Chapter 7

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

Part Three:
The Decision Making Process

© 2013 Cengage Learning. All Rights Reserved. 1

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

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


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

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


Perceived Tone and Culture of the CEO and
other Executives


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

Company Examples of Organizational Culture
Types


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


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


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


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


Questions to Ask Before Engaging in External
Whistle-Blowing


Forms of Retaliation Experienced as a Result
of Reported Misconduct


To Whom Do Employees Report Misconduct?


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

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

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

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

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

Structural Comparisons of Organizational
Types


Example of Centralized/Decentralized
Corporate Cultures


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


Variation in Employee Conduct


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

Chapter 7

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