Part Three
The Decision
Making Process
Chapter 7
Organizational
Factors: The Role
of Ethical Culture
and Relationships
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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
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Culture is codified by the SarbanesOxley 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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 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
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U.S. Bank’s Principles
For Integrity

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).
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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.
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 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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Traits to Look for in
Future Leaders
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-cfoscite-integrity-as-most-important-trait-for-future-leaders-104072008.html (accessed April 26, 2013).
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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.
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 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
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A cultural audit is an assessment of the
organization’s values
 Usually conducted by outside consultants;
can be handled internally
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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.
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Company Examples of the
Four Organizational Cultures
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 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-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
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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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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
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Questions to Ask before Engaging in
External Whistle-Blowing
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?
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Percentage of Employees Who Experience
Retaliation after Reporting Misconduct
Source: Ethics Resource Center, 2011 National Business Ethics Survey: Workplace Ethics in Transition (Arlington, VA: Ethics
Resource Center, 2012), 15.
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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.
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How Employees Report
Observed Misconduct
Source: Ethics Resource
Center, 2011 National
Business Ethics Survey:
Workplace Ethics in
Transition (Arlington, VA:
Ethics Resource Center, 2012),
21. 23715_ch07_lores_181212.indd 195 13/07/13 5:14 PM
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 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
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 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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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
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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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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 Comparison of
Organizational Types Emphasis
Characteristic
Centralized
Decentralized
Centralized
Decentralized
Flexibility
Low
High
Adaptability
Low
High
Problem recognition
Low
High
Implementation
High
Low
Dealing with changes
Poor environmental
complexity
Good
Rules and procedures
Many and formal
Few and informal
Clear-cut
Ambiguous
Many employees
Few employees
Extensive
Minimal
Formal and
impersonal
Informal and
personal
Hierarchy of authority
Division of labor
Span of control
Use of managerial techniques
Coordination and control
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Examples of Centralized and
Decentralized Corporate Cultures
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Examples of Centralized and
Decentralized Corporate Cultures
Organizational
Culture
Characterized by
Nike
Decentralized
Creativity, freedom, informality
Southwest Airlines
Decentralized
Fun, teamwork orientation,
loyalty
Centralized
Unions, adherence to task
assignments, structured
Decentralized
Creative, investigative, fast
paced
Centralized
Experienced, dependable, a rich
history and tradition of
products, powerful
Company
General Motors
Microsoft
Proctor & Gamble
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 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*
10%
40%
Follow their own Always try to
values and
follow company
beliefs; believe
policies
that their values
are superior to
those of others in
the company
40%
Go along with
the work group
10%
Take advantage
of situations if
the penalty is less
than the benefit
and the risk of
being caught is
low
* 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
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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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