soft controls: the corporate virtues model

SOFT-CONTROLS: THE CORPORATEVIRTUES MODEL

Muel KapteinRSM Erasmus University & KPMG

ETHICAL BEHAVIOR

1.CLARITY

2.CON-

GRUENCY

3.FEASIBILITY

4.SUPPORT-

ABILITY

5.TRANS-

PARENCY

6.DISCUSS-ABILITY

7.SANCTION-

ABILITY

CORPORATE VIRTUES MODEL

1. CLARITY OF ETHICS

• What: ethical standards managers and employees are expected to adhere to are concrete, comprehensive, and understandable for them.

• Relevance: vagueness and ambiguity is potential antecedent to unethical behavior (Bird and Waters, 1989; Jackson, 2000; Tyler and Blader, 2005). Ethical issues that managers and employees encounter in business environment differ from those confronted in other social settings (Donaldson and Dunfee, 1999).

• Theory: Rational-bureaucratic control theory: managers and employees behave unethically because they lack clear understanding of what is expected of them (Bacharach et al., 2002).

• Evidence: (1) In laboratory experiment with students, Hegarty and Sims (1979) found that clear ethical standards reduced frequency of kickbacks being paid. (2) Schnatterly (2003) found among 57 companies that clarification of policies and procedures reduced white-collar crime by 26%.

• Absence: ambiguity

2. CONGRUENCY OF ETHICAL ROLE-MODELING

• What: the extent to which managers show to employees the right example regarding ethics.

• Relevance: managers are important role models within organizations (Brown et al., 2005; Schein, 1985). Ethical standards are undermined when managers communicate contradictory or inconsistent signals to subordinates. Behavior that is consistent with ethical standards of organization reinforces message of compliance with these standards.

• Theory: Social learning theory (Bandura, 1977): people learn what behavior is expected by observing behavior of role models.

• Evidence: Dineen et al. (2006) shows that behavioral integrity – a pattern of word–deed alignment – of managers is negatively related to the tendency among employees to engage in unethical behavior. Brown and Treviño (2006), Brown et al. (2005), Hegarty and Sims (1979), Mayer et al. (2009), and Schminke et al. (2005) show that employees often imitate the ethical or unethical behavior of their managers and supervisors.

• Absence: subversiveness

3. FEASIBILITY OF ETHICS

• What: managers and employees believe that they have sufficient time, budgets, equipment, information, and authority at their disposal to fulfill their ethical responsibilities.

• Relevance: Treviño (1986): people under great time pressure are less inclined to pay attention to ethical standards than those who have sufficient time to carry out their responsibilities.

• Theory: Strain theory: people resort to unethical behavior when they are unable to achieve their goals through legitimate means (Merton, 1938).

• Evidence: Cressey (1953), Robertson & Rymon (2001), and Schweitzer et al. (2004):The more limited the means managers and employees have at their disposal to behave ethically, the higher frequency of unethical behavior.

• Absence: scantiness

4. SUPPORTABILITY FOR ETHICS

• What: employees feel that they are stimulated by organization to be committed to ethics

• Relevance: a workplace characterized by demotivation, mistrust, and dissatisfaction can be a breeding ground for unethical behavior (Boye and Jones, 1997; Deutsch Salamon and Robinson, 2008; Greenberg, 1997; Skarlicki et al., 1999).

• Theory: Social bond theory: people engage in unethical behavior because they no longer feel attached or committed to a given community (Hirschi, 1969).

• Evidence: Tyler and Blader (2005) found that when employees are encouraged to identify with values of their organization, they are intrinsically motivated to comply with ethical standards of organization.

• Absence: animosity

5. VISIBILITY OF (UN)ETHICAL BEHAVIOR

• What: (un)ethical behavior and its consequences are observable to those who can act upon it – the perpetrators as well as their colleagues, supervisor, manager, and subordinates.

• Relevance: managers and employees who are hardly aware of nature or seriousness of consequences of their behavior are deprived of opportunity to account for, modify, or alter their behavior.

• Theory: Deterrence theory: unethical behavior to be inhibited, potential perpetrators must believe that they will be caught (Gibbs, 1975).

• Evidence: many studies emphasize importance of perceived visibility because of its potential to expose unethical behavior and for acting as deterrent owing to increased likelihood of getting caught (Brass et al., 1998; Cressey, 1953; Detert et al., 2007; Hollinger and Clark, 1982, 1983; Zey-Ferrell et al., 1979).

• Absence: opaqueness

6. DISCUSSABILITY OF ETHICS

• What: managers and employees experience in their organization room to discuss ethical dilemmas and alleged unethical behavior.

• Relevance: in a closed culture, criticism is neither encouraged nor accepted, ideas are not exchanged and readiness to discuss ethical issues is limited or even absent. Bird and Waters (1989): the persistent avoidance of moral talk reinforces an amoral organizational culture.

• Theory: Communication theory: through sharing and discussing issues people learn from each other, create and better understand their context, and are more motivated to honor agreements (Craig, 1999).

• Evidence: Treviño et al. (1999) from four large companies showed that the degree to which managers and employees can openly talk about ethics is a good predictor of the frequency of unethical behavior. Schnatterly (2003): partial empirical support that increase in intensity of communication reduces fraudulent behavior.

• Absence: Muteness

7. SANCTIONABILITY

• What: managers and employees are being punished for behaving unethically and rewarded for behaving ethically.

• Relevance: reward and punishment are important behavioral stimuli (Falkenberg & Herremans, 1995). According to Cressey (1953) and Sutherland (1940), managers and employees will steer clear of unethical behavior if they expect to be punished and if severity of punishment outweighs potential reward. When people are not punished for unethical behavior or even rewarded for such behavior, the message is that unethical behavior is acceptable or even desirable (Ball et al., 1994).

• Theory: Reinforcement theory: consequences of a decision made in past influence decision-making in future. Rewards will therefore lead to repetition and punishment to avoidance (Luthans & Kreitner, 1985).

• Evidence: Román and Munuera (2005): the more ethical behavior is rewarded, the less people behave unethically.

• Absence: laxity

MUTENESS

AMBIGUITY

OPAQUENESS

LAXITY

MORE INFORMATION ABOUT VIRTUES AND MECHANISMS

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TOO VIRTUOUS

1. Clarity Patronizing2. Role-modeling Pompousness3. Feasibility Lavishness4. Supportability Zealotry5. Transparency Overexposure6. Discussability Talkativeness7. Sanctionability Oppressiveness

16

PATRONIZING

17

ZEALOTRY

18

LAVISHNESS

19

OPPRESSIVENESS

20

OVEREXPOSURE