Download Strategic Planning and Corporate Culture

Chapter 8
Strategic Planning and Corporate
Culture
Understanding Business Ethics
Stanwick and Stanwick
1st Edition
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
8-1
Ethical Thought
• “In fact, meaningful leadership –
leadership that in the long run counts for
something – cannot be accompanied by
moral collapse. The leader who acts
ethically will ultimately succeed. The
leader who lacks in ethical foundation will
ultimately fail.”
– Willard C. Butcher, retired chairman of Chase
Manhattan Corporation
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When Ethics Drive a Change in
Strategy
• Charles Prince took over as CEO at
Citigroup in 2003
• After two years as CEO, he made
dramatic changes at the company:
– He wanted to improve the form’s corporate
reputation and focus on implementing
stronger internal controls and a more
comprehensive ethics program
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When Ethics Drive a Change in
Strategy
• After initiatives were announced, two of the three
highest ranking employees at Citigroup left the
company.
• Changes in the value system based on:
– Citigroup was accused of not separating its financial
analyst functions from its role as an investment bank
– Citigroup had to address government probes in
England for its aggressive strategy related to bond
trading
– Citigroup lost its private banking license in Japan
– The FTC accused the company of purposely
misleading customers in its consumer lending unit
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When Ethics Drive a Change in
Strategy
• Prince described Citigroup from a broad
stakeholder perspective – ‘quasipublic
institution’
• Prince stated that he spent about one half
of his time in the year before his strategic
changes were made focusing on culture
and values issues
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Ethics and Strategic Planning
• Strategic Planning: the process in which
future courses of action are developed to
achieve the firm’s short and long term
goals
• Mirror Test: involves the decision maker’s
ability to look in the mirror after decisions
have been made and state that he/she
made the right choice
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Wakenhut’s Core Values
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Customer focus
Partnership
Employees
Professionalism
Benchmarking
Innovation and versatility
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8-7
A Manager’s Ability to Develop
Trust, Commitment and Effort
• The ability of managers to effectively
identify and answer questions that guide
the decision making process:
– Moral problems – What is duty?
– Moral reasoning – What is right?
– Moral courage – What is integrity?
• Net result will be the development of trust,
commitment and effort among the firm’s
stakeholders
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8-8
The Role of Power and Influence in
Ethical Decisions
• “Power tends to corrupt, and absolute
power corrupts absolutely.”
– Lord Acton
• “With great power comes great
responsibility.”
– Uncle Ben Parker reminding Peter Parker
(Spider-Man) of his duties
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The Role of Power and Influence in
Ethical Decisions
• Abuse of power can lead to rampant unethical
behavior, resulting in the ultimate demise of the
organization
– examples: WorldCom and Enron
• Using power in an ethical manner:
– Power being exercised to benefit others who have
granted the decision maker the power with the
expectation that the decision maker will serve others
– Power conforms to both the legal and accepted
cultural standards of what is considered to be ethical
behavior
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The Role of Power and Influence in
Ethical Decisions
• Influence: the ability to change the
viewpoint of another person based on your
verbal and nonverbal actions
• Manipulation: occurs when the true
intentions of the person are hidden and
may only be evident after the decision has
been implemented
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Machiavellianism Approach to
Decision Making
• Niccolo Machiavelli published his book,
The Prince, in 1532.
– Describes how a prince is able to obtain and
maintain his power
– Described the perfect leader as one who was
able to manipulate, was bold in his actions
and was stealthy when he needed to be.
– “It is better to be feared than to be loved.”
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8-12
The Curse of Unethical Cultures-Factors
that affect whether an employee will commit
fraud
• Financial condition of the
organization
• Pressure to show profits in the
marketplace
• Internal accounting controls
• The state of the economy
• Integrity level of corporate
leaders and employees
• Commitment to the
organization’s value system
• Personal traits and
characteristics of executives
and employees
• Reward systems for ethical
behavior
• Organizational culture and
dynamics
• Peer pressure
• The perception of detection
• The swiftness, certainty, and
severity of punishment
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The Responsibility of Managers
• A strong ethical value system can be
translated into a competitive advantage
– Used by a firm to help differentiate the firm’s
products and services in the marketplace
– May help convince potential customers to
purchase goods and services
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Addressing Ethical Decision
Making from a Global Perspective
• Must understand the unique differences of
the companies and countries in which they
operate
– Is the company capitalist or socialist?
– Does the culture align more with the
traditional Western or Eastern culture?
– What is the dominate moral philosophy of the
country?
– What are the ethical and societal norms of the
country?
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Addressing Ethical Decision
Making from a Global Perspective
• Egoism: refers to individuals who view decisions based
on their self interests.
• Utilitarianism: refers to making decisions that do the
greatest good for the greatest number of people.
• Formalism: focuses on ethical issues based on what the
laws and norms of society represent instead of the actual
content of the laws
• Virtue ethics: refers to individuals who believe that
ethical behavior is based on a set of virtues that are
morally valid without any consideration to the action or
the subsequent outcome.
• Moral relativism: refers to being able to define ethical
behavior based on the context of certain peers of the
individual
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Addressing Ethical Crisis and
Disaster Recovery
• An ethical crisis occurs when a event that was
not part of the normal course of action takes
place and has an impact on the firm.
– Terrorist attacks
– Weather related events
– Mining accidents
• Crisis Typology
– Internal or external crisis – Center of Gravity
– Frequency of the issues classified as normal or
abnormal
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Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture
• Traits: fairly stable and predictable
personal characteristics that would remain
consistent over time
– Integrity
– Honesty
– Trustworthiness
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Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture
• Behaviors: must be consistent with what
the manager is saying
– Do the right thing
– Concern for people
– Being open
– Personal morality
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Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture
• Decision Making
– Hold on to values
– Objective/fair
– Concern for society
– Follow ethical decision rules
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Ethical Leadership: A Link Between
Strategic Planning and Corporate Culture
• Moral Manager
– Transfer of moral value within the moral
manager to those he/she interacts with is
based on how the moral manager is able to
communicate the ethical values to others
– Should be a role model of ethical behavior –
actions become models for subordinates
– All supervisors are not moral persons nor are
they moral managers
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Moral Persons and Moral
Managers
• Unethical Leader
– Weak moral person and weal moral managers
– Drive to reward their own self-interests
• Ethical Leader
– Should be the ultimate ethical goal of any
manager
– Ability to use grounded ethical characteristics
and transfer them to others within the
organization through the characteristics of a
moral manager
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Moral Persons and Moral
Managers
• Hypocritical Leader
– Manager has destroyed all three of the critical traits of
a moral person
• Inconsistent Leader
– A manager who has strong ethical traits, behaviors
and decision making of a moral person, but is not
able to transfer those values to other employees
– Inconsistent because of the contradictory strength of
the individual moral values and weak characteristics
of a moral manager
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Corporate Culture
• The shared values and beliefs of
employees within any given organization
• Based on the norms and behavior patterns
• Can be used by a firm to establish
structural stability and integration of
different components within the firm
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Unethical Activities
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False/misleading promises to
customers
Violation of workplace health/safety
rules
Employment discrimination
Violation of employee rights to privacy
Sexual harassment or hostile work
environment
Carelessness with
confidential/proprietary information
Activities posing a conflict of interest
False/misleading information to the
public or media
Unfair competition/antitrust
Substance abuse
Environmental breaches
Offering or paying bribes to foreign
officials
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Falsifying product quality/safety test
results
Offering improper gifts, favors, or
entertainment to influence others
Shipping a product that does not meet
quality/safety standards
Dishonesty/unfair treatment of
suppliers
Falsification/improper manipulation of
financial data
Embezzling funds or stealing from the
organization
Making false/misleading statements to
government regulators
False/misleading information to
investors or creditors
Trading company shares based on
insider information
Improper political contribution to
domestic officials
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Three Levels Existing with
Corporate Culture
• Artifacts: factors such as what is seen and
heard within a firm
• Shared Values: based on what groups
within the firm learn about what is
acceptable or not acceptable
• Basic Assumptions: the agreed starting
point for decision making within the firm;
linchpin for the establishment and
maintenance of an ethical culture
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How Managers Can Change a
Corporate Culture
• Primary Embedding Mechanisms
• Secondary Articulation and Reinforcement
Mechanisms
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How to Change Ethical Values
• Three stage model – ‘cognitive
redefinition’:
– Stage 1: Unfreezing of the individual’s
existing beliefs
– Stage 2: Occurs when the beliefs have been
unfrozen and the perceptions and attitudes of
the individual are allowed to move to a new
state
– Stage 3: The refreezing takes place
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Changing Corporate Culture
• Management’s Responsibility:
– Verify that ethical decisions are made by all levels of
employees
– Develop an organization culture that supports the
ethical decision making process
• Formalizing a culture of ethics:
– Define your philosophy and corporate values in a
mission statement
– Develop guidelines for employees
– Establish a formal channel for employees to report
violations
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Evaluation of Corporate Culture
• Cultural Assessment of the firm – Deloitte & Touche
recommend asking:
– Do rank and file employees understand the tone set by senior
management?
– Do you know, without a doubt, that your organization’s culture
encourages ethical behavior at all levels?
– Can employees throughout your organization describe the
company’s code of ethics?
– Do employees in all areas of your organization ask questions
and express concerns?
– Do your employees believe that the mechanisms are in place to
allow them to voice opinions without fear of retribution?
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Creating a Climate of Integrity
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Set an example through strong leadership
Set realistic goals
Provide training
Distinguish between compliance and
ethics
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Key Attributes of a Fully Integrity
Based Organization
• Employees feeling a sense of responsibility and
accountability for their actions and the actions of others
• Employees freely raising issues and concerns without
fear of retaliation
• Managers modeling the behaviors they demand of
others
• Managers communicating the importance of integrity
when making difficulty decisions
• Leadership understanding the pressure points that drive
unethical behavior
• Leadership developing processes to identify and remedy
the areas where the pressure points occur
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Questions for Thought
1. Identify and explain a situation where you have
seen Machiavelli’s framework at work.
2. Why do leaders say there is no middle ground
when referring to ethical behaviors?
3. Explain why ethical decision making is so
important in the strategic planning process.
4. Explain corporate culture in light of ethical
conduct.
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