(good) corporate governance and the strategic integration of meso ethics

(Good) corporate governance and thestrategic integration of meso ethics

Steven H. Appelbaum, Louis Vigneault, Edward Walker and Barbara T. Shapiro

Abstract

Purpose – The primary goal of this paper is to provide a comprehensive review of meso ethics from a

corporate governance perspective, and the strategic process of integration between corporate and

individual ethics for the creation of an ethical culture. A secondary aim is to identify the organizational

behavior variables that are affected by the ethical congruence between employee ethics and the

prevailing corporate ethical climate.

Design/methodology/approach – By first situating organizational ethics within the broader

phenomenon of business ethics, the authors then more aptly examine corporate ethics at the upper

and lower permeable meso boundaries where a shared ethic is negotiated. This conceptual paper tries

to capture through a phenomenological approach how strategic governance level (macro) and

individual ethics (micro) interact in a complex and dynamic way at the organizational level (meso).

Findings – Normative literature suggests that organizations require more than ethical safeguards to ensure

ethical conduct. For example, ethics training programs are demanded and perceived as effective by

employees. Recent empirical studies on ‘‘ethical fit’’ have converged and support the assertion that it is in an

organization’s best interest to continually look for ethical congruence between their workforce and the ethical

climate that they intentionally foster. Furthermore, these studies show that perceived ethical congruence

positively affects an individual’s affective commitment to an organization, and reduces turnover intent.

Research limitations/implications – There is a general lack of consensus, cohesion and empiricism in

the current literature. Few studies deal with meso ethics, which have wide-ranging implications for

current and future research.

Practical implications – Demand for business ethics is on the rise as is its corporate response commonly

defined as corporate social responsibility (CSR). Standard responsive measures taken by executives are

shown to generally be unsubstantiated or insufficient for ethical conduct to truly take root in an organization.

Originality/value – The scope of the paper, with its phenomenological approach, identifies the

complexities of corporate ethics for academics and managers alike, where traditionally fragmented

organizational levels are herein understood to be permeable and dynamic. The meso perspective of this

study provides a new foundation for the study of corporate ethics. Its phenomenological approach

provides a conceptual common ground and facilitates convergence in the field. Moreover, the

conceptual framework of this paper can enable practitioners to formulate the appropriate strategic intent

and governance strategy for their organization.

Keywords Corporate governance, Ethics, Job satisfaction, Employee turnover, Leadership,Corporate social responsibility

Paper type Conceptual paper

Introduction

Good governance by way of the integration of social and environmental concerns into a

company’s profit-making strategy can be the most challenging undertaking for corporations

in today’s notoriously competitive markets. Increasingly, decision-making in corporations is

being pushed down the ladder. Organizational hierarchies are flattening and so demand a

greater collective responsibility from executives, sub-executive employees such as middle

managers, supervisors or team leaders, as well as first-line employees (Van der Weide and

DOI 10.1108/17471110910995366 VOL. 5 NO. 4 2009, pp. 525-539, Q Emerald Group Publishing Limited, ISSN 1747-1117 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 525

Steven H. Appelbaum is

Professor of Management

and Senior Concordia

University Research Chair

in Organizational

Development, Louis

Vigneault and Edward

Walker are Graduate

Students and Barbara T.

Shapiro is Senior Lecturer,

Department of

Management, all at John

Molson School of Business,

Concordia University,

Montreal, Canada.

Wilderom, 2004, p. 4; McDonald and Nijhof, 1999, p. 133). Satisfying the internal andexternal demand for transparency and for social responsibility can be perceived as a threatto financial viability, especially in the short-run (Reichert et al., 2000, McDonald and Nijhof,1999, p. 139). Conversely, not having a fully integrated code of ethics in a corporation’sbusiness processes can also be perceived as a threat in an environment wherein unethicalbehavior is no longer tolerated (Svensson and Wood, 2008, pp. 303-4).

The article’s major conceptual assertion identifies good corporate governance by way of theintegration of meso ethics as a strategic imperative for which there are positive organizational,financial, and socio-environmental advantages in the long run. A good governance strategyhowever must permeate macro, meso and micro organizational boundaries in order to createa strong ethical culture in an organization. More specifically, we will provide a synthesis of thecritical areas wherein good governance can create an environment conducive to ethicalbehavior by way of organizational processes and leadership. In particular, we will emphasizethe processes and benefits of the integration of corporate and individual ethics at the meso ororganizational level where a shared ethic is continually negotiated with both the macrostrategic governance level and the micro individual level. Conversely, throughout the articlewill we refer to certain limitations and failures, whereby creating an ethical culture and theintegration of ethics throughout organizational processes is a complex and inimitable process,and where short-run responses such as adopting corporate social responsibility (CSR)programs or enforcing ethics from the top-down (without considering individual ethics) oftenlack substance and sustainability.

The nature of organizational ethics

Developing a shared ethic in an organization binds individuals together and contributes tothe creation of an ethically minded organizational culture, which in turn generates positiveorganizational behavior (Cohan, 2002, p. 287; Serpa, 1985, p. 436). Yet, developing thisshared ethic or bringing about change in corporate ethics is a difficult and sometimeselusive undertaking. Ethical considerations are continuously subjected to heterogeneoussocial, organizational, and cultural influences (Gottlieb and Sanzgiri, 1996, p. 1277). Firmexecutives and managers must therefore first understand the absolute and relative nature ofethics along with its individual and collective implications (Gottlieb and Sanzgiri, 1996,p. 1277). Academia until now has studied issues of organizational ethics, but has failed to‘‘yield simple generalizable ‘truths’.As more and more knowledge becomes available, itseems that the complexity of issues becomes correspondingly greater’’ (Etzion, 2007,p. 655). Hence, a comprehensive study of meso level ethics requires a careful examinationof both corporate and individual ethics within the larger universe of business ethics in orderto better comprehend its intricacies.

The strategic importance of meso ethics

McDonald and Nijhof (1999, p. 133) make use of a simplified integrated model (see Figure 1)with macro, meso and micro paradigms in order to identify the different realms throughwhich an organization engages in the ethical process. In their research they view meso ororganizational ethics as the second of three identifiable and dynamic levels of businessethics. The meso or organizational level is in between the macro level, which is concernedwith the political environment, and the micro or individual level within the organization. Theyhowever focus on the positive impact of ethics training programs and the actions taken at theorganizational or meso level on the possibility for morally responsible behavior fromdecision-makers. They also emphasize that for organizational ethical actions to be effectivecertain theoretical preconditions need to exist both at the organizational (meso) andindividual (micro) level (McDonald and Nijhof, 1999, p. 133; Steinmann and Lorh, 1996).

Another model (see Figure 2) proffered by Svensson and Wood (2008, p. 303, 306) definesbusiness ethics and organizational ethics as an amorphous phenomenon and as acontinuous and iterative process composed of three fundamental stages:

1. expectations;

2. perceptions; and

3. evaluations.

PAGE 526 jSOCIAL RESPONSIBILITY JOURNALj VOL. 5 NO. 4 2009

At each stage, they identify critical external factors of the process as business ethics (e.g.

government legislation) and critical internal factors as corporate ethics (e.g. increased

education). Both internal and external dimensions are integrated into the continuous

process and interact at various stages. Some critical factors such as demand for ‘‘increased

Figure 1 An integrated framework for developing an ethics program

Figure 2 A model of business ethics

VOL. 5 NO. 4 2009 jSOCIAL RESPONSIBILITY JOURNALj PAGE 527

education’’ (or awareness of ethical issues),demand for ‘‘socially responsible managers’’,

and the emergence of ‘‘professional associations’’ can occur both internally and externally

at once. For example, employees, and external stakeholders alike, demand transparency,

access to information and codified ethical principles.

In this article, we attempt to merge both models by utilizing their respective strengths.

Moreover, we expand their application and provide a synthesis of the critical areas (factors

and functions) wherein good governance can create an environment conducive to ethical

behavior and to the creation of an ethical culture. This merger re-conceptualizes the

understanding of an ethical culture in an organization as a dynamic and phenomenon

whereby the boundaries of macro business ethics (socio-political), corporate level ethics

(strategy) and micro individual ethics (morals) interact at a more permeable ‘‘meso’’

organizational level. See Figure 3 for the integration of the multiple components and factors

as conceptualized and designed by the authors.

From a more contextual political, social and legal analysis we will narrow our focus through

each of the following critical areas that interact at the macro-meso upper boundary and at the

meso-micro lower boundary: law and corporate ethics, corporate and executive response to

ethics policy, CSR, corporate codes of conduct, ethics training programs and employee

demand for corporate ethics. We will then conclude with a strong emphasis on critical micro

level areas: leadership, authority and ethics, and individual and organizational ethical

congruence. Although our model reviews critical areas in a comprehensive manner through

macro, meso, micro dimensions, the micro-level is more aptly considered as most critical and

influential in creating a sustained corporate ethical culture in the long run. Other critical areas

at the macro level are of strategic importance but do not necessarily materialize into strategic

Figure 3 Model for strategic integration of meso ethics


actions that have positive and observable behavioral effects. Consequently, we identify theindividual-organization ethic relationship (leadership and authority, and ethical congruence)as the area that adds the most value for practitioners who seek to build a shared andsustainable ethic with its employees. Typically, within the field of organizational ethics,researchers have taken two different approaches. The first approach investigates the effect ofindividual ethics on individual attitudes and behaviors. The second approach considers howorganizational ethics affect individual ethics (Ambrose et al., 2008, p. 323). Hence our reviewmerges the two traditional approaches to organizational ethics by considering theinter-dependence of corporate and individual ethics and how they interact at the meso levelin an organization. Furthermore, a discussion of the literature on ethical congruence willemphasize the positive effects of a corporate ethical culture on individual behavior variablessuch as organizational commitment, job satisfaction, and employee retention.

Business ethics as a social phenomenon

This article focuses on the processes and benefits of the integration of corporate and individualethics at the meso or organizational level. It is however critical to first consider the broader andrelated phenomenon of business ethics and its social, historical and phenomenologicalimplications. In business ethics, external stakeholder pressures often warrant responses fromfirms thereby influencing organizational behavior, warranting corporate governance and thenegotiation of corporate ethics within an organization. Public concern for ethics in business isnot a new phenomenon. Svensson and Wood (2008, p. 237) provide numerous relevanthistorical examples of business related ethical issues. They list medieval legislature againstmarket manipulation as evidence of judicial action against business misconduct (Svenssonand Wood, 2008, p. 304). They also refer to widespread crime amongst executives innineteenth century UK (Svensson and Wood, 2008, p. 304; Warren and Tweedale, 2002). Andin the 1940s, American sociologist Edwin Sutherland coined the term ‘‘white collar crime’’(Svensson and Wood, 2008, p. 304; Piety, 2004). Furthermore, Svensson and Wood cite Cragg(2000, p. 210) who labels ‘‘the 1980s as a decade of greed in North America’’, a label largelyawarded to corporate giants and their executives.

Corporate scandals have subjected entire industries to more intense scrutiny from variousactors in civil society such as academics and the media (Lefebvre and Singh, 1992, p. 799).Reports of misconduct have certainly increased dramatically over time but the degree towhich unethical behavior is prevalent among corporations is therefore unknown. It isimpossible to measure the real percentage increase in unethical behavior since availabledata only takes account of transgressions (Di Lorenzo, 2007, p. 278). However, Di Lorenzo(2007, p. 278) states that despite this limitation, among the four industries he studied,‘‘unethical practices occurred among many if not most of the members of the industry, andthe unethical conduct often took place in a variety of different types of business transactionsin which industry members were engaged’’.

Gottlieb and Sanzgiri outline a more weighted measure of how corporate misconduct hasbecome increasingly problematic. First, they introduce the USA as a nation in whichcapitalist cultural norms widely accept profit making as the primary responsibility of abusiness and further discuss the consequences thereof:

This preference has become of such importance in American society that organizations lobby the

government and engage in other actions in an attempt to define the laws that will affect their

business activities. [. . .] The result of these actions is that organizations have a broader influence

on the society. In essence, organizations have become so large and powerful that they have

become dominant influences in the development and definition of ethics within society (Gottlieb

and Sanzgiri, 1996, p. 1276).

Conversely, the interplay of institutional exogenous factors (otherwise known as ‘‘the politicsof policies’’) is not always favorable to profiteering behavior. Business interests influenceexternal audiences but in turn, external stakeholders also force organizations to evaluatetheir perceptions and demand a positive response (Etzion, 2007, p. 638). Largecorporations such as Enron, WorldCom, Tyco International, Arthur Andersen, Qwest,Global Crossing, Parmalat, Barings Bank, Systembolag and Skandia and the unscrupulouspractices of several executives have shaken the confidence of the government and ofshareholders (Svensson and Wood, 2004, pp. 303-4; Cohan, 2002; Hassink et al., 2007).


Consequently, there has been a marked increase in the study of, and in the demand for,business ethics and corporate ethics in the last 30 years largely due to the aforementionedincrease in publicized corporate misconduct. Other external stakeholders to corporationsuch as competitors, financial institutions, legislative bodies, NGO watchdog groups andacademia exert a considerable influence on corporations. According to Etzion (2007,p. 645), ‘‘organizations will increasingly have to successfully balance competing societalinterests to maintain their license to operate and their competitive viability’’.

Law and ethics

The most fundamental external demand on corporate governance is one of conformity to thelaw. Beyond this formal legal obligation, corporations are subject to the scrutiny ofstakeholders in regard to their commitment to ethical and legal conduct. Two other generalperceptions or attitudes towards corporate legal conformity exist. The first portrayscorporations as at least compelled to observe the law notwithstanding the probability thatviolations do occur. The second, more proactive perception, integrates law into ethics,whereby at the firm-level, ‘‘corporations have become increasingly cognizant of ethicalobligations beyond literal compliance with law, and increasingly feel compelled to actaccordingly’’ (Di Lorenzo, 2007, p. 275). This view suggests that laws are insufficient in thatthey represent an incomplete code and often poorly reflect the true moral standards of asociety (Gottlieb and Sanzgiri, 1996, p. 1277). Consequently, corporate conduct shouldcomply not only with legal obligations, but it should also adhere to an underlying moralinterpretation of the law (Di Lorenzo, 2007, p. 276). DiLorenzo’s study of legal systems andtheir effect on corporate conduct found that this proactive outlook on corporate governanceis rarely adopted. Instead, DiLorenzo concludes that ‘‘corporations are not committed to abroad ethical obligation, that legal mandates are narrowly construed and sought to beevaded, and that underlying public policies are typically ignored’’ (Di Lorenzo, 2007, p. 276).In this assessment of legal regimes, Di Lorenzo observes that laws are ineffective in makingcorporations behave ethically and suggests that non-legal factors are more determinant ofcorporate conduct. The higher degree of compliance was found in legal regimes where clearlegal mandates and courses of conduct were outlined for corporate actors. Unfortunately,these regimes were also the least common. The specificity of these legal mandates, howeverefficient in some industries, cannot be universally applied. General legal standards aretherefore more appropriate despite their shortcomings in communicating the underlyingpurpose and benefits of the law (Di Lorenzo, 2007, p. 288). The understanding that ethicsextends far beyond legal standards, and the aforementioned realization that legal regimesare inefficient, has created stakeholder demand for corporate self-regulation morecommonly expressed as a demand for CSR.

Corporate and executive response to ethics policy

In recent years there have been signs of corporate commitment for ethical conductpredominantly in the form of administrative actions or statements. These confirm that therecognition of ethical obligations is on the rise and that the new business ethos is widelyespoused amongst corporate executives. Unfortunately, these positive signs have notnecessarily yielded positive results. According to the American Management Association’sCorporate Governance Survey in 2003, 92 percent of publicly traded companies saw theirCEO formally communicate a commitment to ethical behavior in the previous year (AmericanManagement Association, 2003). Similarly, when members of the US Chamber of Commercewere surveyed in 2003, 87 percent of respondents said that operating ethically in a businesswas ‘‘very important’’ and another 11 percent said it was ‘‘important’’. However, when legalofficers and human resources representatives at the 2003 Conference Board’s EthicConference were surveyed, ‘‘fewer than 8 percent reported that companies fire ‘greatperformers’ who do not live up to their companies’’ values, while nearly 5 percent ofrespondents reported companies promote them, more than 25 percent coach them and 22percent tolerate them’’ (Di Lorenzo, 2007, p. 277). This clear discrepancy between the valueawarded to economic performance, over and above the value perceived in ethicalperformance, has engendered a re-thinking in organizational and strategy literature aboutwhat is ‘‘value’’ in business. Beyond economic logic, the ‘‘Blended Value’’ and ‘‘Triple BottomLine’’ concepts integrate social and environmental value and oppose the predicament where


short-run financial performance dismiss newly adopted socio-environmental commitments(Etzion, 2007, p. 657). The motivation behind unsubstantiated executive commitments toethical policies and practices is therefore questioned. Moreover, the content of these policiesand implementation practices are also subject to scrutiny.

The creations of the position of ethics officer, of an ethics committee or of an ethics hotline incorporations are examples of such practices that promote or enforce corporate ethicalpolicies (McDonald and Nijhof, 1999, p. 139). The US-based Ethics and Compliance OfficerAssociation (ECOA) survey in 2000 found that while 4 percent of ethics officer positions werecreated before 1986, more than half of the positions had been created between 1997 and2000 (Di Lorenzo, 2007, p. 277). The survey also revealed that the motivation for creating thisnew position has changed over time as well. Between 1997 and 2000, the view that meetingbest practices standards was the desired outcome gained importance, whereas the threatof government investigation as well as improving public image became less relevant. Thelatter two motivational factors, the threat of government scrutiny and projecting a positivepublic image, are examples where the corporate response to external pressures is moreimportant than ethical behavior in itself. Organizations often adopt structures and processesof compliance in order to protect themselves from environmental pressures (Etzion, 2007,p. 653; JMaxwell et al., 1997; Ramus and Montiel, 2005). The perception of corporate ethicalbehavior as a short-run reaction to external stakeholder demand leads to ‘‘stakeholdermanagement’’ more than anything else. The ‘‘pressures are quite difficult to predict and maynot be very malleable’’ (Etzion, 2007, p. 654), thus making this approach counter-productiveto the integration of ethics throughout organizational processes in the long run. A commonstrategy for the integration of corporate ethics is through the dissemination of a corporatecode of ethics and commitment to social responsibility.

CSR defined

The desired outcome of corporate ethics in society is more commonly referred to as CSR.Despite the common usage of this term, there exists no clear consensus of what is actuallyincluded or excluded in its definition (Etzion, 2007, p. 638). CSR definitions, like corporatecodes of conduct, are ‘‘biased towards specific interests’’ (Dahlsrud, 2008, p. 1). Dahlsrud(2008) gathered a large sample of available CSR definitions in the literature and concludedthat there are 37 general definitions of CSR. The content and frequency distribution for thesedefinitions yields important insight. Five dimensions were found to fall within the realm of CSR:

1. the environmental dimension (natural environment);

2. the social dimension;

3. the economic dimension;

4. the stakeholder dimension (including internal stakeholders such as employees); and

5. the voluntariness dimension.

It is important to note that the ‘‘voluntariness dimension’’ refers to voluntary actions that arenot prescribed by law and a level of ethical commitment that extends beyond legalobligations (Dahlsrud, 2008, p. 4). Hence, this dimension in addition to the internal‘‘stakeholder dimension’’, are key elements in the creation of an ethical culture. Results showthat 40 percent of the CSR definitions in literature encompassed all five dimensions, 64percent had four or more of the dimensions and 97 percent had three or more of thedimensions. Despite the incongruence of CSR definitions, the greater challenge lies in ourability to ‘‘understand how CSR is socially constructed in a specific context and how to takethis into account when business strategies are developed [. . .] The CSR definitions describea phenomenon but fail to present any guidance on how to manage the challenges within thisphenomenon’’ (Dahlsrud, 2008, p. 6).

Corporate codes of conduct

Corporate strategic action for ethical practice is often demonstrated by the development andimplementation of codes of conduct (Lefebvre and Singh, 1992, p. 799; McDonald andNijhof, 1999, p. 136). ‘‘Most organizations today, including over 90 percent of majorcorporations, have codes of ethics’’ (von der Embse et al., 2004, p. 146), yet the problem of


corporate social deviance still exists and the demands for ethical behavior, best practicesand substantial executive commitments persist. A corporation’s legal compliance versus itsgenuine motive for the creation of an ethical culture has been formally addressed by theenactment of the Sarbanes-Oxley (SOX) legislation in 2002 in the USA. Prior to the SOX,having structural components for ethical compliance such as having corporate codes ofconduct and an ethics officer were sufficient protective measures for managers andexecutives in organizations. Since 2002, however, corporations are required to revise theircorporate codes of conduct and ethical programs as legislation now considers managerialefforts and the efficacy with which corporate ethics are implemented as mitigating factors.More specifically, managers and organizations have revised the language use and theemphasis of their codes in order to improve and substantiate the ‘‘dissemination andunderstanding among employees’’ of corporate ethical policies for which they are now heldaccountable (Canary and Jennings, 2008, p. 264). Canary and Jennings (2008, p. 275) intheir critique of the impact of SOX legislation, have observed that since 2002, changes incorporate codes of ethics reflect an increase in the communication and awareness of ethicalconsiderations. Despite having ethical terms and themes, pre-SOX language for corporatecodes of conduct was predominantly concerned with legal requirements, the control of dailywork practices, and compliance procedures. Post-SOX corporate codes of conductapproach a finite limit of their use of ethical themes and terms towards a ‘‘values andprinciples’’ centered meaning. According to Canary and Jennings (2008, p. 275), thelanguage shift, which emphasizes ethical ‘‘culture’’ rather than legalistic ethical‘‘compliance’’, has not however superseded references to law or the use of legalterminology. Legal references have in point of fact increased significantly in post-Soxcorporate codes of conduct. Both of these increases reflect the greater and complementarylegal and ethical awareness as a result of corporate scandals.

In a review of the Financial Post’s top 500 corporations in Canada in 2007, codes of conductwere found to be primarily based on ethical responsibility while referring only occasionally tolegal responsibility. This emphasis of ethics over law in Canada may reflect the current trendtowards ethics and may also reflect prevalent corporate efforts to enhance their publicimage through formal commitments to ethical practices (Lefebvre and Singh, 1992, p. 806;Canary and Jennings, 2008, p. 263). In the same study of large Canadian corporations,Lefebvre and Singh found that corporate codes of ethics, despite being less concerned withlegal requirements, were primarily focused on the protection of the firm rather than withissues of social responsibility:

Very few of the codes refer to issues concerning product safety, product quality, relations with

consumers, or environmental affairs; approximately half of the ethical policy statements make

reference to maintaining the corporation’s ‘‘good reputation’’ (Lefebvre and Singh, 1992, p. 808).

Codes of ethics are regarded as essential guides for managers and employees. However,simply having a code of ethics, or having formal policies does not guarantee ethical practicesand behavior throughout the organization. This is especially true in corporations whereemployer expectations contradict the code, and similarly, when a company’s ethicalobjectives are not congruent with actual behavior (von der Embse et al., 2004, pp. 146, 150).von der Embse et al. (2004) determined that in order ‘‘to become a genuinely ethicalorganization [. . .] a comprehensive approach and investment in ethical safeguards is neededand should be regarded as a dimension of decision making alongside quality standardsperformance, profitability and other strategic considerations’’. Furthermore, they stated thatpart of this investment involves the continuous promotion of policies from management toensure employee compliance with the desired corporate ethical culture (von der Embse et al.,2004, p. 151). Results showed that the absence of explicit ethical safeguards had negativeconsequences at the decision-making level. The chosen safeguards are:

B a formal code of ethics;

B a value statement or credo;

B written general ethics policies;

B written specific ethics policies;

B a strong cohesive ethical culture;


B ready access to the ethical code or guidelines when needed; and

B ethical training in place and available (von der Embse et al., 2004, p. 148).

Ethics training programs

Few studies have examined how individual ethical values influence behavior at work. The effectof an individual’s moral reasoning and organizational decision-making is unclear and requiresfurther research (Delaney and Sockell, 1992, p. 719; Weber, 1990) Trevino (1986, p. 602) usesthe interactionist model to describe the multivariate and complex processes required tounderstand ethical decision-making in organizations. According to the interactionist model,decision-makers facing ethical dilemmas are affected by the interaction of cognitive moraldevelopment, individual variables and situational variables (Trevino, 1986, p. 602). We canapproach this problem by studying how and if ethics training programs positively influenceethical behavior and whether ‘‘ethics programs may provide the kind of exposure to work-placeproblems that individuals need so that they are able to act in what they view as an ethical waywhen confronted with a dilemma’’ (Delaney and Sockell, 1992, p. 719).

Delaney and Sockell’s (1992) research is founded on the assumption that moral behavior ishabitual; exercising ethics can yield positive results whereas thinking about ethics most likelywill not change an individual’s moral values, and may not help them act ethically (Delaney andSockell, 1992, p. 719). Their findings show that 62 percent of respondents who did not have anethics training programs in their workplace said they would like their firm to institute one. Moreimportantly, they conclude that ethics programs are positively correlated with ethicalperceptions and actions. Respondents also felt the presence of an ethics training programhad helped them act ethically in the most serious ethical dilemma they had faced (Delaneyand Sockell, 1992, p. 723). Despite these results in favor of ethical training programs, thespecific reasons for their effectiveness have yet to empirically verified in the literature: whetherthe presence of an ethics training program reduces the likelihood of unethical actions orwhether such training increase employees’ ability to rationalize decisions involving moralissues (Delaney and Sockell, 1992, p. 725). It is however evident that ethics training programsare perceived to be effective, and are demanded by employees.

Employee demand for corporate ethics

Executives increasingly make use of codes of conduct and make commitments for socialresponsibility at the strategic governance level and at the upper meso boundary. Likewise, atthe lower meso boundary and at the individual ethic level, employee commitment, retention,job or organizational satisfaction are organizational behavior variables that can be positivelycorrelated with the implementation of such ethical measures and with the perception of beingin a corporate ethical climate wherein a corporate ethical culture is fostered.

The job market has become more and more competitive in recent years and labor isincreasingly scarce in many developed countries due to important changes in the laborforce. The increased supply of labor coupled with the growing phenomenon of businessethics has made job seekers more selective in their application process (Sims and Kroeck,1994). Increasingly, employees want to work in organizations where they can thrive but alsofor companies that pursue high standards of CSR (Bhattacharya et al., 2008, p. 37). Usingevidence from LRN (a company that helps businesses develop ethical corporate cultures)survey on ethics, Verschoor (2007) found that ‘‘a company’s ability to maintain an ethicalcorporate culture is key to the attraction, retention, and productivity of employees’’[1].

Sims and Kroeck (1994, p. 940), in their study on the positive influence of an ethical fit,observe that corporations can communicate important aspects of their organization, therebyproviding job seekers with the opportunity to assess whether or not they would fit into itsorganizational culture, and therefore simultaneously minimizing the risk of severe ethicaldifferences. Sims and Kroeck (1994, p. 940), however, also identify the underlying problemor prevalent difficulty faced by corporations in the hiring process: a new employee, with hisethical preferences, cannot be totally cognizant and accustomed to the ethical climate of hisdepartment and/or organization. CSR and the internal ethical culture of an organization cannonetheless be emphasized by employers as one of the important aspects they want jobseekers to know about. It is therefore in a corporation’s best interest to continuously listen to


the ethical demands of potential employees and to recognize the benefits of hiringindividuals who are ethically minded. More importantly, it is critical for employers to exercisestrong consistent leadership in order satisfy the continual demand for ethics once the hiringprocess is over.

Leadership, authority and ethics

The person-organization fit when deprived of a comprehensive and iterative ethical processcan be problematic when leadership aims to hire like-minded people. Conversely, ethicallyminded workers also willingly participate in sustaining and improving the organization’sethical culture. Leadership often promotes harmony and unity for their organization, butShahinpoor and Matt (2007, p. 47) warn against this misconstrued belief that homogeneity isbeneficial to organizations: ‘‘The loss of individuality causes great damage to members oforganizations as to the organization itself’’ They further establish that ‘‘moral terms such asloyalty, integrity, and trust are employed by bureaucratic organizations to preserve andperpetuate a controlled and highly regimented organizational culture’’ (Shahinpoor andMatt, 2007, p. 37).

Senior leadership greatly influences the ease with which integration between employeeethics and a corporate ethic is achieved. Aguilera and Vadera (2008, p. 438) identify threetypes of authority or leadership, traditional, legal-rational, and charismatic, but specify thatno organization has a pure form of one or the other. As an example in the case of‘‘legal-rational’’ authority, Aguilera and Vadera (2008, p.444) argue that ‘‘leaders canperfectly conform to the established legal norms and yet abuse their traditional authority forpersonal benefit’’. Personal gain includes corporate gains or profits. Moreover, theintegration of ethical leadership would not significantly curb opportunistic behavior orcommunicate the importance of ethics to employees in cases where ‘‘legal-rational’’authority is predominant (Aguilera and Vadera, 2008, p 445). Conversely, in organizationswhere leaders have ‘‘charismatic’’ authority and where employees look up to their valuesand beliefs, ethical leadership would be more effective. Similarly, the communication ofethical policies and the implementation of an ethics training program would induce changein behavior in ‘‘traditional’’ authoritative settings (Aguilera and Vadera, 2008, p. 445).

In order to be truly effective, an ethics program must therefore take in account alldecision-making processes throughout an organization. Moreover it must ‘‘accommodateand legitimize the discussion of potential ethical issues during the decision-makingprocess’’ (McDonald and Nijhof, 199, p.136). The idea of legitimizing discussion aroundethical issues throughout the decision-making process implies first an opposition to the‘‘power of conformity’’ prevalent in ‘‘bureaucratic ethics’’ (Shahinpoor and Matt, 2007, p. 37).Similarly, the kinds of closed decision-making processes that are associated with strictly‘‘legal-rational’’ and ‘‘traditional’’ authority stunt the creativity and criticism of employee whenthey are faced with ethical predicaments (Aguilera and Vadera, 2008, p. 445; Shahinpoorand Matt, 2007, p. 37). Organizations can allow and even encourage ‘‘principledorganizational dissent’’ defined as ‘‘[. . .[ the effort by individuals in the workplace to protestand/or to change the organizational status quo because of their conscientious objection tocurrent policy or practice’’ (Shahinpoor and Matt, 2007, p. 48; Graham, 1995, p. 2). Theyargue that the dissenter’s desire for higher ethical standards potentially has the power toactualize organizations in their socio-environmental context and to increase their corporatesocial responsibility. Moreover, they conclude by highlighting the need for empirical study inthis area suggesting there is possible correlation and between allowed dissent and theperception of success or benefits in organizations (Shahinpoor and Matt, 2007, p. 48).

Organizational and individual benefits of ethical congruence

Higher levels of job satisfaction are found in organizations where executives have institutedethics training programs and where management stresses the importance of ethicalbehavior (Deshpande, 1996, p. 655; Vitell and Davis, 1990). Similarly, the perception of anethical climate, where a shared ethic can be fostered, reduces the occurrence ofopportunistic behavior (Deshpande, 1996, p. 655; Delaney and Sockell, 1992, p. 720; Kelleyet al., 1989). Employees perceive administrative actions such as the implementation of anethics program in concert with a formal code of conduct as genuine concern and


understanding from management of the issues that they face at the operational level. Hence,

the literature strongly suggests that it is the imperative of management to create an

environment where moral ambiguity is minimized through these measures.

In his study of ethical climates, Deshpande (1996) identifies six ethical climates:

1. professionalism;

2. caring;

3. rules;

4. instrumental;

5. efficiency; and

6. independence.

The results of this study provide evidence for ‘‘professionalism’’ ethical climate and ‘‘caring’’

ethical climate as variables that positively affect job satisfaction. The former is associated with

overall job satisfaction and the latter is mostly related to employee satisfaction with their

supervisors (Deshpande, 1996, p. 658). In a separate study, Vitell and Davis (1990, p. 492)

arrived at similar results: when top management supports ethical behavior and actions, job

satisfaction increases notwithstanding their remuneration. Moreover, Vitell and Davis (1990)

identify the possibility of bi-directional causation between job satisfaction and ethical behavior.

In recent years researchers further defined and measured the interaction of individual moral

development and organizational context factors such as codes of conduct, ethics policies

and ethical climates that combine to affect decisions, attitudes and behavior of employees.

Furthermore, the interaction aforementioned variables either facilitate the rapprochement or

accentuate the dissonance between employees and the organizational culture (Ambrose

et al., 2008, p. 324).

Sims and Kroeck (1994, p. 942) researched whether ‘‘individuals who have achieved a good

‘ethical match’ will have greater satisfaction, greater organizational commitment, and

diminished turnover intentions than individuals who have not experienced an ethical match

with the organization’’. Their first hypothesis proposed that employees choose environments

according to their ethical preferences and was supported by highly significant data

correlating ‘‘ethical climate preferences’’ and ‘‘described climates’’. Hence, by accurately

communicating the organization’s ethical climate to potential and new employees,

corporations can effectively improve job attitudes and contribute to the establishment of

the desired organizational culture. Furthermore, corporations that allocate considerable

resources to selection, training, and development of employees need to understand that

their return on investment is conditionally bound to employee ethical preferences as a

determinant of behavior (Ambrose et al., 2008, p. 331).

In other findings, Sims and Kroeck (1994, p. 946) determined that when the absolute

differences between an employee’s independence ethic and an organization’s

independence climate increased, turnover intentions significantly increased whereas

affective commitment decreased. For example, employees that are predisposed to solving

ethical dilemmas through personal rather that organizational means (where a written code

clearly dictates the required ethic) are more susceptible to leave the organization and/or be

disaffected. Similarly, as absolute differences between the caring ethic of an individual and

the caring climate of an organization increased, affective commitment or a sense of

belonging significantly decreased. Interestingly, employees who have a caring ethic but are

in an organizational climate that does not share similar values will be significantly disaffected

but will generally not leave their position. Other results also indicated that the differences

between ‘‘preferred’’ and ‘‘described’’ climates decreased as an employee’s time with the

organization increased. It appears that an employee’s relative ethical discomfort diminishes

over time. In other words, the employee becomes ‘‘socialized’’ or accustomed to the more

influential organizational ethical climate with the exception of individuals in ‘‘instrumental’’

(egoism) climates where self-interest and profit seeking behavior is predominant (Ambrose

et al., 2008, p. 324; Weber, 1995). Lastly, according to Sims and Kroeck (1994, p. 946),


ethical congruence between an individual and an organization was only modestly related to

job satisfaction.

Ambrose et al. (2008) conducted more recent research on person-organization ethical fit.

Similar to Sims and Kroeck (1994), Ambrose et al. (2008) sought to assess how congruence

between the ethical climate of an organization and an employee’s cognitive moral

development (ethical values of the person) affects employee job attitudes such as

commitment, job satisfaction, and turnover intent. In their research, Ambrose et al. (2008, p.

327) use the same ethical climate types as Sims and Kroeck’s (1994), which are derived from

Victor and Cullen’s (1988) three ethical climates types:

1. principled distinctions;

2. egoism; and

3. benevolence.

Both Ambrose et al. (2008) and Sims and Kroeck (1994) renamed these correspondingly as:

1. independence (principled distinctions);

2. instrumental (egoism); and

3. caring (benevolence).

Ambrose et al. (2008) further defined their independent variable as an ethical fit variable

wherein each ethical climate is matched with its best-suited individual ethical type. Ambrose

et al. (2008) therefore defined individual ethic not as a climate preference but as individual

cognitive moral development and measured this variable according to Kohlberg’s (1984)

framework and psychology of moral development, which establishes the following three

levels of cognitive moral development:

1. pre-conventional (low);

2. conventional (moderate); and

3. post-conventional (high).

Hence, they tested whether the following ethical fits: pre-conventional (low) and instrumental

(egoism), conventional (moderate) and caring (benevolence), and post-conventional (high)

and independence (principled distinctions), would correlate with H1 greater job satisfaction,

H2 greater organizational commitment, and H3 lower employee turnover. Their results are

generally in agreement the with Sims and Kroeck’s (1994) previous study of the effects of

ethical fit on organizational behavior variables while yielding greater statistical significance.

More specifically, their findings show that overall the weakest ethical fit was the

‘‘pre-conventional – instrumental’’ fit variable, whereby it was only predictive of

organizational (affective) commitment. Establishing an ethical culture, by fostering an

‘‘instrumental’’ ethical climate coupled with hiring morally ‘‘pre-conventional’’ employees,

would therefore not produce beneficial results for an organization in the long-run.

Conversely, the most consistent ethical fit was the ‘‘conventional-caring’’ fit variable as it was

found to support all three hypotheses. It was associated with commitment, satisfaction, and

reduced turnover intentions (Ambrose et al., 2008, p. 330). The ‘‘post-conventional –

independence’’ fit variable was not as consistent. It correlated with lower turnover intentions

and greater organizational commitment but did not yield positive results for job satisfaction.

See Table I for the aggregated research just discussed.

Results for Sims and Kroeck (1994) and Ambrose et al. (2008) are consistent and the same

tenuous relationship between ethical fit and job satisfaction prevailed in both studies. Both

suggest that experimenting with a ‘‘organizational satisfaction’’ variable may be more

relevant and statistically significant than their present use of the job-specific ‘‘job satisfaction

variable’’ (Ambrose et al., 2008, Sims and Kroeck, 1994). Furthermore, Ambrose et al. (2008)

arrive at the conclusion that person-organization fit between an individual’s cognitive moral

development and the prevailing ethical climate of an organization may be an even stronger

predictor of attitudes and behavior than was determined by previous empirical studies.


Conclusion

There is general lack of consensus, cohesion and empiricism in the literature. Organizationalethics is studied from the perspectives of multiple sub-disciplines such, which approach thephenomenon with distinct conceptual frameworks and terminology. This lack of cohesion canmake communication and advances in the field difficult and slow. Similarly, the lack of generalcohesion was best portrayed in absence of comprehensive models for business andcorporate ethical processes. Our conceptual framework for the strategic integration of mesoethics predominantly makes use of organizational strategy and organizational behaviorliterature. Moreover, it merges the McDonald and Nijhof (1999) and Svensson and Wood(2008) models in order to create a more comprehensive, dynamic, and integrated model.Furthermore, we have identified and reviewed critical areas for the creation of an ethicalculture separately. However, we argue that these critical factors and functions are negotiatedinto a shared ethic at lower (micro-individual) and upper (macro-strategic) meso boundaries.

Normative literature, with little support from empirical verification, proposes that theintegration of meso ethics is a strategic imperative for good governance. Hence, criticalareas at the macro level are of strategic importance but are difficult to verify empirically anddo not necessarily materialize into strategic actions that have positive and observablebehavioral effects at the micro-individual level. Consequently, we identify theindividual-organization ethic relationship (leadership and authority, and ethicalcongruence) as the area that adds the most value for practitioners who seek to build ashared and sustainable ethic with its employees. Recently, empirical studies on ‘‘ethical fit’’from Sims and Kroeck (1994, p. 946) and Ambrose et al. (2008, p. 330) have convergedthereby increasing the significance of their findings. Together, they support the assertion thatit is in an organization’s best interest to continually look for ethical congruence between theirworkforce and the ethical climate. Such concerted academic advances in the field oforganizational ethics should therefore enable executives and managers to substantiate thesocial and business phenomenon of CSR, whereby at present, society at large has beenincreasingly critical of corporate commitments and practices.

Note

1. The LRN ethics study involved 834 full-time employees from various industries across the USA.

According to the LRN study, 94 percent of employees said it is either critical or important that the

company they work for is ethical. This compares to 76 percent who said so in a similar survey six

months earlier. A total of 82 percent said they would rather be paid less but work at a company that

had ethical business practices than receive higher pay at a company with questionable ethics. More

than one-third (36 percent) had left a job because they disagreed with the actions of either fellow

employees or managers. Other findings of the survey include 80 percent of respondents reporting

that a disagreement with the ethics of a supervisor, fellow employee, or management was the most

Table I Findings on ethical fit

Ethical fit variable Job satisfaction Affective commitment Lower turnover intentions

Preconventional – instrumental fit (Ambroseet al., 2008)

No relationship Significant, positive No relationship

Preferred vs described instrumentality fit (Simsand Kroeck, 1994)

No relationship No relationship No relationship

Conventional – caring fit (Ambrose et al., 2008) Significant, positive Significant, positive Significant, negative

Preferred vs described caring fit (Sims andKroeck, 1994)

Insignificant, positive Significant, positive Insignificant, negative

Postconventional – independence fit (Ambroseet al., 2008)

No relationship Significant, positive Significant, negative

Preferred vs described independence fit (Simsand Kroeck, 1994)

Insignificant, positive Significant, positive Significant, negative

Sources: Ambrose et al. (2008); Sims and Kroeck (1994)


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(Verschoor, 2006, p. 22).

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Corresponding author

Steven H. Appelbaum can be contacted at: [email protected]


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