CHAPTER 8

THE INDIVIDUAL IN THE

ORGANISATION
 
After reading this chapter, you should be able to:
- Describe the traditional rational model of business organization,
showing how it creates reciprocal moral duties on the part of the
employer and the employee.
- Explain how conflicts of interest and trade secrets should be
handled according to the rational model.
- Discuss the issue of insider trading, giving the arguments for and
against the practice.
- Show how wages, working conditions, and job satisfaction are
ethical issues.
- Explain how business organizations are political in nature—and
how political power can be used morally.
- Understand how freedom of conscience and whistleblowing are
related to employee duties within a business organization.
- Explain the distinction between employment at will and right to
due process.
- Identify effective political tactics and explain how they can be
ethically exercised.
- Describe the benefits and pitfalls of the caring organization.
"The Individual in the Organization," introduces the ethical issues raised
by the relationship between individuals and the business organizations in
which they function.

Individuals often experience business organizations as alienating,

oppressive structures that can give rise to health problems, conflicts of
interest, and dehumanizing experiences.

After describing the traditional "rational" model of the business

organization and its underlying "political" structure, the chapter ends by
exploring a new model of the organization as a network of personal
relationships focused on caring.
Introduction
• The chapter begins with the experiences of three very
different individuals in the business world. Though they
each see the organization from a different point of view,
they all on some level report problematic characteristics,
from alienation and feelings of oppression to power
tactics used by upper-level managers.
• This chapter examines the problems caused by living
within a business organization. It does so by describing
three different models of the business organization: the
traditional model of the business as a rational
organization, the model of business as a political
structure, and the model of the organization as a network
of caring relationships.
8.1 The Rational Organization
• The traditional, "rational" model of the business organization defines it as a
structure of formal relationships, which are designed to achieve a goal
efficiently. A firm's organizational chart, identifying the formal hierarchies
of authority, exemplifies the fundamental reality of the organization.
• At the bottom of the organization is the operational layer of workers who
directly produce the goods or provide the services. Above this are levels of
middle managers who direct those below them and are, in turn, directed by
those above. At the top of the pyramid is the top management: the CEO,
the board of directors, and their staff.
• This model presupposes that information will be gathered from the lower
levels and rise to the top, which collects it and uses it to make policy
decisions. The glue that holds these layers together is contracts: each
employee freely and knowingly agrees to accept the organization's formal
authority. Therefore, employees have a moral responsibility to obey the
employer in pursuing the organization's goals, and the employer has a
moral responsibility to provide the employee with the pay and benefits they
have promised (including fair working conditions).
8.2 The Employee's Obligations to the Firm
• In this model, the employee's main moral duty is to work toward the
goals of the firm. This view has made its way into what is called "the
law of agency," which specifies the legal duties of employees toward
their "principles," or employer. The employee, must pursue the firm's
goals and do nothing that conflicts with them while working for the
firm.
• An employee might fail to live up to this duty in several ways. He or
she might steal outright from the firm, act on a conflict of interest, or
use his position to leverage illicit benefits out of others through
extortion or bribery.
• Conflicts of interest arise when employees have a private interest in
the outcome of a task in which they are engaged that is possibly
antagonistic to the firm's interests and substantial enough that it might
affect the employee's independent judgment on the firm's behalf. The
result is that self-interest induces employees to act in ways that may not
be in the best interests of the firm.
• Conflicts of interest can also arise when employees of
a company hold another job or consultancy outside the
firm. These may be either actual or potential. Actual
conflicts occur when a person discharges his or her
duties in a manner prejudicial to the firm. A potential
conflict occurs when a person is merely motivated or
tempted to do so.

• If contractual agreements impose moral duties (as we

generally agree they do), then actual conflicts of interest
are clearly immoral. Potential conflicts of interest may
or may not be ethical, depending on the probability that
the employee's judgment will be affected (or seem to be
affected) by the conflict of interest.
Bribes and extortion are obviously unethical and create
clear conflicts of interest. Accepting gifts may or may not
be ethical, depending on a number of factors:
• What is the value of the gift? Is it substantial enough to influence
a persons decision?
• What is the purpose of the gift? Is it intended or accepted as a
bribe?
• What are the circumstances under which the gift was given?
Openly / events?
• What is the position of the recipient? Influential
• What is the accepted practice in the area?
• What is the company's policy?
• What is the law?
• Employees have a contractual agreement to accept only specific benefits
in return for their services and to use the firm's resources for the good of
the firm.
• Any other use of company resources and any other appropriation of benefits
by the employee counts as theft. Though theft is often petty (such as the
stealing of office supplies or the padding of expense accounts), it extends to
white-collar crimes such as embezzlement, larceny, fraud, and forgery.
• More recent forms of theft involve forms of information and company
computers. Copying a company's software or data, or using a company
computer for personal business (unless explicitly allowed) are examples of
unethical forms of theft. Propriety information or "trade secrets" is
information that the company owns concerning its activities, which it
explicitly indicates that it does not want others to have. Sharing such
information is also unethical. However, skills that an employee acquires by
working for a company do not count as trade secrets. Though some
companies have tried to work around this by asking employees to sign
contracts agreeing not to work for competitors after leaving the firm, courts
generally have rejected the validity of such contracts.
• Information can lead to other types of unethical
behavior. Insider trading, the act of buying or selling
company stock on the basis of confidential or
proprietary information, is illegal and unethical.
• Some have attempted to argue that insider trading is
actually ethical and socially beneficial; it does not harm
anyone and helps the stock price reflect its true value,
they maintain. These arguments ignore some basic facts
about insider trading, though: the insider information,
being proprietary, does not belong to the trader; it is
stolen property. In addition, research shows that insider
trading harms people. It violates people's rights, is based
on an unjust advantage, and harms the overall utility of
society.
8.3 The Firm's Duties to the Employee
• A firm's main moral duty to its employees is to provide
them with a fair wage and fair working conditions.
Setting a fair wage is both important and difficult, so
employers will need to consider these factors:
• What is the going wage in the industry and the area?
• What are the firm's capabilities?
• What is the nature of the job?
• What are the minimum wage laws?
• What are the other salaries in the firm?
• Were wage negotiations fair?
• What are the local costs of living?
• Working conditions are equally important.
• Quite a number of employees suffers job related injury or illness
each year.
• Although more attention is being paid to worker safety than ever
before, occupational accident rates are not all declining, they are
rising.
• Risks are sometimes unavoidable and acceptable, as long as
employees are fully compensated for assuming them and they
do so freely and knowingly. However, if wages are not
proportional to the risks, or the risk is accepted unknowingly or
out of desperation, then the contract between employer and
employee is not fair, and is therefore unethical. Employers
must offer wages that reflect the dangers of high-risk jobs,
provide employees with suitable health insurance programs,
and collect information about health hazards that accompany its
jobs, making the information available to employees.
• Because the rational model of the organization puts a
high value on efficiency, jobs can often be specialized
and job satisfaction can suffer as a result.
• Jobs can be specialized either horizontally (by restricting
the range of tasks contained in the job and increasing the
repetition of this narrow range) or vertically (by
restricting the range of control and decision-making that
the job requires).
• Job specialization can have debilitating effects. Adam
Smith was among the first to point this out over 200 years
ago, and recent research confirms his opinion.
Surprisingly, not all workers are equally affected by job
specialization. Older workers and workers in urban areas
are more tolerant; still, only about one quarter of workers
would choose the same job again if they could start over.
• Highly specialized work presents a problem of justice, especially for
unskilled laborers who are paid the least and whose level of
specialization is usually greatest. Research shows that excessive job
specialization can even be detrimental to efficiency. To lessen the
negative effects of specialization, employers should expand jobs along
these five dimensions:
• Skill variety - the job should require a variety of challenging activities.
• Task identity - the job should require a whole and identifiable piece of
work.
• Task significance - the job should have an impact on the lives of others.
• Autonomy - the job should give the worker freedom to determine how
he/she will carry it out.
• Feedback - the worker should get information about the value of his/her
efforts.
These dimensions suggest deepening most jobs vertically and expanding
them horizontally.
• 8.4 The Political Organization
• Although much of the behavior of an organization accords with
the rational model of the organization, a great deal of
organizational behavior is neither goal directed, efficient, or
rational. To understand this behavior, we need a second model
of the firm: the firm as a political organization.

• This model is newer than the rational model. Unlike that model,
it does not look only at the formal lines of authority. Instead, it
emphasizes the informal lines of influence and sees the
organization as a system of competing power coalitions. This
model is much more complex, focusing on the competitive
nature of different factions within a firm. The goals of the firm
are the goals established by the historically most powerful or
dominant coalition; the fundamental reality of the organization is
not formal authority or contract, but power.
• If power is the main organizational reality, then
the primary ethical problems in an organization
are connected with acquiring and exercising
power. The two main questions become:
• What are the moral limits to the power managers
acquire and exercise over their subordinates?
• What are the moral limits to the power
employees acquire and exercise on each other?
8.5 Employee Rights
• Corporate management is similar to a government: they are
centralized decision-making bodies who have power and
authority to enforce their decisions on subordinates concerning
the distribution of resources, benefits, and burdens. Some
observers hold that this power is so comparable to the power of
governmental officials that the moral limits placed on
governmental officials must extend to managers as well. As
government must respect the civil rights of citizens, managers
must respect the moral rights of employees: the rights to privacy,
consent, and freedom of speech, among others.
• There are important differences between corporations and
governments, however. Governmental power is based on
consent, while corporate power is based on ownership. Since
managers' power rests on property rights, they have the right to
impose whatever conditions they choose on their employees who
freely and knowingly contract to work there. Moreover,
managerial power (unlike governmental power) is limited by the
countervailing power of unions, and employees can leave firms
more easily than citizens can change countries. Therefore, it may
not follow that all of the safeguards afforded citizens should be
carried over to employees. Employee rights advocates counter
that dispersed ownership means that managers no longer
function as agents for the owner of a firm (there is no single
owner), so property rights are no longer relevant. In addition,
unions do not protect many workers, and changing jobs can be a
very difficult and traumatic experience.
• Employees have some rights, in any case. Because of technical
innovations, the right to privacy is under attack more than ever
before. Employees' rights to privacy must be balanced against
employers' rights to know certain information about their
activities. Three elements are relevant when considering this
balance:

• Relevance - the employer must limit his inquiry to areas that are
directly relevant to the issue at hand.
• Consent - employees must be given the opportunity to give or
withhold consent before their private lives are investigated and
should be informed of any surveillance.
• Methods - employers must use ordinary and reasonable methods
of inquiry unless circumstances are extraordinary.
• Other rights are even less certain. Workers may think they have freedom of
conscience, but if they discover that their firm is doing something that harms
society, they have few legal options available if internal management does
nothing about it. The company has the legal right to punish the employee
who informs against the firm with firing or blacklisting him or her. Though
some authors have pointed out that this is a clear violation of an individual's
right to freedom of conscience, the law nevertheless maintains that the
employee's duty is to maintain loyalty and confidentiality towards the
employer.
• Whistle blowing, the attempt by an employee to disclose wrongdoing in an
organization, can take two forms. It is internal if it is reported only to
management within the organization. If it is reported to others (such as
governmental agencies or the media), then it is external. Whistle blowing can
have heavy personal costs, but it is sometimes justified when there is clear
evidence that the firm's activity is seriously harming others and reasonable
attempts to prevent it by informing management have failed, as long as it is
reasonably certain that the whistle blowing will prevent the harm and the
harm is serious enough to justify the injuries it will bring upon the
whistleblower.
• However, the fact that it is sometimes justified does not mean it
is obligatory. Whistle blowing is only morally required when
the employee has a moral obligation to prevent the wrong that
whistle blowing will prevent, and the wrong involves serious
harm to society's overall welfare, serious injustice against a
person or group, or serious violation of people's basic moral
rights.
• In a democracy, citizens have the right to participate in
government, where decisions that affect the group are made by
a majority of its members after full, free, and open discussions.
Some authors have proposed that these ideals should be
embodied in business organizations. As a first step, they
suggest that business decisions should be made only after open
discussion with workers. Next, individual workers should have
the right to make decisions about their own immediate work
activities. Such models are not generally popular in the U.S.
• Some management theorists urge managers to adopt a
participatory leadership style, assuming that employees want and
can develop the capacity to accept responsibility, are ready to
support organizational goals, and can determine the best means
of achieving them. Following the theory of Douglas McGregor,
Raymond Miles distinguishes three models of sets of
assumptions that managers can make about employees:
• Traditional - employees dislike work, are not capable of being
creative or self-directed, and care only about what they earn.
• Human relations - employees want to belong and feel recognized,
useful, and important; meeting these needs is more important
than what they earn.
• Human resources - employees like work, want to contribute to
meaningful goals that they help establish, and can be creative and
responsible.
• Another theorist, Rensis Likert, posits not three but four
"systems of organization." If such management styles
are more effective and productive, then on utilitarian
grounds firms ought to adopt them. However, research
on this issue is not yet conclusive.
• Another democratic right, the right to due process of the
law, is countered in business by the principle of
employment at will. According to this principle,
employers may dismiss their employees whenever they
desire, for good or no cause, even for morally wrong
causes. This principle has recently come under attack,
and the trend is towards the view that employees have
some right to due process, a fair process by which
decisions about their employment are made.
• This is a vitally important right, since if it is not
respected, the employees have little chance of
seeing any other right respected. Due process plays
a central role in the hearing of grievances. Theorists
identify five essential features of an effective
grievance procedure:
• Three to five steps of appeal
• A written account of the grievance
• Alternate routes of appeal beyond the immediate
supervisor
• A time limit for each step
• Permission for the employee to be accompanied by
another
8.6 Organizational Politics
• The chapter, so far, has focused primarily on formal power
relationships and the ethical constraints that must be placed on this
formal power. But there are informal channels of power in
organizations as well, which can be used ethically and unethically.
• For the purposes of this chapter, organizational politics is defined
as the process by which individuals or groups within an
organization use non-formally sanctioned tactics (political tactics)
to advance their own aims. (Such aims are not necessarily in
conflict with the best interests of the organization.) Because
organizational politics aim to advance the interests of an individual
or group, political individuals tend to be covert, which means that
they can easily become deceptive or manipulative. Some of the
most frequent political tactics encountered in business
organizations are:
• Some of the most frequent political tactics
encountered in business organizations are:

• Blaming or attacking others.

• Controlling information.
• Developing a base of support for one's ideas.
• Image building.
• Ingratiation.
• Associating with the influential.
• Forming power coalitions and developing strong
allies.
• Creating obligations.
• Such behavior can easily become abusive, manipulative, or
deceptive, seriously injuring others. It can also be used to
advance laudable organizational and social goals, however,
and sometimes the only defense a person in an organization
has is to fight fire with fire. The dilemma is knowing where
the line is that separates the moral from the immoral use of
political tactics. Perhaps the best way to approach them is to
test them against the four standards of ethics: the utilitarian
question (are the goals of the tactics socially beneficial?);
the rights question (do the tactics treat others consistently
with their moral rights?); the justice question (will the
tactics lead to an equitable distribution of benefits and
burdens?); and the caring question (what impact will the
tactics have on the web of relationships within the
organization?).
8.7 The Caring Organization
• So far, the chapter has examined organizations as having either
hierarchical power relationships or crisscrossing lines of power.
They can also be seen as a network of connected individuals all
concerned with each other. The primary goal of the organization
is not profit, but caring for those individuals who make up the
organization and with whom the organization interacts.
• Some argue that business organizations in which such
relationships flourish exhibit better economic performance.
There are few organizations that perfectly embody the caring
model, though W. L. Gore & Associates comes close. The
essential ethical concerns that arise from this model are the
problem of caring too much (which leads to burnout) and the
problem of not caring enough because of fatigue, self-interest, or
disinterest
• rational structure model: model of business organization
emphasizing formal relations of authority or command as described
by the organizational chart. (351)
political model: model of business organization stressing informal
power relations worked out through internal competition. (390-2)
caring organization model: model of business organization
emphasizing nonpower relations of cooperation. (395-6)
organizational chart: representation of the formal authority
structure of an organization on two axes: a vertical axis
(standardly) representing chain of command; a horizontal axis
(standardly) representing division of labor. (351-2)
top management: the Vice Presidents, the Chief Executive Officer,
and the Directors or the owner of a firm. (351)
middle management: level of management directing the operating
layers and being directed in turn by top management. (351)
• operating layer: employees who directly produce goods and services
that constitute the essential outputs or products of the organization, and
their immediate supervisors. (351)
Law of Agency: principle summarizing the principle duty of employees
(agents) to their employers (principals) as being “to act solely for the
benefit of his principal in matters connected with his agency.” (353)
• formal power relations: sanctioned and overt relations of authority,
deference, and responsibility expressly stated in job descriptions and
contracts that define employee obligations to the firm, and recognized
by law: they are characteristically openly employed by superiors and
generally acknowledged and accepted by subordinates. (351)
informal power relations: “power tactics” that are not-formally-
sanctioned, but used to advance parties’ aims within the organization:
power tactics are apt to be covertly employed and may not be generally
acknowledged or even known about by those affected by them. (391)
• conflict of interest: arising when an employee or officer of a company is
engaged to carry out a task in which the employee has a private stake: if
they discharge their duties in a way prejudicial to the firm in pursuit of
their private interest an actual conflict of interest is present; if they may be
tempted to act in ways prejudicial to the firm it’s a potential conflict of
interest. (353-4)
commercial bribe: monetary or other consideration 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. (356)
whistleblowing: an attempt by a member or former member of an
organization to disclose wrongdoing in or by the organization: disclosure
to others in the organization is internal whistleblowing; disclosure to
outsiders, such as legal regulators or the press is external whistleblowing.
(377)
insider trading: the buying or selling of stock in a corporation on the basis
of "inside information" not available to those outside the company which
would have a material or significant impact on the price of the company’s
stock if known.  (359)
Questions
• What defines the rational organization? Of what do its layers
consist? What obligations do the employees in this model have
towards the firm? What obligations does the firm have to its
employees?
• What are conflicts of interest? What types of conflicts of interest are
there? Under what circumstances are gifts ethical?
• Is insider trading moral or immoral? What are the arguments on
both sides of the issue?
• Why should employers care about their employees' level of job
satisfaction? Why are modern employees increasingly unsatisfied
with their jobs? What can be done to improve their degree of
satisfaction?
• What is the "political organization"? How is it structured and
defined? What are the main ethical problems that arise in this
model?
• What are the similarities and differences between the power wielded
by managers and the power wielded by governmental officials?
• Should employees have freedom of conscience? When should
they engage in whistle blowing tactics? Why might external
whistle blowing occur in any given organization?
• What is participatory management? Should U.S. firms adopt
more participatory practices?
• What is the distinction between the right to due process and
employment at will?
• How should companies conduct themselves when they are forced
to close a plant? Why should they respect the rights of their
former workers?
• Why do employees have the right to unionize and to strike?
What explains the lack of power of modern unions? What are the
effects of the dwindling numbers of union employees in the
U.S.?
• What are the most common types of political tactics? When are
they justified?
• What characterizes the caring organization? Why should
companies consider adopting this model?