Research Paper on "Strategy and Corporate Governance and Ethics"

/>With respect to ethics, the stakeholder view generally dovetails with the shareholder view. The commonly-cited instances where this was not the case -- Enron being one -- are cases of fraud rather than fundamental ethics. As Nohria (2004) notes, at this level corporate governance is a hygiene factor in that it needs to be present in order that the company not fail, but beyond that it offers no real value. The entire governance debate has been sparked by a handful of powerful anecdotes, but there is no empirical evidence that shoddy governance is any more widespread now than in the past. While boards are often concerned only with shareholder outcomes, the correlation between positive shareholder outcomes and positive outcomes for other internal stakeholders is high -- when the firm is making money, everybody benefits.

Ethics Training

This leads to the question of the value of ethical training. If it is taken as a given that ethics cannot be taught, and that strong corporate governance is merely a hygiene factor, then ethics training becomes irrelevant. The most important elements of ethics for a company come at the point where the board is selected, and at the point where management is selected. Good ethical management comes from selecting managers with high ethical standards. If one is to use the primary sources of anecdotal evidence that unethical managers are bad for business, one must consider that most of those managers were not hired. Bernard Ebbers built WorldCom; Jeffrey Skilling built the energy derivatives business at Enron. These actors were well-entrenched long before their scandals broke. It was not as though the boards of these companies hired people of questionable character to be their CEOs; the CEOs were already in place and there was no reason to question their character at the time of their hiring. Ethics training would have been irrelevant. The boards of these firms would have had to know about the fraud and turn a blind eye to it in order to have placed short-term shareholder interests ahead of other stakeholder interests. Again, ethics training would have been irrelevant.

Board Composition

This takes us back to Bowden & Smythe's lessons. The frauds persisted in the headline ethics cases not because of any lack of ethics training, but because the boards were unable to recognize the fraud. In the case of WorldCom, it required six… READ MORE