Growing effective organizational cultures - STAKEHOLDERS, MANAGERS AND ETHICS

8 important questions on Growing effective organizational cultures - STAKEHOLDERS, MANAGERS AND ETHICS

There are two main groups of organizational stakeholders:

  1. Inside stakeholders
  2. Outside stakeholders

The chief executive officer

The CEO is the person ultimately responsible for setting organizational strategy and policy

The CEO can influence organizational effectiveness/decision making in principal ways:

1. The CEO is responsible for setting the organization’s goals and designing its structure
2. The CEO selects key executives to occupy the topmost levels of the managerial hierarchy.
3. The CEO determines top management’s rewards en incentives. 4. The CEO controls the allocation of scare resources such as money and decision-making power among the organization’s functional areas or business divisions.
5. The CEO’s actions and reputation have a major impact on inside and outside stakeholders’ views of the organization and affect the organization’s ability to attract resources form its environment.
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Top managers and organizational ethics

A very important mechanism of corporate governance, which has become increasingly important for a board of directors to emphasize after the recent corporate scandals, is to insist that managers follow ethical guidelines in their decision-making when confronted with an ethical dilemma.

Ethics: Moral principles or beliefs about what is right or wrong.

- Ethics indicate what is inappropriate behaviour and how a person should behave to avoid doing harm to another person.

Why do ethical rules develop?

  • One of the most important reasons why ethical rules governing action develop is to slow down or tempter the pursuit of self-interest.
  • Ethical laws and rules emerge to control self-interest behaviour by individuals and organizations that threatens society’s collective interests.
  • Ethical rules reduce transaction costs between people, that is, the costs of monitoring, negotiating and enforcing agreements with other people. 

Why does unethical behaviour occur?

- Personal ethics
- Self-interest
- Outside pressure

Supporting the interests of stakeholder groups

Shareholders are the owners of an organization. Through the board of directors they have the power to hire and fire top management and thus in theory they can discipline managers who engage in unethical behaviour.
  • Unethical behaviour makes a company a riskier investment. 

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