Professional Documents
Culture Documents
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
how they may influence ethical decisions. We discuss new organizational structures created to
address the organization’s corporate responsibility to employees and other stakeholders. Then we
consider the impact of groups within organizations. Finally, we examine the implications of
organizational relationships for ethical decision making.
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.
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.
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
the organization’s internal controls and commission an audit of these controls by
an external auditor in conjunction with the audit of its financial statements.
2. Section 404 forces firms to adopt a set of values that must make up a portion of the
company’s culture.
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
problem with these measurement standards is they focus more on risk, compliance,
and reporting.
5. Culture is a broad term that can have many different meanings.
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
responsibility and ethics is reactive or focused on avoiding negative consequences, it might
not make a significant contribution to creating an ethical culture.
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
1. A compliance culture is organized around risk. Compliance cultures use a legalistic
approach to ethics.
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.
a. The crux of any ethical culture is top-down integrity with shared values, norms that
provide guides for behavior, and visible artifacts such as codes of ethics that provide a
standard of conduct.
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
situation, yet their work group or company promotes or requires a different, unethical
decision.
2. The Sarbanes–Oxley Act and the Federal Sentencing Guidelines for Organizations (FSGO)
have institutionalized internal whistle-blowing to encourage discovery of misconduct.
3. The 2010 passage of the Dodd-Frank Act proposed additional incentives for whistle-blowers.
4. If an employee provides information to the government about the company’s wrongdoing,
under the Federal False Claims Act, the whistle-blower is known as a qui tam relator.
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
reporting services.
b. The majority of employees report misconduct to their immediate supervisors.
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
B. Ethical decisions within organizations are often made by committees and formal and
informal groups, not by individuals.
C. Both individual ethics and organizational ethics have an impact on an employee’s ethical
intention. If there is ethical congruence between individual ethics and the organizational
ethical culture, there is an increase in the potential for making ethical choices in
organizational decision-making.