Chapter 5 Ethics as Organizational Culture Contents

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Chapter 5
Ethics as Organizational Culture
Contents: (Please note: the Instructor Guide for every chapter will follow this structure.)

  1. Chapter Outline

  2. Teaching Notes

  3. In-Class Exercises

  4. Homework Assignments

  5. Additional Resources

Chapter Outline

  1. Introduction

  1. Organizational Ethics as Culture

  1. What is Culture?

  2. Strong vs. Weak Cultures

  3. How Culture Influences Behavior: Socialization and Internalization

  1. Ethical Culture: A Multisystem Framework

  1. Alignment of Ethical Culture Systems

  1. Ethical Leadership

  1. Executive Leaders Create Culture

  2. Leaders Maintain or Change Organizational Culture

  1. Other Formal Cultural Systems

  1. Selection Systems

  2. Values and Mission Statements

  3. Policies and Codes

  4. Orientation and Training Programs

  5. Performance Management Systems

  6. Organizational Authority Structure

  7. Decision-Making Processes

  1. Informal Cultural Systems

  1. Role Models and Heroes

  2. Norms: “The Way We Do Things Around Here”

  3. Rituals

  4. Myths and Stories

  5. Language

  1. Organizational Climates: Fairness, Benevolence, Self-Interest, Principles

  1. Developing and Changing the Ethical Culture

  1. How an Ethical Culture Can Become an Unethical Culture

  2. Becoming a More Ethical Culture

  1. A Cultural Approach to Changing Organizational Ethics

  1. Audit of the Ethical Culture

  2. A Cultural Systems View

  3. A Long-Term View

  4. Assumptions about People

  5. Diagnosis: The Ethical Culture Audit

  6. Ethical Culture Change Intervention

  1. The Ethics of Managing Organizational Ethics

  1. Conclusion

  1. Discussion Questions

  1. Cases (Texaco, TAP Pharmaceuticals)

Teaching Notes - Discussion Questions
Note to Instructor: The discussion questions in this chapter all assume that students have had significant work experience to draw upon in conducting their own “ethical culture audit.”


If this is not the case, you have several options. One approach that has worked well for us is to divide students into groups, in which at least some of the members have significant work experience. The students talk about their experiences and choose an organization to focus on. The individual student who worked for that organization becomes the information source and "teacher" for the other students who ask questions. The groups can then be asked to present their findings to the rest of the class.

If you are teaching a group with little or no work experience (e.g., undergraduates), you can assign them to interview someone they know (parents, neighbors, relatives, coaches). This works especially well if the assignment is due after a holiday (Thanksgiving, Spring Break), when students are likely to take a trip home and have the opportunity to interview a family member.
Remind students that it is okay to focus on an organization that they perceive to be highly ethical or unethical. It makes for an exciting class when these are contrasted. Assuming that you will get examples of both, it is also helpful to build here on discussions from Chapter 1. Ask which type of organization individuals preferred to work for and why. It soon becomes clear that students have been inspired by companies with ethical cultures and repelled by those with unethical cultures.

  1. Does your organization address ethical issues in a formal, systematic way? If so, is it a cookie cutter, one-size-fits-all approach, or has the organization customized an ethical culture to match its unique needs?

Probes to Stimulate Discussion

  1. “What does your organization do, if anything, to support ethical conduct?"

  1. “How do you know if the approach is cookie cutter or customized?"

  1. To the best of your ability, use the questions in Tables 5.1 and 5.2 to conduct an ethics audit of the formal and informal systems in your organization.

Instructors: Our students have had no difficulty answering these questions, assuming that they have work experience (as discussed above).

  1. Having conducted the ethics audit, identify the formal and informal systems that are in need of attention. Where is the culture out of alignment? Design a change program to address weaknesses and to align formal and informal systems into a strong ethical culture

Instructors: Remind students that they need to look beyond individual systems to ensure consistency and "alignment" among systems. Culture change programs take years to implement. An evaluation plan should be incorporated in the program.

  1. How would you change the culture audit questions, if you were planning to use them to conduct an ethics culture audit of a firm you were considering joining?

Similar questions can be used, but they can also be altered to fit the person to whom such questions are to be directed. Applicants can probably learn the most by asking their future peers questions about how things are really done in the organization and about the informal cultural systems. One way to get at these questions is to ask the individual to tell stories about their organizational experiences. Can they tell a story about how integrity has been emphasized by executives and supervisors? About a time when business was turned down because of concerns about ethics? About a time when someone was dismissed for unethical conduct? About who gets ahead and how?

Applicants can also ask questions about the formal systems and they can direct these to a future supervisor, someone in human resources, or both. For example, ask to see the ethics code and ask about the systems that surround it. How does one report an ethical concern and to whom does one report it? How well does the organization respond and follow up? Ask to see the performance management materials and see if issues such as integrity are incorporated. Are employees held accountable for behaving in ways that are consistent with ethical values, or is only bottom line performance rewarded?
Consider nonverbal reactions as well as verbal responses to such questions. If the respondent seems comfortable answering questions about the ethical culture in the organization, and has concrete stories to share, that is a very good sign. If not, beware.

In-Class Exercises

Case: Culture Change at Texaco

Case based Questions and Answers

  1. Identify the ethical culture problem at Texaco in the mid-1990s.

Possible Answer

Multiple systems supported racism and discrimination against minorities, including lower pay and racist language.

  1. Based on the facts in the case and what you have learned in Chapter 5, evaluate the culture change effort that is underway. What cultural systems have been targeted in the cultural change effort? What systems are missing, if any? Does the culture appear to be in alignment? Misalignment? What else might management do that they have not already done to make the culture change successful?

Possible Answer

Perhaps most important is CEO commitment to change. The CEO made a commitment to diversity throughout the organization and showed he meant it, by hiring a number of minority executives. He targeted multiple systems including selection, rules/policies, reward systems, and decision processes. New recruiting systems were set up to employ minorities at every level. Women and minorities were included on human resources committees to make sure that their perspectives were heard. The company even established scholarships to help ensure a pool of minority hires for the future, and set up leadership development programs to help minorities advance within the firm. Systems were put in place for reporting problems and filing grievances. Perhaps most important, Texaco Chairman Peter Bijur tied managers’ performance appraisal and compensation to their commitment to implementing the new initiatives. From what we know, at least the formal systems seem to be aligned to support the change. We know less about the informal systems and those will be key to long-term success. We also have no information about the new CEO and his commitment to sustaining these changes.

  1. How long might such a culture change take?

Possible Answer
Such culture change efforts generally take years – as many as 6-15 years!

Case: An Unethical Culture in Need of Change - TAP Pharmaceuticals
Case based Questions and Answers

  1. Analyze the ethical culture at TAP. Does the culture appear to be in alignment? Misalignment?

Possible Answer
Based on what we are told in the case, this appears to be a culture perfectly aligned to support unethical conduct. The reward system focused only on the bottom line. Leadership did not support attempts to change the reward system. Informal norms supported illegal conduct, such as bribing physicians. There is no language and there are no systems in place to encourage ethical conduct (selection systems, rules/policies or codes, etc.). The legal counsel is thought of as the “sales prevention” department, rather than as a source to help everyone keep their conduct within the law.

  1. Based on the facts in the case and what you have learned in Chapter 5, evaluate the culture change effort that Douglas Durand undertook. What cultural systems did he target in the cultural change effort? What systems were missing, if any?

Possible Answer
After attempts at simple persuasion failed, he focused his change attempt on the reward system, arguably the most important one. So, he did the right thing. And for a short time, the change had the intended effect, because people do respond to rewards. But, (and this is key) senior management overturned his efforts. So, senior leadership support, essential to any culture change effort, was clearly missing. All other systems that we know about were aligned to support unethical conduct. So, his attempts were probably doomed from the start. He also attempted to change the informal norms, by appealing to concerns about physicians’ trust, but was met with “rolled eyes.”

  1. Why did his cultural change effort fail? What would it take for it to succeed?

Possible Answer
His culture change effort failed, because he did not have the authority, or the support from those who did, for the change effort. As a result, he was able to target change in isolated cultural systems, but not throughout the culture as a whole.
An important message from this case is that culture change is very difficult. Even someone at a relatively high VP level, will not be able to change culture without substantial support from senior management for a company-wide change effort.

Homework Assignment
Assignment #1: Interview an Ethical Leader
If you did not use this assignment in Chapter 1 (Interview someone you respect), you can use it now. This assignment involves students identifying and interviewing an ethical leader they know. It can be anyone they feel demonstrates integrity: a parent or another relative, a teacher, a manager, a neighbor, a scout leader, a religious leader – it has to be someone they personally know. The interview should be 20 – 30 minutes and students should ask a series of questions that they are then prepared to discuss in class:
1. How important do you think ethical leadership is on a scale of 1 to 10 (1 being not important; 10 being vital)? Why?
2. In your experience, where do most people learn about ethics?
3. Who had the most important influence on the formation of your ethical character?
4. Describe a situation that you feel really tested your ethics. Is there anything you wish you had done differently?
5. In your experience, what factors can make it difficult for people to make ethical decisions?
6. How important do you think it is for someone to be vocal or open about their ethical standards?
7. Should people be rewarded for being ethical?
Students should also provide information about the interviewee, including their occupation, their relationship to the student, how long the student has known the interviewee, and what made the student select the interviewee.
Assignment #2: Goldman Sachs and Ethical Culture
Another interesting assignment could involve students researching Goldman Sachs and the ethical culture of that firm, which has been under such a microscope as a result of the 2008 financial debacle and the recession that followed. You could refer students to this blog entry on the New York Times website:
“Goldman Sachs and the Trader Culture”

Students can do additional research on Goldman and the debacle, and write a paper or be ready to discuss in class, how Goldman’s culture evolved and what effect this has had on the company, their clients, and the public.

Additional Resources:
1. Video: The Danish Solution
One of the most remarkable stories of ethical conduct involves the entire country of Denmark. During World War II, when European Jews were being rounded up and murdered by the millions, the Danish people saved almost all of the Jews in Denmark by defying Nazi orders to turn over Jews. Danes took their Jewish neighbors into their homes and through an elaborate system of Dane helping Dane, managed to smuggle almost every Jew out of Denmark to neutral Sweden. Then Danes tended Jewish property until the Jews returned at the end of the War. There are two movies that tell this unbelievable story:

1. Act of Faith, available through Nostalgia Family Video – 30 minutes, inexpensive, old and grainy – but authentic and tells the story effectively (

2. The Danish Solution – 58 minutes, color, narrated by Garrison Keillor, expensive, but beautifully made film. Available through:
Probes to Stimulate Discussion:

  • Why did the Danish people behave almost as one in this effort?

  • How were the Danes able do this and not people in other European countries?

  • Could an effort like this ever happen today? Why? Why not?

  • What can this effort tell us about ethical leadership?

  • What can organizations learn from this situation?

More information about the Danish rescue of Jews from A Conspiracy of Decency, by Emmy E. Werner, 2002, Westview Press.

What factors contributed to the success of the effort?

  • Lack of anti-Semitism

  • Feelings/attitudes of civic equality for all citizens in Danish culture

  • Assimilations of Jews into Danish society

  • Participation in rescue efforts was endorsed by a wide range of organizations: professional, business, social

  • Relative leniency on the part of the German commanders in Denmark

  • Decent people in positions of authority (Danish royalty, police, doctors, teachers, etc.)

Rescuers tended to be one of four types:

  • Type #1 – Had strong and cohesive family bonds; reported being closely attached to their parents and valued caring for others; dependability, self-reliance, and independent judgment. These people tended to have a strong religious commitment, be “good” neighbors, and have many close friends.

  • Type #2 – Had consistently close contacts with Jews, and tended to have close Jewish ties – friends, living arrangements, relatives, etc., and were extremely disturbed by anti-Semitic propaganda.

  • Type #3 – Had a strong sense of responsibility for the welfare and improvement of society as a whole. While not necessarily close to family, they credited a “parent” figure (could well have been a parent) with encouraging them to be independent, self-reliant, and to practice helpfulness and caring toward people who came from different classes and religions.

  • Type #4 – Were concerned more abstractly with egalitarianism. They derived their sense of responsibility from their identification with humanity as a whole and their empathy for people who were suffering. They were moved by other people’s pain and felt a strong responsibility to help them.

Motives of rescuers:

  • Helping Jews was an affirmation of the value system they were brought up with: “to love your neighbor as yourself” (52%)

  • Great empathy and distress for those who were persecuted and suffering (37%)

  • Principles alone (11%)

Principles identified by rescuers, as having been learned when they were children from a parent, parent surrogate, or teacher:

    1. Human beings are basically the same and differences between them are to be respected.

    2. The world is not divided into “them” and “us,” but we all have a common bond of humanity.

    3. We should have a clear sense of right and wrong and we should stand up for our beliefs.

    4. We should practice kindness and compassion toward others.

    5. We should be independent and self-sufficient and never blindly follow the crowd.

This story has the potential to be used successfully in multiple chapters. Here, one could discuss how an entire national culture supported such courageous action.

  1. Video: Enron: The Smartest Guys in the Room

The first 30 minutes of this video provide an excellent description and analysis of how organizational culture can drive ethical behavior – or, in the case of Enron, unethical behavior. We strongly urge you to show the entire film in class. It is a classic and an excellent overview of why ethics in organizations is critical.

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