Chapter 12: Strategic Leadership 403
This tends to happen when firms have lax expectations in place for individuals to
follow regarding ethical behavior. In other words, individuals acting opportunisti-
cally take advantage of their positions, making decisions that benefit themselves to
the detriment of the firm’s stakeholders.^128 Sometimes executives take such actions
due to their own greed and hubris.^129 However, when there is evidence of executive
wrongdoing, such as having to restate the financial earnings, stockholders and other
investors often react very negatively. In fact, it is not uncommon for new CEOs to be
hired when wrongdoing comes to light.^130
Strategic leaders as well as others in the organization are most likely to integrate eth-
ical values into their decisions when the company has explicit ethics codes, the codes are
integrated into the business through extensive ethics training, and shareholders expect
ethical behavior.^131 Thus, establishing and enforcing a meaningful code of ethics is an
important action to take to encourage ethical decision making as a foundation for using
the strategic management process.
Strategic leaders can take several actions to develop and support an ethical organiza-
tional culture. Examples of these actions include
- establishing and communicating specific goals to describe the firm’s ethical standards
(e.g., developing and disseminating a code of conduct)
- continuously revising and updating the code of conduct, based on inputs from people
throughout the firm and from other stakeholders
- disseminating the code of conduct to all stakeholders to inform them of the firm’s
ethical standards and practices
- developing and implementing methods and procedures to use in achieving the firm’s
ethical standards (e.g., using internal auditing practices that are consistent with the
standards)
- creating and using explicit reward systems that recognize acts of courage (e.g., reward-
ing those who use proper channels and procedures to report observed wrongdoings)
- creating a work environment in which all people are treated with dignity^132
The effectiveness of these actions increases when they are taken simultaneously and
thereby are mutually supportive. When strategic leaders and others throughout the
firm fail to take actions such as these—perhaps because an ethical culture has not been
created—problems are likely to occur.
12-4e Establishing Balanced Organizational Controls
Organizational controls (discussed in Chapter 11) have long been viewed as an important
part of the strategic management process particularly the parts related to implementation
(see Figure 1.1). Controls are necessary to help ensure that firms achieve their desired
outcomes. Defined as the “formal, information-based ... procedures used by managers
to maintain or alter patterns in organizational activities,” controls help strategic leaders
build credibility, demonstrate the value of strategies to the firm’s stakeholders, and pro-
mote and support strategic change.^133 Most critically, controls provide the parameters
for implementing strategies as well as the corrective actions to be taken when imple-
mentation-related adjustments are required. For example, in light of an insider-trading
scandal, KPMG LLP reviewed its training and monitoring programs. The firm’s existing
safeguards “include training for employees, a whistleblower system, and monitoring of
the personal investments of partners and managers.” KPMG also moved to safeguard its
reputation, even though it was not implicated in the scandal.^134
In this chapter, we focus on two organizational controls—strategic and financial—
that were introduced in Chapter 11. Strategic leaders are responsible for helping the firm
develop and properly use these two types of controls.
