Outside of everyday issues regarding sales and production, ethical issues in your business can be an unforeseen and difficult challenge for any small business owner. Discrimination laws and other statutes have been put in place to keep workers and employers responsible, but they alone do not completely deter employees from acting unethically.

We have put together a list of common ethical issues that currently affect small businesses so you can learn how to face them head on. Understanding how to detect and, most importantly, deter these issues before they become a problem can keep your focus on business growth instead of remediation.   

Discrimination and Harassment In Small Business

Harassment and discrimination are arguably the biggest ethical issues impacting small business owners today. Should an instance occur, the result could be financial and reputational devastation. Though discrimination and harassment laws have been put in place and continue to be reformed yearly, thousands of businesses are seeing complaints levied against them each year. According to the United States Equal Employment Opportunity Commision, or EEOC, there were 76,418 charges filed in 2018 alone, costing hundreds of millions in losses.

Types of Discrimination and Harassment

Although discrimination and harassment policies in business settings deal with separate types of treatment, they both are used to protect employees with differing backgrounds and circumstances.

The EEOC defines many different types of discrimination and harassment statutes, but the most common that can affect your small business are as follows:

Usually for those 40 and older, but can apply to any ageist policies or treatment

Accommodations and equal treatment must be provided within reason to be ADA compliant

Equal Pay
Compensation for equal work must be equal regardless of sex, race, religion, etc.

Accommodations and equal treatment must be provided within reason for pregnant employees

Race/ Color
Employee treatment must be consistent regardless of race/ ethnicity

Accommodations and equal treatment must be provided within reason regardless of employee religion

Employee treatment must be consistent regardless of sex/ gender identity

Workplace Discrimination

Discrimination can be any treatment that negatively affects the employee when it comes to the job itself. This can be anything specific to the job and its duties that are treated differently based on the employee having any of the above personal characteristics or circumstances.

An unfortunately popular example is the gender wage gap, where employers pay women less than a man who is considered to be performing the same work. Other examples companies have been charged for include firing an employee in the tech field for being perceived as “too old,” or refusing to provide opportunities for advancement for people of certain races or ethnicities.

Workplace Harassment

Harassment, unlike discrimination, is an ethical issue that involves the social and personal treatment of people within a small business. This can include teasing, inappropriate sexual behavior and even verbal or physical abuse by a supervisor, co-worker or non-employee. The bullying of an employee with a physical or mental disability would be an example of workplace harassment.

How to Deter Harassment and Discrimination In Your Small Business

Unfortunately, small business owners can’t always be around all of their employees to make sure they are acting ethically. What you can control, however, is how your business accommodates and treats its employees of different backgrounds and abilities. A few things you can do to ensure a healthy, friendly work environment for all include:

  • Putting strong company policies in place for Human Resources and conflict resolution
  • Providing continued education to ensure employees understand and can act accordingly with harassment and discrimination laws
  • Consistently monitoring employee relationships to stay informed and catch any ethical violations before they become a larger problem

Compliance and Governance

Unlike harassment and discrimination, which deal more with personal employee relationships, compliance and business governance issues cover more broad company ethics. Generally, a problem arises when the interests of the company are used to outweigh societal or business norms and law.


Ethical issues of compliance are often tied to companies as a whole straying from the way they are legally responsible to conduct business. Businesses are required to comply with all environmental, federal and state regulations. If they do not, they can put the health and livelihood of those within and outside of their company at risk. Some businesses knowingly disregard these regulations to improve profits. Think of a company that illegally dumps its waste. They know that it is wrong but do it because it reduces the cost of finding safe alternatives.

Business Governance

Business ethics are more than what the public can see. Individuals within a company often defy the governance and bylaws that have been put in place to make sure the company is run ethically. Like compliance, these problems typically occur when employees think selfishly for their short-term goals instead of thinking about how their actions affect other stakeholders.

Although they may not always break laws, business governance problems break trust within an organization and can cause future problems within a company hierarchy. Examples can include falsifying reports to deceive stakeholders and managers abusing positions of power when dealing with lower-level employees. Publicly traded companies can face severe SEC penalties, but smaller private companies have to govern themselves.

Dealing With Compliance and Business Governance Issues

Similar to how you can tackle harassment and discrimination in the workplace, a focus on education and thoughtfulness can be the difference in keeping your company free of any business ethics problems.

Promote a culture that puts the long-term health of the company ahead of any short-term greed and self-interest. It is important to make sure that you and your employees stay aware and adhere to any changing regulations or statutes that can affect the operation of your business. Stay focused on how actions affect others and always act ethically in the company’s best interest. Always follow governmental and company bylaws, as the long-term risk of ignoring them can put your business in jeopardy.

Accounting Issues

You always hear that numbers don’t lie. When accountants and companies act unethically, however, they do.

“Cooking the books” is a surefire way to put your company behind the 8-ball. An especially critical problem for publicly traded companies, falsifying financial documents puts your company at risk. Deceiving shareholders and others with a stake in your company’s finances is a serious offense by both ethical and judicial standards. Penalties can be levied in fines, imprisonment and can often lead to the closure of a company.

Avoiding Accounting Violations

This part is easy; have a hand in going over every financial statement and report in your company or have a trusted, honest accountant who will pore over every number to make sure everything is correct. It may seem like a no-brainer, but greed can get the best of some people. Protect your company to make sure one unethical decision doesn’t mean the end of everything you worked hard for.

Employee Theft

Business owners, especially those in the retail industry, are very aware of how theft can affect their business. Theft is not, however, strictly committed by customers. According to CBS News, companies can lose 5% of their annual revenue to employee theft and fraud. Independent studies have indicated that 34% of company losses can be attributed to employee theft.

It is not just stealing inventory. Employee theft also includes other ethical violations that can hurt your company.

Some of the ways employees steal from their companies include:

Stealing money is the most common type of employee theft.

It is hard to realize for some, but being paid for more hours than an employee is productive is theft and should be treated as such.

Office supplies like pens, notebooks and other property are often stolen without companies even realizing it.

Stealing company and trade secrets, as well as client information, could put your business at risk of loss due to competition or litigation.

Preventing Employee Theft

By hiring the right people and making sure to keep a close eye on what thieves may target, you may be able to save your company time and money in the long run. Be thorough in your hiring process, making sure you trust the employee you are bringing in to be respectful of your company’s property and can be trusted around it.

The Final Word On Addressing Ethical Issues In Your Business

No matter who you have in place below you, avoiding ethical issues in your business starts at the top. Being a strong leader encourages employees to follow in your footsteps.

Continue to apply decisions against a robust code of ethics and demand the same from your employees. Learn more about discrimination laws in your state. Read up on rules and regulations that affect your industry and make sure your business is acting accordingly. Work with accountants to maintain transparency and honesty in your financial reports. Be a hands-on owner who makes sure your company and its employees are always doing the right thing.

If you create a healthy work environment with the right people and the right leadership, you will set up your employees and your business for success.  

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