Chapter 7

Organizational
Factors: The Role of
Ethical Culture and
Relationships

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Learning Objectives
 Understand the concept of corporate culture
 Examine the influence of corporate culture on
business ethics
 Determine how leadership, power, and motivation
relate to ethical decision making in organizations

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Learning Objectives (continued)
 Assess organizational structure and its relationship
to business ethics
 Explore how the work group influences ethical
decisions
 Discuss the relationship between individual and
group ethical decision making

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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Corporate Culture
 Values, beliefs, rules, and ceremonies that are
accepted, shared, and circulated throughout an
organization
 Sarbanes–Oxley 404
 Requires firms to adopt a set of values that forms a
portion of the company’s culture
 Associated with a company’s success or failure

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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Types of Organizational Cultures
 Apathetic culture
 Minimal concern for
either people or
performance
 Caring culture
 High concern for people
but minimal concern for
performance issues

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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Types of Organizational Cultures
(continued)

 Exacting culture
 Little concern for people
but high concern for
performance
 Integrative culture
 High concern for people
and performance

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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Ethics as a Component of Corporate
Culture
 Firm’s culture forms the basis of ethical decision
making
 Management’s sense of an organization’s culture
might differ from that of the firm’s employees
 Higher-level managers need to monitor the
organization’s values, traditions, and beliefs to
ensure they represent the desired culture
 Rewards and punishments imposed by an
organization should reflect the culture the top
management wishes to create
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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Compliance versus Values-Based Ethical
Cultures

Compliance culture

• Uses laws and regulatory rules to create compliance

codes and requirements

Values-based ethics culture

• Relies on a mission statement that defines the core

values of the firm and how customers and employees
should be treated

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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Differential Association and Whistle-Blowing

 Differential association: Idea that people learn

ethical or unethical behavior while interacting with
people who are part of their intimate personal
groups
 Legal protection for whistle-blowers exists to
encourage reporting of misconduct
 Sarbanes–Oxley Act and the Federal Sentencing
Guidelines for Organizations (FSGO)
 Criminal Fraud Accountability Act (CCFA)
 Dodd–Frank Act
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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
Role of Power in Shaping Corporate
Culture
 Power - Influence leaders and managers have over
the behavior and decisions of their subordinates
 Power bases
 Reward power
 Coercive power
 Legitimate power
 Expert power
 Referent power

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Motivating Ethical Behavior
 Leader’s ability in motivating his or her
subordinates plays a role in maintaining an ethical
organization
 Job performance is the product of motivation and
ability
 An individual’s hierarchy of needs may influence
his or her motivation and ethical behavior
 After basic needs and survival needs are satisfied,
relatedness needs and growth needs become
important
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Organizational Structure
Centralized organization Decentralized organization
 Decision-making authority is  Decision-making authority is
concentrated in the top-level delegated down the chain of
management command
 Codes of ethics specify the  Has fewer internal controls and uses
techniques used for decision shared values for their ethical
making by management standards
 Distance between managers and  Ambiguity in following a rule
decision-makers may lead to versus the spirit of rules creates
unethical acts ethical challenges

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Groups
 Formal group: Assembly of individuals with an
organized structure that is explicitly accepted by the
group
 Committees, work groups, and teams
 Informal group: Composed of individuals who
have similar interests and band together for
purposes that may or may not be relevant to the
goals of the organization
 Group norms: Standards of behavior that groups
expect of their members
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Table 7.7 -Variation in Employee Conduct

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People’s Control over their Actions Within a
Corporate Culture
 Ethical decisions within organizations are made by
committees and formal and informal groups, not by
individuals
 Employees in bureaucratic organizations have
limited knowledge about the basic rules and
procedures of the company
 When ethical conflict is severe, the individual may
have to decide whether to leave the organization

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