Incorporating Ethics into the Organization's Strategic Plan

by Miriam Schulman

Management guru Peter Drucker was famous for asking his consulting clients the basic
strategic question, "What business are we in?"

To integrate ethics into the strategy, businesspeople have to add three more questions,
according to Robert Finocchio, Dean's Executive Professor at Santa Clara University:

• What do we stand for?

• What is our purpose?
• What values do we have?

The former president, CEO, and chairman of Informix Corp., Finocchio offered
prescriptions for incorporating ethics into the organization's strategic plan and
suggestions for implementation at the March 2006 meeting of the Business and
Organizational Ethics Partnership, a project of SCU's Markkula Center for Applied
Ethics.

As a first principle, Finocchio argued that ethics is not integrated into strategy by
proclamation. He also put it more colloquially: "Whenever someone tells me how honest
or ethical he or she is, I hold on to my wallet."

While ethics should be part of the company's mission statement, long-term strategic plan,
public pronouncements, and codes of conduct, unless it is also a "cornerstone of the
organizational culture," it will not be effectively integrated into the business strategy, he
said.

To really incorporate ethics, he presented these "prescriptions":

1
 1. Don't be in an unethical business in the first place ("In Finocchio's view some
people might think tobacco, arms, and pornography may be examples of
businesses that fit that description.").
2. Obey the law and spirit of the law everywhere you do business.
3. Articulate a complete strategy, including purpose.
4. Explicitly articulate values as a key component to the strategy. Values must also
be real, and must reflect actual behavior, especially among the organization's
leaders.
5. Don't rely on auditors, ethics officers, compliance officers, cops, regulations,
manuals, and audits as the vehicle to insert ethics into the strategy.
6. Emphasize principles more than rules. (This is the best way to be more
demanding of the organization.)
7. Individual ethical responsibility and accountability are never trumped by some
corporate or organizational imperative.There is no "my company said it was ok"
defense.
8. Be totally transparent with your constituents, and make that part of the strategy.
9. Have a framework and process for the resolution of ethical issues.
10. Have the right organizational structure.
11. Have rewards based on the right metrics.
12. Make employee development part of strategy and make ethics training part of
employee development.
13. Encourage all employees to be challenging and demanding in the ethical domain
(of everyone in the organization, including the bosses).

Finocchio went on to offer two practical suggestions for implementing his prescriptions:
making an ethics performance evaluation part of the organization's standard end-of-year
assessment and creating a strategic plan ethics checklist for the coming year.

The ethics performance evaluation would look at how the organization actually behaved,
including such issues as transparency and opportunities for celebrating ethical behavior.
The company would examine whether its actions over the past year had been consistent
with its purpose and values.

In planning for the next year, the company would ask itself a series of questions,
including:

• Is our purpose sufficiently well articulated?

• Do we face new legal requirements?
• Do we have new constituents?
• If we acquire another organization, how will it be ethically assimilated?
• Are our rewards structures appropriate?
• Is there any need to change the mechanics (constituent communication, employee
training, organizational structure, issue resolution processes)?
• How will we measure our performance?
• Do we have new goals/objectives in the ethical domain?

2
Finocchio's presentation was part of a two-day meeting of the Business and
Organizational Ethics Partnership. Other speakers at the March Partnership meeting
included Dan Sweeney from the Center for Corporate Excellence on "Tone at the Top
and Executive Compensation"; Stephan Rothlin, general secretary of the Center for
International Business Ethics in Beijing on "Business Ethics in China" ; and Frank Daly,
Markkula Center Fellow, Eric Pressler, Apple Computer, and Sam Piazza, Hewlett
Packard, on "Rules-Driven and Values-Driven Ethical Approaches: Trade-offs."

The Business and Organizational Ethics Partnership brings together executives and
scholars in a forum designed to increase the members' knowledge about effectively
managing ethics in their organizations. Founded in 2003, the partnership currently
includes 14 business organizations and ten faculty members who share the goals of
honing ethics and compliance policies and practices, and advancing the state of business
ethics knowledge.