Ethics & Social Responsibility in Business

The Need to Operationalize Ethics

Ethics and social responsibility are key components of strategic planning. These components play a vital role in defining the behavior and actions of the organization through the installation of values into the processes of the organization. In order to accomplish this task strategic planning must utilize stakeholder analysis to determine the varying needs of both internal and external customers in order to create a value system that can be incorporated into the strategic planning and guide the mission and vision of the organization.

The construction of values and ethical systems in the strategic planning process works to guide the behavior of the organization in order to avoid situations where personnel act in ways that are harmful to stakeholders, community, and organization. When this ethical influence is lacking companies become prone to a variety of risky behaviors such as cutting corners or bottom-line thinking. Ethics and social responsibility are essential today because there are now laws which codify many ethical responsibilities such as the Sarbanes/Oxley Act of 2002 (SOX). In response to a series of large company failures and fraud situations, the US government implemented this act in order to reinforce ethical behavior of CEOs and accountants in public firms (SOX, 2010). For this reason, SOX has set a new standard for strategic planning.

One of the major reasons that ethics is now considered essential to strategic planning can be seen in the example of Enron. Enron was a large energy company that lacked ethical guidelines in its strategic planning. As a result of this lack of planning, the entire organization became prone to unethical behavior. The leadership of Enron in conjunction with its accounting firm falsified and created misleading financial statements that made the company appear to be performing better than it was. Both investors and employees thought the company was in better financial standing than it was and this ended with one of the one of the largest bankruptcies in US history (Healy & Krishna, 2010).

The problem with Enron was not isolate to just the leadership and accounting. Because the company did not stress ethics and did not plan for guidance, the company was ripe for corruption. The unethical behavior of leadership trickled down from leadership and this led to massive issues with cutting corners and acting only in the interest of profit. The unethical behavior was pervasive throughout the organization as a whole:

A lot of the Enron story developed during the booming ’90s. The stock market was shooting upward. Start-ups were rolling in venture capital, established businesses were expanding, consumers were spending, and it seemed like everyone was making lots of money. I would suggest that during periods like these, our moral standards tend to get corrupted. The ease with which we see money being made leads us to cut corners, to take shortcuts, to become focused on getting our own share of the pie no matter what because everybody else is getting theirs. This general boom culture, I believe, was part of what affected Enron and led its managers and executives to think that anything was okay so long as the money kept rolling in (Velasquez, 2002).

The example of Enron reflects the need to have ethics and social responsibility embedded into the organizational planning. By creating strategic plans that provide for ethics and social responsibility, the organization acts in a manner that is aligned with the values prescribed in its planning. This form of strategic planning reduces the risk of unethical behavior by setting the standards for how the organization will achieve its mission and vision.

References

Healy, P. M., & Krishna, P. G. (2010). The fall of enron. Journal of Economic Perspectives, 17(2), 7.

The SOX Online Website. (2010). The Committee of Sponsoring Organizations of the Treadway Commission. Retrieved from http://www.sox-online.com/coso_cobit_coso.html

Velasquez, M. (2002, March 5). What really went wrong with enron? a culture of evil?. Retrieved from http://www.scu.edu/ethics/publications/ethicalperspectives/enronpanel