L2: Enron

Environmental Factors

• Legal framework, networks

Economic Factors (Merton, 1938)

• Financial pressure, competition, low performances

Organizational Culture

• Norms, values, beliefs, routines

Corporate Executives

• Individual characteristics (personality, CEO background…)

• Organizational structure

• Strategies and aspiration levels

I. Overvaluing outcomes

II. Motivated blindness

III. Ethical illusions

IV. Ethical spillover

V. Denial of responsibility

VI. Slippery slope

This slide is discussing factors that can lead to unethical behavior in a company's culture. Here’s what it says in simple terms:

• Business Model: The way the company makes money might rely on accounting methods that estimate the value of things for the future (which can be very uncertain) and on taking advantage of less strict laws to do things that might not be ethical.

• Goals Setting: The company may encourage a very competitive environment, where employees are ranked and possibly fired if they don't perform well (known as "Rank and Yank"). This "survival of the fittest" mentality (social Darwinism) and a tough, aggressive attitude (macho culture) can lead to unethical decisions because everyone is trying to win at all costs.

• Lobbying: The company might try to influence political decisions in its favor. They may have close ties with their accounting firm (AA accounting firm) and not enough checks from outside the company (External Oversight), which can lead to overlooking unethical actions.

These behaviors can start a "Slippery Slope" where one small unethical choice leads to another, causing an "Unethical Spillover" – when bad behavior in one area leads to bad behavior in other areas. "Motivated Blindness" is when people ignore unethical behavior because it's in their interest not to notice.

The result of all this is an "Unethical Corporate Culture," where doing the wrong thing is accepted or even encouraged. This kind of culture can seriously harm the company's reputation and success in the long run.

a set of taken-for-granted interpretive frames located in the organization’s culture created a worldview through which deceptive sales practices were seen as normal, acceptable, routine operating procedure.”

Organizational misconduct can occur when unethical behavior becomes ingrained in a company's culture to the point where deceptive practices are considered normal and are routinely followed without question. Essentially, when the culture within an organization accepts or even encourages bending or breaking rules for success, this perspective can become the default, leading to widespread misconduct.

This image describes three key elements that help create a good ethical environment in a company:

1. Core Ethical Values: These are the important beliefs about what is right and wrong that the company stands for. They should be part of everything the company does, from its policies to its day-to-day work.

2. Ethical Leadership: This means that the people in charge of the company should set a good example when it comes to ethics. They should act in a way that shows they take ethics seriously, and this should be clear to everyone in the company, no matter their position.

3. Ethics Program: This is a formal system that includes things like a written code of ethics (rules about what is considered right and wrong behavior for the company), training programs to teach employees about these rules, a hotline that employees can call to report unethical behavior, and officers or managers who are responsible for making sure the company follows ethical practices.

These three elements support and strengthen each other to make sure the company doesn’t just talk about being ethical, but actually puts those ideas into action.

Ethical Leadership is “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and ethical decision-making” (p.120)

-> Must be replicated by board of directors, senior executives and managers

• Trustworthiness – honesty, integrity, transparency

• Respect - for human rights

• Responsibility – accountability, not blaming others

• Fairness – impartiality, equity

• Caring – sensitivity, avoid unnecessary harm

• Citizenship – obeying laws

1. Policies (i.e., code of conduct, official documents)

2. Processes (i.e., hiring)

3. Practices (i.e., “walk the talk”)

Unreflective Obedience: see. The Milgram Experiment of electric shocks

Social Loafing or the Bystander Problem: ex. when you hear screaming, the presence of others inhibits the impulse to help

Groupthink: people adjust not just their behavior but their beliefs to conform to their peers (such as: stereotyped views of adversaries, invulnerability perception of the group leading to excess in risk taking, self censorship of deviation from the consensus of the group etc.)

Awareness: ability to recognize ethical aspects of situations. Ability to foresee the harm that an action might cause and its consequences

Judgment: ability to view ethical issues impartially, grasping competing principles at stake

Action: acting in a way that is consisent with ethical judgment

Leadership: ability to influence others to act ethically