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At the end of each semester, I provide my students with a closing note about the course. That note seeks to place the course, its content, and its requirements into a larger context. I do so, because I believe it is helpful for students to have one last opportunity to understand why they took the course and perhaps better identify what they might have gained from the course. Such understanding can perhaps reinforce learning for the long-term.
Below is the note to my fall 2018 students:
With the semester nearing its conclusion, it is time to share some thoughts and insights to place this course into a larger context.
The world of today is awash in change. Scientists, entrepreneurs, and leaders are pushing the frontiers of innovation in a dizzying array of fields. Such advances are improving the human condition all across the globe.
Politically, the seemingly never-ending struggle between liberalism and illiberalism rages on. After having reached a high point at the end of the Cold War, liberalism has experienced losses on the global stage. Such losses are playing out in increasingly autocratic rule in countries such as Hungary, Turkey, and Russia. They are triggering a renewed emphasis on mercantalist protectionism in the United States. They have given rise to a new push by populist movements in parts of Europe, South America, and the United States. Those developments, even as historical experience continues to favor liberalism, raise new issues for strategic managers ranging from supply chain considerations to whether to expand business overseas.
Despite all that change, one thing remains constant: the importance of ethical leadership and ethical business practices. During the past week alone, Johnson & Johnson experienced a 10% decline in its stock price, wiping out more than $39 billion in stockholder wealth in a single day, when a Reuters story broke that the company was aware that some of its baby powder products contained asbestos and that its possession of such knowledge went back to 1971. The company swiftly denied the accuracy of the story, but Reuters indicated that it stood by its reporting.
As of the time of this writing, it is important to note that the Reuters story has not been corroborated. One must wait for the facts to emerge before reaching firm conclusions. Nevertheless, the story provides an illustration of the importance of ethics in business.
The stakes are especially high for Johnson & Johnson. The company risks particularly severe brand damage, if Reuters account is accurate, as the company has a visible, and widely-admired credo on ethical practices that has long defined its identity. In part, the company’s credo declares:
We believe our first responsibility is too the patients, doctors, and nurses, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to provide value…
We must provide highly capable leaders and their actions must be just and ethical…
If the story proves correct, all of those bold words will lose their meaning. They will be rendered nothing more than empty rhetoric. The company’s stakeholders will take notice and its competitors will gain fresh marketplace opportunities.
Ethics matter greatly in business, because all transactions are voluntary in a market-based economy. All market participants (suppliers, customers, producers) seek value. Without the existence of mutual value, transactions don’t take place, sales are not made, profits are not generated, and returns on equity are not achieved.
Ethical lapses undermine stakeholder confidence in a business. Risk-averse stakeholders seek to mitigate their risk exposure and/or gain compensation for assuming added risks. As a result, customers shift their buying elsewhere, a share of stockholders sell their stock driving down the company’s share prices, and creditors look for higher interest rates and more stringent payment terms. Such a company then suffers from a higher cost of capital rendering otherwise profitable projects non-viable. Its market share, sales, and profits decline. Its brand, which once provided it with a sustainable competitive advantage, becomes toxic and can become a source of sustained competitive disadvantage. Its financial risks are drained by the costs and payouts associated with litigation and fines. Its freedom to maneuver can be hindered by new regulatory restrictions.
Considering the stakes involved, ethics is not just one of among a number of “soft skills” managers should possess. Ethics is an indispensable attribute all managers must possess.
This course provided a starting point for a journey that can lead one toward strategic management responsibility. Going forward, it will be up to each one of you to build upon its framework from future study, career progress, and life experience.
I wish all of you much success in your professional and personal lives.