Business Ethics (BUS2223) Chapter 4: The Corporate Culture PDF

BUS2223 BUSINESS ETHICS Prepared By: Madam Suriza NoorFahmi Binti Hashim BUS2223 BUSINESS ETHICS TOPIC 4 THE CORPORATE CULTURE Prepared by: Suriza  3 TOPIC 4: THE CORPORATE CULTURE 4.1 Corpo...

BUS2223 BUSINESS ETHICS Prepared By: Madam Suriza NoorFahmi Binti Hashim BUS2223 BUSINESS ETHICS TOPIC 4 THE CORPORATE CULTURE Prepared by: Suriza  3 TOPIC 4: THE CORPORATE CULTURE 4.1 Corporate Culture 4.2 Culture and Ethics 4.3 Compliance and Value-based Cultures 4.4 Effective Leaderships and Corporate Culture 4.5 Building a Values-based Corporate Culture Prepared by: Suriza LEARNING OUTCOMES 4 After studying this chapter, students will be able to: Define corporate culture. Explain how corporate culture impacts ethical decision making. Discuss the differences between a compliance-based culture and a values-based culture. Discuss the role of corporate leadership in establishing the culture. Explain the difference between effective leaders and ethical leaders. Discuss the role of mission statements and codes in creating an ethical corporate culture. Prepared by: Suriza  5 4.1 CORPORATE CULTURE Culture A shared pattern of beliefs, expectations, and meanings that influences and guides the thinking and behaviors of the members of a particular group. Corporate culture Every organization develops a culture through shared beliefs, expectations, and meanings that influence and direct the thoughts and actions of its members. This culture both shapes the individuals within the organization and is influenced by them as well. Prepared by: Suriza  6 DIFFERENT LEVELS OF CULTURE If culture encompasses shared patterns of beliefs, expectations, and meanings, then we will observe it at various levels, including: Religious, ethnic, and linguistic affiliation. Generation. Gender. Social class. Geographical or national origin. Organization/corporate. Family Prepared by: Suriza  7 4.2 CULTURE AND ETHICS Separation thesis The separation thesis assets that ordinary ethical standards should be kept separate from, and not be used to judge, business has its own standards of good and bad. Impacts of ethical decision-making in corporate culture Leadership Organizational Norms and Values Influence Practices Corporate Social Peer Influence and Organizational Responsibility Social Norms Structure (CSR) Prepared by: Suriza  8 IMPACTS OF ETHICAL DECISION-MAKING IN CORPORATE CULTURE Norms and Values Corporate culture sets the norms and values that guide behavior within the organization. It defines what is considered acceptable or unacceptable conduct. When a company promotes ethical values and integrates them into its culture, employees are more likely to make ethical decisions aligned with those values. Leadership The leadership within an organization significantly shapes its culture. Influence Ethical leadership that prioritizes integrity and social responsibility sets a tone that encourages ethical behavior throughout the company. Conversely, unethical leadership can undermine ethical decision-making and promote misconduct. Organizational Policies, procedures, and practices established by the organization also influence ethical Practices decision-making. For instance, ethical codes, training programs, and mechanisms for reporting unethical behavior contribute to shaping the ethical climate within the company. Prepared by: Suriza  9 Peer Influence and Within corporate cultures, employees often look to their peers and social norms for guidance Social Norms on how to behave. If unethical behavior is tolerated or even subtly encouraged, it can erode ethical standards within the organization. Conversely, a culture that emphasizes ethical conduct can reinforce positive behaviors through peer influence. Organizational The structure of an organization can either facilitate or hinder ethical decision-making. Structure Hierarchical organizations where decisions come from the top down might face challenges in promoting ethical behavior if leaders are not committed to ethical principles. In contrast, flatter organizational structures that empower employees and encourage open communication can foster a more ethical environment. Corporate Social Companies that integrate CSR into their core values often prioritize ethical decision-making Responsibility as part of their commitment to stakeholders beyond shareholders. (CSR) This broader perspective encourages consideration of ethical implications in business decisions. Prepared by: Suriza  10 4.3 COMPLIANCE AND VALUE-BASED CULTURES Types of Corporate Culture: 1. Compliance-based culture A corporate culture in which obedience to laws and regulations is the prevailing model for ethical behavior. 2. Values-based culture A corporate culture in which conformity to a statement of values and principles rather than simple obedience to laws and regulations is the prevailing model for ethical behavior. Prepared by: Suriza  11 COMPLIANCE-BASED CULTURE VALUES-BASED CULTURE (traditional approach) (progressive approach) Audit focus Business focus Transaction-based Process-based Financial account focus Customer focus Compliance objective Risk identification, process improvement objective Policies and procedures focus Risk management focus Multiyear audit coverage Continual risk-assessment coverage Policy adherence Change facilitator Budgeted cost center Accountability for performance improvement results Career auditors Opportunities for other management positions Methodology: focus on goals, strategies, and Methodology: focus on policies, transactions, risk management processes and compliance Prepared by: Suriza  12 Scenario: Handling a Product Safety Issue Situation: A company discovers that one of its products has a potential safety issue that could harm consumers. The defect was found during routine quality checks and has not yet resulted in any reported injuries. The company must decide how to address the issue. Compliance-Based Culture Approach: Values-Based Culture Approach: 1. Focus on Legal and Regulatory Requirements: 1. Focus on Core Values and Ethical Principles: o Action: Review safety regulations and follow legal o Action: Prioritize core values like customer safety and requirements, including recalls and notifying transparency, exceeding legal requirements. regulators. o Communication: Issue a detailed, transparent Examples: o Communication: Issue a public statement that statement about the defect, risks, and corrective complies with legal disclosure without admitting fault. actions, apologizing for any inconvenience. o Outcome: Actions are aimed at avoiding legal o Outcome: Actions are driven by ethics, even at penalties. Employees follow protocols for compliance, additional costs. Employees consider broader ethical with limited focus on broader ethics. implications. 2. Employee Behavior: 2. Employee Behavior: o Employees prioritize compliance to avoid liability, o Employees feel empowered to make decisions often feeling constrained by the rules, with less reflecting the company’s values, deeply engaging with consideration for ethical implications. the issue beyond mere compliance. Prepared by: Suriza  13 Comparison Compliance-Based Approach Values-Based Approach Action Focuses on meeting the minimum legal Goes beyond legal requirements, requirements to avoid penalties. prioritizing customer safety and ethical principles. Communication Provides necessary information but Emphasizes transparency, honesty, and avoids full transparency. responsibility. Outcome Ensures compliance but may miss Builds trust and demonstrates a strong opportunities to build trust and ethical commitment, potentially demonstrate ethical leadership. enhancing the company's reputation and customer loyalty. Prepared by: Suriza  14 4.4 EFFECTIVE LEADERSHIPS AND CORPORATE CULTURE Role of corporate leadership Effective ethical leadership involves more than personal behavior; it includes the dedication of resources to support ethical practices. Resource Allocation Examples: Dedicated Ethics Officer: Hiring a skilled individual with a staff and budget emphasizes ethics. Ethics officers - Individuals within an organization charged with managerial oversight of ethical compliance and enforcement within the organization Comprehensive Code of Conduct: Implementing and regularly training on a code of conduct for employees and external partners highlights the firm’s commitment to ethics. Prepared by: Suriza  15 EFFECTIVE LEADERS AND ETHICAL LEADERS Effective Leaders Ethical Leadership Guide and Motivate: Methods: ∙ Effective leaders successfully lead their team towards common goals. ∙ Ethical leaders choose to use ethical means to guide and motivate others. ∙ They ensure that followers reach their destination efficiently. ∙ Modeling Behavior: Demonstrating ethical conduct for others to follow. ∙ Persuading: Convincing others to act ethically through reasoned argument. Methods: ∙ Serving Others: Leading by example, focusing on serving the needs of others. ∙ Effective leaders might use a variety of methods to achieve their goals. ∙ Example: Robert Greenleaf’s “Servant Leadership” suggests that the best leaders lead ∙ Unethical Methods: Threats, intimidation, harassment, and coercion. by serving others in a non-hierarchical style. ∙ Ethical Methods: Modeling ethical behavior, persuading, and utilizing the influence of their institutional role. Goals: ∙ Ethical leaders aim for goals that are morally and ethically responsible. ∙ They create a corporate culture that empowers employees to make ethical decisions and encourages integrity. Creating an Ethical Culture: ∙ Empower Employees: o Encourage employees to take initiative and solve problems ethically. o Provide training and resources to support ethical decision-making. ∙ Non-Coercive Environment: o Foster a workplace where ethical behavior is promoted without the use of threats or coercion. o Supportive leadership that values ethical practices and outcomes. Prepared by: Suriza  16 4.5 BUILDING A VALUES-BASED CORPORATE CULTURE A key aspect of ethical leadership is communicating values throughout the organization. This involves gathering input from everyone, not just reflecting the CEO's values. However, the leader must ensure the organization follows core principles to guide employees in their decisions. Code of conduct A set of behavioral guidelines and expectations that govern all members of a business firm. Mission statement A formal summary statement that describes the goals, values, and institutional aim of an organization. Prepared by: Suriza DEVELOPING THE MISSION AND CODE 2) Clear vision 1) Determine its mission Clearly define the firm's direction. For Before establishing a code of conduct, a example, during the #MeToo movement, firm must define its mission. This guides the Television Academy used guidelines to decision-makers during ethical dilemmas, set expectations for respectful behavior, ensuring actions align with the firm's demonstrating the code's value in purpose beyond just profit. real-world contexts. 3) Identify clear steps 4) Cultural Shift Simply having a code isn't enough; To succeed, the organization must believe effective implementation requires in and commit to the cultural shift outlined supportive processes and procedures. Avoid in the code. Without alignment from key the "print, post, and pray" approach by leaders and belief in its achievability, the integrating the code into daily operations code may not influence behavior as and sustaining it over time. intended. Prepared by: Suriza  18 1. How does perception influence corporate culture? 2. What role does leadership play in shaping corporate culture and ethical decision-making? 3. What are the key characteristics of a compliance-based culture? 4. What are the key characteristics of effective leadership? 5. What steps are involved in developing an effective mission statement and code of conduct? Prepared by: Suriza  19 REFERENCES Main References Laura P. Hartman (2020) Business Ethics: Decision Making for Personal Integrity & Social Responsibility, McGraw Hill Denis G Arnold, Tom L, Norman E (2020) Ethical Theory and Business, Tenth Edition, Cambridge University Press Jefry Morearty (2022), Business Ethics: A Contemporary Introduction, Taylor and Francis Additional Reference Alison L Demsey (2017), Evolution in Corporate Governance: Towards An Ethical Framework for Business Conduct; Taylor and Francis Stephen M. Buyers & Kurt Stanberry (2018).Business Ethics Open Stax. Boatright, J. R. (2017). Ethics and the Conduct of Business. 9th Edition. Pearson Education, Inc. Upper Saddle River, New Jersey. Shaw, W. H. (2017). Business Ethics. 9th Edition. Wadsworth, Cengage Learning, Boston, USA. Drury, C. (2015). Management and Cost Accounting. Cengage Learning. Velasquez M. G. (2018). Business Ethics. 8th Edition. Pearson New International Edition. USA. Prepared by: Suriza  THE END Madam Suriza NoorFahmi Binti Hashim [email protected] LT3.3 (level 3) Prepared by: Suriza