Organizational Factors

Organizational Factors The Role of Ethical Culture and Relationships

Organizational Factors : Ethical Culture • Defining corporate culture. • The role of corporate culture in ethical decision making. • Leaders influence corporate culture • Motivating ethical behavior • Organizational structure and business ethics • Group dimensions of corporate structure and culture • Variation in employee conduct • Can people control their own actions within a corporate culture?

Defining Corporate Culture • Corporate culture is viewed as the shared beliefs that determine how people behave and solve business problems or how they go about doing business and performing their daily jobs. • Corporate culture is related to norms, values, belief, rituals, code of ethics, artifices, and the identity and personality of the organization.

Defining Corporate Culture • Read about Southwest Airlines culture of fun-loving that dates back to the days of its founder Herb Kelleher. Stories and ceremonies shape the corporate culture how?. • A company's history and unwritten rules are a part of its culture. • C.c is measured in the following ways: • Mgt and the board of directors should demonstrate their commitment to strong controls through their communications and actions.

Defining Corporate Culture 2. Every employee is encouraged and supported to have active involvement in the internal control system. 3. Every employee is empowered to report policy exceptions. 4. Employees are expected to be in the communication loop through resolutions and corrective actions. 5. Employees have the ability to report policy exceptions anonymously to any member of the org, including the CEO, other managers, and the board of directors.

Corporate Culture • Three common elements in defining corporate culture: • Culture is shared among org members. • Culture is formed over a long period of time. • Culture is relatively stable.

The role of corporate culture in ethical decision making • Strong vs weak cultures • Formal vs informal cultures. • Check figure 7-1 • Leaders at the top have a determining factor in creating a high integrity culture, therefore creating an ethical culture.

The Role of Corporate Culture in Ethical Decision Making • Ethical frameworks and evaluations of C.C. check figure 7-2. Culture audit is an assessment of the org’s values. Very good to use table 7-2. • Ethics as a component of C.C If ethics is a major component of corporate culture, employees will be rewarded for observing ethical behavior. HR will hire people based on ethical standards and measures, marketing and sales will do accordingly, finance will do so and so on and so forth.

Ethics as a component of Corporate Culture • Managing culture is very important. When managed effectively, culture will be the source of success. Culture will be the secret behind that success. • Managing culture means what? planning and directing the organization to have the right culture, healthy culture and effective culture. An ethical culture that does not compromise its ethical values under whatever circumstances (under pressure from shareholders, wall street, short term results, or even under the pressure of not making profit).

Ethics as a component of Corporate Culture • Managing culture includes creating an ethical culture by determination, planning, organizing and leading that culture. • Rewarding people and disciplining people according to their compliance to the right ethical standards applied by the org.

Compliance vs value based ethical cultures • Use of legal departments to determine ethics, auditing departments, monitoring systems. The problem with this is that its short-term approach rather than a long term one. • Value based ethics culture is based on clear mission statement that defines the firm as well as how customers and employees should be treated. The focus here is on values not rules. The first is consistent with single loop learning whereas the second is consistent with double loop learning (explaining why not just what).

Differential Association • 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 belong to other intimate personal groups. • Also, superiors have a strong influence on the ethics of their subordinates.

Whistle-Blowing • Exposing an employer’s wrongdoing to outsiders. • Two forms of whistle blowing • Internal- means inside the org. • External- to outside the org. Via hotlines Protect whistle blower against retaliation.

Leaders Influence Corporate Culture • In this section we have explained 5 sources or bases of power for leaders though which they may influence followers: • Reward power • Coercive power • Legitimate power • Expert power • Referent power

Leaders Influence Corporate Culture • We called the above first three as positional basis of power because they come from the position the leader holds, and the next two are called the personal basis for power including referent and expert sources. Now the positional one will lead to compliance and the personal will lead to commitment and there are very substantial differences between both. The compliance will lead to quantity and efficiency in outcomes and the commitment will lead to quality performance and effectiveness in outcomes.

Motivating Ethical Behavior • What is motivation? • What is job performance? • Do you know about Maslow’s hierarchy? • Some people may overbill time worked on projects to satisfy their family basic needs. Once people continue up the ladder, they might become tempted by obeying company rules and policies, and concerned with internal recognition and achievement than their family needs.

Motivating Ethical Behavior • What is meant by frustration-Regression theory in Maslow’s need hierarchy? • Individual’s personal ethics and needs will significantly affect his or her ethical decisions. • What is higher order needs and lower order needs in Maslow’s hierarchy?

monday • The case • Case 10 • BP • Page 220

Organizational Structure and Business Ethics Socio technical perspective • Table 7-5 is a good illustration of the cons and pros of centralization vs decentralization • Centralization affects ethical issues: • Behaving according to the “letter of the law” rather than the spirit. Strict rules and regulations. • Little upward communication make top managers unaware of unethical behaviors down the hierarchy. Including sweatshop labor and forced labor. Enslaved in sweatshops and migrant labor working on farms and building homes. • Blame shifting or scapegoating. • System thinking problem.

Organizational Structure and Business Ethics • What is decentralized org? Empowered lower level managers and employees might misuse authority and get engaged in unethical problems and sometimes disasters like the Bhopal disaster in India. Dumping waste outside their immediate community. Shell company scandal of dumping toxic waste under the sea in the 90s. This was due to misuse of power and authority.

Select 3 to 5 key words through which you may empower your employees without misusing empowerment. Through which you will be sure 100% that they • will not be unethical or misuse authority. 1- trust A- character B- knowledge and skill 2- rewards 3- information sharing

Organizational Structure and Business Ethics • Which one more ethical centralization or decentralization? There are cases where centralization creates the grounds for unethical behavior and there are cases where decentralization is. Rules are necessary for central org and culture is necessary for decentralization. Why?

Group Dimensions of Corporate Structure and Culture • Types of groups: • Formal groups • Informal groups Formal groups • Committees; what is groupthink? ethical committees are good for recent ethical crisis in the business. They need to be independent and avoid politics. Also the committee needs to have guidelines and policies and rules to avoid personal conflict. Texas instrument is a good example. 2- work groups 3- taskforce Etc.

Group Dimensions of Corporate Structure and Culture • Informal groups help develop informal channels of communication. • Informal communication like rumors may be much faster than formal communication which might act as an early warning signals against any unethical situation. Before asking the formal system, you might informally ask your friend of what is right and what is wrong around here. • Gossiping

Group Dimensions of Corporate Structure and Culture • Group norms are standards of behavior that groups expect of their members. Like the group norms of leaving early from work or taking a long lunch break. Violating the standard (for example, no more than 30 minutes break) members will receive a form of punishment from the group. Such system is good to punish members violating ethical standards.

Group Dimensions of Corporate Structure and Culture • Norms might enforce ethical behavior and might on the other hand enforce unethical behaviors like using the company’s resources for personal needs. Telephone, copy machine, company parts or material. Cars, equipment, software and many others. Some companies provide employees with cars for job use and they use it for their family and friends.

Variation in Employee Conduct • Look at table 7-7 its very interesting- check where people you know fit in such framework. • What is the role of managers against such percentages. • Its good to see also table 7-8. • Can people control their own actions without a corporate culture? The answer is hard and few people rely on their own and control their behavior away from the corporate culture. End of chapter seven.

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Organizational Factors