C HAPTER 7
Organizational Factors: The
Role of Culture and
Relationships
Ethical Corporate Culture
• Corporate culture includes the behavioral patterns,
concepts, values, ceremonies, and rituals that take
place in the organization
– Gives members of the
organization meaning
and the internal rules
of behavior
• All organizations have
culture
Source: © Jack Hollingsworth/Corbis
Corporate Culture
• May be formal statements of values, beliefs, and
customs
– Coming from upper management in the form of
memos, codes, manuals, forms and ceremonies
• May be informal through direct or indirect comments
conveying management’s wishes
– Dress codes, promotions, extracurricular
activities
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
Source: Digital Vision
Perceived Tone and Culture of the CEO
and Other Executives
Four Organizational Culture Types
• 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
• A cultural audit is an assessment of the
organization’s values
– Usually conducted by outside consultants
A Framework of Organizational Culture
Typologies
Ethics and Corporate Culture
• Corporate culture is a significant factor in ethical
decision making
• If a firm’s culture encourages/rewards/does not monitor
unethical behavior, its employees may act unethically
• Ethical issues can arise because of conflicts between
the culture perceived by
management and that
actually at work in the
organization
Source: Digital Vision
Compliance versus Value-Based
Culture
• Compliance-based cultures use their legal
departments to determine ethical risk
– Revolves around risk management, not
ethics
• Values-based cultures relies on an explicit
mission statement that defines the firm and
stakeholder relations
– Focus on values, not laws
Differential Association
• The idea that people learn ethical/unethical behavior
while interacting with others
– Studies support that
differential association
affects ethical decision
making
– Superiors have a strong
influence on subordinates
Source: S. Pearce/PhotoLink
Whistle Blowing
•
•
•
Exposing an employer’s wrongdoing to outsiders
(external to the company)
– e.g. the media or government regulatory
agencies
Interpersonal conflict ensues when employees
think they know the right course of action, yet the
company promotes a different decision
The Sarbanes–Oxley Act and the FSGO has
institutionalized whistle-blowing to encourage
discovery of misconduct
Reasons Why Employees Do Not
Report Misconduct
Some employees remain reticent to be a
whistle blower and to report misconduct.
Leaders Can Influence Corporate
Culture
• 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
Source: Triangle Images
Five Power Bases
• 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
Motivation
• A force within the individual that focuses behavior
toward achieving a goal
• An individual’s hierarchy of needs may influence
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 over time
Organizational Structure and Business
Ethics
•
•
In a centralized organization, decision-making
authority is concentrated in the hands of top-level
managers
– Little authority delegated to lower levels
In a decentralized organization, decision-making
authority is delegated as far down the chain of
command as possible
Examples 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 acceptable in the
group
– Define acceptable/unacceptable behavior within
the group
Variation in Employee Conduct
(The 10/40/40/10 Rule)
Can People Control Their Own Actions
Within a Corporate Culture?
•
•
•
Organizational ethical decisions often made by
committees and formal and informal groups
Many decisions are beyond the influence of
individuals
Individuals entering the business will need several
years of experience to understand how to resolve
ethical issues
The Importance of Corporate Culture
• According to the Ethics Resource Center, corporate
culture is the number one most important factor in
limiting misconduct
• Executives must make
maintaining an ethical
culture a top priority
Source: © Jack Hollingsworth/Corbis