Ethics the Framework for Success: While Some Ethical Decisions Are Simply a Matter of Right vs. Wrong, the Tough Ethical Decisions Are Right vs. Right
Hunter, Steve, Strategic Finance
The widespread attention given to the fall of companies such as Tyco,WorldCom, and Enron has led to an increased focus on ethics in the business world. Because of the enormous pressure to produce higher and better returns, some individuals at corporations have adopted the philosophy, "the ends justify the means." They fall into the trap of setting unrealistic budgets, improbable expectations, and unlikely goals. Not surprisingly, investor confidence has been low due to the many corporate scandals. Despite these results, however, firms continue to allow external sources, such as outside analysts, to define success.
Instead, companies must ask the following question: "Have we replaced our underlying business theme of 'succeeding at all costs' with 'succeeding only the right way'?" An ethical culture can ensure success by establishing appropriate expectations using proper guidelines, thus preventing the need or desire to be involved in any questionable business practices. Ultimately, success is about keeping your word, and companies that live up to their promises are successful.
While it's true that some businesses hold themselves to a higher ethical standard, not all companies operate in an ethical environment. Financial decisions often are made without considering the ethical implications.When companies don't hold themselves to high ethical standards, the impact reverberates throughout the financial markets. Companies are destroyed, jobs are lost, and retirement savings are decimated. One of the government's reactions to corporate wrongdoing was enactment of the Sarbanes-Oxley Act of 2002 (SOX). But as Gary Smith, CEO of CIENA, characterized it in the October 20, 2003, edition of USA Today, SOX was "'chemotherapy' to prevent the cancer from recurring after cutting out corporate tumors at Enron,WorldCom, and elsewhere."
Ensuring that an effective ethical culture exists in an organization isn't only a key factor in preventing the kinds of losses brought about by corporate frauds and avoiding the need for costly, burdensome legislation, but it can also enhance a company's reputation, improve morale, and even increase sales. This article examines top management's role in building an ethically minded culture, steps for making sound choices, and examples of ethical issues.
FROM THE TOP DOWN
Establishing ethical standards for a business should be the primary goal of executive management. Companies must design an environment that not only encourages high ethical standards but also produces ethically minded management, employees, suppliers, and customers.
To establish an ethical culture, top management must accept responsibility for the ethical climate within their organizations. In reality, the actions of top executives define a company's culture because employees emulate their boss's behavior.Michael Hackworth, author of "Only the Ethical Survive" in the Fall 1999 Issues in Ethics, believes top leadership is ultimately responsible for the culture of their organization, including the ethical culture.
To establish an ethical environment, top management needs to use five key elements to build trust: integrity, competence, consistency, loyalty, and openness with employees, vendors, and stakeholders. Stakeholder is a better word than stockholder because it represents the significant effect that business has on the community as a whole. Companies that operate under high ethical values don't have to spend any negative energy hiding wrongdoings if they make all decisions while considering the ethical implications. Most financial analysts agree that no single variable affects the climate of an organization more than the beliefs, practices, and ideas of its top management.
THE GOOD AND THE BAD
One company that provides a prime example of making good ethical decisions is Johnson & Johnson. In 1982, James Burke, then CEO, faced an ethical dilemma. The company experienced a major crisis when some of its Extra-Strength Tylenol capsules were found laced with cyanide. …