How financial ethics and profitability are related

Suppose your small business operates in an ethical company. In that case, it will be more profitable in the long run than a small business that does not. Lack of financial ethics is one of the main factors that led to the collapse of Wall Street and the near-collapse of the US economy in September and October 2008. it resulted in the worst recession since the Great Depression. Many large banking and insurance companies failed.

Small businesses also lost, including small banks that made risky loans.

After abolishing the banking system, which began in the 1980s and continued through the 1990s and into the early part of the new century, banks in the US financial system operate rather freely and without controlling many factors such as greed and fraud. They started making risky loans, precarious mortgages. Banks, including those classified as small businesses, also participated.

The result was inevitable. When companies serve themselves rather than their stakeholders, they are doomed to fail. It is true whether they are large companies or small companies. Here are the issues.

We live in the Capitalist Society of the United States.

If you look at the words capitalism, you will find that it means that we live in a society based on an economic system that emphasizes private ownership in production methods or private companies.

You have a free market in a capitalist society, and companies live for profit these has become the business ethics in new world. They are there to make money.

Businesses in a capitalist society make money, but what is the best way to do it? With the fall of Wall Street, we have seen that corporate greed and fraud do not, at least not in the long run.

Greed and fraud can have short-term taxes for both large and small businesses. But if companies are staying alive, it is not very important to profit shortly. Long-term efficiency is the issue.

It raises the question of how can a company, whether large or small, be profitable and robust in the long run? The answer is by satisfying their stakeholders. Just who are these stakeholders? They are the groups invested in the future, whether large or small.

Investors or owners

One group of stakeholders is investors in the company or shareholders. Small businesses may not have outside investors. The sole investor may be the owner. Small businesses can have an owner and family, and friends as investors. Alternatively, a small business can seek capital from angels or venture capital funds and have outside investors. Large companies almost always have shareholders.

Shareholders have invested in your company. They want a return on that investment. As the owner of a small business, you commit to trying to get them an investment. With the collapse of Wall Street, we saw that shareholders received high returns through management through fraudulent corporate operations.

Many shareholders eventually lost all their investment in some of these companies because they failed. It is not the goal of shareholders.

In a capitalist society, small businesses and large corporations should maximize their shareholders’ money. It means that small business management should increase the share price of small companies if it is in business or return to shareholders if it is not. These actions must be intended for the long term, not the short term.

Here is an example. Let’s say your small business is a small manufacturing business. You produce a product that can cause water pollution in the manufacturing process. If you do not control that pollution, then it is much cheaper for you to have your effect, and you can promise your shareholders more profit in the short term.

However, suppose you control the pollution and promise cleaner water. In that case, it could cost more in the short term, and short-term returns may suffer. Still, in the long run, your small business will respect more, will attract more companies and investors. Your shareholders will benefit in the long runtime.

Employees as shareholders

Another group of small business stakeholders is your employees. A small company is responsible for its employees. They deserve to be treated with dignity, respect, and fairness. Your small business should provide jobs that improve the living standards of employees, respect their health and prevent discrimination.

Employees are injured if small business executives do not work in good faith or do not maintain the highest standards of financial ethics. When Wall Street collapsed in September / October 2008, tens of thousands of financiers were immediately out of work. It was a direct result of the fraudulent activities of their employers. it slowed down the economy until we reached almost 10% unemployment

Many of the financiers on Wall Street were highly paid. It may have been suitable for a short time. In the long run, they do not have a job, and many of them can never find work in their field again.

Customers as shareholders

Low business owners should consider their customers as stakeholders. Customers, like employees, must be treated with respect and respect. Live by the principles of business economics. Without employees and customers, your small business would not work. Treat your customers fairly and maintain a high level of customer service. In the economy, business services are one factor that will help keep your customers.

Respect your customers in all areas of your business, including product pricing, advertising, and marketing. Keep the culture of your customers in mind. After the collapse of Wall Street, customers looking for financial services are suspicious and afraid to trust financial institutions. Suppose your small business has a low credit rating or bank, for example. In that case, you must do whatever it takes to instill confidence back into your customers.

Society as a shareholder

As production methods are in companies’ private companies in the capital area, the community itself is a stakeholder for both large and small companies. Small businesses and large companies must promote a balanced relationship between companies and governments and between companies and other parts of society. It is the responsibility of all small business startup to commit themselves to raise living standards and promoting sustainable development. Small businesses must strive to encourage community and be good citizens. Somewhere along the way, Wall Street financial companies forgot this vital lesson of capitalism.

Overview

The only way for capitalism to be genuinely prosperous is for all companies, corporations, and small corporations, such as subscribing to the theory of finance and business economics. If companies try to take shortcuts in profit, they will fail in the long run, as we have seen in the first half of the 21st century. Small businesses play a vital role in the US economy. It can be the difference between success and failure in our economy and the financial system.