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
