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Organizational Factors: The Role of Ethical Culture and Relationships

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© Keith Reicher
Organizational Factors:
The Role of Ethical Culture
and Relationships
C H A P T E R 7
© S. Greg Panosian
AN ETHICAL DILEMMA*
Dawn Prarie had been with PCA Health Care Hospitals for
three years and had been promoted to marketing director
in the Miami area. She had a staff of 10 and a fairly healthy
budget. Dawn’s job was to attract more patients into the
HMO while helping keep costs down. At a meeting with
Dawn, Nancy Belle, the vice president, had explained the
ramifications of the Balanced Budget Act and how it was
affecting all HMOs. “Being here in Miami does not help our
division,” she told Dawn. “Because of this Balanced Budget
Act, we have been losing money on many of our elderly
patients. For example, we used to receive $600 or more a
month, per patient, from Medicare, but now our minimum
reimbursement is just $367 a month! I need solutions, and
that’s where you come in. By the end of the month, I want
a list of things that will help us show a profit. Anything less
than a positive balance sheet will be unacceptable.”
It was obvious that Nancy was serious about cutting
costs and increasing revenues within the elderly market.
That’s why Dawn had been promoted to marketing director.
The first thing Dawn did after the meeting with Nancy was
to fire four key people. She then gave their duties to six who
were at lower salaries and put the hospital staff on notice
that changes would be occurring at the hospital over the
next several months. In about three weeks, Dawn presented
Nancy with an extensive list of ideas. It included these
suggestions:
1.Trimming some prescription drug benefits
2.Reducing redundant tests for terminal patients
3.Hiring physician assistants to see patients but billing
patients at the physician rate
4.Allowing physicians to buy shares in PCA, thus
providing an incentive for bringing in more patients
5.Sterilizing and reusing cardiac catheters
6.Instituting a one-vendor policy on hospital products to
gain quantity discounts
7.Prescreening “insurance” patients for probability of
payment
Dawn’s assistants felt that some of the hospital staff
could be more aggressive in the marketing area. They urged
using more promotional materials, offering incentives for
physicians who suggested PCA or required their patients
to be hospitalized, and prescreening potential clients
into categories. “You see,” said Ron, one of Dawn’s staff,
“we feel that there are four types of elderly patients. There
are the healthy elderly, whose life expectancies are 10 or
CHAPTER OBJECTIVES
To understand the concept ofcorporate culture
To examine the influence of corporateculture on business ethics
To determine how leadership, power,and motivation relate to ethical
decision making in organizations
To assess organizational structure andits relationship to business ethics
To explore how the work groupinfluences ethical decisions
To discuss the relationship betweenindividual and group ethical decision
making
CHAPTER OUTLINE
Defining Corporate Culture
The Role of Corporate Culture in Ethical
Decision Making
Ethical Frameworks and Evaluations
of Corporate Culture
Ethics as a Component of
Corporate Culture
Compliance versus Value-
based Ethical Cultures
Differential Association
Whistle-Blowing
Leaders Influence Corporate Culture
Reward Power
Coercive Power
Legitimate Power
Expert Power
Referent Power
Motivating Ethical Behavior
Organizational Structure and Business
Ethics
Group Dimensions of Corporate Structure
and Culture
Types of Groups
Group Norms
Variation in Employee Conduct
Can People Control Their Own Actions
Within a Corporate Culture?
180Part : The Decision Making Process
more years. There are the fragile elderly, with life
expectancies of two to seven years. Then there are
the demented and dying elderly, who usually have
one to three years. Finally, we have the high-cost
or uninsured elderly. Patients who are designated
healthy would get the most care, including
mammograms, prostate-cancer screening, and
cholesterol checks. Patients in the other categories
would get less.”
As she implemented some of the
recommendations on Dawn’s list, Nancy also
launched an aggressive plan to destabilize the
nurses’ union. As a result, many nurses began a
work slowdown and were filing internal petitions
to upper management. Headquarters told Nancy
to give the nurses and other hospital staff as much
overtime as they wanted but not to hire anyone
new. One floor manager suggested splitting up
the staff into work teams, with built-in incentives
for those who worked smarter and/or faster.
Nancy approved the plan, and in three months
productivity jumped 50 percent, with many of
the hospital workers making more money. The
downside for Nancy was an increase in worker-
related accidents.
When Dawn toured the hospital around this
time, she found that some of the most productive
workers were using substandard procedures and
poorly made products. One nurse said, “Yes, the
surgical gloves are somewhat of a problem, but
we were told that the quality met the minimum
requirements and so we have to use them.” Dawn
brought this to Nancy’s attention, whereupon
Nancy drafted the following memo:
Attention Hospital Staff
It has come to management’s attention
that minor injuries to staff and patients are
on the rise. Please review the Occupational
Safety and Health Administration guidelines,
as well as the standard procedures
handbook, to make sure you are in
compliance. I also want to thank all those
teams that have been keeping costs down.
We have finally gone into the plus side as
far as profitability. Hang on and we’ll be able
to stabilize the hospital to make it a better
place to care for patients and to work.
At Nancy’s latest meeting with Dawn,
she told Dawn, “We’ve decided on your staff’s
segmentation strategy for the elderly market.
We want you to develop a questionnaire to
prescreen incoming HMO patients, as well as
existing clients, into one of the four categories so
that we can tag their charts and alert the HMO
physicians to the new protocols. Also, because the
recommendations that we’ve put into practice
have worked so well, we’ve decided to use the rest
of your suggestions. The implementation phase
will start next month. I want you, Dawn, to be the
lead person in developing a long-term strategy to
break the unions in the hospital. Do whatever it
takes. We just need to do more with less. I’m firm
on this—so you’re either on board or you’re not.
Which is it going to be?”
QUESTIONS • EXERCISES
1.Discuss PCA Health Care Hospitals’ corporate
culture and its ethical implications.
2.What factors are affecting Dawn’s options?
3.Discuss the issue of for-profit versus nonprofit
health-care facilities.
4.If you were Dawn, what information would
you like to have to make your decisions?
*This case is strictly hypothetical; any resemblance to real
persons, companies, or situations is coincidental.
Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships181
Organizations are much more than structures in which we work. Although they are
not alive, we attribute human characteristics to them. When times are good, we
say the company is “well”; when times are not so good, we may try to “save” the
company. Understandably, people have feelings toward the place that provides them with
income and benefits, challenge, satisfaction, self-esteem, and often lifelong friendships.
In fact, excluding the time spent sleeping, we spend almost 50 percent of our lives in this
second home with our second “family.” It is important, then, to examine how the culture
and structure of these organizations influence the ethical decisions made within them.
In the ethical decision making framework described in Chapter 5, we introduced the
concept that organizational factors and interpersonal relationships influence the ethical
decision making process. In this chapter, we take a closer look at corporate culture and
the way a company’s values and traditions can affect employees’ ethical behavior. We also
discuss the role of leadership in influencing ethical behavior within the organization. Next
we describe two organizational structures and examine how they may influence ethical
decisions. We discuss new organizational structures that have been created to address
the global or corporate responsibility to employees and other stakeholders. Then we
consider the impact of groups within organizations. Finally, we examine the implications
of organizational relationships for ethical decisions.
DEFINING CORPORATE CULTURE
Culture is a common word that people generally use in relation to genealogy, country of
origin, language and the way people speak, what they eat, and their customs. Many define
culture as nationality or citizenship. Values, norms, artifacts, and rituals all play a role in
culture. Chapter 5 defined the term corporate culture as a set of values, norms, and artifacts
including ways of solving problems that members (employees) of an organization share.
Corporate culture is also viewed as “the shared beliefs top managers in a company
have about how they should manage themselves and other employees, and how they
should conduct their business(es).” 1 Mutual of Omaha defines corporate culture as the
“personality of the organization, the shared beliefs that determine how its people behave
and solve business problems.” 2 Its executives believe that its corporate culture provides
the foundation for the company’s work and objectives, and the company has adopted a set
of core values called “Values for Success.” The company believes that these values form
the foundation for a corporate culture that will help the organization realize its vision and
achieve its goals. Corporate culture includes values, norms, and artifacts and is exhibited
through the behavioral patterns, concepts, documents such as codes of ethics, and rituals
that take place in the organization. 3.It gives the members of the organization meaning as
well as the internal rules of behavior. 4
Southwest Airlines has a very strong and friendly, fun-loving organizational culture
that dates all the way back to the days of its key founder Herb Kelleher. Stories are
legendary of Kelleher appearing in a dress and feather boa and joining baggage handlers
on Southwest flights. He ran an awards ceremony for employees that many felt rivaled the
Academy Awards. His employees were treated like family. Today, Southwest continues
that legacy and culture. Over 1,300 Southwest employees are married couples. This
family-friendly environment also relates to parents and their children working for the
airline. In one case, 15 members of the same Chicago family work for the airline. Pilots
willingly and enthusiastically support the “Adopt a Pilot” program whereby students in
DDDDEEEEFFFFIIIINNNNIIIINNNNGGGGCCCCOOOORRRRPPPPOOOORRRRAAAATTTTEEEE CCCCUUUULLLLTTTTUUUURRRREEEE
182Part : The Decision Making Process
classrooms around the country adopt a Southwest pilot for a four-week educational and
mentoring program, attending classes, e-mailing, and sending postcards from a variety of
destinations. Southwest’s culture has caused it to rank among the best companies to work
for and allows it to attract some of the best talent in the industry.5 When these values,
beliefs, customs, rules, and ceremonies are accepted, shared, and circulated throughout the
organization, they represent its culture. All organizations, not just corporations, have some
sort of culture, and thus we use the termsorganizational cultureandcorporate culture
interchangeably.
A company’s history and unwritten rules are a part of its culture. Thus, for many
years, IBM salespeople adhered to a series of unwritten standards for dealing with clients.
The history or stories passed down from generation to generation within an organization
are like the traditions that are propagated within society. Henry Ford, the founder of Ford
Motor Company, left a legacy that emphasized the importance of the individual employee
and the natural environment. Just as Henry Ford pioneered the then-unheard-of high wage
of $5 a day in the early years of the twentieth century, current chairman William Clay
Ford, Jr., continues to affirm that employees represent the only sustainable advantage of a
company.6 William Ford has maintained his grandfather’s legacy by taking a leadership role
in improving vehicle fuel efficiency while reducing emissions. Ford faces many
financial challenges, especially with the financial meltdown. Although it is not one
of the companies receiving government financial support during the economic
crisis, Ford offered some of its debtholders less than the debt was originally worth
(less than one-third) to eliminate over $10 billion in financial obligations. 7
Leaders are responsible for the actions of subordinates and corporations should
have good corporate cultures. For this reason, the definition and measurement
of culture is very important. For example, it is defined in the Sarbanes–Oxley
Act, which was enacted after the Enron, Tyco International, Adelphia, Peregrine
Systems, and WorldCom scandals. This was codified within theSarbanes–Oxley
404compliance section. This section includes management’s assessment of its
controls, management’s assertion whether these controls are effective, and an audit
of these internal controls by the external auditor in conjunction with the audit of
the financial statements.Section 404 forces firms into a set of values that must make up a
portion of the company’s culture. The evaluation of corporate culture is meant to provide
insight into the character of an organization, its ethics, and level of openness.
Compliance with Sarbanes–Oxley 404 requires cultural change, not merely accounting
changes. The intent is to expose mismanagement, fraud, theft, abuse, and to sustain a
corporate culture that does not allow these conditions and actions to exist. Many consulting
companies have filled the need of companies wanting to comply, but have not understood
what culture is. Instead, they have sought to provide direction and criteria for improving
an organization’s ability to manage risk, not ethicalness. In many firms what is meant by
a good corporate culture is measured in the following ways:
Management and the board demonstrate their commitment to strong controls through
their communications and actions.
Every employee is encouraged and required to have hands-on involvement in the
internal control system.
Every employee is encouraged and empowered to report policy exceptions.
Employees are expected to be in the communication loop through resolutions and
corrective actions.
A company’s
history and
unwritten rules
are a part of
its culture.
Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships183
Employees have the ability to report policy exceptions anonymously to any member of
the organization, including the CEO, other members of management, and the board
of directors.8
The problem with these measures of culture is that they merely measure risk, not
ethics. As a result, many assume that the four aforementioned items define culture and
what a good culture should be. The problem still remains of defining corporate culture
and what should be measured.
In the past 50 years, scholars have developed at least 164 distinct definitions of culture.
More recent reviews indicate that the number of definitions has only been increasing.9
While these definitions of culture vary greatly, there are three common elements: (1)
“culture is shared among individuals belonging to a group or society;” (2) “culture is
formed over a relatively long period of time;” and (3) “culture is relatively stable.” 10
Different models of culture, and consequently different instruments for measuring it,
focus on various levels (national, organizational, individual) and aspects (values, practices,
observable artifacts and rituals, underlying implicit assumptions). Geert Hofstede, an
important researcher of IBM’s corporate culture, described it as an onion with many
layers, representing different levels within the corporation. 11
Because many researchers and experts have defined culture so many different ways,
“cultural values” and “culture” are often used interchangeably, especially in the fields of
management and psychology. Nevertheless, there is no single opinion as to what values
and attitudes constitute culture. Despite the overlap in dimensions from different models
of culture, there are differences in what is emphasized in different fields of research. Since
no one has established conclusively what factors or components should represent corporate
culture, we cannot infer intent or readily define what constitutes an ethical or unethical
firm.
Many in business define ethics as what society states as good or bad and develop
measures that manage the risk of illegal behavior. We definitely know that culture has a
significant effect on the ethical decision making process of those in business, regardless
of the firm’s makeup. We want you to understand that managing risk is not the same as
understanding what makes up a firm’s culture. Ethical audits, ethical compliance, and risk
culture surveys may be good tools, but they are not valid in helping to define culture or to
explain an ethical/unethical organization.
THE ROLE OF CORPORATE CULTURE IN
ETHICAL DECISION MAKING
The role of corporate culture has been associated with success and failure. Some cultures are
so strong that to outsiders they come to represent the character of the entire organization.
For example, Levi Strauss, Ben & Jerry’s Homemade (the ice cream company), and Hershey
Foods are widely perceived as casual organizations with strong ethical cultures, whereas
Lockheed Martin, Procter & Gamble, and Texas Instruments are perceived as more formal,
ethical ones. The culture of an organization may be explicitly articulated or left unspoken.
Explicit statements of values, beliefs, and customs usually come from upper
management. Memos, written codes of conduct, handbooks, manuals, forms, and
ceremonies are all formal expressions of an organization’s culture. Many of these statements
can be found on company websites, like that for Wells Fargo (Table 7–1).
TTHHEERROOLLEE OOFF CCOORRPPOORRAATTEE CCUULLTTUURREE IINN
EEETTTHHHIIICCCAAALLL DDDEEECCCIIISSSIIIOOONNN MMMAAAKKKIIINNNGGG
184Part : The Decision Making Process
Corporate culture is often expressed informally—for example, through comments,
both direct and indirect, that communicate the wishes of management. In some companies,
shared values are expressed through informal dress codes, working late, and participating
in extracurricular activities. Corporate culture can even be expressed through gestures,
looks, labels, promotions, programs, and legends (or the lack of these). Phil Knight, Nike
co-founder and sports icon, has created a strong and appealing organizational culture.
Knight has been known to seek out new employees on their first few days on the job to
“borrow $20.00 for lunch.” The unsuspecting new employees are astounded that Knight
spoke to them. Knight used that tactic as a subtle way to let new employees know that they
were on the radar. Interestingly, Knight has never paid back any of the employees. This
ritual contributed to building trust, commitment, and differentiates Nike’s organizational
culture from that of its competitors.
The “tone at the top” is often cited as a determining factor in creating a high-integrity
organization. Employees were asked, in a KPMG Forensic Integrity Survey (Figure 7–1),
whether their CEO and other senior executives exhibited characteristics attributable to
personal integrity and ethical leadership. Nearly two-thirds of employees believed that
their leaders served as positive role models for their organizations. However, roughly half
suggested a lack of confidence (based on “unsure” and “disagree” responses) that their
CEOs knew about behaviors further down in the organization. Nearly half suggested a lack
of confidence that their leaders would be approachable if employees had ethics concerns,
and 70 percent agreed that their CEOs would respond appropriately to matters brought to
their attention. Overall, nearly two-thirds of employees agreed their leaders set the right
tone at the top, leaving one-third unsure or in disagreement.
Ethical Frameworks and Evaluations of Corporate Culture
Corporate culture has been conceptualized in many ways. Authors N. K. Sethia and Mary
Ann Von Glinow have proposed two basic dimensions to describe an organization’s
culture: (1) concern for people—the organization’s efforts to care for its employees’ well-
being; and (2) concern for performance—the organization’s efforts to focus on output
We want all team members to know our values so well that if we threw out all the policy manuals, we
would still make decisions based on our understanding of our culture. These are our values:
Ethics
Maintain the highest standards with customers, team members, stockholders and our communities.
Value and reward open, honest, two-way communication.
Be accountable for, and proud of, your conduct and your decisions.
Only make promises you intend to keep—do what you say you’ll do.
If things change, let people know.
Avoid any actual or perceived conflict of interest.
Comply with the letter and the spirit of the law.
Source: “What Are Our Values?,” Wells Fargo, https://www.wellsfargo.com/invest_relations/vision_values/11 (accessed May 29, 2009).
TABLE 71Wells Fargo’s Values
Chapter 7: Organizational Factors: The Role of Ethical Culture and Relationships185
and employee productivity. A two-by-two matrix represents the four general types of
organizational cultures (Figure 7–2). 12
As Figure 7–2 shows, the four organizational cultures can be classified as apathetic,
caring, exacting, and integrative. Theapathetic cultureshows minimal concern for either
people or performance. In this culture, individuals focus on their own self-interests.
Apathetic tendencies can occur in almost any organization. Steel companies and airlines
were among the first to freeze employee pensions to keep their businesses operating.
Sweeping changes in corporate America are impacting employee compensation and
retirement plans. Simple gestures of appreciation, such as anniversary watches, rings,
dinners, or birthday cards for family members, are being dropped. Many companies view
FIGURE 71Perceived Tone and Culture, Tone at the Top, and Perceptions of the CEO and
Other Senior Executives
Source: “Forensic Integrity Survey 2008–2009,” KPMG, http://www.kpmg.com/SiteCollectionDocuments/Integrity-Survey-
2008-2009.pdf (accessed August 19, 2009).
70%
67%
66%
64%
56%
54%
49%
19%
20%
20%
22%
25%
23%
24%
10%
13%
13%
14%
19%
23%
27%
0%20%40%60%80%100%
Know what type of behavior really
goes on inside the organization
Values ethics and integrity over
shot-term business goals
Are positive role models for the organization
Set the right tone at the top on the importance
of ethics and integrity
Set targets that are achievable without violating
organization’s code of conduct
Would respond appropriately if they
became aware of misconduct
Are approachable if employees have questions
about ethics or need to deliver bad news
AgreeUnsureDisagree

FIGURE 72A Framework of Organizational Culture Typologies
Source: FromGaining Control of the Corporate Culture, by N. K. Sethia and M. A. Von Glinow, 1985, Jossey-Bass, Inc.
Reprinted with permission of John Wiley & Sons, Inc.
Concern forff
People
Concern for Pfferformance
LowHigh
Low
High
Apathetic
Caring
Exacting
Integrative
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