Business ethics ethical decision making and case 10e chapter 7

Part Three
The Decision
Making Process

Chapter 7
Organizational
Factors: The Role
of Ethical Culture
and Relationships
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Defining 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 mangers 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
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Sarbanes-Oxley 404
Culture is codified by the SarbanesOxley 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
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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 critical in creating

ethical corporate culture
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U.S. Bank’s Principles
For Integrity



Being a role model for ethical behavior



Promoting our culture of integrity



Fostering open communication



Recognizing behavior that exemplifies our ethical principles and values



Responding to misconduct and reporting violations
Source: U.S. Bank, Do the Right Thing: Code of Ethics and Business Conduct ,
(accessed
March 8, 2011).

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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

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6

Traits to Look for in
Future Leaders

Source: “Robert Half Management Resources Survey: CFOs Cite Integrity as Most Important Trait for Future Leaders,” PR
Newswire, September 30, (accessed April 26, 2013).
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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
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Four Organizational
Culture Types

A cultural audit is an assessment of the

organization’s values
 Usually conducted by outside consultants;

can be handled internally

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Company Examples of the
Four Organizational Cultures

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10


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

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Compliance versus
Value-Based Cultures
 Compliance-based cultures use a legalistic

approach to ethics

 Revolve around risk management, not ethics
 Lack of long-term focus and integrity

 Value-based cultures rely on mission

statements that define the firm and
stakeholder relations
 Focus on values, not laws
 Top-down integrity is critical

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12


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
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13


Whistle-Blowing
Exposing an employer’s wrongdoing to
company outsiders
 Some legal protections exit
 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

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Questions to Ask before Engaging in
External Whistle-Blowing
1. Have I exhausted internal anonymous reporting opportunities within
the organization?
2. Have I examined company policies and codes that outline acceptable
behavior and violations of standards?
3. Is this a personal issue that should be resolved through other means?
4. Can I manage the stress that may result from exposing potential
wrongdoing in the organization?
5. Can I deal with the consequences of resolving an ethical or legal
conflict
within the organization?

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Percentage of Employees Who Experience Retaliation after
Reporting Misconduct

Source: Ethics Resource Center, 2011 National Business Ethics Survey: Workplace Ethics in Transition (Arlington, VA: Ethics
Resource Center, 2012), 15.

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How Employees Report Observed

Misconduct

Source: Ethics Resource
Center, 2011 National
Business Ethics Survey:
Workplace Ethics in
Transition (Arlington, VA:
Ethics Resource Center, 2012),
21. 23715_ch07_lores_181212.indd 195 13/07/13 5:14 PM

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Leaders 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
 A individual has power when his/her presence

causes people to behave differently

 Power and influence shape corporate culture
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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
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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
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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

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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

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Structural Comparison of Organizational Types Emphasis

Characteristic

Centralized

Decentralized

Centralized

Decentralized

Flexibility

Low

High

Adaptability

Low

High

Problem recognition

Low

High

Implementation

High

Low

Dealing with changes

Poor environmental
complexity

Good

Rules and procedures

Many and formal

Few and informal

Division of labor

Clear-cut

Ambiguous

Span of control

Many employees

Few employees

Extensive

Minimal

Formal and
impersonal

Informal and
personal

Hierarchy of authority

Use of managerial techniques
Coordination and control

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Examples of Centralized and
Decentralized Corporate Cultures

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Examples of Centralized and
Decentralized Corporate Cultures
Organizational
Culture

Characterized by

Nike

Decentralized

Creativity, freedom, informality

Southwest Airlines

Decentralized

Fun, teamwork orientation,
loyalty

Centralized

Unions, adherence to task
assignments, structured

Decentralized

Creative, investigative, fast
paced

Centralized

Experienced, dependable, a rich
history and tradition of
products, powerful

Company

General Motors
Microsoft

Proctor & Gamble

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