# 13.6: The Role of Ethics and National Culture

Learning Objectives

1. Consider the role of ethics and power.
2. Consider the role of national culture on power.

## Ethics and Power

Power brings a special need for ethics, because the circumstances of power make it easy for misuse to occur. As we have seen, a company president wields at least three sources of power: legitimate from the position they hold, coercive from the ability to fire employees, and reward such as the ability to give raises and perks. Expert power and referent power often enter the mix as well. Now take the example of setting the CEO’s pay. In a public company, the CEO presumably has to answer to the board of directors and the shareholders. But what if the CEO appoints many of the people on the board? What if the board and the CEO are friends? Consider the case of Richard Grasso, former chairman of the New York Stock Exchange (NYSE), whose compensation was $140 million plus another$48 million in retirement benefits. At that time, the average starting salary of a trader on the NYSE was $90,000, so Grasso was being paid 1,555 times more than a starting employee. The NYSE Board of Directors approved Grasso’s payment package, but many of the board members had been appointed to their positions by Grasso himself. What’s more, the NYSE’s function is to regulate publicly traded companies. As Hartman and Desjardins noted, “The companies being regulated by the NYSE were the very same companies that were paying Grasso” (Hartman & Desjardins, 2008). Grasso ultimately resigned amid public criticism but kept the$140 million. Other CEOs have not faced the same outcry, even though average CEO pay increased 200% to 400% during the same time period that average worker pay increased only 4.3% (CEO paycharts, 2005). Some CEOs have earned a great deal of respect by limiting what they are paid. For example, Japan Airlines CEO Haruka Nishimatsu earns the equivalent to \$90,000 per year while running the 10th largest airline in the world. In addition, he rides the bus to work and eats in the company cafeteria with everyone else (Petersen, 2009).

#### Video Connection: Haruka Nishimatsu

If you are interested in learning more about CEO Haruka Nishimatsu, view this CBS News video segment, available at the following Web site:

Figure 13.13

CEOs like James Sinegal of Costco Wholesale Corporation note that compensation is not the main motivation for their work. Consistent with this sentiment, by choice, Sinegal remains one of the lowest paid CEOs of a Standard & Poor’s 500 company, and he has not received a raise in 7 consecutive years.

Mike Mozart – Costco – CC BY 2.0.