Ch2 of Org Behavior by Jones

8/10/2019 Ch2 of Org Behavior by Jones

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2-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 11

Organizational Theory,Design, and Change

Sixth Edition

Gareth R. Jones

Chapter 2

Stakeholders,Managers, and Ethics


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Learning Objectives

1.

Identify the various stakeholdergroups and their claims on anorganization

2.

Understand the choices and problemsinherent in distributing the value anorganization creates

3.

Appreciate who has authority and

responsibility at the top of anorganization, and distinguishbetween different levels ofmanagement


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Learning Objectives (cont.)

4.

Describe the agency problem thatexists in all authority relationshipsand the mechanisms available to

control illegal and unethical behaviors5.

Discuss the vital role played by ethics

in leading managers and employees

to pursue goals that lead to long-runorganizational effectiveness


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Organizational Stakeholders

!

Stakeholders:people who have aninterest, claim, or stake in anorganization

!

Inducements:rewards such asmoney, power, and organizationalstatus

!

Contributions:the skills,knowledge, and expertise thatorganizations require of theirmembers during task performance


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Outside Stakeholders

!

People who do not own the organization,are not employed by it, but do havesome interest in it! Customers: an organizations largest

outside stakeholder group! Suppliers: provide reliable raw materials

and component parts to organizations! The government

! Wants companies to obey the rules of faircompetition

! Wants companies to obey rules and lawsconcerning the treatment of employees andother social and economic issues


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Outside Stakeholders (cont.)! Trade unions: relationships with

companies can be one of conflict orcooperation

!

Local communities:their generaleconomic well-being is strongly affected bythe success or failure of local businesses

! The general public

! Wants local businesses to do well againstoverseas competition

! Wants corporations to act in sociallyresponsible way



Table 2.1: Inducements andContributions of Stakeholders



Organizational Effectiveness: SatisfyingStakeholdersGoals and Interests

!

An organization is used simultaneously byvarious stakeholders to achieve their goals

!Each stakeholder group is motivated tocontribute to the organization

!

Each group evaluates the effectiveness ofthe organization by judging how well itmeets the groups goals

!For an organization to be viable, the

dominant coalition of stakeholders has tocontrol sufficient inducements to obtain thecontributions required of other stakeholdergroups



Stakeholder Goals

! Shareholders:return on theirinvestment

! Customers:product reliabilityand product value

! Employees:compensation,working conditions, career

prospects

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Competing Goals

!

Organizations exist to satisfy stakeholdersgoals

!But which stakeholder groups goal is most

important?!In the U.S., the shareholders have first claim

in the value created by the organization

!However, managers control organizations

and may further their own interests insteadof those of shareholders

!Goals of managers and shareholders may be

incompatible



Allocating Rewards

!

Managers must decide how to allocateinducements to provide at least minimalsatisfaction of the various stakeholdergroups

!Managers must also determine how todistribute extrarewards

!Inducements offered to shareholders affect

their motivation to contribute to theorganization

!The allocation of reward is an important

component of organizational effectiveness



Top Managers andOrganizational Authority!

Authority:the power to hold peopleaccountable for their actions and to makedecisions concerning the use oforganizational resources

!

Shareholders: the ultimate authority overthe use of a corporations resources

! They own the company

! They exercise control over it through theirrepresentatives



Top Managers and

Organizational Authority(cont.)

!The board of directors:monitors corporatemanagersactivities and rewards corporatemanagers who pursue activities that satisfystakeholder goals

! Inside directors:hold offices in a companysformal hierarchy

! Outside directors:not full-time employees

!

Corporate-levelmanagement:theinside stakeholder group that has ultimateresponsibility for setting company goals andallocating organizational resources



The Chief Executive Officers (CEO)Role in Influencing Effectiveness

!

Responsible for setting organizationalgoals and designing its structure

!

Selects key executives to occupy the

topmost levels of the managerialhierarchy

!

Determines top managements

rewards and incentives



The CEOs Role in InfluencingOrganizational Effectiveness (cont.)

!

Controls the allocation of scarceresources such as money and decision-making power among the

organizations functional areas orbusiness divisions

!

The CEOs actions and reputation

have a major impact on inside andoutside stakeholdersviews of theorganization and affect the

organizations ability to attract



Top Management Roles

!

CEOOften has primary responsibilityfor managing the organizationsrelationship with external stakeholders

!

COOResponsible for managing theorganizations internal operations

!

Exec. Vice PresidentsOversees andmanages the companys most

significant line and staff roles

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The Top-Management Team

!

Line-role:managers who have directresponsibility for the production ofgoods and services

!

Staff-role:managers who are incharge of a specific organizationalfunction such as sales or research and

development (R&D)!Are advisory only



The Top-Management Team(cont.)

!

Top-management team:a group ofmanagers who report to the CEO andCOO and help the CEO set the

companys strategy and its long-term

goals and objectives

!

Corporate managers:the membersof top-management team whoseresponsibility is to set strategy for thecorporation as a whole



Other Managers

!

Divisional managers:managers whoset policy only for the division theyhead

!

Functional managers:managerswho are responsible for developing thefunctional skills and capabilities thatcollectively provide the corecompetences that give theorganization its competitive advantage



Figure 2.1: The Top-Management Hierarchy

A A Th



An Agency TheoryPerspective

! Agency theory suggests a way tounderstand the conflict that oftenarises between shareholder goals and

top managersgoals! Agency relation occurs when one

person (the principle, i.e. shareholders)

delegates decision-making authority toanother (the agent, i.e. managers)


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Agency Problem

! There is a problem in determiningmanagerial accountability that ariseswhen delegating authority to managers

!

Shareholders are at informationdisadvantage compared to topmanagers

!

It takes considerable time to see theeffectiveness of decisions managers maymake

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The Moral Hazard Problem

!

A moral hazard problem exists whenagents have the opportunity and incentiveto pursue their own interests

! Very difficult to evaluate how well the agent

has performed because the agent possesses aninformation advantage over the principal

! Self-dealing describes the conduct of

corporate managers who take advantage oftheir position in an organization to act in theirown interests


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Solving the Agency Problem

!

In agency theory, the central issue is toovercome the agency problem by usinggovernance mechanisms that align theinterests of principles and agents

!The role of the board of directors:

! Monitor and question top managers decisions

! Reinforce and develop a code of ethics

! Find the right set of incentives to align theinterests of managers and shareholders


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Governance Mechanisms

!Stock-based compensation

schemes that are linked to thecompanys performance

!Promotion tournaments and career

paths

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T M d


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Top Managers andOrganizational Ethics

!

Ethical dilemma:decisions thatinvolve conflicting interests of parties

! Ethics:moral principles and beliefsabout what is right or wrong

!

There are no indisputable rules orprinciples that determine whether an

action is ethical


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Ethics and the Law

!

Laws specify what people andorganizations can and cannot do

!Laws specify sanctions when laws arebroken

!

Ethics and laws are relative

! No absolute or unvarying standards existto determine how people should behave


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Models of Ethics

!

Utilitarian model:An ethical decision is onethat produces the greatest good for thegreatest number of people

!

Moral Right Model:An ethical decision is theone that best maintains and protects thefundamental rights and privileges of the peopleaffected by it

!

Justice Model:An ethical decision is a decisionthat distributes benefits and harms amongstakeholders in an impartial way

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So ces of O gani ational


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Sources of OrganizationalEthics

!

Societal ethics:codified in a societyslegal system, in its customs and practices,and in the unwritten norms and valuesthat people use to interact with each other

!

Professional ethics:the moral rules andvalues that a group of people uses tocontrol the way they perform a task or useresources

!

Individual ethics:the personal andmoral standards used by individuals tostructure their interactions with otherpeople


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Why Do Ethical Rules Develop?

!

Ethical rules and laws emerge to controlself-interested behavior by individuals andorganizations that threaten the societyscollective interests

!

Ethical rules reduce transaction costs, thatis the costs of monitoring, negotiating,and enforcing agreements betweenpeople! Reputation effect:Transaction costs:

!Are higher for organizations with a reputation forillegality

!Are lower for organizations with a reputation for

honest dealings

Why Does Unethical Behavior


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Why Does Unethical BehaviorOccur?

!

Personal ethics:developed as part ofthe upbringing and education

!Self-interest:weighing our ownpersonal interests against the effects

of our actions on others

!

Outside pressure:pressures from

the reward systems, industry, andother forces


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Creating an Ethical Organization

!

An organization is ethical if itsmembers behave ethically

!

Put in place incentives to encourage

ethical behavior and punishments todiscourage unethical behaviors

!

Managers can lead by setting ethical

examples!

Managers should communicate theethical values to all inside and outsidestakeholders

D i i Ethi l St t


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Designing an Ethical Structureand Control System

!

Design an organizational structure thatreduces incentives to act unethically

!Take steps to encourage whistle-blowing encourage employees to

inform about an organizationsunethical actions

!

Establish position of ethics officer andcreate ethics committee


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Creating an Ethical Culture

!

Values, rules, and norms that definean organizations ethical position arepart of its culture

!

Behaviors of top managers are astrong influence on the corporateculture

!

Creation of an ethical corporate culturerequires commitment from all levels

Supporting the Interests of


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Supporting the Interests ofStakeholder Groups

!

Find ways to satisfy the needs ofvarious stakeholder groups

!Pressure from outside stakeholders canalso promote ethical behavior

!

The government and its agencies,industry councils, regulatory bodies,

and consumer watchdogs all playcritical roles in establishing ethicalrules

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Ch2 of Org Behavior by Jones