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ChapterFour:

TheCorporateCulture—ImpactandImplicationsCopyright?2021McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.ChapterObjectives1Afterreadingthischapter,youwillbeableto:Definecorporateculture.Explainhowcorporatecultureimpactsethicaldecisionmaking.Discussthedifferencesbetweenacompliance-basedcultureandavalues-basedculture.Discusstheroleofcorporateleadershipinestablishingtheculture.Explainthedifferencebetweeneffectiveleadersandethicalleaders.ChapterObjectives2Discusstheroleofmissionstatementsandcodesincreatinganethicalcorporateculture.Explainhowvariousreportingmechanismssuchasethicshotlinesandombudspersonscanhelpintegrateethicswithinafirm.Discusstheroleofassessing,monitoring,andauditingthecultureandethicsprogram.Explainhowculturecanbeenforcedviagovernmentalregulation.EthicsandCorporateCulture1Cultureeatsstrategyforbreakfast.PeterDruckerWhatisCorporateCulture?1Theethicaldecision-makingmodelemphasizestheindividualresponsibilityforthedecisionsmade.Butpersonaldecisionmakingdoesnotexistinavacuum.Decisionmakingwithinafirmisinfluenced,limited,shaped,and,sometimes,determinedbythecorporatecultureofthefirm.Thischapterexploressomeofthemajorissuessurroundingthedevelopment,influence,andmanagementofacorporateculture.Italsoexplorestheroleofbusinessleadersincreating,enhancing,andpreservingculturesthatsupportethicalbehavior.WhatisCorporateCulture?2Eveninthisageofdecentralizedcorporations,thereremainsasenseofcultureinorganizations.Thisisespeciallytrueinsmalllocalfirms,butjustastrueofmajorglobalcorporations.Culture:Asharedpatternofbeliefs,expectations,andmeaningsthatinfluencesandguidesthethinkingandbehaviorsofthemembersofaparticulargroup.Figure4.1Whilecultureshapesthepeoplewhoaremembersoftheorganization,itisalsoshapedbythepeoplewhomakeupthatorganization.WhatisCorporateCulture?3GeertHofstedeorganizednationalculturesintosix“dimensions”:Powerdistanceindex:Thedistancebetweenindividualsatdifferentlevelsofahierarchy(moreequal=lowpowerdistance).Individualismversuscollectivism:Thedegreetowhichpeopleprefertoactindividuallyoringroups.Uncertaintyavoidance:Theextenttowhichpeoplearecomfortablewithuncertainty,ambiguity,change,andrisks.WhatisCorporateCulture?4Timeandorderorientation:Ahighlong-termorientation(LTO)iscomfortablewithcommitments,traditions,rewards.AlowLTOindicatesthatchangemayoccurmorerapidly.Masculinityversusfemininity:Lowmasculinityindicatesgreaterequality,strongerrelationships,service,andsolidaritywhilehighmasculinitysuggestsassertivenessandcompetition.Indulgentversusrestrained:Theextenttowhichpeopletrytocontroltheirdesiresandimpulses.Hofstede’sNationalCultureCategoriesSupporterssay:Hevalidatedhiscountryscoresacrossover400measures.Hisresultshavebeenreplicatedmanytimes.Criticssay:Hisdivisionsarebasedongeneralizations,stereotypes.Nationalculturesdonotexplainalldifferences.Hisworkfocusedinasingleperiodoftimeandplace.HisperspectiveisbiasedbyhisWesternviews.Onlyalimitednumberofcountrieswereincluded.WhatisCorporateCulture?5Justastherearenationalcultures,businessesalsohaveunspoken,yetinfluentialstandardsandexpectations.Ifyoujoinafirmwithaculturethatsupportsvalues,youareuncomfortablewith—therewillbeconflicts.Nocultureisstatic—cultureschange;butmodifyingcultureisabitlikemovinganiceberg.Theicebergisalwaysmoving,andifignored,theicebergwillcontinuetofloatalongonthecurrent.Strongleaders—fromwithinoratthetop—canhaveasignificantimpactonaculture.WhatisCorporateCulture?6Afirm'sculturecanbeitssustainingvalue:Offeringdirectionandstabilityduringchallengingtimes,Oritcanpreventafirmfromrespondingtochallengesincreativeandtimelyways.Thestabilityacultureprovidescanbeabenefitatonetimeandabarriertosuccessatanothertime.Somecorporateculturesaredefinedfromthetop-down,othersaredevelopedbytheemployeesthemselves.WhatisCorporateCulture?Definingthespecificculturewithinanorganizationisnotaneasytaskbecauseitispartiallybasedoneachemployee’sperceptionoftheculture.Perceptionmayactuallyimpactthecultureinacircularway.Inaddition,cultureispresentinandcanbedeterminedbyexploringanyofthefollowing,amongothers:Tempoofwork.Theorganization’sapproachtohumor.Methodsofproblemsolving.Thecompetitiveenvironment.Incentives.Individualautonomy.Hierarchicalstructure.Figure4.2Evenwiththislistofculturalelements,itcanbedifficultforindividualsinafirmtoidentifythespecificcharacteristicsoftheculturewithinwhichtheywork.UsedbypermissionofNancyMarguliesEthicsandCorporateCulture2Ifyouareluckyenoughtobesomeone’semployer,thenyouhaveamoralobligationtomakesurepeopledolookforwardtocomingtoworkinthemorning.

JohnMackey,CEOandco-founder,WholeFoodsMarketCultureandEthics1Howdoesthenotionofcultureconnectwithethics?Whatroledoescorporatecultureplayinbusinessethics?Insituationswherethelawprovidesanincompleteanswerforethicaldecisionmaking,thebusinesscultureislikelytobethedeterminingfactorinthedecision.Ethicalbusinessesmustfindwaystoencourage,toshape,andtoallowethicallyresponsibledecisions.CultureandEthics2Thecultivationofhabits,includingethicalvirtue,isgreatlyshapedbythecultureinwhichonelives.Wherewegetourhabitsandcharacterisall-important.Wecanchoosetodevelopsomehabits.Habitsareshapedbyeducationandtraining—byculture.Intentionallyornot,businessesprovideanenvironmentinwhichhabitsareformedandvirtues,orvices,arecreated.Theeffectofworkplacecultureondecisionmakingcannotbeoveremphasized.CultureandEthics3Ifattendedto,astrongethicalculturecandeterstakeholderdamageandimprovebottom-linesustainability.Ifignored,theculturecoulddestroylong-termsustainabilityinbothfinancialperformanceandemployeeretention.Responsibilityforcreatingandsustainingethicalcorporateculturesrestsonbusinessleaders.Whiletruethatindividualscanshapeanorganization,itisequallytruethatorganizationsshapeindividuals.Thepersonyoubecome,yourattitudes,values,expectations,mindset,andhabits,willbesignificantlydeterminedbythecultureoftheorganizationinwhichyouwork.ComplianceandValues-BasedCulturesAdistinctionarosebetweendifferenttypesofcorporatecultures:Somefirmswereclassifiedascompliance-basedcultures(thetraditionalapproach)whileotherswereconsideredtobeintegrity-basedorvalues-basedcultures.Values-basedcultures:AcorporatecultureinwhichconformitytoastatementofvaluesandprinciplesratherthansimpleobediencetolawsandregulationsistheprevailingmodelforethicalbehaviorTable4.1:TheEvolutionofComplianceProgramsintoValues-BasedProgramsTraditionalProgressive(EffectivePractices)Auditfocus BusinessfocusTransaction-basedProcess-basedFinancialaccountfocusCustomerfocusComplianceobjectiveRiskidentification,processimprovementobjectivePoliciesandproceduresfocusRiskmanagementfocusMultiyearauditcoverageContinualrisk-reassessmentcoveragePolicyadherenceChangefacilitatorBudgetedcostcenterAccountabilityforperformanceimprovementresultsCareerauditorsOpportunitiesforothermanagementpositionsMethodology:Focusonpolicies,transactions,andcompliance Methodology:Focusongoals,strategies,andriskmanagementprocesses ComplianceandValues-BasedCultures1Compliance-basedcultureemphasizesadherencetorulesastheprimaryresponsibilityofethics.Avalues-basedculturereinforcesasetofvaluesratherthanrules.Acompliancecultureisonlyasstrongandpreciseastherules.Whenrulesdon’tapply,avalues-basedculturereliesonthepersonalintegrityofitsworkforce.ComplianceandValues-BasedCultures2Compliance-orientedgoalsmayincludemeetinglegalandregulatoryrequirements,minimizingrisksoflitigationandindictment,andimprovingaccountabilitymechanisms.Thegoalsofamoreevolvedandinclusiveethicsprogrammayentail:Maintainingbrandandreputation.Recruitingandretainingdesirableworkers.Unifyingafirm’sglobaloperation.Creatingabetterworkingenvironment.Doingtherightthingaswellasdoingthingsright.EthicsandCorporateCulture3Icametosee,inmytimeatIBM,thatcultureisn’tjustoneaspectofthegame,itisthegame.Intheend,anorganizationisnothingmorethanthecollectivecapacityofitspeopletocreatevalue.LouisGerstner,pastchairmanandCEO,IBMEthicalLeadershipandCorporateCulture1Corporateleadershiphasaprimaryresponsibilitytostewardcorporateculture.Stakeholdersareguidedbythe"toneatthetop";theremustbeaconsistenttonethroughoutthefirm.One2013studyfoundthatseniorleadersaremorelikelythanlower-levelemployeestobreaktherulesand60percentofreportedmisconductisattributedtomanagers.Ifleadershipactsunethically,stakeholdersreceivethemessagethistypeofbehaviorisacceptable.Alternatively,ifaleaderactsethicallyaboveanyotherconsideration,stakeholdersareguidedbythatrolemodel.EthicalLeadershipandCorporateCulture2Beyondpersonalbehavior,leadershipsetsthetonethroughothermechanisms."Budgetingisallaboutvalue"isalong-standingmanagementcredo.Whenethicsofficerswerefirstintroducedintheearly1990s,theextentofthefinancialsupporttheyreceivedindicatedtheirrelevanceandinfluence.Creatingasharedcompanycultureisakeyresponsibilityofitsleaders,iftheywishtoprioritizeethicsintheirrespectivecompanies.Leadersshouldbeperceivedaspeople-oriented,aswellasengaginginvisibleethicalaction.Executiveswhoare"quietlyethical"withinthetopmanagementteam,arenotperceivedasethicalleadersbythedistantemployees.Theimpactofethicalleadershipissignificant.EffectiveLeadershipandEthical,EffectiveLeadership3Howdotheeffectiveleaderandtheethical,effectiveleaderdiffer?Noteveryeffectiveleaderisanethicalleader.Onekeydifferenceisthemeansusedtomotivateothersandachieveone'sgoals.SomeofthediscussionsonleadershipsuggestthatethicalleadershipisdeterminedbythemethodsusedinleadingTransformativeortransactionalleadersemploymethodsthatempowersubordinatestotaketheinitiativeandtosolveproblemsforthemselves.EffectiveLeadershipandEthical,EffectiveLeadership2Ethicallyappropriatemethodsofleadershiparecentraltobecominganethicalleader.Theotherelementinvolvestheendorobjectivetowardwhichtheleaderleads.Inthebusinesscontext,productivity,efficiency,andprofitabilityareminimalgoalsforsustainability.Beyondthegoalofprofitability,othersociallyresponsiblegoalsmightbenecessarybeforemakingaconclusionthataleaderisfullyethical.BuildingaValues-BasedCorporateCulture1Cultureisbuiltandmaintainedthroughleadership,integration,assessment,andmonitoring.Oneofthekeymanifestationsofethicalleadershipisthecommunicationofvaluesfortheorganization.Butdocodesmakeadifference?Beforeimpactingtheculturethroughacodeofconductorstatementofvalues,afirmmustdetermineitsmission.Thecodehasthepotentialtobothenhancereputationandprovideguidanceforinternaldecisionmaking.Thuscreatingabuilt-inriskmanagementsystem.BuildingaValues-BasedCorporateCulture2Themissionshouldbeinspiring.Establishingthecoretenets(especiallythroughaparticipatoryprocess),laysdownthelawforallfuturedecisions.Themissionstatementorcorporatecredoarticulatesthefundamentalprinciplesthatshouldguidealldecisions,withoutabridgment.Fromauniversalistperspective,manydecisionsmightbemadewiththeendinmind,butnoneshouldeverbreachtheunderlyingmissionasanultimatedictate.DevelopingtheMissionandCode1Criticaltoaskwhatthecompanystandsfor.Whydoesthefirmexist?Whatareitspurposes?Developmentofguidingprinciplesthrougharticulationofaclearvision.Identifyclearstepsastohowaculturalshiftwilloccurbetweenthestakeholdersandorganizations.DevelopingtheMissionandCode2Tohaveaneffectivecodethatwillimpactculturetheremustbeabeliefthatthiscultureispossibleandachievable.Whilebusinesseshavecodesofconduct,industriesand/orprofessionsmightalsopublishcodesofconduct.Thesecodesofconductapplytofirmsorpeoplewhodobusinessinthosearenas.EthicsCodeGuidelinesTheEthicsResourceCenterprovidesthefollowingguidelinesforwritinganethicscode:Beclearabouttheobjectivesthecodeisintendedtoaccomplish.Getsupportandideasforthecodefromalllevelsoftheorganization.Beawareofthelatestdevelopmentsinthelawsandregulationsthataffectyourindustry.Writeassimplyandclearlyaspossible.Avoidlegaljargonandemptygeneralities.Respondtoreal-lifequestionsandsituations.Provideresourcesforfurtherinformationandguidance.Inallitsforms,makeituser-friendlybecauseultimatelyacodefailsifitisnotused. CulturalIntegration1Integrationcantakedifferentforms,dependingbothontheorganizationalcultureandtheultimategoalsoftheprocess.Oneofthemostdecisiveelementsofintegrationiscommunication.Communicationofculturemustbeincorporatedintothefirm’svocabulary,habits,andattitudestobecomeanessentialelementinthecorporatelife,decisionmaking,anddeterminationofsuccess.CulturalIntegration2Effectiveintegrationprocessesshouldhaveincentivesintherightplacetoencourageethicaldecisionmakingandcheckedwhetheritisevaluatedduringaworker’sperformancereview.Howdoescommunicationaboutethicalmattersoccur?Reportingethicallysuspectbehaviorisadifficultthingtodo.Nobodylikesa"tattletale"andthosewhoreportmayberetaliatedagainst.CulturalIntegration3Whistle-blowing.Apracticeinwhichanindividualwithinanorganizationreportsorganizationalwrongdoingtothepublicortoothersinpositionofauthority.Itisaclassicissueinbusinessethics.Itcanhaveextremelynegativeconnotations,dependingonthecultureandenvironmentwhereitoccurs.Vocabularyhasanimpact,andachangeoflanguagecouldinspireworkerstofeelasenseofempowermentfromtheircontributiontothecorporateculture.Itoccursinternallyandexternally.Reportingtoexternalgroupscanbeharmful.Internalmechanismsforreportingwrongdoingarepreferable.CulturalIntegration4Internalreportingmechanismsmustbeeffective.Theymustallowconfidentiality,ifnotanonymity.Theymuststrivetoprotecttherightsoftheaccusedparty.Companynormsandculturecanencourageinternalreporting.CulturalIntegration5Manyfirmshavecreatedethics’ombudspersonsandinternalorexternalreportinghelplines.Onechallengewithreportingsystemsistheydonotmakethevaluesoftheorganizationclear.Whatisorisnotacceptedwithinthecompany’sculture.CulturalIntegration6Firmsensureasuccessfulreportingschemebyensurethefollowingmethodsarefollowed:Leadersshouldmodeltheactofreportingwrongdoing.Leaderscanexplainthedecision-makingprocessthatledtotheirconclusion.Crisismanagementteamsareoftenunsuccessful,butrunningdrillsorrehearsalsofchallengingeventsisavaluableexercisethatcanbefollowed.Allowsufficienttimeforreflectioninordertoreachresponsibledecisionsmightencourageconsiderationofappropriateimplications.Consistentlyandcontinuouslycommunicatevaluesandexpectationstoallstakeholders.AssessingandMonitoringtheCorporateCulture1Monitoringandanongoingethicsauditallowsthediscoveryofsilentvulnerabilitieswhichcouldposelaterchallenges.Effectivemonitoringsystemmayincludesignificantlypositiveobjectives.Howtobetterallocateresources.Determinewhetheraprogramiskeepingpacewithorganizationalgrowth.Whetheralloftheprogram’spositiveresultsarebeingaccuratelymeasuredandreportedandthefirm’scompensationstructureisadequatelyrewardingethicalbehavior.Whetherthe“toneatthetop”isbeingsharedeffectively.AssessingandMonitoringtheCorporateCulture2Howdoyoudetecta"toxic"culture?Aclearsignisalackofvaluesfortheorganization.Warningsignscanoccurinthevariouscomponentareasoftheorganization.Ifthemannerinwhichafirmmanagesandcommunicatesitsfinancialenvironmentisdisastrous.Howtomeasuretheimpactofeffortstochangeaculture?Determineifemployeeperceptionshavechanged.Externalauditsprovideinformation,asdoeshotlinedata.Anyemployeefeedbackshouldbegatheredandanalyzedforinputregardingtheculture.MandatingandEnforcingCulture1TheUnitedStatesSentencingCommission(USSC),anindependentagencyintheU.S.judiciary,regulatessentencingpolicyinthefederalcourtsystem.TheUSSCprescribedmandatoryFederalSentencingGuidelinesforOrganizations(FSGO)thatapplytoindividualandorganizationaldefendantsinthefederalsystem.Listed43"offenselevels"basedontheseverityoftheoffense.Strivedtousetheguidelinestocreatebothalegalandanethicalcorporateenvironment.Eachoffenderiscategorizedbasedontheextentandrecencyofpastmisconduct.Thecourtinputsthisinformationintoasentencinggridanddeterminestheoffender’ssentenceguidelinerange.TheUSSCstrivedtousetheguidelinestocreatebothalegalandanethicalcorporateenvironment.MandatingandEnforcingCulture2TheUSSCupdatedtheguidelinesin2004toincludeethicsandcomplianceprograms.Requiredorganizationstopromote“anorganizationalculturethatencouragesethicalconductandcommitmenttocompliancewiththelaw.Includesarequirementthatorganizationsassessareasofriskforethicsandcompliance,andperiodicallymeasuretheeffectivenessoftheirprograms.Criteria

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