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 importance of
integrity and confidentiality). However, when he approached the human resources manager, David,
about complaints he was told of 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 something
right. Jim filed a report from Sarah about unethical practices being conducted by salespeople. Sarah
wanted to make sure that her sales manager did not find out that she was the one who reported these
LECTURE OUTLINE
I. Defining Corporate Culture
A. Culture is a broad term that can mean many different things. Corporate culture includes
values, norms, artifacts, rituals, history, and unwritten rules that are specific to an
organization.
38 Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships
1. Culture gives the members of the organization meaning as well as the internal rules of
behavior.
2. All organizations, not just corporations, have a culture.
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.
1. Memos, written codes of conduct, handbooks, manuals, forms, and ceremonies are all
formal expressions of an organization’s culture.
B. Ethical Frameworks and Evaluations of Corporate Cultures
1. There are two basic dimensions to describe an organization’s culture
a. concern for people.
b. concern for performance.
by outside consultants but may be performed internally as well.
C. Ethics as a Component of Corporate Culture
1. If a firm’s culture encourages unethical behavior, its employees may act unethically,
and vice versa.
2. It is 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.
D. Compliance versus Value-based Ethical Cultures
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.
Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships 39
2. Superiors have a strong influence on the ethics of their subordinates.
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 situation, yet their work group or company promotes or requires a different,
unethical decision.
II. Leaders Influence Corporate Culture
A. Organizational leaders use their power and influence to shape corporate culture. Leaders
should be both effective and ethical.
1. Power refers to the influence that leaders and managers have over the behavior and
decisions of subordinates. An individual has power over others when his or her
presence causes them to behave differently.
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
b. Coercive power is essentially the opposite of reward power. Instead of
rewarding a person for doing something, coercive power penalizes actions or
individuals.
III. Motivating Ethical Behavior
A. Motivation is a force within the individual that focuses his or her behavior toward achieving
a goal.
1. 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.
40 Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships
a. Relatedness needs are satisfied by social and interpersonal relationships
b. Growth needs are satisfied by creative or productive activities.
c. Needs or goals may change as a person progresses through the ranks of the
company.
IV. Organizational Structure and Business Ethics
A. The two broad structures for organizations are centralized and decentralized. Note that these
are not mutually exclusive structures.
1. In a centralized organization, decision-making authority is concentrated in the hands
of top-level managers, and little authority is delegated to lower levels.
V. 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. Can be divided into committees, work groups, and teams
i) A committee is a formal group of individuals assigned to a specific task.
ii) Work groups are used to subdivide duties within specific functional areas
of a company.
B. Group norms are standards of behavior that groups expect of their members. They help
define acceptable and unacceptable behavior within a group.
VI. Variation in Employee Conduct. 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.
VII. 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.
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
Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships 41
to many of these issues. This debate involves whether government support for whistle-blowers in
the form of monetary rewards will be effective. Students who argue for this point might say that
“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