1. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1 Chapter 7 Organizational Factors: The Role of Ethical Culture and Relationships Part Three The Decision Making Process

2. 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 2 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3. 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 3 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4.  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 4 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5. 5 U.S. Bank’s Principles For Integrity © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 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, https://www.usbank.com/hr/docs/policies/coeHandbook.pdf (accessed March 8, 2011).

6.  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 6 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

7. 7 Traits to Look for in Future Leaders © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Source: “Robert Half Management Resources Survey: CFOs Cite Integrity as Most Important Trait for Future Leaders,” PR Newswire, September 30, http://www.prnewswire.com/news-releases/robert-half-management-resources-survey-cfos- cite-integrity-as-most-important-trait-for-future-leaders-104072008.html (accessed April 26, 2013).

8.  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 8 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9. A cultural audit is an assessment of the organization’s values  Usually conducted by outside consultants; can be handled internally 9 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10. 10 Company Examples of the Four Organizational Cultures © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11.  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 11 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

12.  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 12 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

13. 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 13 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

14. 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 14 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15. 15 Questions to Ask before Engaging in External Whistle-Blowing © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 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?

16. 16 Percentage of Employees Who Experience Retaliation after Reporting Misconduct © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Source: Ethics Resource Center, 2011 National Business Ethics Survey: Workplace Ethics in Transition (Arlington, VA: Ethics Resource Center, 2012), 15.

17. 17 How Employees Report Observed Misconduct © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Source: Ethics Resource Center, 2011 National Business Ethics Survey: Workplace Ethics in Transition (Arlington, VA: Ethics Resource Center, 2012), 21. 23715_ch07_lores_181- 212.indd 195 13/07/13 5:14 PM

18.  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 18 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

19.  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 19 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

20. 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 20 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

21. 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 21 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

22. 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 22 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

23. 23 Structural Comparison of Organizational Types Emphasis © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. CharacteristicCentralizedDecentralized Hierarchy of authorityCentralizedDecentralized FlexibilityLowHigh AdaptabilityLowHigh Problem recognitionLowHigh ImplementationHighLow Dealing with changes Poor environmental complexity Good Rules and proceduresMany and formalFew and informal Division of laborClear-cutAmbiguous Span of controlMany employeesFew employees Use of managerial techniquesExtensiveMinimal Coordination and control Formal and impersonal Informal and personal

24. 24 Examples of Centralized and Decentralized Corporate Cultures © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

25. 25 Examples of Centralized and Decentralized Corporate Cultures © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Company Organizational Culture Characterized by NikeDecentralizedCreativity, freedom, informality Southwest AirlinesDecentralized Fun, teamwork orientation, loyalty General MotorsCentralized Unions, adherence to task assignments, structured MicrosoftDecentralized Creative, investigative, fast paced Proctor & GambleCentralized Experienced, dependable, a rich history and tradition of products, powerful

26.  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 26 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

27. 27 Variation in Employee Conduct* © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. * Estimates based on the author’s research and reports from ethics and compliance officers from many industries. 23715_ch07_lores_181-212.indd 205 13/07/13 5:14 PM 10%40% 10% Follow their own values and beliefs; believe that their values are superior to those of others in the company Always try to follow company policies Go along with the work group Take advantage of situations if the penalty is less than the benefit and the risk of being caught is low

28. 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 28 © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.