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Chapter 7
Organizational Factors: The
Role of Ethical Culture and
Relationships
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7-1
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.
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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
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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
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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
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7-5
A Framework of Organizational
Culture Typologies
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7-6
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.
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7-7
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
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7-8
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.
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7-9
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
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Socialization
Role-sets
Role stress
Differential association
Whistle-blowing
Organizational pressures
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7-10
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.
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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.
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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
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7-13
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
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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.
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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
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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.
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Interpersonal Relationships (cont’d)
Organizational pressures
– Pressure to achieve
company goals can
sometimes create ethical
issues.
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7-18
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
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7-19
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.
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7-20
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
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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
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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.
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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
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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.
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7-25
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
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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
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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.
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7-28