Strategy & Ethics Bowden & Research Paper

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The claim that a board member familiar with forensic accounting would have been able to uncover such a fraud holds little water given that it took a team of experts working in secret many months to uncover the fraud. However, the argument generally holds that better board composition, and more engaged board members, would have prevented such a fraud. Nadler (2004) argues that better boards are less important for preventing frauds as they are for driving better performance. This then shifts the emphasis of the board away from governance and towards performance enhancement.

Nadler's argument supports Nohria's claims about the relative irrelevance of strong corporate governance. No matter whether the boards take a strict shareholder approach or the expanded stakeholder approach proposed by Post et al. (2002), there are limits as the impact that they can have over a company's performance, no matter how well-composed the board is. If the boards and the executives they support have low ethical standards, then poor ethical performance will result. No amount of ethical training will change that. If the board and its executives have strong ethical standards, good ethical performance will result.

Conclusion

Since the headline scandals of the early 2000s, ethics and governance have become significantly more visible issues in business literature and the training of these disciplines in business schools has improved. This is seen as an attempt to right a perceived wrong -- that business schools are not paying enough attention to the ethical implications of strategy. Yet, strategy for the vast majority of firms is by and large ethical. The headline scandals relate to criminal activity as the core strategy of the firm. This has no meaningful implication for the ethics of strategy.

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Nohria is right -- most firms behave ethically and indeed strong ethics are a necessary bedrock of long-term success.

The lack of strong ethical foundations in a small number of high profile cases reflects more on the specific nature of the individuals in question than it does on the state of ethics education in business schools as a whole. Ethics can be taught, but the teaching of ethical theories and the exhortations of professors for their students to behave ethically -- sometimes twenty or thirty years down the road -- will do nothing significant with respect to improving the ethical climate of business. The real problems are more structural in nature, relating to society as a whole and the simple mathematics that out of tens of thousands of business leaders, a small handful are apt to be crooks. Any given strategy is unlikely to be perfectly ethical to all stakeholders, but since our ethics are defined by the letter of the law, only those with criminal intentions are likely to be viewed as "unethical." As Nohria says, that is a good way for an organization to fail; but success depends on other factors beyond simply obeying the law, something most corporations do as a matter of course. As Nadler points out, the role of the board is not to be the ethical compass of the company or to hammer home "ethics" as something for CEOs to pay attention to; the role of the board is to improve the company and that requires going far beyond "ethics."

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