Business Ethics & Financial Management homework assessments

BBA 4751, Business Ethics 1

UNIT III STUDY GUIDE

Ethics and Corporate Culture

Course Learning Outcomes for Unit III Upon completion of this unit, students should be able to:

1. Define corporate culture and explain how it impacts ethical decision making

2. Discuss the differences between a compliance culture and a values- based culture.

3. Discuss the role of corporate leadership in establishing the culture. 4. Explain the difference between effective leaders and ethical leaders. 5. Discuss the role of mission statements and codes in creating an ethical

corporate culture. 6. Explain how various reporting mechanisms, such as ethics hotlines and

ombudsmen, can help integrate ethics within a firm. 7. Discuss the role of assessment, monitoring, and auditing of the culture

and ethics program

Unit Lesson In the second unit of our course, we examined several traditional ethical theories including relativism, psychological egoism, utilitarianism, deontology, virtue ethics, pragmatism, and a more contemporary theory known as the original position theory. In this unit, we examine ways in which corporations can develop ethical cultures: cultures where individuals are encouraged and supported in making ethically responsible decisions. We also examine different types of cultures and how organizational leadership impacts culture. The decision making model of ethics that was explored in the first two units of our course emphasizes the responsibility of individuals for the decisions they make in business. However, personal decision making does not take place in isolation. Decision making that takes place within an organization is invariably influenced by the culture of that organization. Even though many organizations are both decentralized and global, there is always a culture in any given organization. And although a corporation can have many locations, with a diverse employee base and with many different management styles, the aspect of the company or organization that persists through these variations is the firm’s culture. Part of a firm’s culture is composed of aspects of the environment that are unspoken but very influential. For example, IBM was once famous for a culture in which everyone wore white shirts and ties. Today, software and technology companies such as Google and Microsoft have reputations for a culture of informality and playfulness. Some companies have a straight 9-5 work schedule while others expect employees to work long hours and weekends. All of these elements contribute to the makeup of an organization’s

Reading Assignment Chapter 4: The Corporate Culture– Impact and Implications, pp. 147-181

Suggested Reading See information below.

BBA 4751, Business Ethics 2

culture, and they can all change over time. A strong leader can prompt such change. In the context of business, a strong business leader can have a significant impact on a corporate culture. As mentioned above, a firm’s culture is a common element to an organization and can be its sustaining value that provides direction and stability during challenging times. At the same time, culture can sometimes limit an organization if it inculcates a mentality of resistance to change or innovation. Therefore, cultural stability can be a benefit at one time and can be detrimental at another. In addition, each person that is part of a given culture has an impact and perceives it in a certain way. Each person can affect others through his or her behavior and reactions to that culture. A corporate culture sets the expectations and norms that can help prioritize how decisions are made in the organization and by whom. Obviously, there are different types of cultures. However, an ethical culture is one where employees are empowered and expected to act ethically, even when the law does not require it. The two types of cultures that we focus on in this unit are compliance-based cultures and values-based cultures. Compliance-based cultures emphasize obedience to the rules. This emphasis gives power to functions, such as legal and auditing, to mandate and monitor compliance with the law and with internal codes. Values-based cultures emphasize a set of values rather than rules. A hallmark of these cultures is a values-based code of conduct that encourage a decision-making process that aligns with those stated values and their underlying principles. It should be clear that a compliance culture is only as strong and as precise as the rules workers are expected to comply with. Conversely, a values- based culture recognizes that when a rule does not apply, the firm must rely on the personal integrity of its workforce when decisions need to be made. Moreover, the difference in the desired outcomes from each of these cultural approaches is necessarily unique. Compliance-based cultures are focused on outcomes that are legal and/or audit-based. Whereas, values-based cultures are focused on such concepts as brand and company reputation, recruiting and retaining the best employees, creating a positive work environment, and addressing social and environmental issues. Although it is true that all people in an organization contribute to that entity’s culture, leadership has a more significant impact in setting the tone through a number of mechanisms, including the allocation of resources, that support and promote ethical behavior. For example, if the ethics and compliance department in an organization has one person carrying out those duties in a part-time capacity, ethics and compliance are likely to have an insignificant impact on the firm. Conversely, if the ethics and compliance function is adequately staffed and resourced, it serves to illustrate the firm’s commitment to ethics, compliance, and a values-based culture.

BBA 4751, Business Ethics 3

Research shows that in order for a values-based culture of ethics to take root and flourish in an organization, it is critical that the leader of the organization is perceived as having a people-orientation, as well as being engaged in visible ethical action. Ethically acting leadership can demonstrate and exhibit such behavior through making courageous decisions in tough situations. The critical element of this behavior is that it gets noticed. If an executive is “quietly ethical,” that individual is less likely to be perceived as an ethical leader. It should also be noted that there is a distinction between being an effective leader and an ethical leader, although those two characteristics are not mutually exclusive. Effective leaders may achieve their goals through threats, intimidation, harassment, and coercion. Ethical leaders use more amenable interpersonal approaches such as modeling ethical behavior, persuasion, or using the impact of their institutional role. One way for a leader to foster a values-based corporate culture is by establishing a code of conduct. As stated above, a code of conduct is a statement of values. The process of creating and implementing a code of conduct hinges on establishing a mission for the organization. A mission statement serves as an articulation of the fundamental principles at the heart of the organization, and all decisions should be made with the mission statement in mind. Once the mission and code of conduct are in place, integrating the culture throughout the organization is critical to the success of any relevant shift. One of the most important elements of cultural integration is communication. Without promulgation of the culture, there is no clarity of purpose, priorities or process. The culture should be continuously monitored for signs that the firm is developing negative behaviors. Such corporate culture is sometimes referred to as a “toxic” culture. Characteristics of a toxic culture include the lack of any generally accepted base of values for the organization, and it is often evidenced in the way a firm treats its customers, suppliers, clients, workers, the way it manages its internal and external relationships, and the way the firm manages its finances. As our textbook indicates, “a firm can be in a state of financial disaster without engaging in even one unethical act (and vice versa), but the manner in which it manages and communicates its financial environment says it all” (Hartman, DesJardins, & MacDonald, 2014, p. 172).

Reference

Hartman, L. P., DesJardins, J., & MacDonald, C. (2014). Business ethics: Decision making for personal integrity & social responsibility (3rd ed.). New York, NY: McGraw-Hill.

BBA 4751, Business Ethics 4

Suggested Reading Click here to access the PDF of the Chapter 4 Presentation. LRN. (2006).The impact of codes of conduct on corporate culture. Retrieved

from www.ethics.org/files/u5/LRNImpactofCodesofConduct.pdf Cole, C. R., He, E., McCullough, K. A., Semykina, A., & Sommer, D. W. (2011,

September). An empirical examination of stakeholder groups as monitoring sources in corporate governance. Journal of Risk and Insurance, 78(3), 703-730.

Le, S. A., Kroll, M. J., & Walters, B. A. (2011, Fall). Stages of corporate

governance in transition economies. Journal of Business Strategies, 28(2), 151-176.