Assignment

New Directions in Strategic Management and Business Ethics

Heather Elms, Stephen Brammer, JaredD. Harris, and Robert A. Phillips

ABSTRACT: This essay attempts to provide a useful research agenda for researchers in both strategic management and business ethics. We motivate this agenda by suggesting that the two fields started with similar interests, diverged, and are beginning to converge again. We then identify several streams that hold particular promise for developing our understanding of the relationship between strategy and ethics: stakeholder theory, managerial discretion, behavioral strategy, strategy as practice, and environmental sustainability.

People who do not believe that management is an activity requiring at its best extraordi- nary intellect and intelligence, marked physical powers in terms of energy, stamina, and strength, and durable moral qualities like courage, integrity, determination, and ability to choose right over wrong should read no further, for nothing in the pages to come will make sense to them. All others are welcome. (Andrews, 1971: xv)

OUR AIM IS TO DEVELOP SOME INSIGHTS and directions for futureresearch at the intersection of strategic management and business ethics. In motivating our suggestions, we touch on the historical relationship between the two fields—one that suggests that the fields have a common origin, may have diverged in their emphasis, but are poised for réintégration.' We suggest that an increased level of research convergence highlights an opportunity to pursue several different sets of research questions at the intersection of strategic management and business ethics; as such, we propose several specific avenues for scholarly inquiry that seem particularly opportune.

STRATEGY AND ETHICS: COMMON FOUNDATIONS

From the beginning of both fields, strategic management and business ethics schol- ars shared an explicit interest in the nature, and thus goals, of business. Kenneth R. Andrews's foundational strategic management text,^ The Concept of Corporate Strategy, described strategy as "determining the nature of the enterprise and setting, revising, and attempting to achieve its goals" (Andrews, 1971: xiii). R. Edward Freeman's Strategic Management: A Stakeholder Approach, often seen as a seminal combination of strategy and business ethics, similarly noted, "The point of strategic management is in some sense to chart a direction for the firm" (Freeman, 1984:46).^ Neither identified the specific content ofthat nature or goal/direction, leaving that to

©2010 Business Ethics Quarterly 20:3 (July 2010); ISSN 1052-150X pp. 401 -425

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general management, but both suggested that the answers depend on "[executives'] personal values and aspirations, and acknowledged obligations to segments of society other than the stockholders" (Andrews, 1971: 38).'* In other words, it was commonly held that effective strategic management included a consideration of ethics; indeed Andrews asserted that "coming to terms with the morality of choice is the most stimulating and strenuous problem in strategic decision-making" (1971: 119).'

Furthermore, it is worth noting that the integrative view of Andrews and Freeman was not unusual or exceptional; other foundational strategy scholars never shied away from discussing the ethical implications of their work. Chester Barnard (1938/1968: 282-96), Herbert Simon (1945/1997: 56-60), and Kenneth Arrow (1974: 65-79) all discussed ethical ideals as boundary conditions to business activity, something pre- saged by Adam Smith himself (1776/2000: 368-369; 1790/1982; see also Werhane, 1991).^ As articulated by Andrews (1980:18) in his revision to the 1971 book:

Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of eco- nomic and human organization it is or intends to be, and the nature of the economic and noneconomic contribution it intends to make to its shareholders, employees, customers, and communities. (Andrews, 1980: 18)'

This is a view that integrates economic and ethical demands (e.g.. Sen, 1997), and in so doing, suggests that "business ethics and strategic management collapse into the same enterprise" (Harris, 2008: 400).

STRATEGY WITHOUT ETHICS?

Nevertheless, it is easy to see this foundational, explicit inclusion of moral consid- erations into the domain of strategy as unfamiliar, because as the field of strategy historically evolved into a more quantitatively empirical field, strategic management research tended to focus more simply on profit-based goals and measures of firm success. While this may have usefully "shifted" issues of ethics "to the background" in order to investigate specific kinds of questions (Harris & Freeman, 2008: 545), it may have also helped establish a more constrained view of the nature and goals of the enterprise that the earlier, foundational strategic management research had not imposed.* Initially, this research also took on more of the structural emphasis of industrial organization economics, rather than the more aspirational approach of earlier work.^ But in that the study of corporate strategy remained managerial— recognizing that firm performance was not simply structurally but also managerially determined—the field allowed for the possibility that strategies refiective of certain values, aspirations and acknowledged obligations might be more successful than others. Strategy's industry, corporate and business-unit effects literature—beginning with Rumelt (1991)'" and continuing as a major stream within strategy today (e.g., McGahan & Porter, 1997; 2002)—exemplifies each of these field characteristics: 1) it uses profit-based performance measures, 2) it includes an analysis of the structural (i.e., industry) determinants of profits, but 3) in including corporate

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and business-unit effects, particularly when those effects are categorical and thus capture anything that is different from one corporation or business unit to the next, allows that some of the variance in firm performance may be associated with the way in which corporations and firms are managed. Note, however, that when more specific corporate and business level factors are identified within this literature (e.g., Misangyi, Elms, Greckhamer, & LePine, 2006), they do not yet refer to values, as- pirations, or acknowledged obligations—suggesting an initial research opportunity for work linking strategy and ethics.

ETHICS WITHOUT STRATEGY?

Whereas research in strategic management may have shifted considerations of ethics too far into the background, research in business ethics may have correspondingly placed too much focus on "ethics" and not enough on "business." Eor example, theoretical and empirical work on social issues has placed a great deal of focus on social initiatives (e.g., philanthropy), as either side constraints on business activity, or moral imperatives independent of economic concerns, with any attempts to in- tegrate the two often shrinking to the mere investigation of the correlation between such initiatives and financial returns." Such a reductionist question—Does ethics pay?—not only oversimplifies both sides of the equation,'^ it obscures a host of more complex (and potentially more interesting and illuminating) relationships between ethical and strategic concerns. Eurther, it illustrates the very critique we are alluding to here; work in business ethics has fallen far short of incorporating the useful and nuanced approaches to understanding theoretical relationships typically found in strategy research, where evaluations of "right" or "wrong" strategies are eschewed in favor of more nuance and contingency (e.g., when should a firm explore vs. exploit? How do firms deal with the tension between short term and long term performance demands?)

Similarly, much of the philosophical work in business ethics, though analytically and logically rigorous, often simply embeds questions of moral determination (i.e., "right" versus "wrong") and ethical judgment (i.e., how to decide between them) within organizational settings, where the focal question of determining the "right" thing to do employs organizational dynamics as serviceable impediments or chal- lenges to moral behavior. In other words, business ethics as a branch of applied ethics has often not been "applied" enough; rather, traditional questions of moral determination are arbitrarily applied to one business situation or another, with the contextual details serving merely as some practical version of a thought experi- ment. This approach allows for key conflicts or tensions to become definitional, reinforcing the reductionist view of "ethics" somehow standing in opposition to the correspondingly suspect goal of economic rents; hence, sustainability is seen as a drag on profits, or employee empowerment as somehow less efficient. In addition, this approach has overemphasized the categorization of companies as either "saints" or "sinners," ignoring to a large extent the complexity of organizational dynamics (for exceptions, see Lee & Ermann, 1999; Malhotra, 2009). In other words, not only has the balkanization of strategy and ethics narrowed the disciplintiry bound-

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ary in strategic management, it has also impoverished the robustness of inquiry in business ethics.'^

STRATEGY AND ETHICS: A RETURN TO DISCIPLINARY ROOTS

But what if we took seriously the idea that strategic management and business ethics are inseparable? This captures the essence of our objective: to reenergize a dimension of management research that seeks to combine the two fields, inherently embracing the relevance of one to the other. Such an approach recalls Ereeman and Gilbert, who asserted that "[e]thics and strategy go together, and we need to tell a radically different story about organizational life to connect these concepts" (Freeman and Gilbert, 1988: xi); "We must learn to build corporate strategy on a foundation of ethical reasoning, rather than pretending that strategy and ethics are separate" (xiii); "We must put ethics in its rightful place at the very center of discussions about corporate strategy" (7, italics theirs).

While neither Freeman (1984) nor Freeman and Gilbert (1988) explicitly identi- fied value creation for stakeholders as the purpose of the firm (and instead spoke of organizational, managerial and stakeholder valuer), Evan and Freeman (1989/1993: 82) suggested that "[t]he very purpose of the firm" for these stakeholder theorists was "to serve as a vehicle for coordinating stakeholder interests. It is through the firm that each stakeholder group makes itself better off through voluntary exchanges." Along these lines, "creating value" for stakeholders (Freeman, 2008) has become the increasingly explicit goal of stakeholder-theory-based work.

Similar movement is reflected in the broader strategy literature. While Porter (1985: xvi, 3,38) focused primarily on value creation for buyers (e.g., "Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it" [Porter, 1985: 3]), by 2008, R. M. Grant was suggesting that

[b]usiness is about creating value. . . . The value added created by firms is distributed among different parties: employees (wages and salaries), lenders (interest), landlords (rent), government (taxes), and owners (profit). In addition, firms also create value for their customers to the extent that the satisfaction customers gain exceeds the price they pay (i.e., they derive consumer surplus). (Grant, 2008: 35, original italics deleted)

Grant's description evokes the work of Coff (1999; forthcoming), who notes that profit is merely the residual left after some value has already been allocated to/ appropriated by employees, other suppliers, or stakeholders more generally.'" By 2010, P. Ghemawat equates competitive advantage and value creation, noting "[a] business has added value when the network of customers, suppliers, and comple- mentors in which it operates is better off with it than without it—that is, when the firm offers something unique and valuable in the marketplace" (Ghemawat, 2010: 65)'^ We suggest that the emphasis on value creation in both the strategy and ethics literatures—along with the growing interest in the measurement of stakeholder value creation—reflects a broad momentum of convergence between the two fields.

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This convergent interest in the firm as a value creator for stakeholders is only the broadest signal of convergence between strategy and ethics, pointing the way to several more specific opportunities for further research connecting strategy and ethics. We now turn to several examples. These future directions each offer im- portant opportunities to better understand both fields more fully, move beyond an understanding of CSP-CFP as a simplified connection between them, and instead explore the ways in which ethical values play a fundamental role in strategy. We conclude with integrative insights.

STAKEHOLDER THEORY

Stakeholder theory has advocated for the convergence of strategy and ethics for quite some time akeady, and although much of its development has occurred in the ethics literature, it has recently attracted a great deal of recent attention from a broader community of management scholars (e.g.. Chandler & Rindova, 2009; Damall, Henriques, & Sadorsky, 2009; Mahoney, 2009; Zoilo, Minoja, & Coda, 2009).'^ Several scholars have recently noted this surge/resurgence of interest in stakeholder theory: e.g., "strategic management scholars have 'rediscovered' stakeholder theory" (Freeman, Harrison, Wicks, Parmar, & de Colle, 2010: 84; also see Walsh, 2005).''' Very recently, Harrison, Bosse, and Phillips (2010) pursue stakeholder manage- ment's role as a source of competitive advantage. Choi and Wang (2009) find that good stakeholder relations (because stakeholders value these relationships) help firms recover from inferior profitability more than they help firms sustain superior profitability—suggesting an emphasis on contingencies that might be pursued.'* These other stakeholder-focused contributions in the current strategy literature clearly direct attention to the fundamental role ethical values play in strategy.

In the ethics literature, the development of stakeholder theory has reached a complementary point. While Freeman (1984), for example, allowed "stakeholder" to connote "legitimacy" (Freeman, 1984:45), and spoke about legitimacy only in the "very weak sense" (23) of "'legitimate to spend time and resources' on" (45), later work instead engaged a deeper discussion about stakeholder legitimacy and narrowed the stakeholder set (e.g., Mitchell, Agle, & Wood, 1997; Marens & Wicks, 1999; Phillips, 2003a, and 2003b). Work on "stakeholder orientation" or a firm's overall approach toward managing stakeholder relationships, identifies variation in firms' choices about these sets. Berman, Wicks, Kotha, and Jones (1999), for example, categorize firms as having either an instrumental (i.e., stakeholders are a means to an end) or an intrinsic (i.e., stakeholders are important in and of themselves) orienta- tion. Logsdon and Yuthas (1997) describe orientation as either narrow (i.e., a single stakeholder, most typically shareholders—though firms might choose consumers, employees, etc. as their priority) or broad (seeking to satisfy multiple stakeholder groups simultaneously). Relatedly, Jones, Felps, and Bigley (2007) examine firms with "limited morality" vs. "broadly moral" "stakeholder cultures.'"' Establishing to whom the firm has obligations, and to whom they orient themselves, has recently enabled further, more specific work, on the content of those obligations (e.g.. Elms & Phillips, 2009; Goodstein & Wicks, 2007). This work emphasizes the reciprocal

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relationship between corporate and stakeholder responsibility—and the value cre- ated by responsibility when stakeholders value responsibility—which, like much of the other recent stakeholder work, emphasizes the fundamental role of ethical values in strategy.

We suggest, however, that while recent stakeholder contributions are supportive, more work remains to be done in identifying the ethical content and behaviors that create value for stakeholders—and in measuring that value. From a stakeholder theory perspective, the issues associated with measuring value creation include recognizing and addressing the issues associated with separating social and finan- cial performance, that value creation might be shared across stakeholder groups, and that what stakeholders value differs even within (as well as across) stakeholder groups.^" Relatedly, we also suggest that given the relationship between corporate and stakeholder responsibility, and a historical focus on the corporate side of that relationship, we need to think more about stakeholder responsibility^'—what should stakeholders value, and what can they reasonably expect from organizations that themselves have competing demands on their resources? And how might we, as scholars and stakeholders ourselves, help frame those values and expectations?

MANAGERIAL DISCRETION

One of the recent critiques of stakeholder theory notes that while stakeholder theory is often associated with greater explicit philosophical content than other strategic theories, stakeholder theoretic contributions regularly violate the widely-accepted philosophical axiom that "ought implies can" (Phillips, Berman, Elms, & Johnson- Cramer, 2010). To prescribe that an actor ought to perform some action necessarily entails that the actor is able to perform that action. Morally and logically, inability and incapacity mitigate the power of prescriptions. Strategists and organization theorists, on the other hand, have explicitly recognized that managers face varying levels of discretion—and that stakeholders in particular might act as a constraint on that discretion:

To us, constraint exists whenever an action lies outside the "zone of acceptance" of power- ful parties who hold a stake in the organization.... Extending the concept to other types of stakeholders, one can think of board members, bankers, regulators, key employees, customers, as well as other parties, as all having their own zones of acceptance. (Hambrick & Finkelstein, 1987: 374)

We suggest that pursuing the role of stakeholders as both a constraint and catalyst to managerial discretion might be of interest to both strategy and ethics scholars. Neither Hambrick and Finkelstein, 1987, nor other historical contributions to managerial discretion research (e.g.. Carpenter & Golden, 1997; Finkelstein & Boyd, 1998) yet do so. Diverse stakeholder theoretic contributions have, however, explicitly examined stakeholder behaviors that tend to restrict managerial discre- tion (e.g., Eesley & Lenox, 2006; Frooman, 1999; Reid & Toffel, 2009; Rowley & Moldoveanu, 2003). Additionally, one of the recent developments in managerial discretion theory extends the determinants of discretion from the industry, organi-

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zational and individual level to the task level of analysis (e.g., Finkelstein & Peteraf, 2007). Relatedly, Gilbert (2001:569) noted earlier that "[p]utting something as vital as ethics in the service of the strategic management process provides managerial capitalists, who are already responsible for the strategic management process, that much more discretionary power."

Answering questions about the dynamic relationship between the discretion asso- ciated with ethics as a task, managerial performance in that task, and the consequent levels of discretion awarded by stakeholders to managers might be one direction to approach more generally indentifying the relationship between stakeholders and discretion. Phillips et al. (2010) suggest that stakeholder orientation might also be important to this relationship, and like our preceding stakeholder discussion, note that discretion may differ across and within stakeholder groups. We suggest then that finely-grained analyses of stakeholder reactions to managerial behaviors and vice versa, as well as the identification of additional factors important to the relationship, might help us to better understand the dynamics of discretion.

We also note that while much of the managerial discretion literature includes a historic focus on external industry regulation, recent work suggests a dynamic, interactive relationship between industry 5e//-regulation and managerial discretion (e.g.. King, Lenox, & Terlaak, 2005; Lee, 2009), suggesting that managerial collec- tive action can dramatically infiuence not only the actions of the focal organization, but also the institutions in which the organization is embedded (Hargrave & Van de Ven, 2006). Although research in this area examines how informal industry-level institutions can arise in part to avert the "tragedy of the commons" (Bamett & King, 2008) and describes how decentralized institutions can in turn shape discretionary corporate social action on the part of individual firms (Marquis, Glynn, & Davis, 2007), many questions about discretion, self-regulation, and ethical behavior remain. We suggest that further research should more fully explore the role ethics plays in motivating discretionary participation in collective, self-regulatory initiatives. Research in this area can improve our understanding of how "moral imagination" shapes discretionary collective action (e.g., Hargrave, 2009), and analyze the ef- fectiveness of self-regulatory efforts in promoting moral outcomes.

BEHAVIORAL STRATEGY

Attempts to address questions of determinism and free will in management,^^ and thus bring greater nuance and granularity to the motivations, abilities, and behaviors of human actors recall a longstanding behavioral tradition in strategy, often associated with the behavioral theory of the firm (Cyert & March, 1963/1992; March & Simon, 1958/1993; Simon, 1945/1997).^^ While this tradition focuses on the behavioral aspects of processes involved in formulating and executing strategy, and embraces cognitive notions including bounded rationality, problemistic/local/myopic search, and satisficing in managerial problem solving, more recent contributions have fo- cused more specifically on the normative infiuence of ethical values—e.g., of fairness and reciprocity (Bosse, Phillips, & Harrison, 2009). These contributions resonate with other recent and also historical behavioral work in strategy, economics, and

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finance—much of which calls into question assumptions of economic rationality and, in so doing provide for a greater role for human tendencies that appear to be less than perfectly rational according to common normative notions of rationality.

Relevant physiological and experimental results are increasingly familiar. The methods for the study of "neuroethics" (Salvador & Folger, 2009) include medical case studies, neuroimaging - including the widely-discussed functional Magnetic Resonance Imaging (fMRI) studies (Borg, Hynes, Van Horn, Grafton, & Sinnott- Armstrong, 2006; Greene, Sommerville, Nystrom, Darley, & Cohen, 2001; Sanfey, Rilling, Aronson, Nystrom, & Cohen, 2003)—and behavioral experiments. Experi- mental results (neurocognitive and otherwise) include offering more than the rational minimum in dictator and ultimatum games and rejecting greater than minimum offers in such games (e.g., Eehr, Kirchsteiger, & Reidl, 1993; Kahneman, Knetsch, & Thaler, 1986a, and 1986b; Rabin, 1993), expending resources to punish behavior perceived as unfair even though the punisher will receive no apparent gain from the expenditure (e.g., Ostrom, Walker, & Gardner, 1992), and rejection of distributions deemed to be unfair to others (e.g., Guth, Schmittberger, & Schwarze, 1982). The physiological and experimental evidence has clear implications for managerial be- havior; for instance, fairness considerations with respect to pay disparities have been shown to drive workplace attrition (e.g.. Wade, O'Reilly, & Pollock, 2006).^"

Our emphasis here is that many or most of the norms that seem to constrain ra- tionality are moral norms. That is, many of the observed deviations from rationality are associated with moral influences (Frank, 1988). Fairness and reciprocity provide two common examples from this literature. It has been demonstrated across cultures that people will act against their own self-interest in order to comply with social norms of fairness (Roth, Prasnikar, Zamir, & Okuno-Fujiwara, 1991). Notions of fairness also evoke our ideas about reciprocity; when people believe that others will act fairly they are more likely to act fairly themselves (Rabin, 1993).

While it is tempting, however, to see norms of fairness and reciprocity as a more morally charitable assumption about human nature and cognition than narrow self- interest, there is also a consistently-noted negative side to both. When fairness and reciprocity involve repaying a good turn (i.e., positive reciprocity), this is, ceteris paribus, morally praiseworthy. On the other hand, when people believe others will act self interestedly or unfairly they are more likely to act self interestedly themselves (e.g., Frank, Gilovich, & Regan, 1993; Ferraro, Pfeffer, & Sutton, 2005; Ghoshal, 2005; Rabin, 1993). The latter case may even involve negative reciprocity, also contrary to rationality. That is, people react to unfairness in ways that serve to pun- ish the offending party even at some net cost to themselves (Ostrom et al., 1992). Thus we should not take ethical behavioral norms as unambiguously positive, and in addition to the opportunity associated with positive norms, there is an opportunity for both strategists and business ethicists to further consider such concepts as spite, punishment, retribution and revenge.

Current experimental philosophy additionally supports such a focus. After a brief discussion of the historical relationship between philosophy and psychology, Appiah writes:

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Indeed, we should be hard-pressed to establish to everyone's satisfaction that we noble philosophers, and not those knavish psychologists, are the legitimate heirs to what mainly went under the name philosophy in previous eras. (Appiah, 2007: 6)

Appiah goes on to argue that one "hotly contested" area where psychology has in- formed moral philosophy is the debate between situationist social psychologists and virtue ethicists (Doris, 2002). Weaver (2006) and Alzóla (2008) have contributed to this debate with specific attention to organizational ethics. Appiah concludes that

the confrontation with social psychology has forced virtue ethicists to clarify the contours of their account—to make claims and concessions about which psychological claims are and are not necessary for their view; and, quite significantly, many of them have made arguments about what the psychological evidence actually shows about human nature. (Appiah, 2007: 11)

While Milgram (1963) provided some of the most powerful and well-known relevant evidence,^' relevant recent evidence includes work on the psychology of "disgust" (e.g., Haidt, Koller, & Dias, 1993; Schnall, Haidt, Clore, & Jordan, 2008).

Margolis's (2009) recent work on "the responsibility gap" is exemplary of the sort of scholarship we see emerging here. In describing the increasingly challenging environment facing future managers, he sees this gap as, "a gap between emerging responsibilities and human functioning" (43). More "enticing"-ly, though, he sees recognition of this gap as "a way of synthesizing a steep ethical challenge of busi- ness. It is a means for bringing together a set of trends in business practice, social science, and business ethics scholarship" (53).

STRATEGY AS PRACTICE

Our discussion of managerial discretion and behavioral strategy evoke a research opportunity that might be construed somewhat more broadly: the role of ethics in the strategy process. Relatedly, ethics and strategy are perhaps most closely and visibly intertwined when the discussion emphasizes the individual actors involved in strategic decision-making. Recently, an increasingly influential strand of thought has emerged within strategic management scholarship that takes as its starting point the observation that the majority of mainstream strategy research "has trapped itself into a cul-de-sac of high abstraction, broad categories and lifeless concepts" (Johnson, Melin, & Whittington, 2003: 6) which "has left the manager bereft of insights, let alone guidelines for action" (Johnson et al., 2003: 5). Others in strategic manage- ment (e.g., Hambrick, 2007; Helfat, 2007; Miller, 2007) suggest that insightful research can be motivated by atheoretical, practice-based observation. In contrast to traditional strategic management research, the research collectively understood as "strategy as practice" is concerned with "how the practitioners of strategy really act and interact" (Whittington, 1996: 731) and with "the detailed processes and practices which constitute the day-to-day activities of organizational life and which relate to strategic outcomes" (Johnson et al., 2003: 3).

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Beyond aiming to introduce greater descriptive accuracy to contemporary strategy research, "strategy as practice" draws its substantive inspiration from the observations of increasing dynamism, volatility and transparency in many market environments which mean that "strategy-making becomes a chronic feature of organizational life" (Johnson et al., 2003: 5), necessarily encompassing a wider range of organizational agents than have usually fallen within the purview of strategy research. Intellectu- ally, "strategy as practice" owes considerable debts to organizational sociology, emergent perspectives on strategy, and processual perspectives on organizational change and development (Carter, Clegg, & Komberger, 2008).

The foci of prior "strategy as practice" research, the particular practices under study, and the outcomes of these practices have been very diverse. Partly, this reflects an ongo- ing discussion regarding the concept of practice being applied in "strategy as practice" research (Carter et al., 2008; Jarzabkowski & Spee, 2009). By "practice," most "strategy as practice" research adopts a broad definition such that "practices involve the various routines, discourses, concepts and technologies through which strategy labor is made possible—not just obvious ones such as strategy reviews and off-sites, but also those embedded in academia and consulting tools, and in more material technologies and artefacts (PowerPoints, flipcharts, etc.)" (Jarzabkowski & Whittington, 2008: 101). Crucially, "strategy as practice" research sees the practice of management as being embedded, interrelated, entangled and institutionalized within broader business activi- ties and situations. Scholarship in this tradition, we argue, suggests that future research in strategy and ethics that takes a great interest in the situational and individual factors that underpin strategy decision-making is likely to generate significant impact.

There are at least two ways we see "strategy as practice" engaging with and contribut- ing to the interlocution of strategy and ethics. One avenue, already underway by Clegg, Komberger, & Rhodes (2007: 4), is looking exphcitly and intentionally at "business ethics as practice," in which "rather than prescribing essentialist positions, asks what people actually do when they engage with ethics at work." In that sense, seeing eth- ics as practice involves "an examination of how ethics are differentially embedded in practices that operate in an active and contextualized manner" (Clegg et al., 2007: 5). Core to this conceptualization of ethics is the importance of ethical discourses, a highly situated, if somewhat relativist, view of ethical behaviors, and a view of individuals constituting their own moral identities (Aquino & Reed, 2002; Clegg et al., 2007).

Additionally, as we previously observed, much of the divergence between the expectations of formal theory and observed practices of actual actors stem from adherence to morally-laden norms (e.g., fairness, reciprocity, justice). Hence a second avenue for "strategy as practice" scholars to explore is the role played by (implicit or explicit) social/moral norms in organizing, motivating and justifying actual practices. Even when actors don't see themselves as "practicing ethics," moral norms may nevertheless be powerfully operative—similar to the way in which ac- tors in ultimatum, dictator and common public resources games may not explicitly see themselves as engaged in an ethically-directed activity, yet norms of fairness are prominent. Similarly, we suggest that "strategy as practice" might facilitate the examination not only of those consciously engaged in the practice of ethics, but also of the moral norms undergirding business practices more generally.

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ENVIRONMENTAL SUSTAINABILITY

There is increasing interest in the role of business in environmental sustainability. Although interest in environmental issues historically lay outside the main focus of business scholarship, a research agenda on business and the natural environment has recently grown, and much of it has taken place under the broad umbrellas of strategic management and business ethics—both from a stakeholder perspective (O'Connell, Stephens, Betz, Sherpard, & Hendry, 2005) and as a context in which to study industry self regulation (King & Toffel, 2009). Ironically, the focus on the environment in strategic management may be due in part to a "path-breaking" (Ber- chicci & King, 2007: 515) set of articles by Michael Porter (Porter & Van der Linde 1995a; 1995b), instigating an entire stream of research on the question of whether, and how, environmental responsiveness might improve the financial performance of firms (e.g.. King & Lenox, 2002; King & Shaver, 2001). This stream of research was also linked to the resource-based view (e.g.. Hart, 1995; Rugman & Verbeke, 1998), suggesting that environmentally friendly capabilities are difficult for competitors to imitate. More recent work approaches this relationship more contingently, examin- ing the conditions under which environmental performance provides competitive advantage for firms (Christmann, 2000; Nehrt, 1996).

Alternatively, some work avoids viewing sustainability as a source of economic competitive advantage, and instead has begun to see environmental issues merely as a set of problems that firms seek to address for a variety of reasons. Some research seeks to describe how firms (Howard-Grenville, 2007; Meek, Pacheco & York, 2010; Sharma & Henriques, 2005) or new industries (Russo, 2001; 2003; Sine & Lee, 2009) address sustainability issues, while other work seeks to explain differences in firms' approaches to environmental issues (e.g., Hargrave, 2010; Murillo-Luna, Garcés-Ayerbe, & Rivera-Torres, 2008) or reporting practices (Kolk, 2008).

The work on strategy and the natural environment also constitutes a debate about the role of coercion and regulation in environmental performance. Different studies argue for the relative superiority of formalized state-sponsored regulation (Jaffe & Palmer, 1997; Nameroff, Garant, & Albert, 2004), environmental entrepreneurship (Dean & McMuUen, 2007; York, 2008), and industry self regulation (e.g., Bamett & King, 2008, as previously discussed). Less explored are the ethics ramifications of these differential mechanisms (cf. Arnold, 2010), and many questions remain. Future research should more fully explore the differential impact of each of these ap- proaches to environmental responsiveness, as well as the way in which considerations of ethics impact the formation and efficacy of these environmental performance mechanisms. How do firms incorporate considerations of environmental sustain- ability in their models of value creation? How do firms reconcile tensions between economic and ecological organizational objectives? Additional work connecting ethics and environmental strategy is another avenue to better understanding the fundamental role of ethics in strategic management.

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DISCUSSION AND CONCLUSION

In this article, we have suggested that the separation of strategy and ethics in con- temporary scholarship is largely artifactual. Foundational work in both domains viewed business activity as a gestalt of both strategic and ethical considerations, and although much subsequent work analyzed one without the other, there are en- couraging examples of convergent research that explore the ways in which ethical values play a fundamental role in strategy. We say "encouraging" because ultimately, strategy without ethics limits both descriptive and prescriptive power; ethics without strategy—or at least without "business"—limits impact and consequence.

We have described several avenues of future research at the nexus of strategic management and business ethics that hold particular promise, including: normative aspects of stakeholder theory, ethical aspects of managerial discretion at both the firm and industry level, the role of morality in behavioral strategy, ethics in strategy- as-practice, and the moral considerations related to environmental sustainability. While by no means an exhaustive review, we suggest that these are examples of potentially fruitful research whose pursuit might encourage even greater conver- gence between the two fields, and thus strengthen our understanding of each one's constitutive role in the other.

Each of these research avenues has the potential to help us better understand value creation as a holistic enterprise, elucidating the role of ethical values in the value creation process. We argue that each of these streams support the return of a shared interest in the value-, aspiration- and obligation-driven content of business. Future research must more fully embrace the view of ethical values not simply as constraining, but also as providing opportunity. As a practical matter, the recent spike in dissatisfaction with business as a social institution is providing increasingly fertile ground for more overt discussions of the interdependence of strategy and ethics. An increasing attention to questions of ethics in the management of business provides an unusually propitious moment for cross-fertilization.

Furthermore, the pursuit of this convergent research agenda has potential to produce its own practical considerations. Not only have scholars that "shaped the fields of corporate strategy and organizational behavior . . . joined the call to en- courage and guide firms in taking on a larger role in society" (Margolis & Walsh, 2003: 270), they have also promoted a convergent research agenda as beneficial to both research and practice:

By bringing strategic management theory to bear on some of the critical social issues of our time, we will not only often elevate the level of discussion in these debates, but also provide opportunities to test and extend strategic management theory. It is thus in the self-interest of both social policy experts and strategic management scholars to discover new ways to engage in this conversation. (Barney, 2005: 947)

In other words, research that more substantially integrates moral and competitive considerations—such as the future directions we have highlighted in this article—will both increase our theoretical understanding of the fundamental role ethics plays in strategic management, and bolster the relevance of management research in address-

NEW DIRECTIONS IN STRATEGY AND ETHICS 413

ing the key societal issues of our day. For each of these reasons, we hope to energize new scholarly conversations in the future directions we have identified, generating further interest in connecting strategic management and business ethics.

NOTES

We thank Vilmos Misangyi for constructive consultation, and Gary Weaver for constructive comments on an earlier draft. Heather Elms gratefully acknowledges the support provided by a Kogod Research Professor- ship, and Jared Hards the financial support from the Darden School Foundation. Stephen Brammer would like to thank the Institute for Corporate Responsibility at the George Washington University, and Tim Fort and Jennifer Griffin in particular, for the support that enabled him to spend the Autumn of 2009 so happily in Washington. All errors remain our own.

1. Reviews of each field separately include: on corporate strategy. Bowman, Singh, & Thomas, 2002; Kay, McKieman, & Faulkner, 2003; Pettigrew, Thomas, & Whittington, 2002; and Rumelt, Schendel, & Teece, 1994. Hoskisson, Hitt, Wan, and Yiu (1999) suggest an alternative way in which strategy has returned to its early foundations. On business ethics, see Amold & Reynolds, 2007; Brenkert & Beauchamp, 2010; and Whetten, Rands, & Godfrey, 2002. For alternative (but complementary) perspectives on the relationship between the two fields, see Gilbert, 2001, and Hosmer, 1994.

2. The Concept of Corporate Strategy (1971) was essentially the conceptual portion of the seminal Harvard course text. Learned, Christensen, Andrews, and Guth's Business Poticy: Text and Cases (1965). Rumelt and colleagues (1994: 16) refer to Learned et al. (1965) as one of the three works to which "[t]he birth of the field of strategic management can be traced... the declarative text of which is attributed to Ken- neth Andrews." The other two works are Alfred Chandler's Strategy and Structure ( 1962) and Igor Ansoff's Corporate Strategy (1965).

3. In 1994, Rumelt and colleagues started their description of the history of strategic management with "Strategic management, often called 'policy' or nowadays simply 'strategy,' is about the direction of organizations, and most often, business firms," and included the selection of goals as a strategic choice (Rumelt et al., 1994:9).

4. See also Khurana, 2007, for a history of business schools that suggests that the original intention in their design was to encourage the professionalization of management—a task which required emphasizing managers' duty to society. Like Andrews (1971) on strategy and values. Freeman writes, "Every manager knows that value judgments are a primary ingredient of ä successful strategy. Not only must values be taken into consideration when formulating strategy, but if the strategy is to be implemented the values of those affected by it must also be factored into the equation" (Freeman, 1984: 89-90). His development of Schendel and Hofer's (1979) and Hofer, Murray, Charan, and Pitts's (1980) notion of "enterprise strategy" offers several example combinations of managerial values and stakeholder approaches (see in particular Freeman, 1984: 90-91, 101-07).

5. Though by the revision of the 1971 book,Andrewshadmadethisonly a possibility, and only strenuous: "Coming to terms with the morality of choice may be the most strenuous undertaking in strategic decision" (Andrews, 1980: 89). Note, too, that he had deleted the quotation with which we began our paper.

6. For additional work discussing the connection between strategy and ethics, see Hosmer, 1994; Freeman & Gilbert, 1988; and Gilbert, Hartman, Mauriel, & Freeman, 1988.

7. Interestingly, this appears to be an extension of Andrews (1971)'s "corporate strategy is the pattern of major objectives, purposes, or goals and essential policies and plans for achieving those goals, stated in such as way as to define what business the company is in or is to be in and the kind of company it is or is to be" (Andrews, 1971: 28). However, by the 1980 revision, in addition to the other changes/deletions we described in the previous note, Andrews had also reduced 197rs 59-page chapter entitled "The Company and Its Social Responsibilities: Relating Corporate Strategy to the Needs of Society" to a 16-page chapter entitled "The Company and Its Responsibilities to Society: Relating Corporate Strategy to Ethical Values." This reduction included removing a section that appeared in the 1971 version (pp. 172-177) on the "Profes- sionalization of Management Practice." Khurana, 2007, makes no reference to either text.

8. Andrews notes "the inadequacy of stating goals only in terms of maximum profit" (Andrews, 1971 : 41), and that "[g]rowth and market share goals and arbitrarily chosen financial objectives are sometimes mistaken for a considered statement of corporate purpose" (Andrews, 1980: vi).

414 BUSINESS ETHICS QUARTERLY

9. Porter, for example, limited most of his recognition of the role ethics play in strategy to a statement in the book's preface: "strategy must occur in the context of rules of the game for socially desirable competi- tive behavior, established by ethical standards and through public policy" (Porter, 1980/1998: xviii, from the 1980 preface), and a section in the introduction entitled "Review: The Classic Approach to Formulation of Strategy" which he notes "draws heavily on the work of Andrews, Christensen, and others in the Policy group at the Harvard Business School" (Porter, 1980/1998: xxiv). This section more specifically references Andrews (1971), as well as Christensen, Andrews, & Bower (1977) (a newer edition of Learned et al., 1965), identifies "social responsiveness" as a potential strategic goal (figure 1-1, p. xxiv), and recognizes "personal values of the key implementers" and "broader societal expectations" as part of the "Context in Which Competitive Strategy is Formulated" (figure 1-2, p. xxvi). The section does not, however, explicitly recognize the potentially ethical content of "social responsiveness," "personal values," or "societal expec- tations," and the rest of the book is even less ambitious about the role of ethics in strategy. Porter (1985) does not reference Andrews, 1971, or Christensen et al., 1977 (though the book is dedicated to Christensen and Caves), nor is there a discussion of social responsiveness, personal values, or societal expectations. Porter's early contributions and a more general shift in the field away from ethics as a fundamental part of strategy are associated with the sense of scientistic amorality strategic management took on, creating much of the cleavage we are trying here to resolve. Porter specifically, however, has more recently contributed to that resolution, including a book on how nations determine firms' ability to create and sustain international competitive advantages and thus contribute to national prosperity (Porter, 1990), work suggesting that positively responding to environmental problems and regulation might be a source of competitive advantage (Porter & van der Linde, 1995a, and 1995b), additional work noting that corporations can use philanthropy to improve the quality of the business environment (Porter & Kramer, 2002), and an argument in favor of the integration of a firm's strategic capabilities and social initiatives (Porter & Kramer, 2006).

10. And Schmalensee (1985) before him in economics. 11. Indeed, the largest body of work (and the most recognizable stream of research) linking strategy

and ethics—in either the strategic management or business ethics literatures—appears to be the effort to understand the link between corporate social and corporate financial performance (CSP and CFP); see Bamett & Salomon, 2006; Brammer & Millington, 2008; Godfrey, Merrill, & Hansen, 2009; Margolis & Walsh, 2003; Orlitzky, Schmidt, & Rynes, 2003; Orlitzky, 2008; and Waddock & Graves, 1997. Both CSP and CFP have been used as independent and dependent variables, but for an empirical review of dependent variables across Academy of Management publications (1958-2000), and all of the research that attempts to link CSP and CFP (1972-2001), see Walsh, Weber, & Margolis, 2003. This literature also includes con- ceptual investigations (e.g., Bamett, 2007; Mackey, Mackey, & Bamey, 2007; Porter & Kramer, 2006), as well as empirical tests of the relationship between various other factors and CSP (e.g., Chatterji, Levine, & Toffel, 2009; David, Bloom, & Hillman, 2007; Wang, Choi, & Li, 2008).

12. Are measures of CSP really good measures of "ethics"? Is financial performance always the best measure of good strategy? There are many who believe that examining the CSP-CFP relationship doesn't make sense, given a conceptual inability to separate social from financial performance, relying as it does on the so-called "separation thesis" (Freeman, 1994; Harris & Freeman, 2008; or "fallacy," cf. Freeman, 2008) that ethics considerations can be distinguished from business considerations—as well as those who make both the conceptual and empirical case against attempting to separate the two (e.g., Rowley & Berman 2000).

13. See Sen, 1987, for more on the latter point. 14. Along these hnes, Grahovac & Miller (2009: 1195) suggest that how much "value is appropriated

by various parties depend[s] on the nature of the competition and the value creation potentials of all other firms," Adner & Zemsky (2006) add a focus on value creation for consumers, and Brandenburger & Stuart (1996) suggest that a stakeholder's added value is the upper bound on the value that a stakeholder is able to appropriate.

15. In a discussion about what he would modify or change about the 1980 book. Porter (1980/1998: xiii) also emphasized complementors: "firms can enhance total value to be distributed by working cooperatively with buyers, suppliers, and producers of complementary products."

16. There have been a number of sessions dedicated to stakeholder theory and strategy at key intemational conferences in recent years, including a workshop at the Strategic Management Society 2007 Intemational Conference hosted by the competitive strategy interest group, a showcase symposium at the 2008 Academy of Management annual meeting entitled "Towards a Stakeholder Theory of Strategy" spearheaded by the

N E W DIRECTIONS IN STRATEGY AND ETHICS 415

BPS division and inclusive of SIM and OMT, and another workshop at the Strategic Management Society 2008 International Conference building upon insights arising from these previous sessions.

17. Also see Robertson, 2008, for an examination of business ethics research more generally in Strategic Management Journal (SMJ), 1996-2005.

18. Other work in SMJ has also investigated contingencies in the CSP-CFP relationship as well—e.g., Hull and Rothenberg (2008), who find that CSP helps financial performance when a company isn't innova- tive, but not so much when it is; and see also McWilliams & Siegel, 2000—though the conceptual notions and empirical measures of CSP used in these studies and others are not the same as those that might be sug- gested by much stakeholder theory (see Freeman, 1984; Elms, Johnson-Cramer, & Berman, forthcoming.) Bamett & Salomon (2006: 1101) identify a curvilinear relationship between social responsibility (in the SRI mutual fund industry, proxied by the number of social screens) and financial performance, and also find that financial performance varies with the type of social screens: "Community relations screening increased financial performance, but environmental and labor relations screening decreased financial performance," suggesting the value of "in-depth examination of the merits of different social screening strategies, and away from the continuing debate on the financial merits of either being socially responsible or not."

19. "Stakeholder orientation" and "stakeholder culture" are arguably the modem reincarnations of "enterprise strategies."

20. For recent work on this last point, see Wolfe & Putler, 2002. 21. For recent work on stakeholder responsibility, see Elms & Phillips, 2009, and Goodstein & Wicks,

2007. 22. Complementing the managerial discretion literature, see also de Rond and Thietart, 2007, which

addresses these questions, explicitly using moral philosophy in SMJ. 23. For a discussion of this literature at the 44th anniversary of the publication of the first edition of

Cyert and March's A Behavioral Theory of the Firm (Cyert & March, 1963/1992) in 1963, see Argote & Grève, 2007.

24. See also Camerer & Thaler, 1995; Field, 2004; and Business Ethics Quarterly 20(1), including De Cremer, van Dijk & Pilluda (2010), and from a previous issue, Cropanzano & Stein (2009). In addition, a surge of popular interest in behavioral economics has produced a number of recent books by scholars such as Akerlof and Kranton, (2010), Akerlof and Shiller (2009), Ariely (2009), Frank (2009), Thaler and Sunstein (2008), and others.

25. Also see Burger, 2009, for a recent replication with similar results—and Elms, 2009, and Miller, 2009, for critiques.

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