Business  Ethics  Tathagat  Varma  

Session  8/12:  03-­‐Sep-­‐09  

Role  of  Leadership  •  Top  managers  provide  a  blueprint  for  what  a  firm’s  corporate  culture  should  be.  If  these  leaders  fail  to  express  desired  behaviors  and  goals,  a  corporate  culture  will  evolve  on  it  own  but  will  sJll  reflect  the  goals  and  values  of  the  company.  

Types  of  Leadership  •  Six  types  of  leadership  idenJfied  by  Daniel  Goleman:  – Coercive  Leadership  – AuthoritaJve  Leadership  – AffiliaJve  Leadership  

– DemocraJc  Leadership  – PaceseSng  Leadership  – Coaching  Leadership  

•  TransacJonal  /  TransformaJonal  

Coercive  Leader  •  Demands  instantaneous  obedience  and  focused  on  achievement,  iniJaJve,  and  self-­‐control  

•  Although  this  style  can  be  very  effecJve  during  Jmes  of  crisis  or  during  a  turnaround,  it  otherwise  creates  a  negaJve  climate  for  organizaJonal  performance.  

AuthoritaJve  Leader  •  Considered  to  be  one  of  the  most  effecJve  styles-­‐  inspires  employees  to  follow  a  vision,  facilitates  change,  and  creates  a  strongly  posiJve  performance  climate  

AffiliaJve  Leader  •  Values  people,  their  emoJons,  and  their  needs  and  realies  on  friendship  and  trust  to  promote  flexibility,  innovaJon,  and  risk  taking  

DemocraJc  Leader  •  Relies  on  parJcipaJon  and  teamwork  to  reach  collaboraJve  decisions.    

•  This  style  focuses  on  communicaJon  and  creates  a  posiJve  climate  for  achieving  results  

PaceseSng  Leader  •  Can  create  a  negaJve  climate  because  of  the  high  standards  he  or  she  sets.  

•  This  style  works  best  for  aWaining  quick  results  from  highly  moJvated  individuals  who  value  achievement  and  take  the  iniJaJve  

Coaching  Leader  •  Builds  a  posiJve  climate  by  developing  skills  to  foster  long-­‐term  success,  delegates  responsibility,  and  is  skillful  in  issuing  challenging  assignments  

TransacJonal  /  TransformaJonal  •  TransacJonal  leaders  aWempt  to  create  employee  saJsfacJon  through  negoJaJng,  or  ‘bartering’  for  desired  behaviors  or  levels  of  performance.  

•  TransformaJonal  leaders  strive  to  raise  employees  level  of  commitment  and  to  foster  trust  and  moJvaJon.  

•  Both  types  of  leaders  can  posiJvely  influence  the  organizaJonal  culture.  

TransacJonal  Leaders  •  Focus  on  ensuring  that  required  conduct  and  procedures  are  implemented.  

•  Their  negoJaJons  to  achieve  desired  outcomes  result  in  a  dynamic  relaJonship  with  subordinates  in  which  reacJons,  conflicts,  and  crisis  influences  the  relaJonship  more  than  ethical  concerns.    

•  They  product  employees  who  achieve  a  negoJated  level  of  performance,  including  compliance  with  ethical  and  legal  standards.  

•  Best  suited  for  rapidly  changing  situaJons,  including  those  that  require  responses  to  ethical  problems  or  issues.  

TransformaJonal  Leaders  •  Communicate  a  sense  of  mission,  sJmulate  new  ways  of  thinking,  and  enhance  as  well  as  generate  new  learning  experiences  

•  They  consider  employee  needs  and  aspiraJons  in  conjuncJon  with  organizaJonal  needs.  

•  Build  commitment  and  respect  for  values  that  provide  agreement  on  how  to  deal  with  ethical  issues.  

•  They  strive  to  promote  acJviJes  and  behavior  through  a  shared  vision  and  common  learning  experiences.  As  a  result,  they  have  a  stronger  influence  on  coworker  support  for  ethical  decisions  and  building  an  ethical  culture  than  do  transacJonal  leaders.  

•  Best  suited  for  organizaJons  that  have  higher  levels  of  ethical  commitment  among  employees  and  strong  stakeholder  support  for  an  ethical  climate.  

Impact  of  Power  on  Ethical  Decisions  •  Power  refers  to  the  influence  that  leaders  or  managers  have  over  the  behavior  and  decisions  of  subordinates.    

•  An  individual  has  power  over  others  when  his  or  her  presence  causes  them  to  behave  differently.  ExerJng  power  is  one  way  to  influence  the  ethical  decision-­‐making  framework.  

•  The  status  and  power  of  leaders  is  directly  related  to  the  amount  of  pressure  they  can  exert  on  employees  to  confirm  to  their  expectaJons.    – A  superior  in  an  authority  posiJon  can  put  strong  pressure  on  employees  to  comply,  even  when  their  personal  ethical  values  conflict  with  superior’s  wishes.    

Five  Bases  of  Power  •  Social  psychologists  French  and  Raven,  in  a  now-­‐classic  study  (1959),[4]  developed  a  schema  of  five  categories  of  power  which  reflected  the  different  bases  or  resources  that  power  holders  rely  upon.  One  addiJonal  base  (informaJonal)  was  later  added  –  PosiJonal  Power  –  Referent  Power  –  Expert  Power  –  Reward  Power  –  Coercive  Power  

•  These  can  be  used  to  moJvate  individuals  either  ethically  or  unethically.  

•  They  are  no  mutually  exclusive  •  Power  in  itself  is  neither  ethical  or  unethical,  its  use  can  raise  several  ethical  issues.  

PosiJonal  Power  •  Also  called  "LegiJmate  Power",  it  refers  to  power  of  an  individual  because  of  the  relaJve  posiJon  and  duJes  of  the  holder  of  the  posiJon  within  an  organizaJon.  LegiJmate  Power  is  formal  authority  delegated  to  the  holder  of  the  posiJon.  It  is  usually  accompanied  by  various  aWributes  of  power  such  as  uniforms,  offices  etc.  This  is  the  most  obvious  and  also  the  most  important  kind  of  power.  

Referent  Power  •  The  power  or  ability  of  individuals  to  aWract  others  and  build  

loyalty.  It's  based  on  the  charisma  and  interpersonal  skills  of  the  power  holder.  A  person  may  be  admired  because  of  specific  personal  trait,  and  this  admiraJon  creates  the  opportunity  for  interpersonal  influence.  Here  the  person  under  power  desires  to  idenJfy  with  these  personal  qualiJes,  and  gains  saJsfacJon  from  being  an  accepted  follower.  NaJonalism  or  PatrioJsm  counts  towards  an  intangible  sort  of  referent  power  as  well.  For  example,  soldiers  fight  in  wars  to  defend  the  honor  of  the  country.    

•  This  is  the  second  least  obvious  power,  but  the  most  effecJve.  AdverJsers  have  long  recognized  referent  power  in  making  use  of  sports  figures  for  products  endorsements,  for  example.  The  charismaJc  appeal  of  the  sports  star  supposedly  leads  to  an  acceptance  of  the  endorsement,  although  the  individual  may  have  liWle  real  credibility  outside  the  sports  arena.[5]  

Expert  Power  •  Expert  Power  is  an  individual's  power  deriving  from  the  skills  or  experJse  of  the  person  and  the  organizaJon's  needs  for  those  skills  and  experJse.  Unlike  the  others,  this  type  of  power  is  usually  highly  specific  and  limited  to  the  parJcular  area  in  which  the  expert  is  trained  and  qualified.  

Reward  Power  •  Reward  Power  depends  upon  the  ability  of  the  power  wielder  to  confer  valued  material  rewards,  it  refers  to  the  degree  to  which  the  individual  can  give  others  a  reward  of  some  kind  such  as  benefits,  Jme  off,  desired  gijs,  promoJons  or  increases  in  pay  or  responsibility.  This  power  is  obvious  but  also  ineffecJve  if  abused.  People  who  abuse  reward  power  can  become  pushy  or  became  reprimanded  for  being  too  forthcoming  or  'moving  things  too  quickly'.  

Coercive  Power  •  Coercive  Power  means  the  applicaJon  of  negaJve  influences  onto  employees.  It  might  refer  to  the  ability  to  demote  or  to  withhold  other  rewards.  It's  the  desire  for  valued  rewards  or  the  fear  of  having  them  withheld  that  ensures  the  obedience  of  those  under  power.  Coercive  Power  tends  to  be  the  most  obvious  but  least  effecJve  form  of  power  as  it  builds  resentment  and  resistance  within  the  targets  of  Coercive  Power.  

InformaJon  Power  •  InformaJon  Power  is  derived  from  possession  of  important  informaJon  at  a  criJcal  Jme  when  such  informaJon  is  necessary  to  any  organisaJonal  funcJons.[5]  

OrganizaJonal  Structure  •  Various  roles  and  job  descripJons  that  comprise  an  organizaJonal  structure  may  create  opportuniJes  for  unethical  behavior  

•  Could  be  – Centralized  – Decentralized  

Centralized  OrganizaJon    •  Decision-­‐making  authority  is  concentrated  in  the  hands  of  top-­‐level  managers,  and  liWle  authority  is  delegated  to  lower  levels.  

•  Responsibility  rests  with  top-­‐level  managers.  

•  Especially  suited  for  organizaJons  that  make  high-­‐risk  decisions  and  whose  lower-­‐level  managers  are  not  highly  skilled  in  decision-­‐making.  It  is  also  suitable  where  producJon  processes  are  rouJne  and  efficiency  is  of  primary  importance.  

Centralized…  •  Usually  extremely  bureaucraJc  •  Division  of  labor  is  typically  well  defined  •  Ethical  issues:  – Because  of  their  top-­‐down  approach  and  distance  between  employee  and  decision  makes,  can  lead  to  unethical  acts.  

– Very  liWle  upward  communicaJon:  top-­‐level  managers  may  not  be  aware  of  problems  and  unethical  acJvity  

– ScapegoaJng:  people  may  transfer  blame  for  their  acJons  to  others  who  are  not  responsible  

Decentralized  OrganizaJon  •  Decision-­‐making  is  delegated  as  far  down  the  chain  of  command  as  possible.    

•  Have  relaJvely  few  formal  rules,  and  coordinaJon  and  control  are  usually  informal  and  personal.    

•  They  focus  instead  on  increasing  the  flow  of  informaJon.  Hence,  a  main  strength  is  their  adaptability  and  early  recogniJon  of  external  change,  so  that  managers  can  react  quickly  to  changes  in  their  ethical  environment.  

Comparison  Characteris/c   Emphasis  

Decentralized   Centralized  

Hierarchy  of  authority   Decentralized   Centralized  

Flexibility   High   Low  

Adaptability   High   Low  

Problem  RecogniJon   High   Low  

ImplementaJon   Low   High  

Dealing  with  changes  in  environmental  changes  

Good   Poor  

Rules  and  procedures   Few  and  informal   Many  and  formal  

Division  of  labor   Ambiguous   Clear-­‐cut  

Span  of  control   Few  employees   Many  employees  

Use  of  management  techniques  

Minimal   Extensive  

CoordinaJon  and  control   Informal  and  personal   Formal  and  impresonal  

Centralized  vs.  Decentralized  •  Due  to  strict  formalizaJon  and  implementaJon  of  ethics  policies  and  procedures  in  centralized  organizaJons,  the  tend  to  be  more  ethical  in  their  pracJces  than  decentralized  organizaJons.  However,  centralized  firms  may  have  more  difficult  Jme  uprooJng  unethical  acJvity  than  decentralized  ones.  

•  Unethical  behavior  is  possible  in  either  of  them  when  specific  corporate  cultures  permit  or  encourage  workers  to  deviate  from  accepted  standards  or  ignore  legal  and  ethical  responsibiliJes.  

Group  Dimensions  •  Two  main  categories  of  groups  affect  ethical  behavior  in  business:  – Formal  group  is  defined  as  an  assembly  of  individuals  that  has  an  organized  structure  accepted  explicitly  by  the  group  •  CommiWees  

• Work  Groups  and  Teams  

–  Informal  group  is  defined  as  two  or  more  individuals  with  a  common  interest  but  without  an  explicit  organizaJonal  structure  

CommiWees  •  Formal  group  of  individuals  assigned  to  a  specific  task  •  CommiWee  decisions  are  to  some  extent  legiJmized  because  of  agreement  or  majority  rule.  In  this  respect,  minority  views  on  issues  such  as  ethics  can  be  pushed  aside  through  the  majority’s  authority.  

•  CommiWees  bring  diverse  personal  moral  values  into  the  ethical  decision-­‐making  process,  which  may  expand  the  number  of  alternaJves  considered.    

•  CommiWee  decisions  are  also  generally  more  conservaJve  than  those  made  by  individuals  and  may  be  based  on  unnecessary  compromise  rather  than  on  idenJfying  the  best  alternaJve.  

•  Also  inherent  in  the  commiWee  structure  is  lack  of  individual  responsibility.  

Work  Groups  and  Teams  •  Work  groups  are  used  to  subdivide  duJes  within  specific  funcJonal  areas  of  a  company  

•  Teams  bring  together  the  funcJonal  experJse  of  employees  from  several  different  areas  of  organizaJon  – Ethical  conflicts  may  arise  because  team  members  come  from  different  funcJonal  areas  

Informal  Groups  •  May  generate  disagreement  and  conflict,  or  they  may  enhance  morale  and  job  saJsfacJon  

•  Help  to  develop  informal  channels  of  communicaJon  (“grapevine”)  which  are  important  in  every  organizaJon.  Informal  communicaJon  flows  up,  down,  diagonally  and  horizontally,  not  necessarily  following  the  communicaJon  lines  on  a  company’s  org  chart.  –  The  grapevine  can  act  as  an  early  warning  system    – Grapevine  is  also  an  important  source  of  informaJon  for  individuals  to  assess  ethical  behavior  within  their  organizaJon  

Group  Norms  •  Group  norms  are  standards  of  behavior  that  groups  expect  of  their  members.  

•  Norms  have  the  power  to  enforce  a  strong  degree  of  conformity  among  group  members.  At  the  same  Jme,  norms  define  the  different  roles  for  various  posiJons  within  the  organizaJon.  Thus,  a  low-­‐ranking  member  of  a  group  may  be  expected  to  carry  out  an  unpleasant  task,  such  as  accepJng  responsibility  for  someone  else’s  ethical  mistake.  

•  SomeJmes,  group  norms  conflict  with  the  values  and  rules  prescribed  by  the  organizaJon’s  culture.    

Can  People  control  their  own  acJons  within  an  org  culture  ?  

•  Ethical  decisions  within  organizaJons  are  ojen  made  by  commiWees  and  formal  and  informal  groups,  not  by  individuals.  Decisions  related  to  financial  reporJng,  adverJzing,  product  design,  sales  pracJces,  and  polluJon-­‐control  issues  are  ojen  beyond  the  influence  of  individuals  alone.  In  addiJon,  these  decisions  are  frequently  based  on  business  rather  than  personal  goals.  

•  Although  many  personal  ethics  issue  may  seem  straighqorward  and  easy  to  resolve,  individuals  entering  business  will  usually  need  several  years  of  experience  within  a  specific  industry  to  understand  how  to  resolve  ethical  close  calls.  

Can…  •  We  believe  that  most  companies  and  businesspeople  try  to  make  ethical  decisions.  However,  because  there  is  so  much  difference  between  individuals,  ethical  conflict  is  inevitable.  

•  If  a  person  believes  that  his  or  her  personal  ethics  severely  conflict  with  the  ethics  of  the  work  group  and  of  superiors  in  an  organizaJon,  that  individual’s  only  alternaJve  may  be  to  leave  the  organizaJon.  In  the  highly  compeJJve  employment  market  of  today,  quiSng  a  job  because  of  an  ethical  conflict  requires  courage  and  possibly,  the  ability  to  survive  without  a  job.  

•  Obviously,  there  are  no  easy  answers  for  resolving  ethical  conflicts  between  the  organizaJon  and  the  individual.