Chapter Four: Corporate Culture Impact and Implications PDF

Chapter Four: The Corporate Culture— Impact and Implications Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.  Chapter Objective...

Chapter Four: The Corporate Culture— Impact and Implications Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.  Chapter Objectives 1 After reading this chapter, you 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. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill ©McGraw-Hill Education.  Chapter Objectives 2 Discuss the role of mission statements and codes in creating an ethical corporate culture. Explain how various reporting mechanisms such as ethics hotlines and ombudspersons can help integrate ethics within a firm. Discuss the role of assessing, monitoring, and auditing the culture and ethics program. Explain how culture can be enforced via governmental regulation. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill ©McGraw-Hill Education.  Ethics and Corporate Culture 1 Culture eats strategy for breakfast. Peter Drucker ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  What is Corporate Culture? 1 The ethical decision-making model emphasizes the individual responsibility for the decisions made. But personal decision making does not exist in a vacuum. Decision making within a firm is influenced, limited, shaped, and, sometimes, determined by the corporate culture of the firm. This chapter explores some of the major issues surrounding the development, influence, and management of a corporate culture. It also explores the role of business leaders in creating, enhancing, and preserving cultures that support ethical behavior. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  What is Corporate Culture? 2 Even in this age of decentralized corporations, there remains a sense of culture in organizations. This is especially true in small local firms, but just as true of major global corporations. Culture: A shared pattern of beliefs, expectations, and meanings that influences and guides the thinking and behaviors of the members of a particular group. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Figure 4.1 While culture shapes the people who are members of the organization, it is also shaped by the people who make up that organization. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Insert Photo Credit Here  What is Corporate Culture? 3 Geert Hofstede organized national cultures into six “dimensions”: Power distance index: The distance between individuals at different levels of a hierarchy (more equal = low power distance). Individualism versus collectivism: The degree to which people prefer to act individually or in groups. Uncertainty avoidance: The extent to which people are comfortable with uncertainty, ambiguity, change, and risks. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  What is Corporate Culture? 4 Time and order orientation: A high long-term orientation (LTO) is comfortable with commitments, traditions, rewards. A low LTO indicates that change may occur more rapidly. Masculinity versus femininity: Low masculinity indicates greater equality, stronger relationships, service, and solidarity while high masculinity suggests assertiveness and competition. Indulgent versus restrained: The extent to which people try to control their desires and impulses. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Hofstede’s National Culture Categories Supporters say: Critics say: He validated his His divisions are based country scores across on generalizations, over 400 measures. stereotypes. His results have been National cultures do replicated many not explain all times. differences. His work focused in a single period of time and place. His perspective is biased by his Western views. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  What is Corporate Culture? 5 Just as there are national cultures, businesses also have unspoken, yet influential standards and expectations. If you join a firm with a culture that supports values, you are uncomfortable with—there will be conflicts. No culture is static—cultures change; but modifying culture is a bit like moving an iceberg. The iceberg is always moving, and if ignored, the iceberg will continue to float along on the current. Strong leaders—from within or at the top—can have a significant impact on a culture. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  What is Corporate Culture? 6 A firm's culture can be its sustaining value: Offering direction and stability during challenging times, Or it can prevent a firm from responding to challenges in creative and timely ways. The stability a culture provides can be a benefit at one time and a barrier to success at another time. Some corporate cultures are defined from the top- down, others are developed by the employees themselves. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  What is Corporate Culture? Defining the specific culture within an organization is not an easy task because it is partially based on each employee’s perception of the culture. Perception may actually impact the culture in a circular way. In addition, culture is present in and can be determined by exploring any of the following, among others: Tempo of work. The organization’s approach to humor. Methods of problem solving. The competitive environment. Incentives. Individual autonomy. Hierarchical structure. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Figure Even with 4.2 this list of cultural elements, it can be difficult for individuals in a firm to identify the specific characteristi cs of the culture Used by permission of Nancy Margulies within which they work. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Ethics and Corporate Culture 2 If you are lucky enough to be someone’s employer, then you have a moral obligation to make sure people do look forward to coming to work in the morning. John Mackey, CEO and co-founder, Whole Foods Market ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Culture and Ethics 1 How does the notion of culture connect with ethics? What role does corporate culture play in business ethics? In situations where the law provides an incomplete answer for ethical decision making, the business culture is likely to be the determining factor in the decision. Ethical businesses must find ways to encourage, to shape, and to allow ethically responsible decisions. Copyright © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill ©McGraw-Hill Education.  Culture and Ethics 2 The cultivation of habits, including ethical virtue, is greatly shaped by the culture in which one lives. Where we get our habits and character is all-important. We can choose to develop some habits. Habits are shaped by education and training—by culture. Intentionally or not, businesses provide an environment in which habits are formed and virtues, or vices, are created. The effect of workplace culture on decision making cannot be overemphasized. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Culture and Ethics 3 If attended to, a strong ethical culture can deter stakeholder damage and improve bottom-line sustainability. If ignored, the culture could destroy long-term sustainability in both financial performance and employee retention. Responsibility for creating and sustaining ethical corporate cultures rests on business leaders. While true that individuals can shape an organization, it is equally true that organizations shape individuals. The person you become, your attitudes, values, expectations, mindset, and habits, will be significantly determined by the culture of the organization in which you work. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Compliance and Values-Based Cultures A distinction arose between different types of corporate cultures: Some firms were classified as compliance-based cultures (the traditional approach) while others were considered to be integrity-based or values-based cultures. Values-based cultures: 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 ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Table 4.1: The Evolution of Compliance Programs into Values- Based Programs Traditional Progressive (Effective Practices) Audit focus Business focus Transaction-based Process-based Financial account focus Customer focus Compliance objective Risk identification, process improvement objective Policies and procedures Risk management focus focus Multiyear audit coverage Continual risk-reassessment coverage Policy adherence Change facilitator Budgeted cost center Accountability for performance improvement results Career auditors Opportunities for other management positions Methodology: Focus on Methodology: Focus on goals, strategies, policies, transactions, and risk management processes and compliance ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Compliance and Values-Based Cultures 1 Compliance-based culture emphasizes adherence to rules as the primary responsibility of ethics. A values-based culture reinforces a set of values rather than rules. A compliance culture is only as strong and precise as the rules. When rules don’t apply, a values-based culture relies on the personal integrity of its workforce. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Compliance and Values-Based Cultures 2 Compliance-oriented goals may include meeting legal and regulatory requirements, minimizing risks of litigation and indictment, and improving accountability mechanisms. The goals of a more evolved and inclusive ethics program may entail: Maintaining brand and reputation. Recruiting and retaining desirable workers. Unifying a firm’s global operation. Creating a better working environment. Doing the right thing as well as doing things right. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Ethics and Corporate Culture 3 I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value. Louis Gerstner, past chairman and CEO, IBM ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Ethical Leadership and Corporate Corporate leadershipCulture has a primary responsibility to 1 steward corporate culture. Stakeholders are guided by the "tone at the top"; there must be a consistent tone throughout the firm. One 2013 study found that senior leaders are more likely than lower-level employees to break the rules and 60 percent of reported misconduct is attributed to managers. If leadership acts unethically, stakeholders receive the message this type of behavior is acceptable. Alternatively, if a leader acts ethically above any other consideration, stakeholders are guided by that role model. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Ethical Leadership and Corporate Culture Beyond personal behavior, leadership sets the tone 2 through other mechanisms. "Budgeting is all about value" is a long-standing management credo. When ethics officers were first introduced in the early 1990s, the extent of the financial support they received indicated their relevance and influence. Creating a shared company culture is a key responsibility of its leaders, if they wish to prioritize ethics in their respective companies. Leaders should be perceived as people-oriented, as well as engaging in visible ethical action. Executives who are "quietly ethical" within the top management team, are not perceived as ethical leaders by the distant employees. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Effective Leadership and Ethical, Effective Leadership How do the effective leader and the ethical, 3 effective leader differ? Not every effective leader is an ethical leader. One key difference is the means used to motivate others and achieve one's goals. Some of the discussions on leadership suggest that ethical leadership is determined by the methods used in leading Transformative or transactional leaders employ methods that empower subordinates to take the initiative and to solve problems for themselves. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Effective Leadership and Ethical, Effective Leadership Ethically appropriate methods of leadership are 2 central to becoming an ethical leader. The other element involves the end or objective toward which the leader leads. In the business context, productivity, efficiency, and profitability are minimal goals for sustainability. Beyond the goal of profitability, other socially responsible goals might be necessary before making a conclusion that a leader is fully ethical. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Building a Values-Based Corporate Culturethrough leadership, Culture is built and maintained 1 integration, assessment, and monitoring. One of the key manifestations of ethical leadership is the communication of values for the organization. But do codes make a difference? Before impacting the culture through a code of conduct or statement of values, a firm must determine its mission. The code has the potential to both enhance reputation and provide guidance for internal decision making. Thus creating a built-in risk management system. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Building a Values-Based Corporate The mission shouldCulture be inspiring. 2 Establishing the core tenets (especially through a participatory process), lays down the law for all future decisions. The mission statement or corporate credo articulates the fundamental principles that should guide all decisions, without abridgment. From a universalist perspective, many decisions might be made with the end in mind, but none should ever breach the underlying mission as an ultimate dictate. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Developing the Mission and Code 1 Critical to ask what the company stands for. Why does the firm exist? What are its purposes? Development of guiding principles through articulation of a clear vision. Identify clear steps as to how a cultural shift will occur between the stakeholders and organizations. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Developing the Mission and Code 2 To have an effective code that will impact culture there must be a belief that this culture is possible and achievable. While businesses have codes of conduct, industries and/or professions might also publish codes of conduct. These codes of conduct apply to firms or people who do business in those arenas. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Ethics Code Guidelines The Ethics Resource Center provides the following guidelines for writing an ethics code: Be clear about the objectives the code is intended to accomplish. Get support and ideas for the code from all levels of the organization. Be aware of the latest developments in the laws and regulations that affect your industry. Write as simply and clearly as possible. Avoid legal jargon and empty generalities. Respond to real-life questions and situations. Provide resources for further information and guidance. In all its forms, make it user-friendly because ultimately a ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Cultural Integration 1 Integration can take different forms, depending both on the organizational culture and the ultimate goals of the process. One of the most decisive elements of integration is communication. Communication of culture must be incorporated into the firm’s vocabulary, habits, and attitudes to become an essential element in the corporate life, decision making, and determination of success. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Cultural Integration 2 Effective integration processes should have incentives in the right place to encourage ethical decision making and checked whether it is evaluated during a worker’s performance review. How does communication about ethical matters occur? Reporting ethically suspect behavior is a difficult thing to do. Nobody likes a "tattletale" and those who report may be retaliated against. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Cultural Integration 3 Whistle-blowing. A practice in which an individual within an organization reports organizational wrongdoing to the public or to others in position of authority. It is a classic issue in business ethics. It can have extremely negative connotations, depending on the culture and environment where it occurs. Vocabulary has an impact, and a change of language could inspire workers to feel a sense of empowerment from their contribution to the corporate culture. It occurs internally and externally. Reporting to external groups can be harmful. Internal mechanisms for reporting wrongdoing are preferable. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Cultural Integration 4 Internal reporting mechanisms must be effective. They must allow confidentiality, if not anonymity. They must strive to protect the rights of the accused party. Company norms and culture can encourage internal reporting. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Cultural Integration 5 Many firms have created ethics’ ombudspersons and internal or external reporting helplines. One challenge with reporting systems is they do not make the values of the organization clear. What is or is not accepted within the company’s culture. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Cultural Integration 6 Firms ensure a successful reporting scheme by ensure the following methods are followed: Leaders should model the act of reporting wrongdoing. Leaders can explain the decision-making process that led to their conclusion. Crisis management teams are often unsuccessful, but running drills or rehearsals of challenging events is a valuable exercise that can be followed. Allow sufficient time for reflection in order to reach responsible decisions might encourage consideration of appropriate implications. Consistently and continuously communicate values and expectations to all stakeholders. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Assessing and Monitoring the Corporate Culture Monitoring and an ongoing ethics audit allows the 1 discovery of silent vulnerabilities which could pose later challenges. Effective monitoring system may include significantly positive objectives. How to better allocate resources. Determine whether a program is keeping pace with organizational growth. Whether all of the program’s positive results are being accurately measured and reported and the firm’s compensation structure is adequately rewarding ethical behavior. Whether the “tone at the top” is being shared effectively. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Assessing and Monitoring the Corporate Culture How do you detect a "toxic" culture? 2 A clear sign is a lack of values for the organization. Warning signs can occur in the various component areas of the organization. If the manner in which a firm manages and communicates its financial environment is disastrous. How to measure the impact of efforts to change a culture? Determine if employee perceptions have changed. External audits provide information, as does hotline data. Any employee feedback should be gathered and analyzed for input regarding the culture. ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill  Case Study Behind the Alarming Expose on Amazon’s Workplace Culture | NBC Nightly News https://www.youtube.com/watch?v=HHujfrRiWEI 1. In your opinion, Amazon’s corporate culture is ethical or not ethical? 2. Describe Amazone’s workplace culture? 3. What type of Whistle-blowing has been applied by employees to reveal unethical action of Amazon? Is it internal or external type? ©McGraw-Hill CopyrightEducation © 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill