When approached by a new or existing business, attorneys who specialize in business will assess, among other things, the risks faced by that business. This exercise is, however, much simpler than most people seem to think. Our firm always advises our Massachusetts business clients in the same manner: conducting your business ethically is the best way to manage risk. From the news it is clear that even some of the largest companies have not yet learned this lesson. This article should serve as a guide to those who are focused on growing their business with an eye towards ethics and thus risk management.
Employees – Often the Best Asset of the Business
Many small business owners are keenly aware that their position is entirely based on the reliability and morale of their workers. Business owners therefore must set realistic expectations for themselves on what can be accomplished in a day’s work, and for their employees on conditions and compensation. Likewise, employees need to be aware of factors like acceptable conduct, expected performance, safety measures in place, and business equipment use policies.
Any ambiguity in these areas can lead to surprise, disappointment, or even anger in the workplace, for which employees also need a laid out communications procedure. A Massachusetts business owner who simply ignores these factors also ignores his employees’ needs. This is where risk and ethics come into play. Many of our clients have 20+ year employees who are more like close friends. But we’ve heard many stories where these employees turn around to any number of Massachusetts or federal agencies and simply file a complaint – which results inevitably in hundreds if not thousands of dollars in legal work.
The simple way to address most of these issues is to have a well tailored employee handbook in place. Simply having an employee sign an acknowledgement of this document can save on a lot of the above uncertainty. And drafting contracts for key employees is even more important, though that is enough for an article all by itself.
Customers – The Reason Your Business Exists
All customers are generally capitalists. They expect a good product or service for a reasonable price, period. And while most Massachusetts companies provide this, there are always exceptions. For any infinite number of reasons, sometimes a good or service fails to meet the mark – and sometimes the cost is far from reasonable. As a rule of thumb, managing expectations in these instances is key, and limiting liability is essential.
While the customer may not always be right, a business needs to address customer concerns in a measured and consistent manner. We’ve all known or heard of the waiter who ignores requests, or the vendor who refuses to fix one of her products. Aside from damaging these businesses’ reputations, such behavior is also wrong and illegal. Massachusetts, like every state, has a statutory warranty of merchantability for all goods sold to work as offered. In addition, we have very strong consumer protection statutes that can cost a company up to 3 times actual damages for unfair business practices.
All of this means again that proper preparations will ensure that the inevitable, however rare, unsatisfied customer or client is ethically addressed, thereby hedging the company against risk. Have in place a return policy. For service providers, lay out the terms of your arrangement in writing for each client, with provisions that handle what happens when the terms cannot be met. By doing so a business protects not only against reputation loss, but also more painful events like lawsuits and investigations from the Attorney General.
Suppliers – The Lifeblood of Your Business
Who are the parties that ensure business operations continue without interruption? Regardless of business size, suppliers are usually a mix of other local businesses and multi-national corporations. It is in any case important that these groups are treated with fairness and clear communications for obvious reasons. The circumstances leading to unsatisfied customers are the same for a company and its suppliers. We therefore recommend written contracts (usually provided by the supplier) in almost every instance.
Remember too that supplers and their employees can sometimes be an integral part to a business. To the extent that these companies are supplying services or goods alongside your own services or goods, or somehow within the premises of your business operations, limited liability and adequate insurance is a must have.
Shareholders – The Bottom Line
In most small businesses the employees and shareholders are one and the same. And regardless of that fact, there are few businesses that are ever able to forget the importance of honoring shareholder wishes with respect to company operations.
Still, we have seen in many of our “family businesses,” unhealthy dynamics between shareholders that often spill over from having grown up together in the same household. In cases where close friends or family intend to do business together, tailoring a Massachusetts LLC operating agreement or set of S-Corporation by-laws should be done as soon as possible. This will outline who gets what, and who makes what decisions at a time when everybody is in agreement, rather than risking a surprise down the road.
Community – The Setting
Apart from neighbors to the business, who are directly impacted by its operations for geographic reasons, be it traffic & noise levels, air quality or water quality, there is also concern for the greater community. What a business does, and who it employs is still closely tied to the town or city it sits in.
Taking the time to analyze this area can be very beneficial for a business. What types of service or goods might be offered at minimal cost to the owner for charitable purposes? Such acts not only impress the public, but also create additional opportunities for a business.
Additionally what types of measures could be taken to reduce the business’ impact on the community? Something as simple as installing a fence around a dealership or lumberyard can reduce theft, protect children and pets, mitigate noise or eyesores, and ultimately reduce the potential for liability. Switching from gas powered to electric vehicles could eliminate the noise of a delivery or carriage business, while also reducing energy costs. Looking at areas for improving a business’ impact on the community can be an all around win in many contexts.
Competitors – The Others
The usual clichés about competition could be written here. That competition leads to better products and services at a better price is frequently correct. But beyond that, businesses are responsible for making sure that competition is conducted fairly. The results of acting unfairly or deceptively are many and always negative.
Firstly, competitors should be treated fairly because they can be an asset. A business that does not provide the precise product or service that a customer is seeking, might be better off simply referring that customer to the competitor. Similarly, if a customer or client needs a product or service of an amount that one business cannot do alone, a worthy competitor might also serve as an invaluable partner. Sometimes competitors’ attitudes do not allow for such harmony, but for reasons like those above, cooperative competition is always advised.
In another context, competitors must behave according to minimal standards. We have endless stories of businesses that lose an employee to a competitor, only to discover that the hire was made simply to steal clients. This type of behavior not only encourages the wrong type of behavior for the competitor’s employees, but also is many times illegal. Similarly, disparaging a competitor business to a competitor for the purpose of acquiring a new client is unethical and also carries legal consequences. Respecting your competitors (when deserved), should be a central theory to business operations.
Ethics and Risk Management are the Same Thing
Abiding by principles of ethics, for those who are familiar with the field, almost always yields favorable results for a business. Please take the time to consider these six “areas of exposure,” and contact us on to learn how our legal services can help your business grow in Massachusetts.