978-0205017669 Chapter 8 Lecture Note Part 1

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CHAPTER EIGHT

The Individual in the Organization

Overview

Introduction

The chapter begins with the experiences of three very different individuals in the business

world. Though they each see the organization from a different vantage point, they all on

some level report problematic characteristics, from alienation and feelings of oppression to

power tactics used by upper-level managers.

This chapter examines the problems caused by living within a business organization. It does

so by describing three different models of the business organization: the traditional model

of the business as a rational organization, the model of business as a political structure, and

the model of the organization as a network of caring relationships.

8.1 The Rational Organization

The traditional, “rational” model of the business organization defines it as a structure of

formal relationships, which are designed to achieve the organization’s goals efficiently. A

firm’s organizational chart, identifying the formal hierarchies of authority, exemplifies

the fundamental reality of the organization.

At the bottom of the organization is the operational layer of workers who directly produce

the goods or provide the services. Above this are levels of middle managers who direct

those below them and are, in turn, directed by those above. At the top of the pyramid is the

top management: the CEO, the board of directors, and their staff.

This model presupposes that information will be gathered from operating layer, the lower

levels, and rise to the top, which collects it and uses it to make policy decisions. Above the

operating layer of laborers are ascending levels of middle managers who direct the units

below them and who are in turn directed by those above them in ascending formal lines of

authority. The glue that holds these layers together is contracts: each employee freely and

knowingly agrees to accept the organization’s formal authority. Therefore, employees have

a moral responsibility to obey the employer in pursuing the organization’s goals. The

employer has a moral responsibility to provide the employee with the pay and benefits they

have promised (including just working conditions).

In this model, the employee’s main moral duty is to work toward the goals of the firm.

This view has made its way into what is called “the law of agency,” which specifies the legal

duties of employees toward their “principles,” or employer. The employee must pursue the

firm’s goals and do nothing that conflict with them while working for the firm.

An employee might fail to live up to this duty in several ways. He or she might steal outright

from the firm, act on a conflict of interest, or use his position to leverage illicit benefits out

of others through extortion or bribery.

Conflicts of interest arise when employees have a private interest in the outcome of a

task in which they are engaged that is possibly antagonistic to the firm’s interests and

substantial enough that it might affect the employee’s independent judgment on the firm’s

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behalf. The result is that self-interest induces employees to act in ways that may not be in

the best interests of the firm.

When conflicts of interest involve a financial relationship, it is sometimes called an objective

conflict of interest. When it involves an emotional tie or other kind of relationship, it is

sometimes called a subjective conflict of interest.

Conflicts of interest can also arise when employees of a company hold another job or

conflicts of interest.

Conflicts of interest may be actual or potential. A potential conflict of interest occurs when

an employee has an interest that could influence what he does for his company if the

employee were performing a certain task for his company, but he has not yet been given

the task. That would be called a potential conflict of interest. If that employee is actually

given the task to perform under the same conditions, an actual conflict of interest would

exist.

An apparent conflict of interest would exist if an employee has no actual conflict of interest

but other people might view the situation and wrongly believe that there is an actual conflict

of interest.

Conflicts of interest may be dealt with in a number of ways. For instance, when an

employee is responsible for making a purchase decisions for a product that is sold by a

company in which the employee has a financial interest. This conflict of interest can be

eliminated or avoided by (a) recusing oneself from the action that would create the actual

conflict of interest (have someone else do the action), (b) eliminating the interest that

creates the conflict of interest (for example by selling stock in the company that creates the

conflict of interest) or (c) the employee reveals the ownership in the company and the

employer knowingly allows the person to do the task because the employer trusts the

employee to make an objective decision or the employee can resign from the company. The

employee then must strive to be objective when evaluating the various bids.

Commercial bribes and extortion are obviously unethical and create clear conflicts of

interest. Accepting gifts may or may not be ethical, depending on a number of factors:

1. What is the value of the gift?

2. What is the purpose of the gift?

3. What are the circumstances under which the gift was given?

4. What is the position of the recipient?

5. What is the accepted business practice in the area?

6. What is the company’s policy?

7. What is the law?

Employees have a contractual agreement to accept only specific benefits in return for their

services and to use the firm’s resources for the good of the firm. Any other use of company

resources and any other appropriation of benefits by the employee counts as theft. Though

theft is often petty (such as the stealing of office supplies or the padding of expense

accounts), it extends to white-collar crimes such as embezzlement, larceny, fraud, and

forgery.

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Commercial extortion occurs when an employee demands a consideration from persons

outside the firm as a condition for dealing favorably with those persons the employee

transacts business for the firm.

More recent forms of theft involve forms of information and company computers. Copying a

company’s software or data, or using a company computer for personal business (unless

explicitly allowed) are examples of unethical forms of theft. Theft of information also

includes digitized programs, music, movies, e-books, etc. as well as proprietary formulas or

other data. Propriety information or “trade secrets” is information that the company owns

concerning its activities, which it explicitly indicates that it does not want others to have.

Sharing such information is also unethical. However, skills that an employee acquires by

working for a company do not count as trade secrets. Though some companies have tried to

work around this by asking employees to sign contracts agreeing not to work for

competitors after leaving the firm, courts generally have rejected the validity of such

contracts.

Information can lead to other types of unethical behavior. Insider trading, the act of

buying or selling company stock on the basis of confidential or proprietary information, is

illegal and unethical. Some have attempted to argue that insider trading is actually ethical

and socially beneficial; it does not harm anyone and helps the stock price reflect its true

value, they maintain. These arguments ignore some basic facts about insider trading,

though: the insider information, being proprietary, does not belong to the trader; it is

unjustly stolen from others (the company’s collective owners). In addition, research shows

that insider trading increases the costs of buying and selling stock and harms everyone in

the market and society in general. It violates people’s rights because it is based on an

unjust advantage.

A firm’s main moral duty to its employees is to provide them with a fair wage and fair

working conditions. Setting a fair wage is both important and difficult balancing the

employer’s interest in minimizing costs and the workers’ interest in providing a decent living

for themselves and their families. So employers will need to consider these factors:

1. What is the going wage in the industry and the area?

2. What are the firm’s capabilities?

3. What is the nature of the job including its risks, skill requirements and demands?

4. What are the minimum wage laws?

5. What are the other salaries in the firm?

6. Were wage negotiations fair?

7. What are the local costs of living?

It is difficult to weigh these factors even in industrialized nations. It is much more difficult

in developing nations. Multinationals generally pay their workers in developing countries

more than the prevailing local wage. Nevertheless, they multinationals are criticized for the

wages paid in developing nations. First, wages are too low in comparison to industrialized

nations. Secondly, wages are too low in comparison to what the companies in the

industrialized world pay to workers or relative what they can afford or to what they make on

the products assembled by workers in developing countries. Third, the wages in developing

countries are too low relative to what a family needs to live.

Replies to these criticisms include:

1. It is not clear that wages in one country, such as the United States, should be used

as a basis for setting wages in other countries.

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2. It is not clear that retail price of a product in the united States should serve as the

basis for setting the wages of workers who make the product in a developing

country.

3. It is important to take into account the number of wage earners that is traditional in

the household of workers given the nation. If a developing nation, for example,

traditionally has two or more wage earners per household, then wages that are only

50 percent of a living wage would not necessarily be unjust.

Working conditions are equally important. Ten percent of the U.S. job force suffers a job

related injury or illness each year for a loss of over 31 million workdays annually. Workplace

hazards are varied and include mechanical, electrocution, burns, extreme heat and cold,

noisy machinery, dust, chemical fumes, lead, beryllium, arsenic, corrosives, Manganese

vapors, asbestos, poisons, skin irritants and radiation. Many hazards are not recognized

until years later.

Risks are sometimes unavoidable and acceptable, as long as employees are fully

compensated for assuming them and they do so freely and knowingly. However, if wages

are not proportional to the risks, or the risk is accepted unknowingly or out of desperation,

then the contract between employer and employee is not fair, and is therefore unethical.

Employers must offer wages that reflect the dangers of high-risk jobs, provide employees

with suitable health insurance programs, and collect information about health hazards that

accompany its jobs, making the information available to employees.

Job risks are not justified when labor markets are uncompetitive and risks unknown and

uncompensated. Further, risks are not justified when companies fail to inform workers of

the risk. Lastly, risky jobs may not be justified when less-risky jobs are unavailable, or the

workers lack information about the availability of less-risky jobs.

Risk in the workplace is an unavoidable part of many occupations. So if employers take the

following precautions, the employer can be said to have acted ethically:

1. Takes reasonably adequate measures to inform him or herself of his and his or her

workers about workplace risks and eliminates workplace risk.

2. Fully compensates and insures workers for assuming risks that cannot be eliminated.

3. The workers freely and knowingly accept those remaining risk in exchange for the

added compensation.

Basic problems arise, however in hazardous occupations (particularly in less developed

countries) when wages fail to provide a level of compensation proportional to the risks of

the job, or workers accept risks unknowingly because they do not have adequate access to

the information regarding the risks or lastly, workers might accept known risks out of

desperation because they lack the mobility to enter other, less risky industries.

When any of the above factors are present, the contract between employer and employee is

no longer fair. In such cases, the employer has a duty to fund studies of those risks to (a)

clearly and explicitly inform worker of the risks, (b) offer wages that reflect the risk-

premiums prevalent in other similar but competitive labor markets, (d) insure the workers

against unknown hazards and provide them with suitable health insurance and disability

insurance, and (d) collect information on the health hazards that accompany a given job

and make the information available to worker.

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The term sweatshop is used to describe a workplace that has numerous health and safety

hazards, poor working conditions and low wages. In the United States sweatshops are

unethical, yet the U.S. Department of labor estimates that ½ of the sewing shops in the

United States qualify as sweatshops. Now many U.S. manufacturers outsource their

manufacturing to firms in developing countries.

Health and safety issues are problematic in developing countries where their health

standards are particularly low or the governments do not have the resources to enforce the

standards. The key issue that arises is when a U.S. firm outsources its manufacturing to a

separate company in a developing country, what obligation does the U.S. firm have to the

foreign workers to eliminate the sweatshop conditions. Some of the answer is to

understand the concept of moral responsibility that was learned earlier (Chapter 1):

1. The person caused or helped cause it, or failed to prevent it when he could and should

have;

2. The person did so knowing what he or she was doing;

3. The person did so of his own free will.

For U.S. firms, this poses a number of problems because the foreign firms are often not

owned by the U.S. firms. In addition, the access to how the foreign firms are run is limited,

with not knowing what is going on in the foreign factories and with pressures from

competitors and stockholders.

Another problem faced in the workplace is violence. Employers have the same

responsibility to eliminate workplace violence as they have to deal with any other health and

safety issues in the workplace. Almost a fifth of all U.S. occupational deaths today are the

result of assaults and other forms of violence in the workplace. Supervisors and employees

should be trained to recognize the warning signs of violence and learn how to deal with

violence when it emerges.

8.2 The Political Organization

Although much of the behavior of an organization accords with the rational model of the

organization, a great deal of organizational behavior is neither goal directed, efficient, or

rational. To understand this behavior, we need a second model of the firm: the firm as a

political organization.

This model is newer than the rational model. Unlike that model, it does not look only at the

formal lines of authority. Instead, it emphasizes the informal lines of influence and sees the

organization as a system of competing power coalitions. This model is much more complex,

focusing on the competitive nature of different factions within a firm. The goals of the firm

are the goals established by the historically most powerful or dominant coalition and the

formal and informal lines of influence and communication that radiate from these coalitions.

The fundamental reality of the organization is not formal authority or contract, but power.

If power is the main organizational reality, then the primary ethical problems in an

organization are connected with acquiring and exercising power. The two main questions

become:

1. What are the moral limits to the power managers acquire and exercise over their

subordinates?

2. What are the moral limits to the power employees acquire and exercise on each

other?

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