1. © 2013 Cengage Learning. All Rights Reserved. 1 Part Three: The Decision Making Process Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships

2. Ethical Corporate Culture Corporate culture has many definitions  A set of values, norms, and artifacts, including ways of solving problems shared by organizational members  The shared beliefs top managers have about how they should manage themselves and other employees and how they should conduct their business  Gives organizational members meaning and sets the internal rules of behavior All organizations have culture © 2013 Cengage Learning. All Rights Reserved. 2

3. Sarbanes-Oxley 404 Culture is codified by the Sarbanes-Oxley 404 compliance section  Includes assessment of effectiveness of controls by management and external auditors  Forces firms to adopt a set of values that make up part of the culture Compliance with 404 requires cultural change, not only accounting changes © 2013 Cengage Learning. All Rights Reserved. 3

4. Corporate Culture  May be formal through statements of values, beliefs, and customs  Comes from upper management  Memos, codes, manuals, forms, ceremonies  May be informal through direct or indirect comments conveying management’s wishes  Dress codes, promotions, extracurricular activities The “tone at the top” is crucial in creating ethical corporate culture © 2013 Cengage Learning. All Rights Reserved. 4

5. Two Dimensions of Organizational Culture  Concern for people  The organization’s efforts to care for its employees’ well-being  Concern for performance  The organization’s efforts to focus on output and employee productivity © 2013 Cengage Learning. All Rights Reserved. 5

6. 6 Perceived Tone and Culture of the CEO and other Executives

7. Four Organizational Culture Types  Apathetic: Minimal concern for people or performance  Caring: High concern for people; minimal concern for performance  Exacting: Minimal concern for people; high concern for performance  Integrative: High concern for people and performance A cultural audit is an assessment of the organization’s values Usually conducted by outside consultants; can be handled internally © 2013 Cengage Learning. All Rights Reserved. 7

8. 8 Company Examples of Organizational Culture Types

9. Ethics and Corporate Culture  Ethical corporate culture is a significant factor in ethical decision making  If a firm’s culture encourages/rewards/does not monitor unethical behavior, employees may act unethically  Management’s sense of an organizational culture may differ from that guiding employees © 2013 Cengage Learning. All Rights Reserved. 9

10. Compliance versus Values-Based Culture  Compliance-based cultures use a legalistic approach to ethics  Revolve around risk management, not ethics  Lack of long-term focus and integrity  Values-based cultures rely on mission statements that define the firm and stakeholder relations  Focus on values, not laws  Top-down integrity is critical © 2013 Cengage Learning. All Rights Reserved. 10

11. Differential Association The idea that people learn ethical/unethical behavior while interacting with others  Studies support that differential association supports ethical decision making  Superiors have a strong influence on subordinates  Employees may go along with superiors’ moral judgments to show loyalty © 2013 Cengage Learning. All Rights Reserved. 11

12. Whistle-Blowing Exposing an employer’s wrongdoing to company outsiders  Some legal protections exist  The Sarbanes-Oxley Act, the FSGO, and the Dodd-Frank Act have institutionalized whistle- blowing protections to encourage discovery of misconduct  Whistle-blowers fear retaliation © 2013 Cengage Learning. All Rights Reserved. 12

13. © 2013 Cengage Learning. All Rights Reserved. 13 Questions to Ask Before Engaging in External Whistle-Blowing

14. © 2013 Cengage Learning. All Rights Reserved. 14 Forms of Retaliation Experienced as a Result of Reported Misconduct

15. © 2013 Cengage Learning. All Rights Reserved. 15 To Whom Do Employees Report Misconduct?

16. Leaders Can Influence Corporate Culture  An effective leader is one who does well for the stakeholders of the corporation  Effective leaders are good at getting followers to common goals effectively and efficiently  Power refers to the influence that leaders and managers have over the behavior and decisions of subordinates  An individual has power when his/her presence causes people to behave differently Power and influence shape corporate culture © 2013 Cengage Learning. All Rights Reserved. 16

17. Five Power Bases  Reward power: Offering something desirable to influence behavior  Coercive power: Penalizing negative behavior  Legitimate power: The consensus that a person has the right to exert influence over others  Expert power: Derives from knowledge and credibility with subordinates  Referent power: Exists when goals or objectives are similar © 2013 Cengage Learning. All Rights Reserved. 17

18. Motivation A force within the individual that focuses behavior toward achieving a goal  Job performance: A function of ability and motivation  An individual’s hierarchy of needs may influence motivation and ethical behavior  Relatedness needs: Satisfied by social and interpersonal relationships  Growth needs: Satisfied by creative or productive activities Needs or goals may change over time © 2013 Cengage Learning. All Rights Reserved. 18

19. Centralized Organizational Structure Decision making authority is concentrated in the hands of top-level managers  Little authority delegated to lower levels  Best for organizations  That make high-risk decisions  Whose lower-level managers are not skilled in decision-making  Where processes are routine May have a harder time responding to ethical issues © 2013 Cengage Learning. All Rights Reserved. 19

20. Decentralized Organizational Structure Decision making authority is delegated as far down the chain of command as possible  Flexible and quicker to recognize external change  Can be slow to recognize organizational policy changes Units may diverge and develop different value systems Ethical misconduct may result © 2013 Cengage Learning. All Rights Reserved. 20

21. © 2013 Cengage Learning. All Rights Reserved. 21 Structural Comparisons of Organizational Types

22. © 2013 Cengage Learning. All Rights Reserved. 22 Example of Centralized/Decentralized Corporate Cultures

23. Groups in Corporate Structure and Culture  Formal groups  Committees, work groups, and teams  Informal groups  The grapevine  Group norms  Standards of behavior that groups expect of members  Define acceptable/unacceptable behavior within the group © 2013 Cengage Learning. All Rights Reserved. 23

24. © 2013 Cengage Learning. All Rights Reserved. 24 Variation in Employee Conduct

25. Can People Control Their Own Actions Within a Corporate Culture? Ethical decisions are often made by committees and formal and informal groups  Many decisions are beyond the influence of individuals  Congruence between individual and organizational ethics–increases potential for making ethical decisions Individuals need experience to understand how to resolve ethical issues © 2013 Cengage Learning. All Rights Reserved. 25