Copyright © Houghton Mifflin Company. All rights reserved.7-1 Chapter 7 Organizational Factors: The Role of Ethical Culture and Relationships

Copyright © Houghton Mifflin Company. All rights reserved.7-2 The Role of Corporate Culture in Ethical Decision Making Corporate culture is a set of values, beliefs, goals, norms, and ways of solving problems shared by members (employees) of an organization. Culture gives members of an organization meaning and provides them with rules for behaving within the organization. A company’s history and unwritten rules are a part of its culture. –Culture can be influenced by the founder’s values. Some cultures are so strong they dictate the character of the entire organization to outsiders.

Copyright © Houghton Mifflin Company. All rights reserved.7-3 Corporate Culture May be explicit statements of values, beliefs, and customs –Coming from upper management in the form of memos, codes, handbooks, manuals, forms and ceremonies May be expressed informally through direct and indirect comments that convey management’s wishes –Dress codes, promotions, legends, extracurricular activities

Copyright © Houghton Mifflin Company. All rights reserved.7-4 Two Basic Dimensions Determine an Organization’s 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

Copyright © Houghton Mifflin Company. All rights reserved.7-5 Four Different Cultures Can Emerge Apathetic—shows minimal concern for people or performance Caring—exhibits high concern for people, but minimal concern for performance Exacting—shows little concern for people, but high concern for performance Integrative—high concern for people and performance

Copyright © Houghton Mifflin Company. All rights reserved.7-6 A Framework of Organizational Culture Typologies

Copyright © Houghton Mifflin Company. All rights reserved.7-7 Ethics as a Component of Corporate Culture Corporate culture is a significant factor in ethical decision making. If a firm’s culture encourages or rewards unethical behavior, its employees may well act unethically. An organization’s failure to monitor or manage its culture may foster questionable behavior. Ethical issues may arise because of conflicts between the cultural values perceived by management and those actually at work in the organization.

Copyright © Houghton Mifflin Company. All rights reserved.7-8 Role of Leadership Leadership is the ability or authority to guide and direct others toward achievement of a goal. Important leaders –CEOs and top management –Boards of Directors

Copyright © Houghton Mifflin Company. All rights reserved.7-9 Interpersonal Relationships in Organizations One of the biggest challenges in business is getting diverse people to work together efficiently and ethically while coordinating their skills. Relationships among individuals and within groups are an important part of the proper functioning of a business organization.

Copyright © Houghton Mifflin Company. All rights reserved.7-10 Interpersonal Relationships in Organizations (cont’d) Understanding how interpersonal relations influence decisions about ethical issues –The corporation’s responsibility as a moral agent –Variation in employee conduct –Role relationships within the organization Socialization Role-sets Role stress Differential association Whistle-blowing Organizational pressures

Copyright © Houghton Mifflin Company. All rights reserved.7-11 Interpersonal Relationships (cont’d) Responsibility of the corporation as a moral agent –Corporations are viewed not merely as profit-making entities but also as moral agents accountable to stakeholders. –Companies are legally accountable for the conduct of their employees as well as for their decisions and the consequences of those decisions. –The only way to ensure consistent decisions that represent the interests of all stakeholders is to require ethical policies.

Copyright © Houghton Mifflin Company. All rights reserved.7-12 Interpersonal Relationships (cont’d) Variation in employee conduct –People are culturally diverse and have different values, they interpret situations differently and will vary in the ethical decisions they make on the same ethical issue. –Good business practice and concern for the law requires organizations to recognize this variation in the employees’ desire to be ethical.

Copyright © Houghton Mifflin Company. All rights reserved.7-13 Interpersonal Relationships (cont’d) 10%—will take advantage of situations to further their own personal interests 40%—will go along with the work group on most matters 40%—will try to follow company policies and rules and have a strong grasp of the corporate culture 10%—maintain formal standards that focus on rights, duties and rules

Copyright © Houghton Mifflin Company. All rights reserved.7-14 Interpersonal Relationships (cont’d) Role relationships All the roles that a person plays in a company constitute his or her position and together they –Prescribe the behavior that others expect of someone in that position –Help the organization achieve its goals

Copyright © Houghton Mifflin Company. All rights reserved.7-15 Interpersonal Relationships (cont’d) Role relationships (cont’d) –Socialization refers to the process through which a person learns the values and behavior patterns considered appropriate by an organization or group. –A role-set is the total of all role relationships in which a person is involved as a result of his or her position in an organization. –Role stress is the strain, conflict, or disruption that results from a lack of agreement on certain job-related activities.

Copyright © Houghton Mifflin Company. All rights reserved.7-16 Interpersonal Relationships (cont’d) Differential association –The idea that people learn ethical or unethical behavior while interacting with others who are part of their role-sets or belong to other intimate personal groups Whistle-blowing –Exposing an employer’s wrongdoing to outsiders, such as the media or government regulatory agencies

Copyright © Houghton Mifflin Company. All rights reserved.7-17 Interpersonal Relationships (cont’d) Legal provisions of whistle-blowing –The Sarbanes-Oxley Act makes it illegal to discriminate against a whistle-blower. –Publicly traded companies are required to implement an anonymous reporting mechanism. –The Federal Sentencing Guidelines for Organizations provides rewards for companies that systematically detect and address unethical or illegal activities.

Copyright © Houghton Mifflin Company. All rights reserved.7-18 Interpersonal Relationships (cont’d) Organizational pressures –Pressure to achieve company goals can sometimes create ethical issues.

Copyright © Houghton Mifflin Company. All rights reserved.7-19 The Role of Opportunity and Conflict Opportunity and conflict influence ethical decision making in interpersonal relationships Opportunity –Creates ethical dilemmas –Can come from knowledge –Can come from persons outside the organization

Copyright © Houghton Mifflin Company. All rights reserved.7-20 Opportunity and Conflict (cont’d) Conflict occurs when it is not clear which goals or values take precedence—those of the individual, the organization, or society. – Personal-organizational conflict occurs when a person’s individual values and methods for reaching a desired goal differ from those of the organization or a group within the organization. – Personal-societal conflict occurs when an individual’s values deviate from those of society. – Organizational-societal conflict occurs when the norms and values of a business contravene those of society in general.

Copyright © Houghton Mifflin Company. All rights reserved.7-21 Transactional Versus Transformational Leaders Transactional leaders –create employee satisfaction through negotiating for desired behaviors or levels of performance –ensure that conduct and procedures are followed Transformational leaders –strive to raise an employees’ level of commitment and to foster trust and motivation –communicate a sense of mission, stimulate new ways of thinking

Copyright © Houghton Mifflin Company. All rights reserved.7-22 The Power of Leaders Power refers to the influence that leaders and managers have over the behavior and decisions of subordinates. Reward power--offering something desirable to influence behavior Coercive power--penalizing negative behavior Legitimate power--titles and positions of authority Expert power--knowledge based Referent power--exists when goals or objectives are similar

Copyright © Houghton Mifflin Company. All rights reserved.7-23 Motivating Ethical Behavior Motivation is a force within the individual that focuses his or her behavior toward achieving a goal. An individual’s hierarchy of needs may influence his or her motivation and ethical behavior. –Relatedness needs are satisfied by social and interpersonal relationships. –Growth needs are satisfied by creative or productive activities. Needs or goals may change as a person progresses through the ranks of the company.

Copyright © Houghton Mifflin Company. All rights reserved.7-24 Organizational Structure and Business Ethics In centralized organizations, decision-making authority is concentrated in the hands of top level managers and little authority is delegated to lower levels. –Considerable distance between employee and decision maker –Little upward communication –Blame-shifting In decentralized organizations, decision-making authority is delegated as far down the chain of command as possible. –Have difficulty in responding quickly to changes in policy and procedures established by top management –Profit centers within a decentralized organization may deviate from organizational objectives

Copyright © Houghton Mifflin Company. All rights reserved.7-25 Group Dimensions of Organizational Structure and Culture Corporate values, beliefs, patterns, and rules are often expressed through small groups within the organization. Individual groups within organizations often adopt their own rules and values.

Copyright © Houghton Mifflin Company. All rights reserved.7-26 Group Dimensions Formal groups—committees, work groups and teams Informal groups— “grapevine” Group norms –Standards of behavior acceptable in the group, define acceptable behavior, foster conformity, may conflict with the organizational culture –Sanctions may be necessary to bring a nonconforming group into line with organizational expectations

Copyright © Houghton Mifflin Company. All rights reserved.7-27 Group Dimensions (cont’d) Group norms –Standards of behavior that groups expect of their members –Have the power to enforce a strong degree of conformity among group members –Sometimes conflict with the values and rules prescribed by the organization’s culture

Copyright © Houghton Mifflin Company. All rights reserved.7-28 Control of Own Actions Ethical decisions within organizations are often made by committees and formal and informal groups, not by individuals. Many decisions are beyond the influence of individuals alone. Individuals entering the business will usually need several years of experience within a specific industry to understand how to resolve ethical close calls.