Unit 4.

Organizational Culture and Corporate Social Responsibility

4.1 Organizational Culture

4.2 Managerial Ethics
4.3 Corporate Social Responsibility

4.1 Organizational Culture

The internal environment within which managers work includes corporate culture,
production technology, organization structure, physical facilities. Of these, corporate culture
surfaces as being extremely important to competitive advantage. The internal culture must fit the
needs of the external environment and company strategy. When this fit occurs, highly committed
employees create a high-performance organization that is tough to beat.
Most people don’t think about culture; it’s just “how we do things around here” or “the
way things are here.” However, managers have to think about culture. Culture guides how people
within the organization interact with one another and how the organization interacts with the
external environment, thus playing a significant role in organizational success. Culture can be
defined as the set of key values, beliefs, understandings, and norms shared by members of an
organization. The concept of culture helps managers understand the hidden, complex aspects of
organizational life. Culture is a pattern of shared values and assumptions about how things are
done within the organization. This pattern is learned by members as they cope with external and
internal problems and taught to new members as the correct way to perceive, think, and feel.
Although strong corporate cultures are important, they can also sometimes promote
negative values and behaviors. When the actions of top leaders are unethical, for instance, the
entire culture can become contaminated.
Culture can be analyzed at two levels, as illustrated in Exhibit 1. At the surface level are
visible artifacts, which include things such as manner of dress, patterns of behavior, physical
symbols, organizational ceremonies, and office layout. Visible artifacts are all the things one can
see, hear, and observe by watching members of the organization. At a deeper, less obvious level
are values and beliefs, which are not observable but can be discerned from how people explain
and justify what they do.
Exhibit 1. Levels of Corporate Culture

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 Members of the organization hold some values at a conscious level. These values can be
interpreted from the stories, language, and symbols that organization members use to represent
them. Some values become so deeply embedded in a culture that members are no longer
consciously aware of them. These basic, underlying assumptions and beliefs are the essence of
culture and subconsciously guide behavior and decisions. In some organizations, a basic
assumption might be that people are essentially lazy and will shirk their duties whenever
possible; thus, employees are closely supervised and given little freedom, and colleagues are
frequently suspicious of one another. More enlightened organizations operate on the basic
assumption that people want to do a good job; in these organizations, employees are given more
freedom and responsibility and colleagues trust one another and work cooperatively
A symbol is an object, act, or event that conveys meaning to others. Symbols can be
considered a rich, nonverbal language that vibrantly conveys the organization’s important values
concerning how people relate to one another and interact with the environment.
A story is a narrative based on true events that is repeated frequently and shared among
organizational employees. Stories paint pictures that help symbolize the firm’s vision and values
and help employees personalize and absorb them. A frequently told story at UPS concerns an
employee who, without authorization, ordered an extra Boeing 737 to ensure timely delivery of a
load of Christmas packages that had been left behind in the holiday rush. As the story goes,
rather than punishing the worker, UPS rewarded his initiative. By telling this story, UPS workers
communicate that the company stands behind its commitment to worker autonomy and customer
service.
A hero is a figure who exemplifies the deeds, character, and attributes of a strong culture.
Heroes are role models for employees to follow. Heroes with strong legacies may continue to
influence a culture even after they are gone. Many people have wondered if the culture that Steve
Jobs created at Apple would be sustained after his death in 2011. Jobs risk taking, and boundary-
breaking thinking that made the company famous. When Jobs’s health began to fail, Apple’s
board began considering replacements who could sustain the fertile culture that Jobs created.
They chose Tim Cook, who long had served as second-in-command.
A slogan is a phrase or sentence that succinctly expresses a key corporate value. Many
companies use slogans or sayings to convey special meaning to employees. For example, Disney
uses the slogan “The happiest place on earth.” Cultural values can also be discerned in written
public statements, such as corporate mission statements or other formal statements that express
the core values of the organization.
A ceremony is a planned activity at a special event that is conducted for the benefit of an
audience. Managers hold ceremonies to provide dramatic examples of company values.
Ceremonies are special occasions that reinforce valued accomplishments, create a bond among
people by allowing them to share an important event, and anoint and celebrate heroes.

Types of Culture
Cultures can vary widely across organizations; however, organizations within the same
industry often reveal similar cultural characteristics because they are operating in similar
environments. If the external environment requires extraordinary customer service, the culture
should encourage good service; if it calls for careful technical decision making, cultural values
should reinforce managerial decision making.
In considering what cultural values are important for the organization, managers consider
the external environment, as well as the company’s strategy and goals. Studies suggest that the
right fit between culture, strategy, and the environment is associated with four categories or
types of culture, as illustrated in Exhibit 2. These categories are based on two dimensions:
(1) the extent to which the external environment requires flexibility or stability, and
(2) the extent to which a company’s strategic focus is internal or external. The four categories
associated with these differences are adaptability, achievement, involvement, and consistency.

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 Exhibit 2. Four Types of Corporate Culture

The adaptability culture emerges in an environment that requires fast response and
highrisk decision making. Managers encourage values that support the company’s ability to
rapidly detect, interpret, and translate signals from the environment into new behaviors.
Employees have the autonomy to make decisions and act freely to meet new needs, and
responsiveness to customers is highly valued. Managers also actively create change by
encouraging and rewarding creativity, experimentation, and risk taking.
The achievement culture is suited to organizations concerned with serving specific
customers in the external environment, but without the intense need for flexibility and rapid
change. This results-oriented culture values competitiveness, aggressiveness, personal initiative,
cost cutting, and willingness to work long and hard to achieve results. An emphasis on winning
and achieving specific ambitious goals is the glue that holds the organization together.
The involvement culture emphasizes an internal focus on the participation of employees
to adapt rapidly to changing needs from the environment. This culture places a high value on
meeting the needs of employees, and the organization may be characterized by a caring,
familylike atmosphere. Managers emphasize values such as cooperation, consideration of both
employees and customers, and avoiding status differences.
The final category of culture, the consistency culture, uses an internal focus and a
consistency orientation for a stable environment. Following the rules and being thrifty are
valued, and the culture supports and rewards a methodical, rational, and orderly way of doing
things. In today’s fast-changing world, few companies operate in a stable environment, and most
managers are shifting toward cultures that are more flexible and in tune with changes in the
environment.
Each of these four categories of culture can be successful. In addition, organizations
usually have values that fall into more than one category. The relative emphasis on various
cultural values depends on the needs of the environment and the organization’s focus. Managers
are responsible for instilling the cultural values the organization needs to be successful in its
environment.

4.2 Managerial Ethics

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 Ethics is difficult to define in a precise way. In a general sense, ethics is the code of
moral
principles and values that governs the behaviors of a person or group with respect to what is right
or wrong. Ethics sets standards as to what is good or bad in conduct and decision making. An
ethical issue is present in a situation when the actions of a person or organization may harm or
benefit others.
Ethics can be more clearly understood when compared with behaviors governed by law
and by free choice. Exhibit 3 illustrates that human behavior falls into three categories. The first
is codified law, in which values and standards are written into the legal system and enforceable
in the courts. In this area, lawmakers set rules that people and corporations must follow in a
certain way, such as obtaining licenses for cars, paying corporate taxes, or following other local,
state, and national laws. Behaviors such as fraud and tax evasion are clearly against the law. The
domain of free choice is at the opposite end of the scale and pertains to behavior about which the
law has no say and for which an individual or organization enjoys complete freedom. An
example is a manager’s choice of where to buy a new suit, or an organization’s choice of which
of two well-qualified candidates to hire for an open position.

Exhibit 3. Three Domains of Human Action

Between these domains lies the area of ethics. This domain has no specific laws, yet it
does have standards of conduct based on shared principles and values about moral conduct that
guide an individual or company.

Ethical Dilemmas
Being ethical is always about making decisions. An ethical dilemma arises in a situation
concerning right or wrong when values are in conflict. Right and wrong cannot be clearly
identified. Ethical issues sometimes can be exceedingly complex and people may hold widely
divergent views about the most ethically appropriate or inappropriate actions related to a
situation.
Companies are increasingly using social media to learn more about their competitors,
some even going so far as to “friend” customers or employees of rivals and post seemingly
innocuous questions to gather information that can provide them with a competitive advantage.
The laws regarding information gathering aren’t clear-cut, and neither are opinions regarding the
ethics of such tactics. Whereas some people think that any form of corporate spying is wrong,
others consider it an acceptable way of learning about the competition.
Most ethical dilemmas involve a conflict between the needs of the part and the whole—
the
individual versus the organization or the organization versus society as a whole. For example,
should a company scrutinize job candidates’ or employees’ social media postings, which might
benefit the organization as a whole but reduce the individual freedom of employees? Or should
products that fail to meet tough Food and Drug Administration (FDA) standards be exported to
other countries where government standards are lower, benefiting the company but potentially
harming world citizens? Sometimes ethical decisions entail a conflict between two groups. For
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example, should the potential for local health problems resulting from a company’s effluents
take precedence over the jobs it creates as the town’s leading employer?
Managers faced with these kinds of tough ethical choices often benefit from a normative
strategy—one based on norms and values—to guide their decision making. Normative ethics
uses several approaches to describe values for guiding ethical decision making. Five approaches
that are relevant to managers are the utilitarian approach, individualism approach, moral-rights
approach, justice approach, and practical approach.
The utilitarian approach, espoused by the nineteenth-century philosophers Jeremy
Bentham and John Stuart Mill, holds that moral behavior produces the greatest good for the
greatest number. Under this approach, a decision maker is expected to consider the effect of each
decision alternative on all parties and select the one that optimizes the benefits for the greatest
number of people. The utilitarian ethic is cited as the basis for the recent trend among companies
to monitor employee use of the Internet and police personal habits such as alcohol and tobacco
consumption, because such behavior affects the entire workplace.
The individualism approach contends that acts are moral when they promote the
individual’s best long-term interests. In theory, with everyone pursuing self-direction, the greater
good is ultimately served because people learn to accommodate each other in their own long-
term interest. Individualism is believed to lead to honesty and integrity because that works best
in the long run. Lying and cheating for immediate self-interest just causes business associates to
lie and cheat in return. Thus, proponents say, individualism ultimately leads to behavior toward
others that fits standards of behavior that people want toward themselves. However, because
individualism is easily misinterpreted to support immediate self-gain, it is not popular in the
highly organized and group-oriented society of today.
The moral-rights approach asserts that human beings have fundamental rights and
liberties that cannot be taken away by an individual’s decision. Thus, an ethically correct
decision is one that best maintains the rights of those affected by it. To make ethical decisions,
managers need to avoid interfering with the fundamental rights of others, such as the right to
privacy, the right of free consent, or the right to freedom of speech. Performing experimental
treatments on unconscious trauma patients, for example, might be construed to violate the right
to free consent. A decision to monitor employees’ nonwork activities violates the right to
privacy. The right of free speech would support whistle-blowers who call attention to illegal or
inappropriate actions within a company.
The justice approach holds that moral decisions must be based on standards of equity,
fairness, and impartiality. Three types of justice are of concern to managers. Distributive justice
requires that different treatment of people not be based on arbitrary characteristics. For example,
men and women should not receive different salaries if they have the same qualifications and are
performing the same job. Procedural justice requires that rules be administered fairly. Rules
should be clearly stated and consistently and impartially enforced. Compensatory justice argues
that individuals should be compensated for the cost of their injuries by the party responsible. The
justice approach is closest to the thinking underlying the domain of law because it assumes that
justice is applied through rules and regulations. Managers are expected to define attributes on
which different treatment of employees is acceptable.
The approaches discussed so far presume to determine what is “right” or good in a moral
sense. However, as has been mentioned, ethical issues are frequently not clear-cut, and there are
disagreements over what is the ethical choice. The practical approach sidesteps debates about
what is right, good, or just and bases decisions on prevailing standards of the profession and the
larger society, taking the interests of all stakeholders into account. With the practical approach,
a decision would be considered ethical if it is one that would be considered acceptable by the
professional community, one that the manager would not hesitate to publicize on the evening
news, and one that a person would typically feel comfortable explaining to family and friends.
Using the practical approach, managers may combine elements of the utilitarian, moral rights,
and justice approaches in their thinking and decision making. For example, one expert on
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business ethics suggests that managers can ask themselves the following five questions to help
resolve ethical dilemmas.
1. What’s in it for me?
2. What decision would lead to the greatest good for the greatest number?
3. What rules, policies, or social norms apply?
4. What are my obligations to others?
5. What will be the long-term impact for myself and important stakeholders?

The Stages of Moral Development

One important personal factor is the stage of moral development. A simplified version of
one model of personal moral development is shown in Exhibit 4.

Exhibit 4. Three Levels of Personal Moral Development

At the preconventional level, individuals are concerned with external rewards and
punishments and obey authority to avoid detrimental personal consequences. In an
organizational context, this level may be associated with managers who use an autocratic or
coercive leadership style, with employees oriented toward dependable accomplishment of
specific tasks.
At level two, called the conventional level, people learn to conform to the expectations of
good behavior as defined by colleagues, family, friends, and society. Meeting social and
interpersonal obligations is important. Work-group collaboration is the preferred manner of
accomplishing organizational goals, and managers use a leadership style that encourages
interpersonal relationships and cooperation.
At the postconventional, or principled, level, individuals are guided by an internal set of
values based on universal principles of justice and will even disobey rules or laws that violate
these principles. Internal values become more important than the expectations of significant
others.
The great majority of managers operate at level two, meaning that their ethical thought
and behavior is greatly influenced by their superiors and colleagues in the organization or
industry. Only about 20 percent of adults reach the postconventional stage of moral
development. People at level three are able to act in an independent, ethical manner regardless of
expectations from others inside or outside the organization.

4.3 Corporate Social Responsibility

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 There has been an explosion of interest in recent years in the concept of corporate social
responsibility. In one sense, the concept of social responsibility, like ethics, is easy to
understand: It means distinguishing right from wrong and doing right. It means being a good
corporate citizen. The formal definition of corporate social responsibility (CSR) is
management’s obligation to make choices and take actions that will contribute to the welfare and
interests of society, not just the organization.
One reason for the difficulty of understanding and applying CSR is that managers must
confront the question, “Responsibility to whom?” From a social responsibility perspective,
enlightened organizations view the internal and external environment as a variety of
stakeholders.
A stakeholder is any group or person within or outside the organization that has some
type of investment or interest in the organization’s performance and is affected by the
organization’s actions (employees, customers, shareholders, and so forth). Each stakeholder has
a different criterion of responsiveness because it has a different interest in the organization.
There is growing interest in a technique called stakeholder mapping, which provides a systematic
way to identify the expectations, needs, importance, and relative power of various stakeholders,
which may change over time. Stakeholder mapping helps managers identify or prioritize the key
stakeholders related to a specific issue or project.
Most organizations are influenced by a similar variety of stakeholder groups. Investors
and shareholders, employees, customers, and suppliers are considered primary stakeholders,
without whom the organization cannot survive. Investors, shareholders, and suppliers’ interests
are served by managerial efficiency—that is, use of resources to achieve profits. Employees
expect work satisfaction, pay, and good supervision. Customers are concerned with decisions
about the quality, safety, and availability of goods and services. When any primary stakeholder
group becomes seriously dissatisfied, the organization’s viability is threatened.
Other important stakeholders are the government and the community, which have
become increasingly important in recent years. Most corporations exist only under the proper
charter and licenses and operate within the limits of safety laws, environmental protection
requirements, antitrust regulations, antibribery legislation, and other laws and regulations in the
government sector. Government regulations affecting business are increasing because of recent
events. The community includes local governments, the natural environment, and the quality of
life provided for residents.

Sustainability and the Triple Bottom Line

Some corporations are embracing an idea called sustainability or sustainable
development. Sustainability refers to economic development that generates wealth and meets the
needs of the current generation while preserving the environment and society so that future
generations can meet their needs as well. With a philosophy of sustainability, managers weave
environmental and social concerns into every strategic decision so that financial goals are
achieved in a way that is socially and environmentally responsible. Managers in organizations
that embrace sustainability measure their success in terms of a triple bottom line.
The term triple bottom line refers to measuring an organization’s social performance, its
environmental performance, and its financial performance. This is sometimes called the three Ps:
People, Planet, and Profit. The “People” part of the triple bottom line looks at how socially
responsible the organization is in terms of fair labor practices, diversity, supplier relationships,
treatment of employees, contributions to the community, and so forth. The “Planet” aspect
measures the organization’s commitment to environmental sustainability. The third P, of course,
looks at the organization’s profit, the financial bottom line. Based on the principle that what you
measure is what you strive for and achieve, using a triple-bottom-line approach to measuring
performance ensures that managers take social and environmental factors into account rather
than blindly pursuing profit, no matter the cost to society and the natural environment.
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 Evaluating Corporate Social Responsibility
Exhibit 5 presents a model for evaluating corporate social performance, which indicates
that total corporate social responsibility can be divided into four primary criteria: economic,
legal,
ethical, and discretionary responsibilities. These four criteria fit together to form the whole of a
company’s social responsiveness.

Exhibit 5. Criteria of Corporate Social Performance

The first criterion of social responsibility is economic responsibility. The business

institution is, above all, the basic economic unit of society. Its responsibility is to produce the
goods and services that society wants and to maximize profits for its owners and shareholders.
Economic responsibility, carried to the extreme, is called the profit-maximizing view. This view
argues that the corporation should be operated on a profit-oriented basis, with its sole mission to
increase its profits so long as it stays within the rules of the game. The purely profit-maximizing
view is no longer considered an adequate criterion of social performance in Canada, the United
States, and Europe. This approach means that economic gain is the only responsibility, and this
can lead companies into trouble, as recent events in the mortgage and finance industries have
clearly shown.
Legal responsibility defines what society deems as important with respect to appropriate
corporate behavior. That is, businesses are expected to fulfill their economic goals within the
framework of legal requirements imposed by local town councils, state legislators, and federal
regulatory agencies. Examples of illegal acts by corporations include corporate fraud,
intentionally selling defective goods, performing unnecessary repairs or procedures, deliberately
misleading consumers, and billing clients for work not done. Organizations that knowingly break
the law are poor performers in this category.
Ethical responsibility includes behaviors that are not necessarily codified into law and
may not serve the corporation’s direct economic interests. As described earlier in this chapter, to
be ethical, organization decision makers should act with equity, fairness, and impartiality,
respect the rights of individuals, and provide different treatment of individuals only when
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relevant to the organization’s goals and tasks. Unethical behavior occurs when decisions enable
an individual or company to gain at the expense of other people or society as a whole.
Discretionary responsibility is purely voluntary and is guided by a company’s desire to
make social contributions not mandated by economics, law, or ethics. Discretionary activities
include generous philanthropic contributions that offer no payback to the company and are not
expected. Discretionary responsibility is the highest criterion of social responsibility because it
goes beyond societal expectations to contribute to the community’s welfare. Discretionary
responsibility is related to organizational virtuousness, which means that an organization pursues
a positive human impact, moral goodness, and unconditional society betterment for its own sake.