For hundreds of years, people still argue about ethical matters. Although it is apparent in the developed countries that a good business practice has a significant positive effect towards productivity, many small businesses, especially in the developing country think it is not worthy to pay the extra cost to be ethical. Such kind of thinking is based on a short term perspective that eventually will tear down the business, or worse, brought it to the dark spiral of crime activity.
Crime on a large scale will destroy any country. This will make their citizens become poor or having an unevenly distributed wealth. Such conditions will strike businesses with lower demand and eventually, bankruptcy, leading in further monopolies and low overall standard of living. Even if you're successful in such an environment, it will hard to enjoy your fruits of labour.
The problem is, some people don't even realize that they are conducting an unethical business practice. Who loves to pay taxes anyway? Although it seems small, not paying your taxes and trying to hide them from the government will require you to do extra efforts which will consume plenty of your resources, let alone the potential risk of being caught red-handed. This will make you focused on the wrong part of the business and might get you fallen back behind your competitors in a short moment since they're focusing on growth while you're busy hiding your money.
Being completely ethical is, therefore, crucial. Unethical practice starts small, but will surely eventually grow bigger. Once you're inside such practice, getting out won't be that easy. Be prepared to reject unethical practices, and if you're unconsciously getting into such practice, get out of it as soon as possible!
Here are some of the major downsides of unethical practices:
1. High Tax and Uncertainty Exposure
Risk of tax penalties and restrictions, which might severely hurt corporate cash flow plans and prevent further strategic planning to be running effectively, potentially slowing growth by a significant portion as it will prevent better predictability and stability necessary for coping up with future trends. Companies might as well become very vulnerable to backlashes, threats, or other political volatilities.
2. Unreliable Financial Statements
This will prevent any effective decision making, even if double bookkeeping was made (know that this is highly considered to be illegal in most countries around the globe).
3. Reputational Risk
Potentially increasing employee turnover cost, losing high-quality talents, and might even directly lowering sales number. Once it's badly hurt it would be really hard (costly) to be recovered.
4. Lack of Transparency and Trustworthiness
Potentially demotivating employees, reducing their productivities and achievements.
5. Complicated Financial and Administrative Bureaucracy
In order to manage taxes illegally or simply unethically, companies might have to add some certain non-standard procedures that are hard to be understood and potentially leaving plenty of rooms for fraudulent activity to occur, increasing fraudulent risk and later, the audit cost.
6. Lack of Agility
Certain activities might expose the companies' unethical practice, thus, such companies must extra carefully plan their moves which will certainly slow down innovations and flexibility on capturing new opportunities.
7. Limited Support
Limited leverage or funding resource as investors (especially public investors) usually pay close attention to the tax and ethics-related risks and activities, especially these days when information spreads so quickly, catalysed by the internet.
8. Lack of Clarity and Higher Purpose
Reduced peace of mind, increased anxiety and stress level, further preventing creativity, innovation, and in the long run, it will also affect the overall productivity as employees' health are very likely to be adversely affected.
9. Difficulties in Automation and Systemisation
Sensitive information and operations must be done in a secretive manner, limiting the available person in charge that can be trusted do such a job. At the same time, employers must subsequently provide much higher salaries to prevent any whistleblowing or backstabbing event
10. Environmental and Societal Backlash
The overall impact to the society will eventually hit businesses and the owners back. They won't be able to completely enjoy the fruits of their labour in such a bad shaped environment (e.g. global warming, higher crime rate), causing disincentives that might as well lowering worker's motivation.
11. Limited Asset Usability or High Recovery Cost
Even if you managed to get away with it, you'll much likely have to pay quite a high percentage of your unethically earned money before you can use them.
12. Bad Future Prospect
Advancement in technologies and education will certainly make it harder for unethical practice to be executed over time, gradually increasing the risk of being exposed in the future.
On the other hand, being ethical actually promotes plenty of benefits for the company itself. Below is the list of its main benefits: