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

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.

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.

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.

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.

Perceived Tone and Culture of the CEO and other Executives © 2013 Cengage Learning. All Rights Reserved.

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.

Company Examples of Organizational Culture Types © 2013 Cengage Learning. All Rights Reserved.

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.

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.

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.

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.

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

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

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

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.

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.

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.

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.

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.

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

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

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.

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

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.