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You may not feel a written code of ethics or written policy is necessary, but it sends the right message to your employees, vendors and customers. It reflects your character and helps you clarify your standards in the marketplace. Documenting what your expectations for trust are, meeting obligations and even serving the community around you can help you define the foundation of your business.

“Ethics policies are especially important for small businesses because they are often an integral part of the local community, and their business reputation is a widely known,” says Judith Kautz, editor at information site [www.smallbusinessnotes.com] Small Business Notes. “A business’ reputation is built on the ethics exhibited by the business and its’ employees. For a small business, reputation can make or break it.”

An ethics policy sends a message: It sets the tone for how a business conducts itself with its customers, suppliers, employees and in the community as a whole. Since small businesses often don’t offer the comprehensive benefits packages that large corporations do, employees are often attracted to working for them because of intangibles, like how they are treated and respected, Kautz adds. “An ethics policy formally states that respect, which not only gives them a sense of being treated fairly, but also a sense of pride in their place of employment,” she adds. “Operating ethically is also key part of marketing a small business. A business known for its ethical principles attracts customers.”

One critical question: Does operating ethically pay? According to the Institute for Business Ethics, research has shown that companies with ethics policies in place consistently outperform those who don’t, generating greater economic value, greater return on capital and less volatility. Conversely, Kautz says, conducting your business unethically is like “negative marketing.” Unless you have a very large potential market, it will not only negatively affect your bottom line in sales, but it will also impact your ability to attract good employees.

If you do create a policy, Kautz notes that you have to live it. “It must be an integral part of how the business is conducted on a daily basis,” she says. “Each employee needs to know the policy and what is expected. An ethics policy doesn’t have to be a large, unreadable document. It can be a simple statement that is understandable and communicates what is important. Many businesses place a copy of their ethics policy on the wall as a daily reminder of the principles they live by.”

And even if you create a policy, you’ll find that the ethical dilemmas you face aren’t always black and white; the choices aren’t covered by a blanket policy statement. But those challenges are where you can benefit the most. Communicating openly about the issue gives you and your employees the opportunity to find the right path together.

In fact, Kautz recommends doing “ethics exercises” to spur creative thinking. “One owner I know has a large chalkboard on which he writes a business question each Monday morning,” she explains. “Employees can add their thoughts over the week. Friday mornings over coffee, they discuss how the owner would like that issue addressed and what they they’ve learning during the week. The owner often finds unanticipated solutions and considers it one of the most valuable parts of his business.”

“Genuine ethics come from inside—inside the owner, inside the employees and inside every transaction,” Kautz observes. “Ethics tell the real story of the business. It is how you would want to be treated.”