Know-How Exchange : Strategy

Ethics should be a part of setting strategic direction, formulation and implementation. Because it's the right thing to do.

How formal and how explicit is a different question. The reason for it to be formal and explicit is because that forces the management to deal with any ethics issues. If the management team is well motivated and highly ethical anyway, then it may not be as important for ethics considerations to be quite so formal or explicit.

Apologies for a long answer to your short question.

Ethics are an important factor in building and directing a serious company because ethical standards and practices tell your customers and employees what to expect, and that your company can be trusted. Apart from simply being right and honorable, ethics also build trust; and trust builds strong business relationships, which are both an asset and an arsenal, valuable in easy times and invaluable in tough ones.

Why does it matter? First, it has a financial impact on sales and other results, and therefore impacts shareholder value. Although stories abound about a few companies that do well with an obvious lack of ethics, any of those companies would do even better if they were respected by their customers and the communities in which they operate. Lack of ethics in one company simply creates a ready market of people who are primed to switch to the next strong competitor that arrives in the same category.

Employees/distributors/contractors do not give their all to companies that put a low priority on ethical practices. Staff will work long hours to face challenges without complaint when they can respect and feel morally uplifted by standards such as high ethics in a company. This creates a powerful, unified workforce that is an incomparable asset in any company.

Part of the answer to your question lies in asking the reverse: Should ethics be formally and explicitly excluded from strategic direction, formulation, and implementation? One has to ask, why would any organization do that except to exploit and deceive? It’s possible, but is it worthy of one’s limited time on earth? (A single expose, and it’s game over.)

In sum, assuming it’s a viable business, then there's a greater likelihood of better return on the business investment and a greater likelihood of company longevity, where ethical standards and practices exist. How much of that is formally documented depends on the nature of your business ... more elaborate, deeper structure for a charitable institution where the business is all about values like ethics, somewhat shorter for a pizza delivery business where ethics are important, but straightforward and don't require a lot of documentation.

Granted, ethics get trickier in some fields where a company cannot control the elements at play. For example, importers of goods made in other countries cannot control the culture, laws or stability of that country. So, is it better for a company to install a factory in Country A, bringing the only hope of employment to people there, even though there are ethical challenges in that country? Or is it better to walk away from that opportunity and establish the factory in Country B, where ethical treatment of workers is better, but the price of labor and materials is higher?

Without having thought through the company's ethical position beforehand, the decision becomes murky and controversial within the company, creating internal divisions and potentially external bad press, the effects of which can be long-lasting. With a formal understanding about the company's ethics made, codified and understood in advance, the decision is clear and not divisive, and the company moves forward without delay, because the path is defined by thoughtful principle rather than impulse.

Thanks for the question! Good luck with your decision.

Ethics can set the tone of the culture of the company. Look at the culture and ethics of Disney, vs the "Girls Gone Wild" franchise -- or in most reality series TV shows.

The 3P's is becoming very important to many companies and consumers. The Forest Stewardship Council set the tone for a completely sustainable chain of custody-- making sure local people are paid fairly, no children are employed etc etc. That chain of custody is something many co's are asking about-- the largest being our federal government.

Now there certainly are plenty of companies that don't care who makes the product and how. And that is just another example of how ethics (or lack of) can shape the strategic plan of a company.