of their own conduct to ensure the proper conduct of their employees. They can be an example by quoting fair prices to customers, being honest with their partners and shareholders and treating their employees fairly as well.
A written code of conduct is the first step to establish the behavior rules that everyone in the company must follow.
Periodic ethics training is also critical; it ensures that employees are reminded of consequences of improper behavior. Ethics training should be conducted by an outside professional and is most effective when it includes examples and case studies.
Also, business owners must be familiar with the Sarbanes-Oxley Act. It mandates reporting and auditing procedures that organizations must follow to remain compliant. One of its key provisions is related to independent auditing. It is helpful to hire an independent auditor, because she will give the executive unbiased feedback and will be objective when reviewing the firm’s financial statements.
Although these practices are more important to larger, publicly traded companies, small businesses can benefit from them just as well – any venture should have an honest, ethical team at its core.