The same applies to a company. A stronger ethical environment leads to better interactions with those inside and outside the organization. And better interactions lead to better results. As such, ethics has a close connection to stakeholder theory.
As articulated by R. Edward Freeman in his book Strategic Management: A Stakeholder Approach, stakeholder theory involves measuring a business’s overall performance as it relates to a variety of stakeholder relationships. It requires that managers develop a stakeholder mind-set. This means reconfiguring value-creation efforts to consider and address everyone who is impacted by an organization.
Organizations have direct relationships with a variety of individuals and groups, including employees, customers, investors, suppliers, donors, volunteers, community advocates, supporters, financiers, members of the media, regulators, and others who have a stake in their success (see Table 1).
Each of these groups plays a vital role in the success of the enterprise. This business environment is too diverse and complex to manage in narrow silos—hence, the need to manage stakeholders. Navigating the relationships with these diverse constituencies is the essence of strategic management of stakeholders. The turbulence of the business world requires managers to be vigilant about current conditions and to continuously adjust to changes in the environment.
Under stakeholder theory, executives manage actual behavior and create mechanisms for policies that encourage people to make the world a better place. Managers striving to create value within an organization must understand that business is fully situated in the realm of humanity. Freeman states that ethics is the natural conversation that we have about how we live and work together with stakeholders. He suggests that managers should be open to approaching ethics through the lens of a more complex psychology that acknowledges that work involves different kinds of people. The two bodies of knowledge—ethics and stakeholder theory—work in concert and complement each other.
SUPPORTING EXTERNAL RELATIONSHIPS
The external environment necessitates changes in the way executives think about their organizations and their jobs. The essence of the stakeholder approach is that executives must gain a commitment to ethics throughout the organization and from the board of directors. Yet while the internal environment is very important, CEOs spend as much as 90% of their time addressing a host of stakeholder concerns, including out-of-town meetings, talks with union leaders, exchanges with both partners and competitors, negotiations with prospective affiliates, and so on. Such leadership involves coordinating the interests that coincide with those of the organization as well as resolving the conflicts among interests that don’t. CEOs serve as spokespersons for their corporations, participants in social and political processes, and builders of coalitions. The name of the game today is how to deal effectively with external groups.
Executives in organizations with a stakeholder approach to strategic management find they have an expanded sense of leadership. The boundaries are broadened to deal with different objectives and to emphasize the human side. The CEO’s job is to manage and protect the organization’s resources, the most valuable asset of any company. Additionally, CEOs will encounter pressure to become involved with the changing external environment. Understanding “what the organization stands for” can cause a great deal of pain when the process tackles tough issues.
In leading the establishment of corporate values, the CEO survives and thrives with the help of a team of trustworthy players. Accountants and finance professionals should aspire to be a part of this team and adopt a stakeholder mind-set. The IMA Statement of Ethical Professional Practice states that members should contribute to a positive ethical culture and practice integrity. Begin by applying the IMA Statement’s principles of responsibility, honesty, fairness, and objectivity in all your interactions with company stakeholders. This can put you ahead of your peers and lead to your own sense of expanded leadership.
IMA ETHICS HELPLINE
For clarification of how the IMA Statement of Ethical Professional Practice applies to your ethical dilemma, contact the IMA Ethics Helpline.
In the U.S. or Canada, dial (800) 245-1383. In other countries, dial the AT&T USA Direct Access Number from www.usa.att.com/traveler/index.jsp, then the above number.
The IMA Helpline is designed to provide clarification of provisions in the IMA Statement of Ethical Professional Practice, which contains suggestions on how to resolve ethical conflicts. The helpline cannot be considered a hotline to report specific suspected ethical violations.