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:
www.cbsnews.com/video/watch/?id=4761187n
Figure \(\PageIndex{13}\): 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.
Power Around the Globe
Power also has a cultural dimension. In some countries, power is
centralized in the hands of a few. This type of distribution makes
up high power distance countries. Within organizations in these
countries, the structure is hierarchical, and compensation is based
on your position in the hierarchy (Javidan et al., 2006). People in
high power distance countries expect unequal distribution of power,
such as large differences in pay and status. People in positions of
authority in these countries expect (and receive) obedience. In
Brazil, for example, there are formal relationships between the
leader and followers, and it’s clear who has the most power in any
given work environment. Important decisions, including decisions on
hiring and raises, are made by the person in charge, and decisions
are often based on loyalty rather than on formal review mechanisms.
Japan is also a higher power distant country and has unequal power
and wealth among its citizens. But, people do not perceive this
inequity as inherently wrong; rather, they accept it as their
cultural heritage. Other examples of high power distance countries
include the Arab nations, the Philippines, Venezuela, and
Spain.
Countries with a low power distance rating, such as Australia,
the Netherlands, and Sweden, value cooperative interaction across
power levels. They emphasize equality and opportunity for everyone.
For example, Australians want their leaders to be
achievement-oriented, visionary, and inspirational, but they don’t
want their leaders to stand out too much. Leaders need to be seen
as “one of us” (Ashkanasy, 1998). Organizational structures in low
power distance countries are flatter with higher worker
involvement. Status is based on achievement rather than class
distinction or birth. People in power cannot arbitrarily hire their
relatives or reward those loyal to them. There are formal review
mechanisms in place to give everyone a fair chance at pay raises,
and the difference in pay between high-level and lower level jobs
is smaller.
These differences in perceptions of power become especially
important in international ventures in which people of different
countries work together. For example, in a joint venture between an
American and a Mexican company, American managers were continually
frustrated with what they perceived to be slow decision making by
Mexican managers. Even the e-mails sent to the Mexican subsidiary
were taking a long time to be answered. Mexico ranks higher on the
power distance dimension than the United States—company structures
are more hierarchical, and decisions are made only by top managers;
therefore, lower level managers in Mexico could not make decisions
on behalf of their bosses. In the case of e-mails, employees were
consulting with their managers before answering each e-mail, taking
a long time to answer them.
In addition to differing perceptions of power, how people
influence each other seems to be determined by culture.
Cross-cultural research shows that the more task-oriented influence
tactics, such as rational persuasion, are seen as more effective in
the United States than in China, and that Chinese managers rated
tactics involving relationships such as coalitions as more
effective than did the American managers (Fu & Yukl, 2000;
Yukl, Fu, & McDonald, 2003).
Key Takeaways
Power can be easily abused. This is especially the case of CEOs
who are rewarded by a board of directors that is often staffed by
trusted friends and colleagues of the CEO. It is not hard to
imagine that this might become a conflict of interest. Countries
differ in terms of power distance. Some countries such as Brazil
see a formal relationship between leaders and followers based on a
rigid hierarchy.
Exercises
What could be done to make sure that CEOs are paid fairly for
their work rather than as a favor from their friends?
What is some advice about power that you would give to a
colleague who was leaving to China to set up a new business?
References
Ashkanasy, N. (1998, August). What matters most in leadership:
A 60 nation study—implications of GLOBE country-specific empirical
findings for organizational behavior and management. Presentation
at Academy of Management Conference, San Diego, CA.
Fu, P. P., & Yukl, G. (2000). Perceived effectiveness of
influence tactics in the United States and China. Leadership Quarterly, 11,
251–266.
Hartman, L., & Desjardins, J. (2008). Business ethics. New York: McGraw-Hill, p. 43.
Javidan, M. Dorfman, P., Sully de Luque, M., & House, R.
(2006, February). In the eye of the beholder: Cross cultural
lessons in leadership from project GLOBE. Academy of Management Perspectives, 20, 67–90.
Petersen, B. (2009, January 28). Japan Airline boss sets exec
example. CBS Evening News. Retrieved
January 28, 2009, from www.cbsnews.com/stories/2009/01/28/eveningnews/main4761136.shtml.
Yukl, G., Fu, P. P., & McDonald, R. (2003). Cross-cultural
differences in perceived effectiveness of influence tactics for
initiating or resisting change. Applied
Psychology: An International Review, 52, 68–82.