CHAPTER 7
Organizational Factors: The Role of Ethical
Culture and Relationships
SUMMARY
In this chapter, we take a closer look at corporate culture and the ways a company’s values and
traditions can affect employees’ ethical behavior. We also discuss the role of power in influencing
ethical behavior within a company. Next, we describe two organizational structures and examine
INSTRUCTOR NOTES FOR “AN ETHICAL DILEMMA”
This case covers several ethical issues. Jim is hired to work in the human resources department of KR
Electronics and started by monitoring reports that came in from employees through the company’s
ethics hotline. Jim was trained on the company’s ethical policies and values (such as the importance of
integrity and confidentiality). However, when he approached the human resources manager, David,
about complaints he was told of about an abusive manager, David shrugged off Jim’s concerns. David
stated that the manager’s unit is one of the highest performing and that the manager must be doing
LECTURE OUTLINE
I. Defining Corporate Culture
38 Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships
A. Organizational culture includes values, norms, and artifacts that influence employees and
determine behavior.
2. All organizations, not just corporations, have a culture.
3. Values, beliefs, customs, rules, and ceremonies that are accepted, shared, and
circulated throughout an organization represent its culture. A company’s history and
unwritten rules are also a part of its culture.
B. The Sarbanes–Oxley 404 compliance section codified into law that leaders are
responsible for the actions of subordinates, and corporations should have ethical
corporate cultures.
1. This section includes a requirement that management assess the effectiveness of
3. Compliance with Sarbanes–Oxley 404 requires cultural change, not merely
accounting changes.
4. Firms have different ways of measuring an ethical corporate culture, but the
5. Culture is a broad term that can have many different meanings.
II. The Role of Corporate Culture in Ethical Decision Making
A. The culture of an organization may be explicitly articulated or left unspoken. 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.
3. The “tone at the top” is often cited as a determining factor in creating a high-integrity
organization.
B. Ethical Frameworks and Evaluations of Corporate Cultures
1. There are two basic dimensions to describe an organization’s culture
2. The four organizational cultures can be classified as
a. Apathetic: shows minimal concern for either people or performance
3. A cultural audit is an assessment of the organization’s values. It is usually conducted
by outside consultants but may be performed internally as well.
C. Ethics as a Component of Corporate Culture
2. Management’s sense of an organization’s culture may not be in line with the values
3. It is therefore important for top managers to determine what the organization’s culture is and
to monitor its values, traditions, and beliefs to ensure that they represent the desired culture.
4. It is also important to note that if corporate communication to improve corporate social
5. The rewards and punishments imposed by an organization must reflect the culture those at the
top wish to create.
D. Compliance versus Value-based Ethical Cultures
2. A values-based 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.
E. Differential association refers to the idea that people learn ethical or unethical behavior while
interacting with others who are part of their role-sets or other intimate personal groups.
1. A variety of studies have supported the notion that such differential association influences
ethical decision making.
2. Superiors have a strong influence on the ethics of their subordinates. Younger managers
especially tend to go along with their superiors’ moral judgments to demonstrate loyalty.
F. Whistle-blowing means exposing an employer’s wrongdoing to outsiders (external to the
company), such as the media or government regulatory agencies.
1. Interpersonal conflict ensues when employees think they know the right course of action in a
3. The 2010 passage of the Dodd-Frank Act proposed additional incentives for whistle-blowers.
5. Retaliation is still a concern for whistle-blowers and they often have a difficult time winning
their cases.
6. Most public companies are creating computer systems that encourage reporting misconduct
internally, also called internal whistle-blowing.
a. Even before Sarbanes-Oxley, an increasing number of companies set up anonymous
III. Leaders Influence Corporate Culture
A. Organizational leaders use their power and influence to shape corporate culture. Leaders should be
both effective and ethical.
B. Power Shapes Corporate Culture
1. Power refers to the influence that leaders and managers have over the behavior and decisions
2. There are five power bases from which one person may influence another
a. Reward power refers to a person’s ability to influence the behavior of others by
offering them something desirable
40 Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships
b. Coercive power is essentially the opposite of reward power. Instead of
rewarding a person for doing something, coercive power penalizes actions or
behavior. Coercive power breaks down relationships in the long-term.
C. Motivating Ethical Behavior
1. Motivation is a force within the individual that focuses his or her behavior toward
achieving a goal.
a. Job performance is considered to be a function of ability and motivation, thus
Job performance = ability × motivation, meaning that employees can be
motivated, but resources and know-how are also needed to get the job done.
b. To create motivation, an organization offers incentives to encourage employees
D. Organizational Structure
1. The two broad structures for organizations are centralized and decentralized. Note that
these are not mutually exclusive structures.
a. In a centralized organization, decision-making authority is concentrated in the
hands of top-level managers, and little authority is delegated to lower levels.
i) Centralized organizations stress formal rules, policies, and procedures
b. In a decentralized organization, decision-making authority is delegated as far
down the chain of command as possible.
i) Such organizations have relatively few formal rules, and coordination and
control are usually informal and impersonal. They focus instead on
increasing the flow of communication.
Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships 41
iv) Decentralized organizations give employees extensive decision-making autonomy
because management empowers employees. This could create ambiguity that may
IV. Group Dimensions of Corporate Structure and Culture
A. Two main categories of groups affect ethical behavior in business.
1. A formal group is defined as an assembly of individuals that has an organized structure
accepted explicitly by the group.
a. It can be divided into committees, work groups, and teams
2. An informal group is defined as two or more individuals with a common interest but without
an explicit organizational structure.
a. Most organizations have a number of informal groups, usually composed of individuals,
often from the same department.
B. Group norms are standards of behavior that groups expect of their members. They help define
acceptable and unacceptable behavior within a group.
2. Sometimes group norms conflict with the values and rules prescribed by the organization’s
culture. For this reason, management must carefully monitor not only the corporate culture
but also the norms of all the various groups within the organization.
V. Variation in Employee Conduct.
A. A substantial amount of research indicates that significant differences exist in the values and
philosophies that influence how the individuals that comprise corporations make ethical decisions.
B. About 10% of employees take advantage of situations to further their own interests, about 40% go
VI. Can People Control Their Own Actions Within a Corporate Culture?
A. A popular way of viewing business ethics is to see it as a reflection of the alternative moral
philosophies that individuals use to resolve their personal moral dilemmas.
42 Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships
DEBATE ISSUE: TAKE A STAND
Have your students split into two teams. One team will argue for the first point, and the other will
argue for the opposing view. The purpose is to get students to realize that there are no easy answers
to many of these issues. This debate involves whether government support for whistle-blowers in
“RESOLVING ETHICAL BUSINESS CHALLENGES” NOTES
In this case, Candace has to decide whether she should give Britney the names of the managers who
may be displaying favoritism toward certain employees or risk the ire of her new boss. Candace
excelled in her position at ABCO Corporation and had a good repertoire with her previous supervisor.
When the new supervisor, Britney, started her position, she asked the employees if they had any
suggestions that would improve the efficiency of the division. Candace informed Britney that while
staff worked hard, she had noticed some managers giving promotions and overtime based upon who
they liked instead of the quality of their work. Britney, a no-nonsense type of manager, thanked
Candace for her input. The next day, Britney met with Candace and demanded that she tell her the
names of the managers to which she was referring to so she could create an example to show that all
employees should work hard and favoritism would not be allowed. If Candace does not tell Britney the
managers’ names, then Britney may view her as part of the problem.
Ask the students how they might have behaved differently if they were in Candace’s position. Do the
students believe Candace will provide honest input in the future if asked by Britney? How could