ORGANIZATIONAL FACTORS: THE ROLE OF ETHICAL CULTURE AND RELATIONSHIPS

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1 BUS 4070: BUSINESS ETHICS & VALUES ORGANIZATIONAL FACTORS: THE ROLE OF ETHICAL CULTURE AND RELATIONSHIPS Corporate Culture Corporate culture is as a set of values, norms, and artifacts including ways of solving problems that members (employees) of an organization share. A company s history and unwritten rules are a part of its culture. Leaders are responsible for the actions of subordinates and corporations should have good corporate cultures. In many firms what is meant by a good corporate culture is measured in the following ways: i. Management and the board demonstrate their commitment to strong controls through their communications and actions. ii. Every employee is encouraged and required to have hands-on involvement in the internal control system. iii. Every employee is encouraged and empowered to report policy exceptions. iv. Employees are expected to be in the communication loop through resolutions and corrective actions. v. Employees have the ability to report policy exceptions anonymously to any member of the organization, including the CEO, other members of management, and the board of directors. The Role Of Corporate Culture in Ethical Decision Making Explicit statements of values, beliefs, and customs usually come from upper management.

2 Corporate culture is often expressed informally for example, through comments, both direct and indirect, that communicate the wishes of management. The tone at the top is often cited as a determining factor in creating a high-integrity organization. Ethical Frameworks and Evaluations of Corporate Culture N. K. Sethia and Mary Ann Von Glinow have proposed two basic dimensions to describe an organization s culture: a) Concern for people the organization s efforts to care for its employees wellbeing. b) Concern for performance the organization s efforts to focus on output. Ethical Frameworks and Evaluations of Corporate Culture Apathetic culture shows minimal concern for either people or performance. In this culture, individuals focus on their own self-interests. The caring culture exhibits high concern for people but minimal concern for performance issues. Exacting culture shows little concern for people but a high concern for performance; it focuses on the interests of the organization. The integrative culture combines high concern for people and for performance. Compliance versus Value-based Ethical Cultures Compliance-based cultures use their legal departments to determine ethics. They include the auditing department to create rules and procedures as well as monitoring the process. A values-based ethics culture approach to ethical corporate cultures relies upon an explicit mission statement that defines the firm as well as how customers and employees should be treated. Differential Association It refers to 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.

3 Whistle-Blowing It means exposing an employer s wrongdoing to outsiders (external to the company) such as the media or government regulatory agencies. Leaders influence corporate culture Power refers to the influence that leaders and managers have over the behavior and decisions of subordinates. The status and power of leaders is directly related to the amount of pressure that they can exert on employees to conform to their expectations. Power bases from which one person may influence another:- i. Reward power refers to a person s ability to influence the behavior of others by offering them something desirable. Typical rewards might be money, status, or promotion. ii. Coercive power penalizes actions or behavior. iii. Legitimate power stems from the belief that a certain person has the right to exert influence and that certain others have an obligation to accept it. iv. Expert power is derived from a person s knowledge (or the perception that the person possesses knowledge) v. Referent power may exist when one person perceives that his or her goals or objectives are similar to another s. Motivating ethical behavior Job performance = Ability Motivation As businesspeople move into middle management and beyond, higher-order needs Higher-order needs(social, esteem, and recognition) tend to become more important than lower-order needs (salary, safety, and job security). This shift may cause or help solve problems depending on that person s current ethical status relative to the company or society. Organizational structure and Business Ethics

4 In a centralized organization, decision making authority is concentrated in the hands of top-level managers, and little authority is delegated to lower levels. In a decentralized organization, decision making authority is delegated as far down the chain of command as possible. Characteristic Centralized Decentralized Hierarchy of authority Centralized Decentralized Flexibility Low High Adaptability Low High Problem recognition Low High Implementation High Low Dealing with changes Poor environmental complexity Good Rules & Procedures Many & formal Few & formal Division of Labor Clear-cut Ambiguous Span of Control Many employees Few employees Use of managerial techniques Extensive Minimal Coordination and control Formal and impersonal Informal and personal Group dimensions of corporate structure and culture A formal group is defined as an assembly of individuals that has an organized structure accepted explicitly by the group. An informal group is defined as two or more individuals with a common interest but without an explicit organizational structure. Formal groups can be divided into:- i. Committees Formal groups of individuals assigned to a specific task. ii. Work Groups are used to subdivide duties within specific functional areas of a company. Teams bring together the functional expertise of employees from several different areas of the organization The main disadvantage of committees is that they typically take longer to reach a decision than an individual would.

5 Although many organizations have financial, diversity, personnel, or social responsibility committees, only a very few organizations have committees that are devoted exclusively to ethics. Ethics committees can be misused if they are established for the purpose of legitimizing ethical standards on some issue. Ethics committee members may also fail to understand their role or function. If they attempt to apply their own personal ethics to complex business issues, resolving ethical issues may be difficult. Ethics committees should be organized around professional, business-related issues that occur internally. Whereas work groups operate within a single functional area, teams bring together the functional expertise of employees from several different areas of the organization. Work groups and teams provide the organizational structure for group decision making. Informal groups help develop informal channels of communication, sometimes called the grapevine, which are important in every organization. Group Norms They are standards of behavior that groups expect of their members. Most work organizations, for example, develop norms that govern groups rates of production and communication with management as well as provide a general understanding of behavior considered right or wrong, ethical or unethical, within the group. Norms have the power to enforce a strong degree of conformity among group members. Sometimes group norms conflict with the values and rules prescribed by the organization s culture. 1 Ferell, O. C., Fraedrick, J., & Ferell, L. (2011). Business Ethics: Ethical Decision Making and Cases. Mason: South Western - Cengage Learning. Copyright Michael G. M. Kirubi, Ph.D