Good conduct and ethics are key to SME longevity

Good conduct and ethics are key to SME longevity

By David Kaahwa

In 1995, the Enron Company – an American progressive vitality firm based in 1985 – was named “America’s Most Modern Firm” by Fortune[1] journal.

It went on to win this award for six consecutive years and boasted $63.4 billion in property in its prime.

Nevertheless, in December 2001 – lower than 20 years into the corporate’s operations – it filed for chapter, its CEO and Chief Monetary Officer have been imprisoned for fraud and different offences[2] and its auditor – Arthur Andersen – was convicted of obstructing justice and ceased doing enterprise.

The Enron scandal highlighted the disastrous results of poor conduct and an absence of ethics – not only for the corporate’s management and auditor, however for the hundreds of the corporate’s staff, enterprise companions and buyers.

On the flip aspect, a 2008 Financial institution of Korea examine discovered that of the 5,586 firms in 41 international locations which are older than 200 years, 56% of them are present in Japan, and in 2019, there have been over 33,000 companies in Japan that have been over a century previous[3].

One of many key drivers of this longevity is the truth that these companies prioritise cultures of moral conduct and the necessity to shield their manufacturers’ reputations to take care of the belief and loyalty of consumers, staff and different stakeholders[4] – deprioritising short-term achieve for long-term sustainability.

In Uganda, a examine performed by the Makerere College Faculty of Enterprise and Administration Sciences discovered that one of the crucial critical causes of failure of ’s Uganda Micro, Small And Medium Enterprise (MSMEs) is insufficient entrepreneurial and enterprise administration abilities, which incorporates poor company governance buildings that don’t prioritise moral practices[5].

Moreover, the Ministry of Commerce, Business and Cooperatives (MTIC)’s Uganda Micro, Small And Medium Enterprise (MSME) Coverage lists selling ethics and integrity in doing enterprise as one in every of its aims in direction of constructing sustainable MSMEs for wealth creation and socio-economic transformation[6].

It’s subsequently crucial for Ugandan SMEs to construct robust organisational cultures that prioritise good conduct and ethics in the event that they need to assure their longevity – particularly as a result of we reside in a extremely globalised setting the place 70% to 80% of a enterprise’s market worth comes from intangible property like model fairness and goodwill, which makes companies susceptible to something that damages their reputations[7].

Why? As a result of a enterprise’ moral conduct additionally impacts its skill to qualify for credit score from supervised monetary establishments or entice respected and sustainable buyers – which might assist tackle the problem of lack of capital affecting Ugandan SMEs.

Good moral conduct additionally saves companies cash by way of decreasing or outrightly eliminating the prices that include disaster administration to counter adverse publicity, authorized charges and compensation ensuing from litigation and fines or sanctions by regulators.

All that being mentioned, many people and companies are solely moral in compliance with the prevailing regulatory necessities – usually skirting the road between what’s authorized and what isn’t.

The CFA Institute – the worldwide affiliation of funding professionals that units the usual for skilled excellence and credentials – nevertheless, states that compliance with regulation alone just isn’t sufficient and that people and companies should develop a “tradition of integrity” that cuts throughout all ranges of operations[8].

Creating a tradition of moral conduct is one thing that SMEs and their leaders should subsequently work to include and never compromise all through each side of their operations.

The Ethics & Compliance Initiative (ECI)’s 2021 International Enterprise Ethics Survey discovered that as moral tradition strengthens, so does worker conduct, and organizations with robust cultures of ethics are 467% extra prone to reveal a constructive affect on staff than organizations with weak-leaning cultures – which affect contains staff’ recognising and adhering to the organisation’s values, feeling ready to deal with any dangers, reporting suspected wrongdoing, and decreasing ranges of misconduct total[9].

Employers and enterprise leaders should subsequently construct cultures of ethics by main by instance; setting and implementing codes of conduct and; rewarding good moral conduct and taking applicable motion in opposition to defaulting behaviour in a well timed, open and clear method to discourage such future behaviours.

By doing the above, SMEs can be sure that they reap each the long-term advantages of excellent moral conduct and in flip guarantee their companies meet longevity.


The creator is the Head of Compliance at Absa Financial institution Uganda Restricted






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