Doing the right thing

Nation's Business, March, 1998 by Michael Barrier

"We play it straight with people," Alan Babb says, and he means it. Babb and his younger brother, Lee, own two companies in Eugene, Ore. -- Delta Sand & Gravel, which produces more than a million tons of such material a year, and Delta Construction, which puts in streets and does site preparation. The two companies employ around 120 people.

Several years ago, Delta Construction hired a subcontractor -- "a company that did not have good bookkeeping," Alan Babb says -- to lay about $15,000 worth of concrete at one of Delta's projects.

When Babb's people realized that Delta had made more money than it expected to on that job, they checked into it, Babb says, "and we found out that we'd never paid the subcontractor" -- because Delta had never received an invoice.

When Delta called to inquire about the bill, Babb says, the subcontractor said that it hadn't done the work, so Delta didn't owe it any money "What we did," Babb says, "was send them the plans and specifications for their work; we told them the names of some of their people they had on the job; we told them how much they should bill us. So they did, and we paid them about $15,000."

To some people, doing business that way might sound like passing up found money, but Babb says: "That's just the way we work. If people overbill us, I give them a call; if people underbill us, I give them a call."

It's a way of doing business that Lee Edelstein understands. He's the CEO of TeleManagement Services, Inc., a Fort Lauderdale, Fla., company that conducts customized telemarketing programs for pharmaceutical companies that are trying to reach doctors and druggists.

"One of our major clients paid us twice for a $40.000 project," he recalls. "Somebody screwed up within their organization, and it was highly unlikely they ever would have picked it up." Deciding what to do about that overpayment required about a three-second conversation," he says, "primarily with myself. Very clearly, that check goes back. I sent it back with an explanation that it had been paid twice in error."

The dollars involved are usually not so large, or the ethical issues so sharply defined, but such situations arise thousands of times every day in small businesses across the country.

For small-business people, the challenge is to find ways to make sure that they -- and their employees -- always come down as squarely on the light side as Babb and Edelstein did.

One harshly practical reason for firms to be concerned with business ethics is this: Under the U.S. Sentencing Commission's guidelines for organizational defendants, an effective ethics program can be highly important in protecting a company from criminal penalties, or at leas in softening their impact, if an employee violates federal law.

"I have talked to many prosecutors," says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Mass., "and they have said that if a company can demonstrate that it has done everything it could to prevent a wayward employee from doing what he or she did, they're apt not to even prosecute the company, but to go after the employee."

Encouraging ethical behavior can thus be of great value to companies of many kinds, like those -- including Delta Sand & Gravel -- that are subject to environmental laws."We have very few problems with the environmental people," Babb says, "because I believe in covering our tracks before we make them. We do our best to comply when we need to, or before we need to."

A commitment to high ethical standards is not just a way to stay out of trouble with the law, though; it's a fundamentally sound way of doing business. "Good ethics does not always translate into good business," says Michael G. Daigneault, president of the Washington, D.C.-based Ethics Resource Center, which advises many corporations on ethical issues. "But over time, people do understand how you do business; and people do business with other people whom they trust."

One result of Delta's strong reputation, Babb says, is that vendors, knowing how reliable Delta is, are happy to give it the best possible deals. One vendor, for example, "has set us up as a distributor, so they can sell [to] us wholesale. This makes a difference."

And as far as customers are concerned, "people want us to do the work," Babb says. "They keep coming back. Occasionally we get work when we're not low bidder. It pays to play it straight; but that's what people are supposed to do."

Telemanagement Services' Edelstein recalls what happened in the wake of his returning that $40,000 cheek: "I learned afterward the director of marketing for a major part of that company, in a department meeting that he had, used that as an example of the type of people they wanted to do business with. Several million dollars of work with that company later, it clearly was the right decision."

Highly ethical small-business owners can stumble, though, when it comes to encouraging strong business ethics throughout their companies.

"A lot of business owners and leaders take it for granted that everyone around them shares their values," Daigneault says. "I guarantee you that that is not the case. What is necessary is a dialogue in which the owner or leader of the business shares his or her perspective concerning appropriate conduct, the fundamental principles and standards that the company stands for -- and what it won't stand for."