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CHAPTER 3
EMPHASIZING INFORMAL INSTITUTIONS:
CULTURES, ETHICS, AND NORMS
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. define culture and articulate its four main manifestations: language, religion, social
structure, and education.
2. discuss how cultures systematically differ from each other.
3. understand the importance of ethics and ways to combat corruption.
4. identify norms associated with strategic responses when firms deal with ethical
challenges.
5. participate in three leading debates concerning cultures, ethics, and norms.
6. draw implications for action.
GENERAL TEACHING SUGGESTIONS
One way to help students appreciate the importance of others’ cultures and their ethics and norms
is to ask them if they have ever observed any violation of acceptable behavior in the U.S. by
someone from a different country. If they have not, identify a common practice such as standing
in line at a bank and ask them how they would feel if someone went ahead of everyone else. If it
was okay to do that in their country, should they be aware of practices in the U.S.? If others
should be aware of how things are done here, should we be aware of how things are done
elsewhere?
OPENING CASE DISCUSSION GUIDE
Cut Salaries or Cut Jobs?
Ask students to identify the factors that should be considered in this decision. For example,
students should consider the current economy, the difficulty that top-performing employees
might have in finding another employer, the difficulty of replacing top performers, the number of
employees to be cut, and the percentage that salaries could be cut. Ask students to choose layoffs
or salary reductions and support their decisions.
CHAPTER OUTLINE: KEY CONCEPTS AND TERMS
Sections I through VII of Chapter 3
I. WHERE DO INFORMAL INSTITUTIONS COME FROM?
1. Key Concept
Informal institutions are related to cultures, ethics, and norms.
2. Key Term
Ethnocentrism is a self-centered mentality by a group of people who perceive their
own culture, ethics, and norms as natural, rational, and morally right.
II. CULTURE
1. Key Concept
Culture is the collective programming of the mind that distinguishes one group or
category of people from another. Four major components are language, religion, social
structure, and education.
2. Key Terms
Culture is the collective programming of the mind that distinguishes the members of
one group or category of people from another.
Lingua franca is a global business language.
Social mobility is the degree to which members from a lower social category can
rise to a higher status.
Social stratification is the hierarchal arrangement of individuals into social
categories (strata) such as classes, castes, and divisions within a society.
Social structure is the way a society broadly organizes its members.
III. CULTURAL DIFFERENCES
1. Key Concept
Cultural differences can be understood by using three approaches: context, cluster, and
dimension. The context approach differentiates cultures based on the underlying
background upon which social interaction takes place. The cluster approach groups
similar cultures together as clusters and civilizations. Five cultural dimensions have been
identified: (1) power distance, (2) individualism/ collectivism, (3)
masculinity/femininity, (4) uncertainty avoidance, and (5) long-term orientation.
2. Key Terms
Civilization is the highest cultural grouping of people and the broadest level of
cultural identity people have.
Cluster is countries that share similar cultures.
Collectivism is the idea that an individual’s identity is fundamentally tied to the
identity of his or her collective group.
Context is the underlying background upon which social interaction takes place.
Femininity is a relatively weak form of societal-level sex role differentiation
whereby more women occupy positions that reward assertiveness and more men
work in caring professions.
High-context culture is a culture in which communication relies a lot on the
underlying unspoken context, which is as important as the words used.
Individualism is the idea that an individual’s identity is fundamentally his or her
own.
Long-term orientation is a dimension of how much emphasis is placed on
perseverance and savings for future betterment.
Low-context culture is a culture in which communication is usually taken at face value
without much reliance on unspoken context.
Masculinity is a relatively strong form of societal-level sex role differentiation
whereby men tend to have occupations that reward assertiveness and women tend to
work in caring professions.
Power distance is the extent to which less powerful members within a country expect
and accept that power is distributed unequally.
Uncertainty avoidance is the extent to which members in a culture accept or avoid
ambiguous situations and uncertainty.
IV. ETHICS
1. Key Concepts
Ethics is not only an important part of informal institutions, but is also deeply reflected
in formal laws and regulations. When managing ethics overseas, what is ethical in one
country may be unethical in another country. Ethics fights corruption around the world.
Three “middle-of-the-road” principles guide managers to make ethical decisions.
2. Key Terms
Code of conduct is a set of guidelines for making ethical decisions.
Corruption is the abuse of public power for private benefits, usually in the form of
bribery.
Ethics is the principles, standards, and norms of conduct that govern individual and
firm behavior.
Ethical relativism is a perspective that suggests that all ethical standards are
relative.
Ethical imperialism is a perspective that suggests that ‘there is one set of Ethics
(with the capital E), and we have it.”
Foreign Corrupt Practices Act (FCPA) is a US law enacted in 1977 that bans
bribery of foreign officials.
V. NORMS AND ETHICAL CHALLENGES
1. Key Concept
When confronting ethical challenges, individual firms have four strategic choices: (1)
reactive, (2) defensive, (3) accommodative, and (4) proactive strategies.
2. Key Term
None
VI. DEBATES AND EXTENSIONS
1. Key Concept
Three debates are examined: (1) Western values versus Eastern values, (2) cultural
convergence versus divergence, and (3) opportunism versus individualism/collectivism.
2. Key Terms
In-group is individuals and firms regarded as a part of “us.”
Out-group is individuals and firms not regarded as part of “us.”
VII. MANAGEMENT SAVVY
1. Key Concept
It is important to enhance cultural intelligence. It is crucial to understand and adapt to
changing norms globally.
2. Key Term
Cultural intelligence is an individual’s ability to understand and adjust to new
cultures.
