Ethical Corporate Culture

Corporate culture has many definitions

 A set of values, norms, and artifacts, including ways of solving problems shared by
organizational members

 The shared beliefs top managers have about how they should manage themselves
and other employees and how they should conduct their business

 Gives organizational members meaning and sets the internal rules of behavior

All organizations have culture

Sarbanes-Oxley 404

Culture is codified by the Sarbanes-Oxley 404 compliance section

 Includes assessment of effectiveness of controls by management and external auditors

 Forces firms to adopt a set of values that make up part of the culture

Compliance with 404 requires cultural change, not only accounting changes

Corporate Culture

 May be formal through statements of values, beliefs, and customs

 Comes from upper management

 Memos, codes, manuals, forms, ceremonies

 May be informal through direct or indirect comments conveying management’s wishes

 Dress codes, promotions, extracurricular activities

The “tone at the top” is crucial in creating ethical corporate culture

Two Dimensions of Organizational Culture

 Concern for people

 The organization’s efforts to care for its employees’ well-being

 Concern for performance

 The organization’s efforts to focus on output and employee productivity

Four Organizational Culture Types

 Apathetic: Minimal concern for people or performance

 Caring: High concern for people; minimal concern for performance

  Exacting: Minimal concern for people; high concern for performance

 Integrative: High concern for people and performance

A cultural audit is an assessment of the organization’s values

• Usually conducted by outside consultants; can be handled internally

Ethics and Corporate Culture

 Ethical corporate culture is a significant factor in ethical decision making

 If a firm’s culture encourages/rewards/does not monitor unethical behavior, employees may

act unethically

 Management’s sense of an organizational culture may differ from that guiding employees

Compliance versus Values-Based Culture

 Compliance-based cultures use a legalistic approach to ethics

 Revolve around risk management, not ethics

 Lack of long-term focus and integrity

 Values-based cultures rely on mission statements that define the firm and stakeholder
relations

 Focus on values, not laws

 Top-down integrity is critical

Differential Association

The idea that people learn ethical/unethical behavior while interacting with others

 Studies support that differential association supports ethical decision making

 Superiors have a strong influence on subordinates

 Employees may go along with superiors’ moral judgments to show loyalty

Whistle-Blowing

Exposing an employer’s wrongdoing to company outsiders

 Some legal protections exist

 The Sarbanes-Oxley Act, the FSGO, and the Dodd-Frank Act have institutionalized whistle-
blowing protections to encourage discovery of misconduct

 Whistle-blowers fear retaliation

 Leaders Can Influence Corporate Culture
 An effective leader is one who does well for the stakeholders of the corporation
 Effective leaders are good at getting followers to common goals effectively and
efficiently
 Power refers to the influence that leaders and managers have over the behavior and
decisions of subordinates
 An individual has power when his/her presence causes people to behave differently

Power and influence shape corporate culture

Five Power Bases

 Reward power: Offering something desirable to influence behavior
 Coercive power: Penalizing negative behavior
 Legitimate power: The consensus that a person has the right to exert influence over others
 Expert power: Derives from knowledge and credibility with subordinates
 Referent power: Exists when goals or objectives are similar

Motivation
A force within the individual that focuses behavior toward achieving a goal
 Job performance: A function of ability and motivation
 An individual’s hierarchy of needs may influence motivation and ethical behavior
 Relatedness needs: Satisfied by social and interpersonal relationships
 Growth needs: Satisfied by creative or productive activities

Needs or goals may change over time

Centralized Organizational Structure

Decision making authority is concentrated in the hands of top-level managers

 Little authority delegated to lower levels

 Best for organizations

 That make high-risk decisions

 Whose lower-level managers are not skilled in decision-making

 Where processes are routine

May have a harder time responding to ethical issues

Decentralized Organizational Structure

Decision making authority is delegated as far down the chain of command as possible

 Flexible and quicker to recognize external change

 Can be slow to recognize organizational policy changes

Units may diverge and develop different value systems

Ethical misconduct may result

Groups in Corporate Structure and Culture

 Formal groups

 Committees, work groups, and teams

 Informal groups

 The grapevine

 Group norms

 Standards of behavior that groups expect of members

 Define acceptable/unacceptable behavior within the group

Can People Control Their Own Actions Within a Corporate Culture?

Ethical decisions are often made by committees and formal and informal groups

 Many decisions are beyond the influence of individuals

 Congruence between individual and organizational ethics–increases potential for making

ethical decisions

Individuals need experience to understand how to resolve ethical issues