Strategy and Ethics

Strategy is commonly understood to be a plan of action adopted by an organization to attain its goals, while ethics can be described as a system of moral values and principles that govern the conduct of an individual or a group. In a business enterprise, strategy reflects a company's pattern of decisions, commitments, and actions undertaken by the company to improve its competitiveness and generate profits for its owners. However, earning a profit is not the only goal of a business. It must provide quality products for its consumers, continued jobs for its employees, and taxes for its government. In the process of formulating and implementing strategies, potential conflicts arise in the goals of the company's various stakeholders such as stockholders, managers, employees, suppliers, government, and society at large. It is while dealing with these conflicting goals that managers face ethical dilemmas in prioritizing the demands of various constituents that form the core of the strategy-ethics interface, which we address in the following paragraphs.

Ethics in business strategy has gained renewed focus due to the scandals that have unfolded in recent years at several major corporations in the world including Enron, Arthur Andersen, Tyco, and Adelphia in the United States; Parmalat in Italy; and Livedoor in Japan. As a consequence of these business debacles, numerous employees lost jobs, shareholders lost wealth, governments lost taxes, and society as a whole suffered. To prevent future occurrences of such widespread harm, the U.S. government enacted the Sarbanes-Oxley Act in 2002 to ensure governance mechanisms to protect the interests of shareholders and other stakeholders of the firm. The U.S. Corporate Sentencing Guidelines also provide a strong incentive for businesses to promote ethics at work. Tort laws, contract law, intellectual property law, and securities law all govern business behavior. However, while the law can regulate the basic actions of the firm, it tends to be reactive in nature and contains several ambiguities that present opportunities for unethical practices. Therefore, merging company strategy with an ethical framework can guide managers in their task of strategy [Page 2015]formulation and implementation. We briefly describe the concepts of strategy and ethics as commonly understood and then discuss the role managers play in the interface between the two.