Chapter 7 Organizational Factors: The Role of Ethical Culture and Relationships

Learning Objectives Understand the concept of corporate culture Examine the influence of corporate culture on business ethics Determine how leadership, power, and motivation relate to ethical decision making in organizations

Learning Objectives (continued) Assess organizational structure and its relationship to business ethics Explore how the work group influences ethical decisions Discuss the relationship between individual and group ethical decision making

Corporate Culture Values, beliefs, rules, and ceremonies that are accepted, shared, and circulated throughout an organization Sarbanes–Oxley 404 Requires firms to adopt a set of values that forms a portion of the company’s culture Associated with a company’s success or failure

Types of Organizational Cultures Apathetic culture Minimal concern for either people or performance Caring culture High concern for people but minimal concern for performance issues

Types of Organizational Cultures (continued) Exacting culture Little concern for people but high concern for performance Integrative culture High concern for people and performance

Ethics as a Component of Corporate Culture Firm’s culture forms the basis of ethical decision making Management’s sense of an organization’s culture might differ from that of the firm’s employees Higher-level managers need to monitor the organization’s values, traditions, and beliefs to ensure they represent the desired culture Rewards and punishments imposed by an organization should reflect the culture the top management wishes to create

Compliance versus Values-Based Ethical Cultures Uses laws and regulatory rules to create compliance codes and requirements Compliance culture Relies on a mission statement that defines the core values of the firm and how customers and employees should be treated Values-based ethics culture

Differential Association and Whistle-Blowing Differential association: Idea that people learn ethical or unethical behavior while interacting with people who are part of their intimate personal groups Legal protection for whistle-blowers exists to encourage reporting of misconduct Sarbanes–Oxley Act and the Federal Sentencing Guidelines for Organizations (FSGO) Criminal Fraud Accountability Act (CCFA) Dodd–Frank Act

Role of Power in Shaping Corporate Culture Power - Influence leaders and managers have over the behavior and decisions of their subordinates Power bases Reward power Coercive power Legitimate power Expert power Referent power

Motivating Ethical Behavior Leader’s ability in motivating his or her subordinates plays a role in maintaining an ethical organization Job performance is the product of motivation and ability An individual’s hierarchy of needs may influence his or her motivation and ethical behavior After basic needs and survival needs are satisfied, relatedness needs and growth needs become important

Organizational Structure Centralized organization Decentralized organization Decision-making authority is concentrated in the top-level management Codes of ethics specify the techniques used for decision making by management Distance between managers and decision-makers may lead to unethical acts Decision-making authority is delegated down the chain of command Has fewer internal controls and uses shared values for their ethical standards Ambiguity in following a rule versus the spirit of rules creates ethical challenges

Groups Formal group: Assembly of individuals with an organized structure that is explicitly accepted by the group Committees, work groups, and teams Informal group: Composed of individuals who have similar interests and band together for purposes that may or may not be relevant to the goals of the organization Group norms: Standards of behavior that groups expect of their members

Table 7.7 -Variation in Employee Conduct

People’s Control over their Actions Within a Corporate Culture Ethical decisions within organizations are made by committees and formal and informal groups, not by individuals Employees in bureaucratic organizations have limited knowledge about the basic rules and procedures of the company When ethical conflict is severe, the individual may have to decide whether to leave the organization