Reputation is a company’s biggest asset. Bad practices, even when remaining in the borderline of legal and illegal practices, invariably result in loss of reputation. Read on for some common bad business practices for entrepreneurs to pay heed.
Don't Indulge in Bad Form!
All businesses take decisions and act to further their interests. Some businesses however try to take unfair advantage of the business environment to further their business interests by acting in ways inappropriate to the accepted norms and conventions. Such bad practices and actions can stem from any aspect of company operations, be it financial, personnel, strategic, operational, or ethical.
1. Corporate Bullying
A strong school of thought regard corporations as super states who achieve their usually nefarious ends at all costs, with scant regards to the laws of the land or acceptable social practices. They cite examples of big companies polluting rivers and forests, arm-twisting the law to gain concessions not available to ordinary citizens, lobbying in corridors of power for legislation favorable to them, and forming cartels to create monopolies and indulge in profiteering as examples to substantiate their claims. Visible acts of corporate bullying such as open disregard for pollution, trying to justify wrongdoing such as bribery as business expediency, and the like all lend credence to such advocates, and mar the company’s reputation.
Companies accused of corporate bullying and by extension indulging in bad practices usually fail to discharge their corporate social responsibility.
In a free economy, companies can fix the price they wish for their products, and a high mark up on products may be part of legitimate business strategy. People however look down on businesses that indulge in profiteering, especially when profiteering in items that the business could not produce without exploiting natural resources or without the support of the community.
Examples of profiteering that attract people’s ire include:
- An insurance company charging extra premium from vehicle owners using winter tires owing to extended winter season
- A pharmaceutical company hiking prices of life saving drug when epidemic breaks
- Arms and ammunition manufacturers selling weapons to both countries engaged in war
- Commodity dealers indulging in hoarding and speculative practices to create artificial scarcity of commodities and increase prices
3. Short Term Expediency
Some businesses resort to measures such as faulty billing or selling products by hiding defects to rein in a fast buck. Regardless of whether such acts occur deliberately or inadvertently, it causes serious dent to reputation and credibility. Customers at the wrong end of an inflated bill or a damaged product would not only cease to engage the company in future but would spread the word around.
One instance of deceptive billing practices occurs when a bank bills loan repayment above the normal EMI made by clients to reduce the principal as advance EMI payments.
4. Micro Management
Many entrepreneurs try to involve themselves in all aspects of business operations. Even when the intention behind such micro management is to ensure smooth operations, the result is counterproductive.
Micro management results in employees loosing both their enthusiasm and the ability to take initiative, resulting in poor customer engagement, customer service, and customer support, and the organization failing to tap the creative and intellectual vials or its human capital. Moreover, the owner cannot possibly do everything, leading to lack of timely attention and decisions on critical business issues.
5. Ad-Hoc Practices
Professionally run companies have systems and procedures in place and apply them consistently. Companies with ad-hoc measures and who indulge in managing by exception base their decisions on the whims and fancies of the entrepreneur or a senior manager. Such businesses take inconsistent decisions without due diligence or considering all aspects of the issue, resulting in poor decision-making.
For instance, failure to have a system in place to record employee disciplinary actions may lead to a dismissed employee challenging the dismissal in court, and the company remaining unable to prove that the employee had disciplinary issues that warranted dismissal from service.
6. Bad Human Resource Practices
Bad human resource practices such as poor wages and poor working conditions generates bad public relations and leads to reduced patronage that offsets much of the monetary savings gained from such bad practices.
Running sweatshops is outright illegal, but even companies that source from offshore vendors who engage child laborers in hazardous working conditions have earned public ire. Even otherwise, giving preference to profits over legitimate employee rights always leads to bad publicity and possible legal action. For instance, a company putting workers health at risk by not investing in adequate protective gear or security apparatus run the risk of not just bad publicity and skilled workers shunning the company, but also huge compensation claims.
Many business owners engage in favoritism and preferential treatment. While preferential treatment of high value customers may be part of business strategy, playing favoritism among employees, regardless of whether some employees add more value to the company than others rank high in the list of bad practices in business. Employees expect a level playing field. If some employee’s fail to add value, the problem lies with faulty recruitment, inadequate training, or ineffective business procedures that fail to tap potential rather than with the employee.
The management playing favorites among employees leads to loss of morale and commitment and saps the employee’s eagerness to take the initiative.
8. False Promises
Many businesses make false promises, or not living up to its commitments. Examples include not paying the agreed salary hike to the employee, presenting a false picture of working conditions at the time of recruitment, issuing false of misleading advertisements, offering discounts with impossible to fulfill conditions in fine print, agreeing to install anti-pollution measures and not doing so, and more.
False promises not only earn the ire of people at the wrong end, but also less to severe loss of credibility, with even unaffected people not trusting the company again in future.
9. Unethical Corporate Behavior
Unethical corporate behavior such as insider trading in company stocks, price rigging, fudging accounts and other similar conduct leads to definite loss of reputation and credibility. Sleazy top executives may indulge in such conduct on their own without the company's knowledge, but the company still bears the brunt of such antics through bad publicity, regulatory actions, and loss of customer patronage.
Businesses need to put in place a comprehensive code of ethics to ensure ethical behavior of their employees.
10. Bending the Rules
Finally, bending the rules or breaking the law ranks as a proven bad business practices. Some laws may impede the ability of the business to operate normally while not affecting anyone else, and some laws may seemingly lack purpose or reason. Regardless of such justification, people do not regard companies who break any law highly. The challenge for companies is to thrive by responding to the challenges brought about by such laws, or by working around such laws legitimately.
Companies looking to make an impact and grow need to remain aware of what could possibly constitute bad practices and avoid such traps even at the cost of short-term loss in profits or competitive advantage.
This article stems from the author's extensive experience as a management expert and entrepreneur.