Creating Ethical Work Climates: Some Institutional Factors
Susanna Cahn
Dept. of Management & Mgt. Science
Lubin School of Business
Pace University
861 Bedford Road
Pleasantville, NY 10570
(914) 773-3517
ecahn@pace.edu
ABSTRACT
This paper reviews research on institutional factors that
contribute to the creation of ethical work climates. There has
been considerable research on both individual and
institutional factors that contribute to ethical or unethical
decisions at work. Decisions that prompt behavior are based
on multiple criteria. Ethics may (or may not) be among
those criteria; the decision process prioritizes some criteria
over others. Institutional factors influence the decisions that
individuals make at work. From a practical perspective,
organizational factors are more meaningful than individual
differences that may influence ethical decision making
because it is the institutional factors that can be controlled
by managers as part of organization design that creates an
ethical work climate. Institutional factors that contribute to
the creation of ethical work climates are categorized here
into structure, processes, people, or circumstances.
Keywords
Ethical work climate, ethical organization, organizational
ethics, ethical infrastructure, ethical work context, ethical
decision making, unethical decisions at work, organizational
determinants of unethical behavior, business ethics
Robert Wiener
Department of Legal Studies & Taxation
Lubin School of Business
Pace University
1 Pace Plaza
New York, NY 10038
(212) 618-6417
rwiener@pace.edu
analysis of both individual and organizational antecedents of
unethical behavior; they found that organization
environments influence individual unethical decisions. In
fact, some researchers found that organizational factors
dominate individual factors behind ethical/unethical
workplace decisions (Dean, Beggs, & Keane (2010) and
Andreoli & Lefkowitz (2009)).
This paper reviews research to date through the lens of
administrative control. From a practical perspective,
organizational factors are more meaningful than individual
differences that may influence ethical decision making. For
example, there have been a number of papers that studied the
relationship between gender and ethical decision making.
However, gender in the workplace can only be controlled by
selective hiring and promotion; even if we knew
conclusively that gender made a difference in ethical
decisions, the probability of actually using that information
in staffing decisions is very low. In contrast, institutional
organization factors that are person-neutral could be used to
create an ethical work climate, that is a work climate which
raises the probability of employees making ethical business
decisions. An example of a person-neutral factor might be a
code of ethics, along with its tone, how it was created, and
how it is enforced.
1 INTRODUCTION
2 STRUCTURE
Research on ethical decision making at work has been wide
ranging. Influences and outcomes have been studied from
individual moral development to leadership role models to
organizational factors in the workplace. In the end, the
individual, of course, makes a decision to act based on
multiple criteria. Ethics may (or may not) be among those
criteria; in effect the decision process prioritizes some
criteria and some stakeholders over others.
However, it is the institutional factors of organizations that
can be controlled by managers. Institutional factors include
formal organization design, policies and administrative
authority as well as informal communications, the way
things are really done, and role models throughout an
organization. These institutional factors, while clearly not
the whole story, influence the decisions people make at
work. Institutional incentives and factors that positively
influence decision ethics raise the probability that workers
will take the moral high ground. The reverse is also true.
Kish-Gephart and Harrison (2010) conducted a meta-
Formal organization of a firm comprises its structure and
resource allocation. Features of that organizational structure
include whether the firm is tall or flat, independent or
management directed, and whether decisions are made on
the basis of hierarchy or consensus. Victor and Cullen
(1988) investigated how organizational form and firm
specific factors contribute to ethical work climates. Rottig
& Umphress (2011) studied how resources committed to
formal infrastructure influence ethical decision making.
Resources formally allocated to ethics, for example
ombudsmen, serve as value statements as well as decision
supports.
3 PROCESSES
Both formal and informal processes contribute to an
organization’s culture, the environment in which business
decisions are made. Arnold, Lampe, and Sutton (1999)
described a theoretical model of organization culture as an
environment that can favor or inhibit ethical decision
making.
Codes of ethics are formal. The character of code content is
more subtle than simply whether or not an organization has a
code of ethics. Codes can be created in different ways
(hierarchical or by consensus) and can be static or regularly
reviewed and revised. Are codes of ethics seen as
regulatory/legal
or
extra-legal,
required
or
optional/aspirational? Loe, Ferrell, & Mansfield (2000)
reviewed research on codes of ethics along with other
organizational characteristics. Erwin (2011) studied code
quality. Mulki, Jaramillo, & Locander (2009) stressed the
importance of positive values orientation, either through
leadership or codes that extol positive values.
Beyond codes, which are relatively passive, what are the
firm’s active compliance practices? Is ethical behavior
rewarded? What is the response to unethical behavior?
Crucial might be the response to ethical behavior that loses
money and unethical behavior that makes money (at least in
the short term). Direct regular feedback establishes clear
guidelines for consequences to action. Mulki, Jaramillo, &
Locander (2009) found that compliance practices (codes,
training, anonymous reporting mechanisms) and leadership
each contributed independently to the ethical work climate.
Incentives that reward people financially (salary, bonuses)
and in job security (tenure) and prestige (promotion) are
powerful determinants of behavior. Rewards and sanctions
were studied by Trevino & Youngblood (1990) and Loe,
Ferrell, & Mansfield (2000).
Less formal is internal communication. How often are
ethical issues discussed? Is the concern for others’ wellbeing or for firm protection? Ideally managers would
sincerely invite and reward candid reporting, even when it’s
negative. An alternative would be a mechanism for
anonymous reporting. If these both fail, there may be
external whistle blowing. Rottig & Umphress (2011) studied
the impact of recurrent communication.
4 PEOPLE
Leaders, of course, loom large. After all, leaders have the
formal authority to deliver rewards or sanctions. Leaders at
the top of the organization establish ethical standards by
their exercise of their authority--wherever the power to
hire/fire, tenure/promote, increase salaries and give bonuses
resides. They thereby become role models for middle/lower
managers and others who typically implement the standards
of their superiors, unless there is laissez-faire leadership and
they are left to do what they want. The influence of senior
management and leadership practices were studied by
Trevino & Youngblood (1990) and Mulki, Jaramillo, &
Locander (2009). Ashkanasy, Windsor, and Treviño (2006)
followed up Trevino and Youngblood (1990) looking at how
individual moral development interacts with reward systems
and senior management influence.
But others can also influence decisions. Some may
informally convey information about an organization’s
values; others may serve as examples of what behavior is
considered right or wrong. Peer pressure can be very
effective in affecting behavior. Significant others were
considered by Loe, Ferrell, and Mansfield (2000).
Actions can be far more important than words in convincing
workers to behave in a certain way. Workers look to their
superiors for guidance as to how to act (including dress,
work hours, and so on). Simple things matter, like whether a
manager instructs others to say they are out when they are in
or to misdate documents or engage in petty theft of office
supplies or misstate costs for trip reimbursement.
Juxtaposition of peoples’ actual behavior and the formal
processes may create ambiguity and cause stress. Stress in
turn complicates decision making. Stress and ambiguity of
the letter of rules versus the spirit of rules was investigated
by Dean, Beggs, and Keane (2010).
Pinto, Leana, and Pil (2008) explored corruption on behalf
of the organization as opposed to corruption against the
organization.
5 CIRCUMSTANCES
There may be circumstances beyond the control of either an
individual decision maker or a single organization. Such
circumstances may include societal ethics norms,
opportunities, political events, and technology. Societal
norms influence people and processes as discussed by Victor
and Cullen (1988).
Opportunity to make unethical decisions may be created by
negative organization values or uncaring leaders (Loe,
Ferrell, and Mansfield, 2000). Opportunity may also come
from outside the organization, as when operating in a
country where bribery is common, or when regulation is
changed, or when new technology facilitates piracy or
surveillance.
Crisis and stress may come from within or outside an
organization and impact the way decisions are made
(Christensen and Kohls, 2003). When crisis and stress occur
is precisely when ethics matter most. It is easy to make
ethical decisions when those decisions are profitable also.
Green marketing may be an example. But when the ethical
choice adds only cost, there is a dilemma. A safer product
that cannot sell for more money or a safer work environment
that does not raise productivity require decisions to benefit
some stakeholders at the expense of others.
The structure, processes, and people that contribute to work
climate will impact how decisions are made when
circumstances create ethical dilemmas. Ethical work
climates form internal organizational environments where
consideration of ethics will be part of the decision making
process for resolving the types of dilemmas described above.
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