ARC MGMT 374 Week 8 Presentation

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Part Three: The Decision Making Process

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

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 behaviorAll organizations have culture

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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

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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

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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

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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 performanceA cultural audit is an assessment of the organization’s values• Usually conducted by outside consultants; can be

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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

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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

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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

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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

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Questions to Ask Before Engaging in External Whistle-Blowing

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Forms of Retaliation Experienced as a Result of Reported Misconduct

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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

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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

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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. 18

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

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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

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Structural Comparisons of Organizational Types

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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

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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

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