Family Business Owners Know Something About Ethics That Business Schools Are Still Catching Up To

Research led by Effat University’s Associate Professor M. K. Rahatullah asks Saudi Arabian family business owners how they run ethical companies — and finds that the answers have implications far beyond the family business context.

Academic research on business ethics tends to approach the subject from the outside — measuring, coding, and theorising about practices that the researchers themselves have not lived. A study led by M. K. Rahatullah, Associate Professor at Effat University in Jeddah, takes a different approach. It goes directly to the people who have built and run businesses, asks them how they have navigated the question of ethics in practice, and takes their answers seriously as evidence.

The result is a study that is grounded in the reality of how ethical culture is actually built in organisations — what it produces, what threatens it, and what specific actions make the difference between a business that talks about ethics and one that genuinely operates by them.

Ethics Pays, and the Mechanism Is Trust

The study’s central finding is that ethical business practices are not a cost centre. They are a source of competitive advantage — and the mechanism through which that advantage is created is trust.

The research is direct on this point: once credibility, integrity, and benevolence are established in a business’s relationships — with partners, employees, and customers — securing commitment becomes easier and stays easier. Partners are more willing to enter and maintain agreements. Customers return and refer. And employees, freed from the low-grade anxiety of working in an environment they do not fully trust, direct more of their energy toward the work itself.

Business owners surveyed for the research were explicit about the employee dimension. People perform more efficiently and produce better quality output in an ethical working environment. This is not a soft finding about workplace happiness — it is a statement about output, quality, and the direct relationship between how a business treats its people and what those people produce.

Customer relationships, the study adds, are built on ethics just as much as they are built on product or price. The credibility of the business being dealt with is part of what customers are buying — and a reputation for ethical practice is one of the few competitive assets that becomes more durable and more valuable the longer it is maintained.

The Price of Getting It Wrong

The study does not present a one-sided picture. It documents, through the experience of the business owners surveyed, what unethical practice actually costs — and the costs are specific.

Monitoring employee emails, dishonesty in financial and accounting practices, and failures in gender equality were cited as examples of unethical behaviour that damaged employee trust and satisfaction within the businesses where they occurred. Each of these represents a practical failure as much as a moral one. Trust, once damaged by this kind of behaviour, is difficult and slow to rebuild. The employees who experience it disengage. The ones who leave take their institutional knowledge with them. And in a family business, where the organisation’s reputation and the family’s reputation are often one and the same, the reputational damage is personal as well as commercial.

There is also legal exposure. Unethical practices in areas like financial reporting and workplace equality carry regulatory and legal risk that family-run businesses, which typically operate with lean management structures, are not well positioned to absorb. The cost of building ethical processes from the start is, by almost any comparison, lower than the cost of managing the consequences of not having them.

Eleven Tools for Building Ethical Culture

A significant portion of the study is dedicated to the practical question of how ethical culture is built and maintained — and the answer the research offers is structural. Ethics cannot be wished into existence or declared at an annual company meeting. It has to be embedded in the processes and systems through which the organisation actually operates.

A consistent theme across the 12 businesses interviewed was that ethical expectations need to be communicated to employees actively and regularly. But the study is clear that communication alone is not enough. The business has to demonstrate its values through action — and the distance between what an organisation says about its ethics and what it actually does is one that employees measure continuously.

To make ethics structural rather than aspirational, the study identifies 11 specific tactics: a statement of core values, a compliance manual, a code of conduct, a mission statement, anonymous reporting hotlines, job descriptions that incorporate ethical standards, ethics training and evaluation of ethical behaviour, an ethics committee and ethics audits, sanctions for ethical violations, ethics standards and indexes, and access to ethics consulting services including an ombudsman and a manager with designated responsibility for ethical issues.

This is a system, not a checklist. Its value is not in having any single one of these elements but in having enough of them, implemented consistently enough, that ethics becomes the default operating mode of the organisation rather than an occasional consideration.

The Role That Leaders Cannot Delegate

The study places the responsibility for making all of this work squarely on the shoulders of senior leadership. The CEO, managers, and in family businesses often the founding family members themselves are identified as the critical variables in whether structural ethical policies translate into real organisational culture. Institutional frameworks provide the architecture, but they depend on people at the top of the organisation to give them meaning through their own behaviour.

The study highlights the role of ethical leadership in contributing to leadership effectiveness, credibility, and higher performance standards across the organisation. A manager who acts as a genuine ethical role model is not just meeting a soft leadership expectation — they are shaping the behavioural norms of everyone who reports to them. In family businesses, where the culture of the organisation frequently reflects the character of the founding family, that influence is amplified further.

Ethics in a family business, the research makes clear, has to come from the top down — and it has to be lived, not just communicated.

Why This Research Matters Beyond Saudi Arabia

The study draws its evidence from 12 Saudi Arabian family businesses, surveyed through a 31-question questionnaire. That regional specificity is a strength — the findings are grounded in real practice in a specific business context rather than abstracted from it. But the study’s authors note that the relationship between ethical culture and business performance it documents is likely to hold for small businesses broadly, and may be applicable to larger organisations as well.

As the research concludes, ethical policies are the foundation of a business and its culture development. For any business owner thinking seriously about how to build an organisation that is trustworthy, competitive, and built to last, the evidence from this study suggests that foundation is not a luxury — it is the starting point.