Business Ethics: Concepts & Cases: Chapter 8 Objectives and Overview
The Individual in the Organization

Learning Objectives

1. Distinguish the three models of the organization and understand the distinctive emphasis of each: the rational structure model with its emphasis on formal relations of authority and the formal division of labor; the political model with its emphasis on real power relations, including informal ways in which power is exercised; and the caring organization model which emphasizes nonpower relations of cooperation, friendship, and respect.
2. Identify the principal moral concerns that are addressed on the rational structure and political models: duties of the employee to the firm and of the firm to the employee, on the rational structure model; employee rights and organizational politics, on the political model.
3. Understand the rational structure model's characterization of the business organization as a structure of formal relationships that are explicitly defined and openly employed, and how the organizational chart describes the core features of the organization thus characterized in terms of its chain of command and division of labor.
4. Understand how the law of agency expresses the main duty of the employee, to work towards the goals of the firm, and the several ways in which an employee may fail to fulfill this main duty to the firm: by acting on conflicting interests; by theft; and by abuse of the privileges of one's position (as by insider trading).
5. Understand the principal duties of the firm on the contract view pertaining to compensation and working conditions; also, the moral issues relating to fairness of compensation, safe working conditions, and job satisfaction.
6. Understand the attempt of the political model to provide a more realistic characterization of business organizations in terms dynamic power struggles between competing power coalitions; also, the ways political power and the power of corporate managers are alike, and the controversies concerning their differences.
7. Identify the principal employee rights and freedoms at issue under the political model and understand issues relating to each: privacy rights, freedom of conscience and whistleblowing rights, participation rights, and due process rights, rights relating to plant closings, and rights to organize unions.
8. Grasp the distinction between formal authority relations and informal power tactics; appreciate the variety of informal power tactics used and the two headings under which they all fall; and recognize how power tactics, due to their informal and frequently covert nature, pose special perils with regard to utility, rights, justice, and care.

Overview

The rational structure model defines the business organization as a structure of formal relations, explicitly defined and openly employed, to achieve some technical or economic goal, resulting in a rational coordination of the efforts of a number of people through the division of labor and function (standardly represented by the horizontal dimension of an organizational chart), and a hierarchy of authority and responsibility or chain of command (standardly represented by the vertical dimension).  Three main levels of employees are commonly distinguished: an operating layer of employees who directly produce goods and services that constitute the essential outputs or products of the organization, and their immediate supervisors; middle management, directing the operating layers and being directed in turn by top management; and top management, consisting of Vice Presidents, the Chief Executive Officer, and the Directors or the owner of the firm.  General policy is decided at the top, these decisions are passed down the hierarchy and "amplified" (or specified) as commands, eventuating in commands directly implemented at the operating level.  The authority of the higher ups and the responsibilities of underlings, on this conception, are contractually based: employees freely and knowingly agree to accept the organization's formal authority and undertake to pursue the goals of the organization; the organization agrees, in exchange, to pay employees an agreed upon wage, and to supply working conditions that enable the employee to perform assigned tasks.  The voluntary contractual nature of this agreement is held to impose moral duties on the contracting parties to fulfill the terms of the contract, resulting in two reciprocal sets of obligations.  Employees are obliged to obey organizational superiors, to pursue the organizations goals, and not to pursue conflicting goals; employers are obliged to provide employees a fair wage, and fair working conditions.

The main duty of the employee to the firm, on the rational structure model, is to work towards the goals of the firm.  This is understood to imply a duty of obedience to superiors, and a duty of avoidance of activities harmful to or contrary to these goals.  Law of Agency provisions that "an agent is subject of a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency" and not for the benefit of "persons whose interests conflict with those of the principal in matters in which the agent is employed" specify this main duty.  Ways in which employees may fail to discharge their main duty include acting on conflicting interests; theft; and abuse of privileges of one's position, as in insider trading.

Potential and actual conflicts of interest arise when an employee or officer of a company is engaged to carry out a task in which the employee has a private interest: if an employee actually discharges their duties in a way prejudicial to the firm in pursuit of their private interest an actual conflict of interest is present.  Employees with motives that may tempt them to act in ways prejudicial to the firm are held to have potential conflicts of interest. Actual conflicts are morally culpable.  The morality of potential conflicts depends on how likely they are to become actual.  Two practices involving immoral potential if not actual conflicts are acceptance of commercial bribes and extortion. Commercial bribe are considerations given or offered to employees by persons outside the firm with the understanding that, when the employee transacts business with the giver, the giver will be dealt with favorably. When the employee demands considerations from an outside agent as a condition for dealing favorably with them, it is extortion.  Commercial gifts, considerations given to employees by outside agents with no understanding that the employee will deal favorably with them in return, while less culpable than outright bribes and extortion, nevertheless raise similar issues since such gifts are often given in the hope of obtaining favorable treatment.  Factors to be considered when evaluating the morality of accepting such a gift (suggested by Vincent Barry) include

1. the value of the gift: the more valuable the gift the more its acceptance becomes morally questionable;
2. the purpose of the gift: the greater the giver's expectation of gaining favorable treatment the worse the acceptance;
3. the circumstances of the gift, especially the openness with which it was given: the more openly, the better;
4. the position of the recipient: the greater recipient's ability to advance the giver's interests, the more acceptance of the gift is morally questionable;
5. accepted business practice in this connection: the more generally such gift-giving is practiced the less questionable acceptance of the gift;
6. company policies regarding acceptance of such gifts: if acceptance is contrary to company policy it is morally unacceptable;
7. relevant laws: where acceptance of such gifts is banned by law, it is morally unacceptable.

The main duty the employer owes to the employee on the rational structure view is to provide them with the agreed upon compensation in exchange for their services.  The two main issues arising in this connection concern the fairness of the wage and the fairness of the working conditions: at issue is how freely and uncoercedly, and how and knowingly and undeceivedly, the employee agreed to do this job at this wage.  The fairness of wages is a question complicated not only by the conflicting interests of employees and employers in this regard, but also to external factors which impact on fairness: these include, public supports available to workers; the freedom and competitiveness of the labor market; worker needs; and the competitive position of the firm.  Factors to be taken into account in determining a fair wage include the following:

1. going pay rates in the industry and the area, since labor markets provide rough indicators of what's fair (or just) if we assume that competitive labor market prices (determined by supply and demand) are just;
2. the firms capabilities, since the more successful the firm, the more generously it can afford to pay its workers;
3. the nature of the job, with higher compensation being warranted for jobs involving greater risks or burdens, less job security, or more required training or experience or effort;
4. minimum wage laws, which set limits below which wages are deemed unlawful and unfair;
5. relation to other salaries being paid to workers doing roughly similar work within the organization,
6. the fairness of the wage negotiations, which relates to how freely and knowingly the parties entered the contract.

1. wages should reflect the risk-premium prevalent for taking similar risks in competitive labor markets;
2. workers should be provided health insurance benefits suitable to protect against the known hazards;
3. health risks accompanying each job should be thoroughly researched, and all information discovered made readily available to workers.

1. experienced meaningfulness of the work by the workers according to some system of values they accept;
2. experienced responsibility by the workers for the outcomes of their efforts;
3. knowledge of results enabling workers to regularly determine whether the outcomes of their efforts were satisfactory.

The political model of the organization focuses on real -- not just official -- power and authority relations.  In contrast with the rational structure model, which views such relations are relatively static (as portrayed by the organizational chart), the political model sees them as constantly shifting through power struggles and authority clashes.  On the political model, organizations are conceived of as systems of competing power coalitions with formal and informal lines of influence and communication radiating from each.  The direction or "goal" of the organization, on this conception, is not so much dictated by rightful authority (as on the rational structure model) as negotiated among more or less powerful coalitions.  The fundamental organizational reality, on this conception, is power, defined as the ability of individuals or groups to modify the behavior or others is desired ways (to take) without having to modify their own in undesired ways (to give).  While the formal authority relations portrayed by the organizational chart are, generally, major sources of real power, the political model also recognizes informal sources of power and lines of influence completely outside -- sometimes even contrary to -- these formal lines of authority and communication.  The principal moral issues arising on the political model, consequently, concern the moral limits to the exercise of power within organizations: employee rights issues concern the moral limits on the power superiors acquire and exercise over subordinates; office politics issues concern the moral limits on the power of employees acquire and exercise over one another.

With regard to employee rights, a comparison may be drawn between the defining feature of political or governmental authority and of corporate management.  Both involve

1. a centralized body of decision-making officials (top management in the case of corporations);
2. having the power and recognized authority to enforce their decisions on subordinates;
3. making decisions determining the distribution of benefits (e.g., compensation) and burdens (e.g., tasks);
4. and having a monopoly on such power.

One right, it is claimed, that employees are specifically owed is the right to privacy.  This right, broadly speaking, to be left alone, is more narrowly at issue in the workplace under the guise of rights not to have employers pry into your private life, and the related right to determine the type and extent of information about yourself you disclose to your employer.  Practices, policies, and technologies which threaten employee privacy include employer monitoring of computer use and computer and telephone communications; polygraph testing (which may be legally used in some circumstances in most industries, and more widely in "exempt industries"); computerized databanks enabling companies to obtain personal information -- even including supposedly "confidential information" -- about employees; genetic testing; urine tests and blood tests enabling companies to screen employees for drug use, or even alcohol and tobacco use at home; and written tests, such as psychological inventories and "honesty tests" enabling employers to pry into employee's personal characteristics.  In discussing such issues two types are privacy may be distinguished: psychological privacy, the right to keep your thoughts to yourself; and physical privacy, the right not to be physically surveiled, which is partly valued for its own sake, and partly for the protection of psychological privacy it avails.  The moral importance of privacy derives from its protective and enabling functions.  Protectively, it inhibits others from obtaining information that could be used to harm us or interfere in our plans and pursuits; protects loved ones from being confronted with things about us they might not want to know; and protects us from self-incrimination or involuntarily harm to our reputations.  Things privacy enables include personal relations based on giving and receiving confidences which provides the basis for trust and intimacy; professional relations based on confidentiality; the maintenance of separation between your private personal and your public professional life; and control over your own self-presentation or image. Like all rights, privacy rights need to be balanced against the rights and needs of others.  In particular, claimed employee privacy rights, need to be balanced against  employers' needs to know the qualifications and work experience of prospective hires, and their rights to protect themselves against employee theft and fraud: in these connections three considerations should guide employees in collecting information about employees:

1. the relevance of the information to the purposes claimed to license the employer to obtain it;
2. the consent of the employee to the gathering of such information;
3. the method by which the information is obtained -- whether it is ordinary and reasonable or extraordinary and unreasonable.

1. the firm has a problem that seems solvable by no other means;
2. the problem is serious and the firm has good reason to think the extraordinary surveillance methods will solve it;
3. the use of the extraordinary means is not continued beyond the time needed to solve the problem or the time at which it becomes apparent that the use of these means will not solve the problem;
4. all immaterial information obtained is discarded and destroyed;
5. failure rates of extraordinary devices (e.g., polygraphs, personality inventories, and drug tests) are taken into account and "information" from such fallible sources is verified by more reliable means.

1. there is clear, substantiated, and reasonably comprehensive evidence of harmful activity or wrongdoing on the part of the firm;
2. reasonable attempts to stop the activity by internal whistleblowing have failed;
3. it is reasonable certain that the external whistleblowing will stop the activity;
4. the wrong or harm the whistleblowing will prevent outweighs the harm it the whistleblowing will cause to others parties such as stockholders, superiors, and fellow employees.

The right to participate in workplace decision making -- to a more democratic workplace -- is a more controversial right sometimes claimed for employees.  Democracies characteristically feature majority rule and freedom of discussion; features characteristically lacking in business organizations wherein a single individual or small group rule, not by consent of the governed (employees), but by right of ownership or appointment by ownership.  Three levels of proposed democratization in the workplace may be distinguished:

1. granting workers rights of consultation on decisions directly affecting them;
2. granting workers decision making powers on decisions directly affecting them;
3. allowing workers to participate in major policy decisions
1. through consultation
2. through decision-making.

Another claimed employee right, to due process, is opposed to the long standing traditional "employment-at-will" principle according to which employees "may dismiss their employees at will . . . without being thereby guilty of legal wrong" whether it be "for good cause, for no cause, or even for causes morally wrong" (p. 461).  This principle is held to follow as one of the prerogatives of property ownership, from which employers' authority derives.  Objectors to this principle argue that it is based on the false assumption that employees "freely" accept employment and are "free" to find employment elsewhere: in reality, critics urge, heavy costs to workers in job searches and in going unpaid while doing so, seriously impair their freedom.  Secondly, objectors appeal to considerations of reciprocity to support workers' rights to fair treatment: workers generally make conscientious efforts to serve the firm with an implicit expectation that the firm will deal fairly with them in return, and workers consequently have a quasicontractual right to fair treatment based on this implicit reciprocity.  Thirdly, it is said, that workers have a right to be treated with the respect due to free persons, which implies a right to nonarbitrary treatment, and not to be harmed unfairly.  Perhaps due the weight of these three considerations, recent years have seen increased recognition of employee rights to "due process," i.e., not to be treated arbitrarily, capriciously, or maliciously, in business decisions affecting them.  Employee grievance procedures are a particularly important area in which due process guarantees -- such as those outlined in Trotta & Guddenberg's suggested five elements of an effective grievance procedure -- find application.  According to Trotta & Guddenberg an effective grievance procedure incorporates the following:

1. three to five steps of appeal depending on organization size;
2. a written account of grievances past the first level;
3. alternate routes of appeal enabling employees to bypass their immediate supervisors if necessary;
4. a time limit at each step of the appeal to assure prompt consideration;
5. a right of employees to be accompanied by (1-2) coworkers at each interview or hearing.

1. 12-18 months advance notice;
2. severance pay = 1 week's pay per year of service;
3. health benefits to extend at least one year beyond the employee's date of dismissal;
4. early retirement benefits providing full benefits to workers within three years of their normal date of retirement at the time of dismissal;
5. transfer opportunities at no loss of pay and with moving expenses paid by the employer;
6. company sponsored job retraining and counseling;
7. an employee purchase opportunity offering the workers and community the chance to assume ownership and operation of the plant under an employee stock ownership plan;
8. phasing out of local tax payments over a five year period.

Employee rights such as those just considered would limit the exercise of formal powers based on the contracted relations described by the organizational chart.  Such relations of authority, deference, and responsibility are sanctioned and overt: essentially such relations are expressly stated in job descriptions and contracts that define employee obligations to the firm, and are recognized by law; additionally, they are characteristically openly employed by superiors and generally acknowledged and accepted by subordinates.  Informal power relations or "power tactics" by definition, are not-formally-sanctioned tactics used to advance one's aims within the organization.  Additionally, power tactics are apt to be be covertly employed and may not be generally acknowledged or even known about by those affected by them.  Consequently -- since wherever power is used informally or covertly there is increased potential for abuse -- power tactics pose special perils within organizations: power tactics frequently result in power struggles between individuals or factions with competing interests or agendas, often to the detriment of the organization.  Some of the most common power tactics include the following:

1. blaming or attacking others;
2. controlling information (gossip is a special case of this);
3. developing a base of support for one's ideas;
4. image building;
5. ingratiation ("kissing up");
6. association with the influential ("schmoozing");
7. forming power coalitions and alliances (perhaps involving tradeoffs);
8. creating obligations.

Ethical questions about the use of power tactics arise on a number of fronts.  With regard to utility, since society is well-served by efficiently functioning organizations, and organizational function is impaired by employee and factional pursuit of individual or group aims in conflict with the best interests of the firm, the use of power tactics in pursuit of such aims would seem to be immoral on utilitarian grounds.  With regard to rights, deceptive and manipulative tactics are generally morally wrong because they violate individuals' rights to have things done to and through them only with their informed consent.  As for justice, power tactics would seem to be wrong when used to bring about an unjust distribution of benefits like career advancement and credit for initiatives, or of burdens such as blame for failed projects, on the basis of irrelevant considerations.  Finally, with respect to care, power tactics are morally suspect when they undermine worker bonds of friendship, respect, and cooperation: gossip, backbiting, and backstabbing do not a caring organization make.

The caring organization approach represents a striking break from the power orientations of both the "rational structure" and the "political" views of the organizations.  Where the "rational structure" model emphasizes formal authority relations, and the "political" model emphasizes real power relations, the "caring organization" picture allots a far more central place to non-power relations such as friendship, respect, and cooperation, in the working of organizations.  According to advocates of this approach such nonpower relations actually do figure quite largely in the workings of organizations, especially in organizations that work well;  and they should, consequently, figure more largely than they do in most present-day organizations.  Organizations should rely more on cooperation and sharing, and less on compulsion and competition.  Potential competitive benefits which advocates of this approach claim it will produce include increased productivity due to reduced friction in the organization; recruitment advantages due to the more desirable working conditions caring organizations afford; and better customer relations due to the habit of caring carrying over into the organization's relations with its customers.