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COR3304 notes x
Philosophical Ethics and Business
Utilitarianism; Ethics of Consequences
Deontology; Ethics of Principles
Virtue Ethics; Ethics of Personal character
The Moral Foundations of Politics
Care/Harm Foundation
Fairness/Cheating Foundation
Loyalty/Betrayal Foundation
Authority/Subversion Foundation
Sanctity/Degradation Foundation
Business as Usual: The Acceptance and Perpetuation of Corruption in Organisations
Rationalisation
Denial of Responsibility
Denial of Injury
Denial of Victim
Social Weighing
Appeal to Higher Loyalties
Balancing the Ledger
Socialisation
Cooptation
Incrementalism
Compromise
Facilitation of Rationalisation and Socialisation
Group Attractiveness and a Social Cocoon
Mutual Support
Euphemistic Language
Preventing Rationalisation and Socialisation
Foster Awareness among Employees
Use Performance Evaluations Beyond Numbers
Nurture an Ethical Environment
Top Management as Ethical Role Models
Reversing Rationalisation and Socialisation
Avoid Denial and Move Quickly
Involve External Change Agents
Remaining Aware and Vigilant

COR3304 notes x 1
 Why It's So Hard to Be Fair
Drivers of Process Fairness
Involvement
Decision-making
Implementation/Communication
Benefits of Process Fairness
Achieving Process Fairness
Address the knowledge gaps
Invest in training
Make process fairness a top priority
Outcome Fairness
Building an Ethical Career
Planning to Be Good
Making Good Decisions
Reflecting After the Fact
How (Un)Ethical Are You?
Sources of Unintentional Unethical Decision Making
Implicit Prejudice
In-Group Favouritism
Conflict of interest
Over-claiming Credit
Solution
Collect Data
Shape Your Environment
Broaden Your Decision Making
Ethical Breakdowns
Factors Negatively Skewing Behaviour
Ill-Conceived Goals
Motivated Blindness
Indirect Blindness
The Slippery Slope
Overvaluing Outcomes
Ethics as Organisational Culture
Strong versus Weak Cultures
Socialisation and Internalisation
Alignment of Systems
Formal Systems
Executive Leadership
Selection Systems
Values and Mission Statements
Policies and Codes
Orientation and Training Programs

COR3304 notes x 2
 Performance Management Systems
Organisational Authority Structure
Decision Processes
Informal Systems
Role Models and Heroes
Norms
Rituals
Myths and Stories
Language
Organisational Climates
Fairness Climate
Benevolence Climate
Self-interest Climate
Rule-based Climate
Developing and Changing the Ethical Culture
Cultural Approach
A Cultural Systems View
A Long-Term View
Assumptions about People
Diagnosis: The Ethical Culture Audit
Ethical Culture Change Intervention
Accounting Fraud at WorldCom
Facts Summary
Stakeholders
Exam Answer Flow

Philosophical Ethics and Business

[refer to slides]

Utilitarianism; Ethics of Consequences

An ethical tradition that directs us to decide based on overall consequences of
our acts.

Consequentialist approach to ethics and social policy: we should act in ways that
produce better consequences than the alternatives we are considering.

"Better consequences" are those that promote human well-being: the

happiness, health, dignity, integrity, freedom, respect of all the people
affected.

COR3304 notes x 3
 A decision that promotes the greatest amount of these values for the greatest
number of people is the most reasonable decision from an ethical point of view.

Deontology; Ethics of Principles

An ethical traditional that directs us to act on the basis of moral principles.

Virtue Ethics; Ethics of Personal character

An ethical traditional that directs us to consider the moral character of individuals
and how various character traits can contribute to, or obstruct, a happy and
meaningful human life.

The Moral Foundations of Politics

[refer to slides]

Care/Harm Foundation

Fairness/Cheating Foundation

Loyalty/Betrayal Foundation

Authority/Subversion Foundation

Sanctity/Degradation Foundation

Business as Usual: The Acceptance and

Perpetuation of Corruption in
Organisations

COR3304 notes x 4
 Rationalisation
Denial of Responsibility
Individuals convince themselves that they are participating in corrupt acts
because of circumstances — they have no real choice.

May involve a coercive system, dire financial straits , peer pressure,

"everyone does it" reasoning, and so on.

Easily adopted when experiencing intense pressure from top management

to meet numeric targets.

Denial of Injury
Individuals convince themselves that no one is really harmed by their actions
and therefore their actions are not really corrupt.

Commonly employed in situations such as theft from an organization where

the organization is assumed to be well insured or can easily recover the
costs, or where the actual damage is slight.

A variant occurs when a given act is rendered less offensive by comparing it to

more extreme forms.

Denial of Victim
Individuals define the victim of their unethical behaviour as someone deserving
to be victimised.

Common tactic is to convince oneself that targets deserved their fate due.

The denial of the victim need not be based in reality.

A variant occurs when the victim is depersonalised → converted into a faceless

statistic or to subhuman status.

Social Weighing
1. Condemning the condemners; the legitimacy of the actor/entity who labels
employee acts as unethical is questioned.

a. e.g. Law itself is wrong, hence it is not unethical to contravene it.

2. Selective social comparisons → alike to the second form of denial of injury.

COR3304 notes x 5
 a. When individuals are confronted with negative impressions about
themselves, comparisons with others who appear even worse serve to
bolster them against the threat.

Appeal to Higher Loyalties

Individuals argue that some ethical norms need to be breached to fulfil more
important goals.

Unlike the other rationalisations, this form may go beyond neutralising the
negativity of corruption to valuing it.

Most common higher cause is group-based loyalties.

Less commonly invoked high loyalty is to moral principles.

e.g. police officers telling lies to persuade judges to convict defendants that
the officers believe are guilty.

Balancing the Ledger

Individuals believe that good works (whether actual or anticipated) have earned
a credit that can be used to offset corrupt acts.

A common variant is when employees bask in the past glory of an organization

to justify current unethical behaviour.

Socialisation
→ Three forms are not mutually exclusive.

Cooptation
Rewards are used to induce attitude change toward unethical behaviours.

Often subtle as the individuals themselves may not realise how the rewards
have induced them to resolve the ambiguity that often pervades business issues
in a manner that suits their self-interest.

Incrementalism
Newcomers are gradually introduced to corrupt acts.

In this way, the individual climbs the ladder of corruption and is eventually
engaging in acts that he or she would previously have rejected outright.

COR3304 notes x 6
 Compromise
Individuals essentially "back into" corruption through attempts to resolve
pressing dilemmas, role conflicts, and other intractable problems.

e.g. Politicians accrue power by forming networks, currying favours, and

cutting deals often causing them to support actions and causes they would
otherwise avoid.

Facilitation of Rationalisation and Socialisation

Group Attractiveness and a Social Cocoon
In many instances, corruption is widespread among the employees in a subunit
rather than being limited to one or two individuals.

A social cocoon is a micro culture created within a group where the norms may
be very different from those valued by society or even the wider organisation.

Social cocoons emerge when groups develop idiosyncratic solutions to the

problems they face and actively seek to compartmentalise themselves from
external influences.

When membership in a group is highly prized, employees are more likely to

accept and adopt the norms of the group.

Once a social cocoon is formed, corruption may be facilitated through the

following steps:

1. Veterans model the corrupt behaviour and easy acceptance of it

2. Newcomers are encouraged to affiliate and bond with veterans and develop
desires to identify with, emulate, and please the veterans

3. Newcomers are subjected to strong and consistent information and

ideological statements such that they view corrupt acts in a positive light

4. Newcomers are encouraged to attribute any misgivings they may have to

their own shortcomings rather than to what is being asked of them

Mutual Support
The processes of rationalisation and socialisation support and reinforce each
other.

Euphemistic Language

COR3304 notes x 7
 Enables individuals engaging in corruption to describe their acts in ways that
make them appear inoffensive.

Preventing Rationalisation and Socialisation

Devastating effect of rationalisation and socialisation:

1. Because rationalisation and socialisation are mutually reinforcing, the

unethical practices associated with them can become entrenched.

2. Because the two processes make the practices appear less unethical, the
organisation may not be aware that it is engaging in unethical practices, and
its ethical checks and safeguards may fail to detect them.

3. If external agents do expose the unethical practices, the organisation is likely

to stonewall and deny the accusations because the practices are so
entrenched and have been rationalised away → this almost always
magnifies the problems and losses associated with corruption.

Foster Awareness among Employees

Training employees to be familiar with rationalising and socialisation tactics,
euphemistic language, and social cocoons can go a long way toward improving
the ethical climate of an organisation.

Note also that if employees have rationalised their corrupt acts and have been
performing them for some time, those acts can become highly routine.

Use Performance Evaluations Beyond Numbers

Evaluations based on numeric outcomes may significantly increase the
likelihood of unethical activity abetted by rationalisation and socialisation tactics.

A performance evaluation approach that explores whether the numbers were

met and how the numbers were met is much more likely to prevent the onset of
rationalisation/socialisation.

Nurture an Ethical Environment

Support of an organisation's ethical environment can come in two forms:

1. When employees have misgivings or uncertainties about the propriety of an

action, they should have access to mechanisms that allow them to discuss
the issues with an independent company representative.

COR3304 notes x 8
 2. The organisation should have strong verification procedures in place for
code-compliance during key activities.

Top Management as Ethical Role Models

It is not sufficient that top management be ethical: they should be seen to be
ethical.

Clear choices made by top managers to take the ethical high road in spite of
conventional practices or obvious temptations should be disseminated widely,
and ethical lapses should be swiftly punished.

Reversing Rationalisation and Socialisation

Avoid Denial and Move Quickly
Accepting wrongdoing and moving quickly to address it is critical if a company is
to overcome enduring fraud of the kind supported by rationalisation and
socialisation.

Involve External Change Agents

External change agents are more likely to be successful at reversing corruption
for a variety of reasons:

1. Their appointment signals a break from the past and sends an unequivocal
message to employees and other stakeholders of the organisation's
intention to make the necessary changes.

2. Outsiders come to the organisation with a fresh and different perspective.

3. While outsiders may know the business less intimately than insiders, they
are also likely to possess social networks diverse from those held by
employees within the firm.

Remaining Aware and Vigilant

Organisations need to be especially conscious in guarding against the onset of
rationalisation or socialisation tactics within the organisation.

Employee education and the establishment of independent ethics

ombudspersons could go a long way toward protecting against the onset of
rationalisation/socialisation tactics.

COR3304 notes x 9
 Why It's So Hard to Be Fair
Drivers of Process Fairness
Involvement
[How much input employees believe they have in the decision-making process]

e.g. Are the employees opinions sought and considered?

Decision-making
[How employees believe decisions are made and implemented]

Were decisions made and implemented in a consistent way, based on accurate,

relevant info?

Were personal biases of decision makes minimised?

Was the process transparent?

Can mistakes be corrected (e.g. right of appeal)?

Implementation/Communication
[How managers behave]

Were employees treated with dignity and respect?

Were explanations given, employees actively listened to, empathy shown?

There is an importance of perception: justice done vs justice seen to be done.

Benefits of Process Fairness

Using process fairness, companies could spend a lot less money and still have
more satisfied employees.

Reduces legal cost

Cuts down on employee theft and turnover

Performance booster

Increases value by inspiring operational managers to carry out a well-

founded strategic plan eagerly or embrace an organisational change.

Work environments with a high degree of operational autonomy

led to high degrees of creativity and innovation
COR3304 notes x 10
 Why isn’t process fairness practiced?
1. Managers self assessment are significantly higher
2.Belief that tangible resources are more meaningful
Achieving Process Fairness 3. Benefits are not obvious
4. Legal concerns (vulnerable to lawsuits)
5. Fear of losing power
Address the knowledge gaps
6. Avoid negative emotions
Managers need to be warned about the negative emotions they might
experience when practicing fair process.

Acknowledging that it is legitimate to feel like fleeing the scene can help
managers withstand the impulse to do so.

Managers are more likely to endure a difficult process when they know that the
effort will have a tangible payoff (charts and figures).

Invest in training
Effective process fairness training program:

1. Active guidance → give trainees specific instructions on what they need to

do and how they need to do it, such as how to detect resistance to a new
strategic initiative.

2. Delivered in several instalments

3. Conduct after-action reviews → helps managers continue to hone their skills

long after the training sessions are over.

Make process fairness a top priority

The practice of process fairness must begin at the top.

Senior managers can make the practice of process fairness a legitimate topic of
conversation throughout the organisation.

Outcome Fairness
Employees' judgments of the bottom-line results of their exchanges with their
employers.

cf. Process fairness → Process fairness doesn't ensure that employees will
always get what they want; but it does mean that they will have a chance to be
heard.

Building an Ethical Career

COR3304 notes x 11
 Planning to Be Good
Ethical mirage: the tendency to overestimate the virtuousness of our future
selves

Counteracting this bias begins with understanding your personal strengths and
weaknesses.

What are your values? Resume values (skills, abilities, and

accomplishments) vs eulogy values (things that people praise you for after
you've died e.g. kind, a hard worker, loyal friend)

Goal setting can also lay the groundwork for ethical behaviour (eulogy-virtue
goals).

"If-then" planning or implementation intentions → "If X happens, then I will do Y"

Mentors can help you avoid ethical missteps.

Subtle moral signalling → letting people know that you are living an ethical life

Openly discussing potential moral challenges and how you would want to
react

Building a reputation for doing things the right way

Choose a workplace that will allow if not encourage you to behave ethically.

Making Good Decisions

1. Step back from traditional calculations (e.g. ROI, cost-benefit analysis)

2. Develop a habit of searching for the moral issues and ethical implications at
stake in a given decision and analyse them using multiple philosophical
perspectives (utilitarianism, deontology, virtue ethics)

3. Tests to avoid self-deceptive rationalisations

a. The publicity test; would you be comfortable having this choice and your
reasoning behind it published on the front page of the local newspaper?

b. The generalisability test; would you be comfortable having your decision

serve as a precedent for all people facing a similar situation?

c. The mirror test; would you like the person you saw in the mirror after making
this decision — is that the person you truly want to be?

4. Taking some time for contemplation can help put things in perspective.

COR3304 notes x 12
 5. Take ownership of your actions

6. Consult the formal policies of your organisation

Reflecting After the Fact

Ethical people aren't perfect, but when they make mistakes, they review and
reflect on them so that they can do better in the future.

Reflecting on both successes and failures helps people avoid not only repeated
transgressions but also "identity segmentation," wherein they compartmentalise
their personal and professional lives and perhaps live by a very different moral
code in each.

Engage in job-crafting: shaping your work experiences by proactively adapting

the tasks you undertake, your workplace relationships and even how you
perceive your job.

Make bottom-up changes to your work and the way you approach it that will
help you be more virtuous. (e.g. hospital housekeepers who viewed their
work that made them feel like healers, not janitors)

How (Un)Ethical Are You?

Sources of Unintentional Unethical Decision Making
Implicit Prejudice
[Bias that emerges from unconscious beliefs]

We have a unconscious tendency to make associations (e.g. rain and thunder)

Distinct from conscious forms of prejudice such as overt racism or sexism

Implicit Association Test (IAT); tool to study unconscious bias

Costly; may exclude qualified people from certain roles

In-Group Favouritism
[Bias that favours your group]

COR3304 notes x 13
 We tend to do more favours for those we know, and those we know tend to be
like ourselves (e.g. nationality, social class, religion, race, employer or alma
matter)

Tenacious when membership confers clear advantages → from hiring, firing and
promoting to contracting services and forming partnerships, qualified minority
candidates are subtly and unconsciously discriminated against simply because
they are in the minority

Conflict of interest
[Bias that favours those who can benefit you]

Built-in conflict of interest makes it impossible to see the implicit bias in their own
flawed recommendations

Examples: Physicians who accept payment for referring patients into clinical
trials, lawyers who recommend settling out of court

Over-claiming Credit
[Bias that favours you]

Majority of people consider themselves above average on a host of measures

Reduces the performance and longevity of groups within organisations

Takes a toll on employee commitment

Implicit association test

Solution
Collect Data
Collect data to reveal its presence

[Implicit bias] Taking the IAT can expose your own implicit biases

[Over-claiming credit] Unpacking is a strategy that can reduce the magnitude of

this bias

In explaining a raise that an employee feels is inadequate, a manager

should ask the subordinate not what he thinks he alone deserves but what
he considers an appropriate raise after taking into account each coworker's
contribution and the pool available for pay increases

When an individual feels she's doing more than her fair share of a team's
work, ask her to consider other people's efforts before estimating her own

COR3304 notes x 14
 can help align her perception with reality, restore her commitment, and
reduce a skewed sense of entitlement

Shape Your Environment

Research shows that implicit attitudes can be shaped by external cues in the
environment

If an audit reveals that the environment may be promoting unconscious biased

or unethical behaviour, consider creating countervailing experiences

If your department reinforces the stereotype of men as naturally dominant in

a hierarchy, find a department with women in leadership positions and set up
a shadow program

Broaden Your Decision Making

Instead of relying on a mental short list when making personnel decisions, start
with a full list of names of employees who have relevant qualifications

Benefits: talent may surface that might otherwise be overlooked; the very act
of considering a counter-stereotypical choice at the conscious level can
reduce implicit bias/conflict of interest/overclaiming

Ethical Breakdowns
Factors Negatively Skewing Behaviour
Ill-Conceived Goals
Rewarding employees for achieving narrow goals may encourage them to
neglect other areas, take undesirable "ends justify the means" risks, or engage
in more unethical behaviour than they would otherwise.

→ Leaders setting goals should take the perspective of those whose behaviour they
are trying to influence and think through their potential responses.

Motivated Blindness
People see what they want to see and easily miss contradictory information
when it's in their interest to remain ignorant.

COR3304 notes x 15
 Powerful conflicts of interest help to blind them to their own unethical behaviour.

→ Executives should be mindful that conflicts of interest are often not readily visible
and should work to remove them from the organisation entirely, looking particularly at
existing incentive systems.
⇒ Can you say that motivated blindness stems from conflict of interest?
Indirect Blindness
Unethical behaviour carried out through third parties.

We are instinctively more lenient in our judgement of a person or an organization

when an unethical action has been delegated to a third party.

Managers routinely delegate unethical behaviours to others, and not always

unconsciously.

→ Executives should ask, "When other people or organisations do work for me, am I
creating an environment that increases the likelihood of unethical actions?"

The Slippery Slope

If we find minor infractions acceptable, we are likely to accept increasingly major
infractions as long as each violation is only incrementally more serious than the
preceding one.

→ Mangers should be on heightened alert for even trivial-seeming infractions and

address them immediately.

→ Managers should investigate whether there has been a change in behaviour over
time.

→ If something seems amiss, they should consider inviting a colleague to look at all
the relevant data and evidence together, creating an "abrupt" experience, and
therefore a clearer analysis of the ethical infraction.

Overvaluing Outcomes
Many managers are guilty of rewarding results rather than high-quality decisions.

Managers can overlook unethical behaviours when outcomes are good and
unconsciously help to undermine the ethicality of their organisations.

→ Beware of this bias, examine the behaviours that drive good outcomes, and
reward quality decisions, not just results.

COR3304 notes x 16
 summary !

Ethics as Organisational Culture

Strong versus Weak Cultures
Strong; standards and guidelines are widely shared within the organisation,
providing common direction for day-to-day behaviour.

Weak; Strong subcultures exist and guide behaviour that differs from one
subculture to another.

Note: Weak doesn't necessarily mean bad; in some situations, weak cultures
are desirable.

Behavioural consistency is hard to achieve.

Socialisation and Internalisation

Socialisation; where employees learn "the ropes"; can occur through formal
training or mentoring or through more informal transmission of norms of daily
behaviour by peers and superiors.

People behave in ways that are consistent with the culture because they
feel they are expected to do so.

Internalisation; where individuals have adopted the external cultural standards

as their own.

COR3304 notes x 17
 May come into the organisation sharing its values and expectations, or
internalise the cultural expectations over time.

Alignment of Systems
To create a consistent ethical culture message, the formal and informal systems
must be aligned to support ethical behaviour.

Cultures can range from strongly aligned ethical cultures to strongly aligned
unethical cultures to those that are misaligned because employees get
somewhat mixed messages due to conflicts between the formal and informal
systems.

Formal Systems
Executive Leadership
Executive leaders affect the formal culture by creating and supporting formal
policies with resources and their communications send a powerful message
about what's important in the organisation.

Executive leaders affect the informal culture by role modelling, the language they
use, and the norms their messages and actions appear to support.

Current executive leaders can help maintain the current culture or they can
change it by articulating a new vision and values.

By paying attention to, measuring, and controlling certain things; by making

critical policy decisions; by recruiting and hiring personnel who fit their vision
of the organisation; and by holding people accountable for their actions.

[Moral Person] Tells followers how leader behaves.

[Moral Manager] Tells followers how they should behave and holds them
accountable.

Ethical Leadership; strong moral person, strong moral manager

Senior executives must develop a "reputation" for ethical leadership by being

visible on ethics issues and communicating a strong ethics message.

The moral person dimension represents the "ethical" part of the term ethical
leadership.

COR3304 notes x 18
 As a moral person, the executive is seen first as demonstrating certain
individual traits.

The moral manager dimension represents the "leadership" part of the term
ethical leadership.

As a moral manager, the executive has to make ethics and values an

important part of their leadership message and shape the firm's ethical
culture.

Ethical leaders maintain their principles through good times and bad.

Unethical Leadership; weak moral person, weak moral manager

Can just as strongly influence the development of an unethical culture.

Hypocritical Leadership; weak moral person, strong moral manager

Leads to cynicism, and employees are likely to disregard ethical standards

themselves.

If leaders are going to talk ethics and social responsibility, they had better
"walk the talk" or risk cynicism or worse.

Ethically Neutral or "Silent" Leadership;

On the moral person dimension, the ethically neutral leader is not clearly
unethical but is perceived to be more self-centred than people oriented.

On the moral manager dimension, the ethical neutral leader is thought to

focus on the bottom line without setting complementary ethical goals.

Employees are likely to interpret silence to mean that the top executive really
doesn't care how business goals are met, and they'll act on that message.

Selection Systems
Formal systems that are in place for recruiting and hiring new employees.

Vital to hiring people who fit the culture of the firm.

Values and Mission Statements

Value and mission statements and credos are general statements of guiding
beliefs.

Most companies have them, but it's important that the values and mission
statement be closely aligned with other dimensions of the culture.

COR3304 notes x 19
 e.g. Verizon's customer service representatives were expected to finish each call
with "Did I provide you with outstanding service today?" Workers cited this
disconnect between values and operating procedures as a source of stress and
cynicism.

e.g. Johnson & Johnson drew its credo (first to the doctors, nurses, and patients,
to the mothers......) for guidance during the Tylenol crises → recalled all Tylenol
at huge cost.

Policies and Codes

They provide guidance about behaviour in multiple specific areas.

Longer and more detailed than broad values and mission statements.

To have real influence on behaviour, a code must be enforced and aligned with
other culture components.

When there is a strong ethical culture in alignment, policies and codes are
followed in daily behaviour and people are held accountable to them.

Orientation and Training Programs

Socialisation into the ethical culture is often begun through formal orientation
programs for new employees and is reinforced through ongoing training.

Important to follow up regularly with training programs that offer more specific
guidance.

Performance Management Systems

Involve the formal process of articulating employee goals, identifying
performance metrics, and then providing a compensation structure that rewards
individual and team effort in relation to those goals.

Include formal disciplinary systems that are designed to address performance

problems when they arise.

Plays an essential role in alignment or misalignment of the ethical culture

because people pay attention to what is measured, rewarded, and disciplined.

Organisational Authority Structure

New organisational structures: organisations today are developing structures
designed to remove bureaucratic layers, push responsibility down and empower
individuals to make decisions at every organisational level.

COR3304 notes x 20
 When individuals are independently making decisions, with less direct
supervision, they need a strongly aligned ethical culture to guide them.

Structures to support reporting of problems: Most large organisations have set

up formal structures and systems for making suggestions and for reporting
misconduct internally.

The ethical organisation should view an employee who takes responsibility

for reporting a problem or misconduct as important to an effective control
system and must find ways to make such activity safe and encouraged.

Decision Processes
In an aligned ethical culture, leaders make ethical concerns a formal and
expected part of decision making.

Can be reinforced by regularly addressing ethical concerns in meetings and by

making them an expected part of managers' reports regarding new products or
new business ventures.

Organisational decision makers must rely on quantitative analyses in making

business decisions however they should be coupled with ethical considerations.

Extremely important that organisations design formal decision-making processes

in good financial times and before a crisis occurs.

Managers must be particularly alert to changes in traditional decision-making

criteria, especially in time of crises.

Informal Systems
Role Models and Heroes
Role models may be senior managers, immediate superiors, or just more
experienced coworkers.

If senior leader consistently model behaviour of the highest integrity, employees

learn that the formal messages about ethics are real.

In an ethical culture, the mentor emphasises the importance of integrity and

resistance to pressure to behave unethically.

In an ethical culture, heroes should personify the organisation's values.

Heroes are symbolic figures who set standards of performance by modelling

certain behaviours, and they can be the organisation's formal leaders.

COR3304 notes x 21
 e.g. Southwest Airlines publishes letters from customers in its monthly
newsletter about employees who provided outstanding customer service.

Norms
Standards of daily behaviour that are accepted as appropriate by members of a
group.

"the way we do things around here"

Informal norms are frequently the most influential behaviour guides and clues to
the culture (more than formal rules, regulations, codes, and credos).

Rituals
Tell people symbolically what the organisation wants them to do and how it
expects them to do it.

A way of affirming and communicating culture in a very tangible way.

Some forms are meetings, parties, banquets, barbecues, and award

ceremonies.

Important to ask what values are celebrated at these rituals and ceremonies
because they can easily support unethical behaviour.

Myths and Stories

Organisational myths and stories explain and give meaning to the organisational
culture.

Some stories that convey the importance of the ethical culture may refer to rule
violators being disciplined harshly or fired for unethical or illegal behaviour.

Organisations can also create stories to enhance the ethical culture.

Language
In a strong ethical culture, ethics becomes a natural part of the daily
conversation in the organisation.

Employees feel comfortable talking ethics with each other and with their
managers.

Organisational values are invoked in decision making.

Managers routinely talk ethics with their direct reports.

COR3304 notes x 22
 The use of ethical language is likely related to decision-making behaviour.

Using ethical language increases individuals' ethical awareness.

Organisational Climates
Fairness Climate
Refers to whether they believe employees are treated fairly everyday, in terms of
outcomes (pay, promotions, termination), processes, and interactions.

Employees appear to reciprocate the organisation's fair treatment with their own
ethical behaviour.

Benevolence Climate
Refers to an organisation that "cares" about multiple stakeholders, including
employees, customers, and the broader community and public.

Employees are much more likely to demonstrate ethical behaviour in an

organisation they see as one that cares.

Self-interest Climate
Refers to an organisation in which people protect their own interests above all
and everyone is essentially out for him or herself.

Little attention is given to the social consequences of one's actions.

Typically, organisations that focus exclusively on financial outcomes would

create such a climate.

Employee unethical behaviour is higher in such organisations.

Rule-based Climate
Employees perceive that the organisation is one where employees follow both
laws and the organisation's rules when making decisions.

Organisations in highly regulated industries that take their codes, rules, and
policies seriously would be rated quite highly in this climate dimension, which
has the largest impact on reducing unethical behaviour.

More likely to be an organisation whose formal and informal systems are

aligned.

COR3304 notes x 23
 Developing and Changing the Ethical Culture
If the effort is to be successful, ethical culture development or change should
involve the alignment of all relevant formal and informal organisational systems
to focus on ethics.

Requires a major commitment from the most senior levels in the

organization.

Changing organisational culture is more difficult than developing it.

Pressure for culture change often comes from outside — from stockholders, the
government, regulators, and other outside stakeholders.

Pressure to change organisational ethics can also come from within, but it is not
likely to occur unless the CEO decides that change is required.

Cultural Approach
A Cultural Systems View
To be successful, any attempt to develop or change the organisation's ethics
must take the entire cultural system into account.

The change effort must target multiple formal and informal organisational
subsystems.

A Long-Term View
Deep interventions in the organisational culture should be considered long-term
projects.

Assumptions about People

Human beings are essentially good and open to growth and change.

Although unethical behaviour must be disciplined, the organisation should also

treat unethical behaviour as a signal to investigate itself and the cultural context
in which the behaviour occured.

Diagnosis: The Ethical Culture Audit

Auditing the content of decision making, coding the content of organisational
stories and anecdotes, and holding open-ended interviews with employees at all

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 levels. Also requires systematic analyses of formal organisational systems, such
as the structure and criteria for rewards and promotions.

The audit should includes probes into the formal and informal organisational
systems that are maintaining the ethics culture in its current state.

Ethical Culture Change Intervention

Once the audit is complete, the data should be discussed with employees, who
can then be enlisted in developing a culture change intervention plan.

Results should be evaluated over an extended period of time.

Accounting Fraud at WorldCom

Facts Summary
WorldCom grew mainly through acquisitions → strategy delivered economies of
scale

U.S. Justice Department refused to allow WorldCom to acquire Sprint → large-

scale mergers were no longer a viable means of expanding the business

Culture in the company:

1. No written policies

2. Employees simply do what they were told

3. Challenges were met with personal criticism or threats

4. Bonuses were awarded for blind loyalty and quantitative outcomes

Used accrual releases and capitalisation of line costs to maintain E/R Ratio

Cooper, the head of the internal audit team, brought the fraud activities to light.

Stakeholders
Investors → WorldCom's stock became worthless

Employees → 17,000 lost their jobs and many left with worthless retirement
accounts

Customers → jeopardised service to 20 million retail customers & 80 million

social security beneficiaries

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 Federal Aviation Association → affect air traffic control

Department of Defence → affect network management

Congress & the General Accounting Office → affect long-distance services

Exam Answer Flow

1. Define Key Terms of Question

2. Explain Why Key Terms Are Important

3. Explain How to Achieve Key Term

4. Apply It Back to The Situation

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