Chapter4

The Corporate Culture

Impact and Implications

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Chapter Objectives

After exploring this chapter, you will be able to:

1.
2.
3.
4.
5.
6.
7.
8.
9.

Define corporate culture

Explain how corporate culture impacts ethical decision-making
Discuss the differences between a compliance culture and a valuesbased 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
Explain how various reporting mechanisms such as ethics hotlines and
ombudsman can help integrate ethics within a firm
Discuss the role of assessment, monitoring, and auditing of the culture
and ethics program
Explain how culture can be enforced via governmental regulation
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What is Corporate Culture?

A shared pattern of beliefs, expectations and meanings that

influence and guide the thinking and behaviors of the
members of that organization.
This culture shapes the people who are members of the
organization.

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Compliance vs.
Values-Based Cultures

In the 1990s, there was a distinction in types of corporate

cultures:

Compliance-based cultures (the traditional approach)

A compliance-based culture emphasizes obedience to the rules as the
primary responsibility of ethics. A compliance-based culture will
empower legal and audits offices to mandate and monitor
compliance with the law and with internal codes.

Values-based or integrity-based cultures

A values-based culture is one that reinforces a particular set of values
rather than a particular set of rules.
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Differences in Goals

The goals of a traditional compliance-oriented program 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 a broader and more expansive application to the firm,
including:

maintaining brand and reputation;

recruiting and retaining desirable employees;
helping to unify a firms global operations;
creating a better working environment for employees; and
doing the right thing in addition to doing things right.
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The Role of the Leader

in Corporate Culture

If the goal of corporate culture is to cultivate values, expectations, beliefs,

and patterns of behavior that best and most effectively support ethical
decision-making, it becomes the primary responsibility of corporate
leadership to steward this effort.
Leaders are charged with this duty in part because stakeholders throughout
the organization are guided to a large extent by the tone at the top.
Beyond personal behavior, leadership sets the tone through other
mechanisms such as the dedication of resources.

Ethical business leaders not only talk about ethics and act ethically on a personal
level, but they also allocate corporate resources to support and promote ethical
behavior.
There is a long-standing credo of management: budgeting is all about values.
More common versions are: put your money where your mouth is, and walk
the talk.
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Effective Leaders vs.

Ethical Leaders

Being perceived as a leader plays an important role in a

leaders ability to create and transform an ethical corporate
culture.
Key executives have the capability of transforming a business
culture for better or worse.
What do we mean by an ethical leader? A good leader is
simply anyone who does well what leaders do. Good leaders
are effective at getting followers to their common destination.

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Effective Leaders vs.

Ethical Leaders

Certainly ethically appropriate methods of leadership are central to

becoming an ethical leader.
Creating a corporate culture in which employees are empowered and
expected to make ethically responsible decisions is a necessary part of
being an ethical business leader.
But, while some means may be ethically better than others (e.g.,
persuasion rather than coercion), it is not the method alone that
establishes a leader as ethical.
While perhaps necessary, an ethical means of leading others is not
sufficient for establishing ethical leadership.
The other element of ethical leadership involves the end or goal
towards which the leader leads.

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Building a Values-Based
Corporate Culture

One of the key manifestations of ethical leadership is the

articulation of values for the organization.
It is the leaders responsibility to ensure that the firm is
guided by some set of organizing principles that can guide
employees in their decision-making processes.

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The Role of the

Mission Statement

In the absence of other values, the only value is profit at any cost.
Without additional guidance from the top, a firm is sending a clear
message that a worker should do whatever it takes to reap profits.
A code of conduct then may more specifically delineate this foundation
both for internal stakeholders such as employees, as well as external
stakeholders such as customers.
The code has the potential to therefore both enhance corporate reputation
but also provide concrete guidance for internal decision-making, thus
creating a built-in risk management system.
The vision can be inspiring should be inspiring.
By establishing (especially through a participatory process) the core
tenets on which a company is built, corporate leadership is effectively
laying down the law with regard to the basis and objectives for all future
decisions.
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Developing The Culture through

a Code

The second step in the development of guiding principles for the firm is
the articulation of a clear vision regarding the firms direction.
The third step in this process is to identify clear steps as to how this
cultural shift will occur. You need to have processes and procedures in
place that support and then sustain that vision.
Finally, to have an effective code that will successfully impact culture,
there must be a belief throughout the organization that this culture is
actually possible, achievable.
If conflicts remain that will prevent certain components from being
realized, or if key leadership is not on board, no one will have faith in
the changes articulated.
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Reporting Structures
Impact on Culture

Whistleblowing involves the disclosure of unethical or illegal

activities to someone who is in the position to take action to prevent or
punish the wrongdoing.
Whistleblowing can expose and end unethical activities, but it can also
seem disloyal, it can harm the business, and it can extract significant
costs on the whistleblower.
Whistleblowing can occur internally, as when Sherron Watkins reported
her concerns to Ken Lay.
It can occur externally, as when Jeffery Weigand (as portrayed in the
movie The Insider), reported to 60 Minutes about Brown and Willams
activities in not only concealing and knowingly mislead the public about
the harmful effects of cigarettes, but also using additives that increased
the potential for harm.

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Chapter Four Vocabulary Terms

After examining this Chapter, you should have a clear understanding of the
following Key Terms and you will find them defined in the Glossary:

Code of Conduct
Compliance Environment
Culture
Ethics Officers
Federal Sentencing Guidelines
Mission Statement
United States Sentencing Commission
Values-based Organization
Whistleblowing
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