Business Ethics Tathagat Varma Session 8/12: 03-‐Sep-‐09
Role of Leadership • Top managers provide a blueprint for what a ﬁrm’s corporate culture should be. If these leaders fail to express desired behaviors and goals, a corporate culture will evolve on it own but will sJll reﬂect the goals and values of the company.
Types of Leadership • Six types of leadership idenJﬁed by Daniel Goleman: – Coercive Leadership – AuthoritaJve Leadership – AﬃliaJve Leadership – DemocraJc Leadership – PaceseSng Leadership – Coaching Leadership • TransacJonal / TransformaJonal
Coercive Leader • Demands instantaneous obedience and focused on achievement, iniJaJve, and self-‐ control • Although this style can be very eﬀecJve during Jmes of crisis or during a turnaround, it otherwise creates a negaJve climate for organizaJonal performance.
AuthoritaJve Leader • Considered to be one of the most eﬀecJve styles-‐ inspires employees to follow a vision, facilitates change, and creates a strongly posiJve performance climate
AﬃliaJve Leader • Values people, their emoJons, and their needs and realies on friendship and trust to promote ﬂexibility, innovaJon, and risk taking
DemocraJc Leader • Relies on parJcipaJon and teamwork to reach collaboraJve decisions. • This style focuses on communicaJon and creates a posiJve climate for achieving results
PaceseSng Leader • Can create a negaJve climate because of the high standards he or she sets. • This style works best for aWaining quick results from highly moJvated individuals who value achievement and take the iniJaJve
Coaching Leader • Builds a posiJve climate by developing skills to foster long-‐term success, delegates responsibility, and is skillful in issuing challenging assignments
TransacJonal / TransformaJonal • TransacJonal leaders aWempt to create employee saJsfacJon through negoJaJng, or ‘bartering’ for desired behaviors or levels of performance. • TransformaJonal leaders strive to raise employees level of commitment and to foster trust and moJvaJon. • Both types of leaders can posiJvely inﬂuence the organizaJonal culture.
TransacJonal Leaders • Focus on ensuring that required conduct and procedures are implemented. • Their negoJaJons to achieve desired outcomes result in a dynamic relaJonship with subordinates in which reacJons, conﬂicts, and crisis inﬂuences the relaJonship more than ethical concerns. • They product employees who achieve a negoJated level of performance, including compliance with ethical and legal standards. • Best suited for rapidly changing situaJons, including those that require responses to ethical problems or issues.
TransformaJonal Leaders • Communicate a sense of mission, sJmulate new ways of thinking, and enhance as well as generate new learning experiences • They consider employee needs and aspiraJons in conjuncJon with organizaJonal needs. • Build commitment and respect for values that provide agreement on how to deal with ethical issues. • They strive to promote acJviJes and behavior through a shared vision and common learning experiences. As a result, they have a stronger inﬂuence on coworker support for ethical decisions and building an ethical culture than do transacJonal leaders. • Best suited for organizaJons that have higher levels of ethical commitment among employees and strong stakeholder support for an ethical climate.
Impact of Power on Ethical Decisions • Power refers to the inﬂuence that leaders or managers have over the behavior and decisions of subordinates. • An individual has power over others when his or her presence causes them to behave diﬀerently. ExerJng power is one way to inﬂuence the ethical decision-‐making framework. • The status and power of leaders is directly related to the amount of pressure they can exert on employees to conﬁrm to their expectaJons. – A superior in an authority posiJon can put strong pressure on employees to comply, even when their personal ethical values conﬂict with superior’s wishes.
Five Bases of Power • Social psychologists French and Raven, in a now-‐classic study (1959), developed a schema of ﬁve categories of power which reﬂected the diﬀerent bases or resources that power holders rely upon. One addiJonal base (informaJonal) was later added – PosiJonal Power – Referent Power – Expert Power – Reward Power – Coercive Power • These can be used to moJvate individuals either ethically or unethically. • They are no mutually exclusive • Power in itself is neither ethical or unethical, its use can raise several ethical issues.
PosiJonal Power • Also called "LegiJmate Power", it refers to power of an individual because of the relaJve posiJon and duJes of the holder of the posiJon within an organizaJon. LegiJmate Power is formal authority delegated to the holder of the posiJon. It is usually accompanied by various aWributes of power such as uniforms, oﬃces etc. This is the most obvious and also the most important kind of power.
Referent Power • The power or ability of individuals to aWract others and build loyalty. Its based on the charisma and interpersonal skills of the power holder. A person may be admired because of speciﬁc personal trait, and this admiraJon creates the opportunity for interpersonal inﬂuence. Here the person under power desires to idenJfy with these personal qualiJes, and gains saJsfacJon from being an accepted follower. NaJonalism or PatrioJsm counts towards an intangible sort of referent power as well. For example, soldiers ﬁght in wars to defend the honor of the country. • This is the second least obvious power, but the most eﬀecJve. AdverJsers have long recognized referent power in making use of sports ﬁgures for products endorsements, for example. The charismaJc appeal of the sports star supposedly leads to an acceptance of the endorsement, although the individual may have liWle real credibility outside the sports arena.
Expert Power • Expert Power is an individuals power deriving from the skills or experJse of the person and the organizaJons needs for those skills and experJse. Unlike the others, this type of power is usually highly speciﬁc and limited to the parJcular area in which the expert is trained and qualiﬁed.
Reward Power • Reward Power depends upon the ability of the power wielder to confer valued material rewards, it refers to the degree to which the individual can give others a reward of some kind such as beneﬁts, Jme oﬀ, desired gijs, promoJons or increases in pay or responsibility. This power is obvious but also ineﬀecJve if abused. People who abuse reward power can become pushy or became reprimanded for being too forthcoming or moving things too quickly.
Coercive Power • Coercive Power means the applicaJon of negaJve inﬂuences onto employees. It might refer to the ability to demote or to withhold other rewards. Its the desire for valued rewards or the fear of having them withheld that ensures the obedience of those under power. Coercive Power tends to be the most obvious but least eﬀecJve form of power as it builds resentment and resistance within the targets of Coercive Power.
InformaJon Power • InformaJon Power is derived from possession of important informaJon at a criJcal Jme when such informaJon is necessary to any organisaJonal funcJons.
OrganizaJonal Structure • Various roles and job descripJons that comprise an organizaJonal structure may create opportuniJes for unethical behavior • Could be – Centralized – Decentralized
Centralized OrganizaJon • Decision-‐making authority is concentrated in the hands of top-‐level managers, and liWle authority is delegated to lower levels. • Responsibility rests with top-‐level managers. • Especially suited for organizaJons that make high-‐risk decisions and whose lower-‐level managers are not highly skilled in decision-‐ making. It is also suitable where producJon processes are rouJne and eﬃciency is of primary importance.
Centralized… • Usually extremely bureaucraJc • Division of labor is typically well deﬁned • Ethical issues: – Because of their top-‐down approach and distance between employee and decision makes, can lead to unethical acts. – Very liWle upward communicaJon: top-‐level managers may not be aware of problems and unethical acJvity – ScapegoaJng: people may transfer blame for their acJons to others who are not responsible
Decentralized OrganizaJon • Decision-‐making is delegated as far down the chain of command as possible. • Have relaJvely few formal rules, and coordinaJon and control are usually informal and personal. • They focus instead on increasing the ﬂow of informaJon. Hence, a main strength is their adaptability and early recogniJon of external change, so that managers can react quickly to changes in their ethical environment.
Comparison Characteris/c Emphasis Decentralized Centralized Hierarchy of authority Decentralized Centralized Flexibility High Low Adaptability High Low Problem RecogniJon High Low ImplementaJon Low High Dealing with changes in Good Poor environmental changes Rules and procedures Few and informal Many and formal Division of labor Ambiguous Clear-‐cut Span of control Few employees Many employees Use of management Minimal Extensive techniques CoordinaJon and control Informal and personal Formal and impresonal
Centralized vs. Decentralized • Due to strict formalizaJon and implementaJon of ethics policies and procedures in centralized organizaJons, the tend to be more ethical in their pracJces than decentralized organizaJons. However, centralized ﬁrms may have more diﬃcult Jme uprooJng unethical acJvity than decentralized ones. • Unethical behavior is possible in either of them when speciﬁc corporate cultures permit or encourage workers to deviate from accepted standards or ignore legal and ethical responsibiliJes.
Group Dimensions • Two main categories of groups aﬀect ethical behavior in business: – Formal group is deﬁned as an assembly of individuals that has an organized structure accepted explicitly by the group • CommiWees • Work Groups and Teams – Informal group is deﬁned as two or more individuals with a common interest but without an explicit organizaJonal structure
CommiWees • Formal group of individuals assigned to a speciﬁc task • CommiWee decisions are to some extent legiJmized because of agreement or majority rule. In this respect, minority views on issues such as ethics can be pushed aside through the majority’s authority. • CommiWees bring diverse personal moral values into the ethical decision-‐making process, which may expand the number of alternaJves considered. • CommiWee decisions are also generally more conservaJve than those made by individuals and may be based on unnecessary compromise rather than on idenJfying the best alternaJve. • Also inherent in the commiWee structure is lack of individual responsibility.
Work Groups and Teams • Work groups are used to subdivide duJes within speciﬁc funcJonal areas of a company • Teams bring together the funcJonal experJse of employees from several diﬀerent areas of organizaJon – Ethical conﬂicts may arise because team members come from diﬀerent funcJonal areas
Informal Groups • May generate disagreement and conﬂict, or they may enhance morale and job saJsfacJon • Help to develop informal channels of communicaJon (“grapevine”) which are important in every organizaJon. Informal communicaJon ﬂows up, down, diagonally and horizontally, not necessarily following the communicaJon lines on a company’s org chart. – The grapevine can act as an early warning system – Grapevine is also an important source of informaJon for individuals to assess ethical behavior within their organizaJon
Group Norms • Group norms are standards of behavior that groups expect of their members. • Norms have the power to enforce a strong degree of conformity among group members. At the same Jme, norms deﬁne the diﬀerent roles for various posiJons within the organizaJon. Thus, a low-‐ranking member of a group may be expected to carry out an unpleasant task, such as accepJng responsibility for someone else’s ethical mistake. • SomeJmes, group norms conﬂict with the values and rules prescribed by the organizaJon’s culture.
Can People control their own acJons within an org culture ? • Ethical decisions within organizaJons are ojen made by commiWees and formal and informal groups, not by individuals. Decisions related to ﬁnancial reporJng, adverJzing, product design, sales pracJces, and polluJon-‐control issues are ojen beyond the inﬂuence of individuals alone. In addiJon, these decisions are frequently based on business rather than personal goals. • Although many personal ethics issue may seem straighqorward and easy to resolve, individuals entering business will usually need several years of experience within a speciﬁc industry to understand how to resolve ethical close calls.
Can… • We believe that most companies and businesspeople try to make ethical decisions. However, because there is so much diﬀerence between individuals, ethical conﬂict is inevitable. • If a person believes that his or her personal ethics severely conﬂict with the ethics of the work group and of superiors in an organizaJon, that individual’s only alternaJve may be to leave the organizaJon. In the highly compeJJve employment market of today, quiSng a job because of an ethical conﬂict requires courage and possibly, the ability to survive without a job. • Obviously, there are no easy answers for resolving ethical conﬂicts between the organizaJon and the individual.
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