This paper examines the critical role of ethics in business strategy and organizational culture. Drawing on the Enron scandal and the collapse of Arthur Andersen, it argues that ethical conduct must go beyond mission statements and be actively embedded throughout a company's operations. The paper discusses how leaders set the ethical tone for an organization, why transparency and accountability matter, and how unethical behavior ultimately harms employees, investors, and other stakeholders. Practical recommendations — including year-end ethical checklists and clearly stated codes of conduct — are offered as tools for reducing the risk of ethical failure.
Companies come and go in the marketplace quite frequently. Some disappear because of a lack of customers or because the business owners failed to operate profitably. Other companies close because of an economic downturn, a product recall, or because their prices were too high and their products lacked marketability. Of course, there are always other factors that can contribute to the downfall of a business, and one of those factors is ethics. When a company places stakeholder agendas over ethical boundaries, serious problems can result.
According to Schulman (2006), a business cannot simply determine what industry it is in and how to act within that industry. Citing Robert Finocchio, a professor of business ethics, Schulman (2006) states that there are three other questions which must be asked: (1) What does our business stand for? (2) What is the purpose of our business? and (3) What values does the business hold? Many businesses create a strategic plan in which they proclaim how ethical they are, but that can be a red flag. Proclamation alone is not what makes a company ethical, and it is often easy to proclaim something but much more difficult to actually follow through. If a business is truly ethical, it does not just need to say so — it needs to act ethically in all of its dealings, as that will be noticed by others (Schulman, 2006).
That is not to say that a company should not list its ethics and values in a mission statement and other documents, but only that a discussion of those values does not go far enough toward ensuring that they are upheld by the company and all of its employees. There are many ways to incorporate ethics into a strategic plan, and that starts with avoiding business activities that could be considered unethical or illegal. Laws must always be followed, no matter where business is conducted (Schulman, 2006). In addition, values should be realistic and should reflect what is genuinely believed by the company's leaders (Schulman, 2006). A "do as I say and not as I do" policy does not work well in business. Ethics must start at the top of the organizational chain and become part of the company's culture all the way down to the lowest-ranking person in the organization.
When leaders act unethically and conceal that behavior from their employees and followers, it often backfires and harms people who had no knowledge of what was taking place just as much as those who were aware. One prominent case of a company putting its agenda first and its ethics last is the Enron scandal. Among the other casualties of that debacle was the Arthur Andersen accounting firm. Arthur Andersen had audited Enron's books and had been shredding documents related to the company when investigators began to raise questions (Thomas, 2002). When the firm was found guilty, it planned to appeal on the premise that it had not technically broken the law. However, there were too many issues surrounding the company and one of Andersen's lawyers — Nancy Temple — to credibly argue that the firm was unaware of what was taking place. Accountants are trained to handle facts and figures, and they know when something is incorrect.
In the Arthur Andersen/Enron case, it was believed that Temple and others knew the figures were wrong but wanted to show inflated profits so that the company's stock prices would continue to rise (Thomas, 2002). What was making investors rich was slowly destroying a large accounting firm and a company that had previously been a good employer — one on which many people depended.
"Employees and stakeholders harmed by executive misconduct"
"Transparency and checklists as tools for ethical compliance"
A strategic plan should always be part of the growth and development of a company, and ethics need to be included in that plan. It is not enough to assume that employees all share the same ethical standards, or that they inherently know what is and is not acceptable in the way a business is operated. Spelling out ethical rules and regulations prevents an employee from claiming that they did not know certain conduct was unacceptable. Stakeholders can feel confident in a business that not only displays its ethical code but follows it consistently. Companies have a responsibility to the society in which they operate, and the creation and integration of an ethical code is a large part of fulfilling that responsibility. A failure to uphold high standards of ethical behavior can cripple and ultimately destroy a business.
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