This document discusses organizational factors that influence ethical decision making, including corporate culture and relationships. It describes how corporate culture is shaped by both formal mechanisms like codes of conduct as well as informal influences from leadership. An ethical culture with high concern for both people and performance can promote ethical behavior, while compliance-focused cultures centered around legal minimums are less effective. Relationships within a company, including supervisor influence and group norms, also impact individual decisions. Overall, the document examines how organizational structure, leadership, values, and social dynamics establish a context that guides ethical conduct.

1. Chapter 7:
Organizational Factors: The
Role of Ethical Culture and
Relationships
Part Three:
The Decision Making Process
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2. 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
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3. 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
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4. 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
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5. 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
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6. Perceived Tone and Culture of the CEO and
other Executives
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7. 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
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8. Company Examples of Organizational Culture
Types
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9. 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
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10. 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
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11. 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
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12. 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
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13. Questions to Ask Before Engaging in External
Whistle-Blowing
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14. Forms of Retaliation Experienced as a Result
of Reported Misconduct
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15. To Whom Do Employees Report Misconduct?
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16. 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
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17. 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
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18. 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
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19. 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
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20. 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
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21. Structural Comparisons of Organizational
Types
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22. Example of Centralized/Decentralized
Corporate Cultures
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23. 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
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24. Variation in Employee Conduct
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25. 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
© 2013 Cengage Learning. All Rights Reserved. 25