Chapter Four:

The Corporate
Culture—Impact
and Implications

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 Chapter Objectives 1

After reading this chapter, you will be able to:

1. Define corporate culture.
2. Explain how corporate culture impacts ethical decision making.
3. Discuss the differences between a compliance-based culture and a
values-based culture.
4. Discuss the role of corporate leadership in establishing the culture.
5. Explain the difference between effective leaders and ethical leaders.

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 Chapter Objectives 2

6. Discuss the role of mission statements and codes in creating an ethical

corporate culture.
7. Explain how various reporting mechanisms such as ethics hotlines and
ombudspersons can help integrate ethics within a firm.
8. Discuss the role of assessing, monitoring, and auditing the culture and
ethics program.
9. Explain how culture can be enforced via governmental regulation.

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 Ethics and Corporate Culture 1

Culture eats strategy for breakfast.

Peter Drucker

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 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.

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 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.

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 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.
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 What is Corporate Culture? 3

Just as there are national cultures, businesses also have

unspoken, yet influential standards and expectations.
• An organization’s culture refers to common expectations, norms, beliefs,
and values that guide behavior within the organization.
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.

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 What is Corporate Culture? 4

A firm's culture can be its sustaining value:

• Offering direction and stability during challenging times.
• 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.

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 What is Corporate Culture? 5

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:
• Tempo of work.
• The organization’s approach to humor.
• Methods of problem solving.
• The competitive environment.
• Incentives.
• Individual autonomy.
• Hierarchical structure.

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 Figure 4.2

Even with this

list of cultural
elements, it can
be difficult for
individuals in a
firm to identify
the specific
characteristics
of the culture
within which
they work. Used by permission of Nancy Margulies

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 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

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 Culture and Ethics 1

How does the notion of culture connect with ethics?

What role does corporate culture play in business ethics?
• The separation thesis asserts that ordinary ethical standards should be
separate from business decisions. If a business obeys the law, it is acting
ethically.

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.

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 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.

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 Culture and Ethics 3

If attended to, a strong ethical culture can prevent 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.

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 Compliance and Values-Based Cultures 1

Compliance-based culture emphasizes adherence to rules as the

primary responsibility of ethics.
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.

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
• A values-based culture reinforces a set of values rather than rules.

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 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 focus Risk management 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 policies, Methodology: Focus on goals, strategies, and risk
transactions, and compliance management processes

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 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.

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