Reference no: EM133100264

Drivers of Unethical Behavior

Read the overview below and complete the activities that follow.

There are two reasons why a company's strategy should be ethical: (1) because a strategy that is unethical is morally wrong and reflects badly on the character of the company and its personnel, and (2) because an ethical strategy can be good business and serve the self-interest of shareholders.

When high ethical principles are deeply ingrained in the corporate culture of a company, culture can function as a powerful mechanism for communicating ethical behavioral norms and gaining employee buy-in to the company's moral standards, business principles, and corporate values. In such cases, the ethical principles embraced in the company's code of ethics and/or in its statement of corporate values are seen as integral to the company's identity, self-image, and ways of operating.

While most company managers are careful to ensure that a company's strategy is within the bounds of what is legal, evidence indicates they are not always so careful to ensure that all elements of their strategies and operating activities are within the bounds of what is considered ethical. The consequences of crafting strategies that cannot pass the test of moral scrutiny is manifested in sizable fines, devastating public relations hits, sharp drops in stock prices that cost shareholders billions of dollars, criminal indictments, and convictions of company executives. The fallout from all these scandals has resulted in heightened management attention to legal and ethical considerations in crafting strategy.

Apart from the "business of business is business, not ethics" kind of thinking, three other factors contribute to unethical business behavior: (1) faulty oversight that enables the unscrupulous pursuit of personal gain, (2) heavy pressures on company managers to meet or beat short-term earnings targets, and (3) a company culture that puts profitability and good business performance ahead of ethical behavior. In contrast, culture can function as a powerful mechanism for promoting ethical business conduct when high ethical principles are deeply ingrained in the corporate culture of a company.

The goal of this exercise is for you to understand the conditions that give rise to unethical business strategies and behavior.

Before completing this exercise, be sure to review Chapter 9, "Ethics, Corporate Social Responsibility, Environmental Sustainability, and Strategy;" specifically, the section entitled "Drivers of Unethical Business Strategies and Behavior."

The term "short-termism" refers to

• when decisions are driven by people who are planning on leaving the company and are no longer concerned with their ethical behavior.
• the inclination of managers to focus on short-term performance objectives at the expense of long-term strategic objectives.
• when managers focus on activities that drive higher profitability and customer value over the short-term.
• the inclination of managers to focus on long-term strategic objectives rather than short-term performance.
• senior managers who short sell the stock for personal gain.