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

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

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.

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 rst 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 t have converged and support the assertion that it is in an organizations 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 individuals 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 dened as corporate social responsibility (CSR). Standard responsive measures taken by executives are shown to generally be unsubstantiated or insufcient for ethical conduct to truly take root in an organization. Originality/value The scope of the paper, with its phenomenological approach, identies 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 eld. 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 companys prot-making strategy can be the most challenging undertaking for corporations in todays notoriously competitive markets. Increasingly, decision-making in corporations is being pushed down the ladder. Organizational hierarchies are attening and so demand a greater collective responsibility from executives, sub-executive employees such as middle managers, supervisors or team leaders, as well as rst-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

SOCIAL RESPONSIBILITY JOURNAL

PAGE 525

Wilderom, 2004, p. 4; McDonald and Nijhof, 1999, p. 133). Satisfying the internal and external demand for transparency and for social responsibility can be perceived as a threat to nancial 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 corporations business processes can also be perceived as a threat in an environment wherein unethical behavior is no longer tolerated (Svensson and Wood, 2008, pp. 303-4). The articles major conceptual assertion identies good corporate governance by way of the integration of meso ethics as a strategic imperative for which there are positive organizational, nancial, and socio-environmental advantages in the long run. A good governance strategy however must permeate macro, meso and micro organizational boundaries in order to create a strong ethical culture in an organization. More specically, we will provide a synthesis of the critical areas wherein good governance can create an environment conducive to ethical behavior by way of organizational processes and leadership. In particular, we will emphasize the processes and benets of the integration of corporate and individual ethics at the meso or organizational level where a shared ethic is continually negotiated with both the macro strategic governance level and the micro individual level. Conversely, throughout the article will we refer to certain limitations and failures, whereby creating an ethical culture and the integration 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) often lack substance and sustainability.

The nature of organizational ethics

Developing a shared ethic in an organization binds individuals together and contributes to the creation of an ethically minded organizational culture, which in turn generates positive organizational behavior (Cohan, 2002, p. 287; Serpa, 1985, p. 436). Yet, developing this shared ethic or bringing about change in corporate ethics is a difcult and sometimes elusive undertaking. Ethical considerations are continuously subjected to heterogeneous social, organizational, and cultural inuences (Gottlieb and Sanzgiri, 1996, p. 1277). Firm executives and managers must therefore rst understand the absolute and relative nature of ethics 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, it seems that the complexity of issues becomes correspondingly greater (Etzion, 2007, p. 655). Hence, a comprehensive study of meso level ethics requires a careful examination of both corporate and individual ethics within the larger universe of business ethics in order to better comprehend its intricacies.

The strategic importance of meso ethics

McDonald and Nijhof (1999, p. 133) make use of a simplied integrated model (see Figure 1) with macro, meso and micro paradigms in order to identify the different realms through which an organization engages in the ethical process. In their research they view meso or organizational ethics as the second of three identiable and dynamic levels of business ethics. The meso or organizational level is in between the macro level, which is concerned with the political environment, and the micro or individual level within the organization. They however focus on the positive impact of ethics training programs and the actions taken at the organizational or meso level on the possibility for morally responsible behavior from decision-makers. They also emphasize that for organizational ethical actions to be effective certain theoretical preconditions need to exist both at the organizational (meso) and individual (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) denes business ethics and organizational ethics as an amorphous phenomenon and as a continuous and iterative process composed of three fundamental stages: 1. expectations; 2. perceptions; and 3. evaluations.

PAGE 526 SOCIAL RESPONSIBILITY JOURNAL VOL. 5 NO. 4 2009

Figure 1 An integrated framework for developing an ethics program

Figure 2 A model of business ethics

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

VOL. 5 NO. 4 2009 SOCIAL RESPONSIBILITY JOURNAL 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 codied 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 inuential 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

PAGE 528 SOCIAL RESPONSIBILITY JOURNAL VOL. 5 NO. 4 2009

actions that have positive and observable behavioral effects. Consequently, we identify the individual-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 and sustainable ethic with its employees. Typically, within the eld of organizational ethics, researchers have taken two different approaches. The rst approach investigates the effect of individual ethics on individual attitudes and behaviors. The second approach considers how organizational ethics affect individual ethics (Ambrose et al., 2008, p. 323). Hence our review merges the two traditional approaches to organizational ethics by considering the inter-dependence of corporate and individual ethics and how they interact at the meso level in an organization. Furthermore, a discussion of the literature on ethical congruence will emphasize the positive effects of a corporate ethical culture on individual behavior variables such as organizational commitment, job satisfaction, and employee retention.

Business ethics as a social phenomenon

This article focuses on the processes and benets of the integration of corporate and individual ethics at the meso or organizational level. It is however critical to rst consider the broader and related phenomenon of business ethics and its social, historical and phenomenological implications. In business ethics, external stakeholder pressures often warrant responses from rms thereby inuencing organizational behavior, warranting corporate governance and the negotiation of corporate ethics within an organization. Public concern for ethics in business is not a new phenomenon. Svensson and Wood (2008, p. 237) provide numerous relevant historical examples of business related ethical issues. They list medieval legislature against market manipulation as evidence of judicial action against business misconduct (Svensson and Wood, 2008, p. 304). They also refer to widespread crime amongst executives in nineteenth century UK (Svensson and Wood, 2008, p. 304; Warren and Tweedale, 2002). And in 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 largely awarded to corporate giants and their executives. Corporate scandals have subjected entire industries to more intense scrutiny from various actors 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 to which unethical behavior is prevalent among corporations is therefore unknown. It is impossible to measure the real percentage increase in unethical behavior since available data 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, and the unethical conduct often took place in a variety of different types of business transactions in which industry members were engaged. Gottlieb and Sanzgiri outline a more weighted measure of how corporate misconduct has become increasingly problematic. First, they introduce the USA as a nation in which capitalist cultural norms widely accept prot making as the primary responsibility of a business 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 dene the laws that will affect their business activities. [. . .] The result of these actions is that organizations have a broader inuence on the society. In essence, organizations have become so large and powerful that they have become dominant inuences in the development and denition of ethics within society (Gottlieb and Sanzgiri, 1996, p. 1276).

Conversely, the interplay of institutional exogenous factors (otherwise known as the politics of policies) is not always favorable to proteering behavior. Business interests inuence external audiences but in turn, external stakeholders also force organizations to evaluate their perceptions and demand a positive response (Etzion, 2007, p. 638). Large corporations such as Enron, WorldCom, Tyco International, Arthur Andersen, Qwest, Global Crossing, Parmalat, Barings Bank, Systembolag and Skandia and the unscrupulous practices of several executives have shaken the condence of the government and of shareholders (Svensson and Wood, 2004, pp. 303-4; Cohan, 2002; Hassink et al., 2007).

VOL. 5 NO. 4 2009 SOCIAL RESPONSIBILITY JOURNAL PAGE 529

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 aforementioned increase in publicized corporate misconduct. Other external stakeholders to corporation such as competitors, nancial institutions, legislative bodies, NGO watchdog groups and academia exert a considerable inuence on corporations. According to Etzion (2007, p. 645), organizations will increasingly have to successfully balance competing societal interests 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 the law. Beyond this formal legal obligation, corporations are subject to the scrutiny of stakeholders in regard to their commitment to ethical and legal conduct. Two other general perceptions or attitudes towards corporate legal conformity exist. The rst portrays corporations as at least compelled to observe the law notwithstanding the probability that violations do occur. The second, more proactive perception, integrates law into ethics, whereby at the rm-level, corporations have become increasingly cognizant of ethical obligations beyond literal compliance with law, and increasingly feel compelled to act accordingly (Di Lorenzo, 2007, p. 275). This view suggests that laws are insufcient in that they represent an incomplete code and often poorly reect the true moral standards of a society (Gottlieb and Sanzgiri, 1996, p. 1277). Consequently, corporate conduct should comply not only with legal obligations, but it should also adhere to an underlying moral interpretation of the law (Di Lorenzo, 2007, p. 276). DiLorenzos study of legal systems and their effect on corporate conduct found that this proactive outlook on corporate governance is rarely adopted. Instead, DiLorenzo concludes that corporations are not committed to a broad ethical obligation, that legal mandates are narrowly construed and sought to be evaded, 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 making corporations behave ethically and suggests that non-legal factors are more determinant of corporate conduct. The higher degree of compliance was found in legal regimes where clear legal mandates and courses of conduct were outlined for corporate actors. Unfortunately, these regimes were also the least common. The specicity of these legal mandates, however efcient in some industries, cannot be universally applied. General legal standards are therefore more appropriate despite their shortcomings in communicating the underlying purpose and benets of the law (Di Lorenzo, 2007, p. 288). The understanding that ethics extends far beyond legal standards, and the aforementioned realization that legal regimes are inefcient, has created stakeholder demand for corporate self-regulation more commonly 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 conduct predominantly in the form of administrative actions or statements. These conrm that the recognition of ethical obligations is on the rise and that the new business ethos is widely espoused amongst corporate executives. Unfortunately, these positive signs have not necessarily yielded positive results. According to the American Management Associations Corporate Governance Survey in 2003, 92 percent of publicly traded companies saw their CEO formally communicate a commitment to ethical behavior in the previous year (American Management Association, 2003). Similarly, when members of the US Chamber of Commerce were surveyed in 2003, 87 percent of respondents said that operating ethically in a business was very important and another 11 percent said it was important. However, when legal ofcers and human resources representatives at the 2003 Conference Boards Ethic Conference were surveyed, fewer than 8 percent reported that companies re great performers who do not live up to their companies values, while nearly 5 percent of respondents reported companies promote them, more than 25 percent coach them and 22 percent tolerate them (Di Lorenzo, 2007, p. 277). This clear discrepancy between the value awarded to economic performance, over and above the value perceived in ethical performance, has engendered a re-thinking in organizational and strategy literature about what is value in business. Beyond economic logic, the Blended Value and Triple Bottom Line concepts integrate social and environmental value and oppose the predicament where

PAGE 530 SOCIAL RESPONSIBILITY JOURNAL VOL. 5 NO. 4 2009

short-run nancial performance dismiss newly adopted socio-environmental commitments (Etzion, 2007, p. 657). The motivation behind unsubstantiated executive commitments to ethical policies and practices is therefore questioned. Moreover, the content of these policies and implementation practices are also subject to scrutiny. The creations of the position of ethics ofcer, of an ethics committee or of an ethics hotline in corporations are examples of such practices that promote or enforce corporate ethical policies (McDonald and Nijhof, 1999, p. 139). The US-based Ethics and Compliance Ofcer Association (ECOA) survey in 2000 found that while 4 percent of ethics ofcer positions were created before 1986, more than half of the positions had been created between 1997 and 2000 (Di Lorenzo, 2007, p. 277). The survey also revealed that the motivation for creating this new position has changed over time as well. Between 1997 and 2000, the view that meeting best practices standards was the desired outcome gained importance, whereas the threat of government investigation as well as improving public image became less relevant. The latter two motivational factors, the threat of government scrutiny and projecting a positive public image, are examples where the corporate response to external pressures is more important than ethical behavior in itself. Organizations often adopt structures and processes of 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 ethical behavior as a short-run reaction to external stakeholder demand leads to stakeholder management more than anything else. The pressures are quite difcult to predict and may not be very malleable (Etzion, 2007, p. 654), thus making this approach counter-productive to the integration of ethics throughout organizational processes in the long run. A common strategy for the integration of corporate ethics is through the dissemination of a corporate code of ethics and commitment to social responsibility.

CSR dened
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 actually included or excluded in its denition (Etzion, 2007, p. 638). CSR denitions, like corporate codes of conduct, are biased towards specic interests (Dahlsrud, 2008, p. 1). Dahlsrud (2008) gathered a large sample of available CSR denitions in the literature and concluded that there are 37 general denitions of CSR. The content and frequency distribution for these denitions 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 are not prescribed by law and a level of ethical commitment that extends beyond legal obligations (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 show that 40 percent of the CSR denitions in literature encompassed all ve dimensions, 64 percent had four or more of the dimensions and 97 percent had three or more of the dimensions. Despite the incongruence of CSR denitions, the greater challenge lies in our ability to understand how CSR is socially constructed in a specic context and how to take this into account when business strategies are developed [. . .] The CSR denitions describe a phenomenon but fail to present any guidance on how to manage the challenges within this phenomenon (Dahlsrud, 2008, p. 6).

Corporate codes of conduct

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

VOL. 5 NO. 4 2009 SOCIAL RESPONSIBILITY JOURNAL PAGE 531

corporate social deviance still exists and the demands for ethical behavior, best practices and substantial executive commitments persist. A corporations legal compliance versus its genuine motive for the creation of an ethical culture has been formally addressed by the enactment 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 of conduct and an ethics ofcer were sufcient protective measures for managers and executives in organizations. Since 2002, however, corporations are required to revise their corporate codes of conduct and ethical programs as legislation now considers managerial efforts and the efcacy with which corporate ethics are implemented as mitigating factors. More specically, managers and organizations have revised the language use and the emphasis of their codes in order to improve and substantiate the dissemination and understanding among employees of corporate ethical policies for which they are now held accountable (Canary and Jennings, 2008, p. 264). Canary and Jennings (2008, p. 275) in their critique of the impact of SOX legislation, have observed that since 2002, changes in corporate codes of ethics reect an increase in the communication and awareness of ethical considerations. Despite having ethical terms and themes, pre-SOX language for corporate codes of conduct was predominantly concerned with legal requirements, the control of daily work practices, and compliance procedures. Post-SOX corporate codes of conduct approach a nite limit of their use of ethical themes and terms towards a values and principles centered meaning. According to Canary and Jennings (2008, p. 275), the language shift, which emphasizes ethical culture rather than legalistic ethical compliance, has not however superseded references to law or the use of legal terminology. Legal references have in point of fact increased signicantly in post-Sox corporate codes of conduct. Both of these increases reect the greater and complementary legal and ethical awareness as a result of corporate scandals. In a review of the Financial Posts top 500 corporations in Canada in 2007, codes of conduct were found to be primarily based on ethical responsibility while referring only occasionally to legal responsibility. This emphasis of ethics over law in Canada may reect the current trend towards ethics and may also reect prevalent corporate efforts to enhance their public image 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 with legal requirements, were primarily focused on the protection of the rm rather than with issues 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 corporations 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 practices and behavior throughout the organization. This is especially true in corporations where employer expectations contradict the code, and similarly, when a companys ethical objectives 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 ethical organization [. . .] a comprehensive approach and investment in ethical safeguards is needed and should be regarded as a dimension of decision making alongside quality standards performance, protability and other strategic considerations. Furthermore, they stated that part of this investment involves the continuous promotion of policies from management to ensure 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 negative consequences at the decision-making level. The chosen safeguards are:
B B B B B

a formal code of ethics; a value statement or credo; written general ethics policies; written specic ethics policies; a strong cohesive ethical culture;

PAGE 532 SOCIAL RESPONSIBILITY JOURNAL VOL. 5 NO. 4 2009

B B

ready access to the ethical code or guidelines when needed; and 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 inuence behavior at work. The effect of an individuals moral reasoning and organizational decision-making is unclear and requires further research (Delaney and Sockell, 1992, p. 719; Weber, 1990) Trevino (1986, p. 602) uses the interactionist model to describe the multivariate and complex processes required to understand ethical decision-making in organizations. According to the interactionist model, decision-makers facing ethical dilemmas are affected by the interaction of cognitive moral development, individual variables and situational variables (Trevino, 1986, p. 602). We can approach this problem by studying how and if ethics training programs positively inuence ethical behavior and whether ethics programs may provide the kind of exposure to work-place problems that individuals need so that they are able to act in what they view as an ethical way when confronted with a dilemma (Delaney and Sockell, 1992, p. 719). Delaney and Sockells (1992) research is founded on the assumption that moral behavior is habitual; exercising ethics can yield positive results whereas thinking about ethics most likely will not change an individuals moral values, and may not help them act ethically (Delaney and Sockell, 1992, p. 719). Their ndings show that 62 percent of respondents who did not have an ethics training programs in their workplace said they would like their rm to institute one. More importantly, they conclude that ethics programs are positively correlated with ethical perceptions and actions. Respondents also felt the presence of an ethics training program had helped them act ethically in the most serious ethical dilemma they had faced (Delaney and Sockell, 1992, p. 723). Despite these results in favor of ethical training programs, the specic reasons for their effectiveness have yet to empirically veried in the literature: whether the presence of an ethics training program reduces the likelihood of unethical actions or whether such training increase employees ability to rationalize decisions involving moral issues (Delaney and Sockell, 1992, p. 725). It is however evident that ethics training programs are 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 social responsibility at the strategic governance level and at the upper meso boundary. Likewise, at the lower meso boundary and at the individual ethic level, employee commitment, retention, job or organizational satisfaction are organizational behavior variables that can be positively correlated with the implementation of such ethical measures and with the perception of being in 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 is increasingly scarce in many developed countries due to important changes in the labor force. The increased supply of labor coupled with the growing phenomenon of business ethics 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 also for companies that pursue high standards of CSR (Bhattacharya et al., 2008, p. 37). Using evidence from LRN (a company that helps businesses develop ethical corporate cultures) survey on ethics, Verschoor (2007) found that a companys ability to maintain an ethical corporate culture is key to the attraction, retention, and productivity of employees[1]. Sims and Kroeck (1994, p. 940), in their study on the positive inuence of an ethical t, observe that corporations can communicate important aspects of their organization, thereby providing job seekers with the opportunity to assess whether or not they would t into its organizational culture, and therefore simultaneously minimizing the risk of severe ethical differences. Sims and Kroeck (1994, p. 940), however, also identify the underlying problem or prevalent difculty faced by corporations in the hiring process: a new employee, with his ethical preferences, cannot be totally cognizant and accustomed to the ethical climate of his department and/or organization. CSR and the internal ethical culture of an organization can nonetheless be emphasized by employers as one of the important aspects they want job seekers to know about. It is therefore in a corporations best interest to continuously listen to

VOL. 5 NO. 4 2009 SOCIAL RESPONSIBILITY JOURNAL PAGE 533

the ethical demands of potential employees and to recognize the benets of hiring individuals who are ethically minded. More importantly, it is critical for employers to exercise strong consistent leadership in order satisfy the continual demand for ethics once the hiring process is over.

Leadership, authority and ethics

The person-organization t when deprived of a comprehensive and iterative ethical process can be problematic when leadership aims to hire like-minded people. Conversely, ethically minded workers also willingly participate in sustaining and improving the organizations ethical culture. Leadership often promotes harmony and unity for their organization, but Shahinpoor and Matt (2007, p. 47) warn against this misconstrued belief that homogeneity is benecial to organizations: The loss of individuality causes great damage to members of organizations as to the organization itself They further establish that moral terms such as loyalty, integrity, and trust are employed by bureaucratic organizations to preserve and perpetuate a controlled and highly regimented organizational culture (Shahinpoor and Matt, 2007, p. 37). Senior leadership greatly inuences the ease with which integration between employee ethics and a corporate ethic is achieved. Aguilera and Vadera (2008, p. 438) identify three types of authority or leadership, traditional, legal-rational, and charismatic, but specify that no 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 can perfectly conform to the established legal norms and yet abuse their traditional authority for personal benet. Personal gain includes corporate gains or prots. Moreover, the integration of ethical leadership would not signicantly curb opportunistic behavior or communicate the importance of ethics to employees in cases where legal-rational authority is predominant (Aguilera and Vadera, 2008, p 445). Conversely, in organizations where leaders have charismatic authority and where employees look up to their values and beliefs, ethical leadership would be more effective. Similarly, the communication of ethical policies and the implementation of an ethics training program would induce change in 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 all decision-making processes throughout an organization. Moreover it must accommodate and legitimize the discussion of potential ethical issues during the decision-making process (McDonald and Nijhof, 199, p.136). The idea of legitimizing discussion around ethical issues throughout the decision-making process implies rst 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 when they are faced with ethical predicaments (Aguilera and Vadera, 2008, p. 445; Shahinpoor and Matt, 2007, p. 37). Organizations can allow and even encourage principled organizational dissent dened as [. . .[ the effort by individuals in the workplace to protest and/or to change the organizational status quo because of their conscientious objection to current policy or practice (Shahinpoor and Matt, 2007, p. 48; Graham, 1995, p. 2). They argue that the dissenters desire for higher ethical standards potentially has the power to actualize organizations in their socio-environmental context and to increase their corporate social responsibility. Moreover, they conclude by highlighting the need for empirical study in this area suggesting there is possible correlation and between allowed dissent and the perception of success or benets in organizations (Shahinpoor and Matt, 2007, p. 48).

Organizational and individual benets of ethical congruence

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

PAGE 534 SOCIAL RESPONSIBILITY JOURNAL VOL. 5 NO. 4 2009

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) identies six ethical climates: 1. professionalism; 2. caring; 3. rules; 4. instrumental; 5. efciency; 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 dened 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 rst hypothesis proposed that employees choose environments according to their ethical preferences and was supported by highly signicant data correlating ethical climate preferences and described climates. Hence, by accurately communicating the organizations 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 ndings, Sims and Kroeck (1994, p. 946) determined that when the absolute differences between an employees independence ethic and an organizations independence climate increased, turnover intentions signicantly 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 signicantly decreased. Interestingly, employees who have a caring ethic but are in an organizational climate that does not share similar values will be signicantly disaffected but will generally not leave their position. Other results also indicated that the differences between preferred and described climates decreased as an employees time with the organization increased. It appears that an employees relative ethical discomfort diminishes over time. In other words, the employee becomes socialized or accustomed to the more inuential organizational ethical climate with the exception of individuals in instrumental (egoism) climates where self-interest and prot seeking behavior is predominant (Ambrose et al., 2008, p. 324; Weber, 1995). Lastly, according to Sims and Kroeck (1994, p. 946),

VOL. 5 NO. 4 2009 SOCIAL RESPONSIBILITY JOURNAL PAGE 535

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 t. Similar to Sims and Kroeck (1994), Ambrose et al. (2008) sought to assess how congruence between the ethical climate of an organization and an employees 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 Kroecks (1994), which are derived from Victor and Cullens (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 dened their independent variable as an ethical t variable wherein each ethical climate is matched with its best-suited individual ethical type. Ambrose et al. (2008) therefore dened individual ethic not as a climate preference but as individual cognitive moral development and measured this variable according to Kohlbergs (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 ts: 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 Kroecks (1994) previous study of the effects of ethical t on organizational behavior variables while yielding greater statistical signicance. More specically, their ndings show that overall the weakest ethical t was the pre-conventional instrumental t 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 benecial results for an organization in the long-run. Conversely, the most consistent ethical t was the conventional-caring t 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 t 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 t and job satisfaction prevailed in both studies. Both suggest that experimenting with a organizational satisfaction variable may be more relevant and statistically signicant than their present use of the job-specic job satisfaction variable (Ambrose et al., 2008, Sims and Kroeck, 1994). Furthermore, Ambrose et al. (2008) arrive at the conclusion that person-organization t between an individuals 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.

PAGE 536 SOCIAL RESPONSIBILITY JOURNAL VOL. 5 NO. 4 2009

Table I Findings on ethical t

Ethical t variable Preconventional instrumental t (Ambrose et al., 2008) Preferred vs described instrumentality t (Sims and Kroeck, 1994) Conventional caring t (Ambrose et al., 2008) Preferred vs described caring t (Sims and Kroeck, 1994) Postconventional independence t (Ambrose et al., 2008) Preferred vs described independence t (Sims and Kroeck, 1994) Job satisfaction No relationship No relationship Signicant, positive Insignicant, positive No relationship Insignicant, positive Affective commitment Signicant, positive No relationship Signicant, positive Signicant, positive Signicant, positive Signicant, positive Lower turnover intentions No relationship No relationship Signicant, negative Insignicant, negative Signicant, negative Signicant, negative

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

Conclusion
There is general lack of consensus, cohesion and empiricism in the literature. Organizational ethics is studied from the perspectives of multiple sub-disciplines such, which approach the phenomenon with distinct conceptual frameworks and terminology. This lack of cohesion can make communication and advances in the eld difcult and slow. Similarly, the lack of general cohesion was best portrayed in absence of comprehensive models for business and corporate ethical processes. Our conceptual framework for the strategic integration of meso ethics predominantly makes use of organizational strategy and organizational behavior literature. 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 identied and reviewed critical areas for the creation of an ethical culture separately. However, we argue that these critical factors and functions are negotiated into a shared ethic at lower (micro-individual) and upper (macro-strategic) meso boundaries. Normative literature, with little support from empirical verication, proposes that the integration of meso ethics is a strategic imperative for good governance. Hence, critical areas at the macro level are of strategic importance but are difcult to verify empirically and do not necessarily materialize into strategic actions that have positive and observable behavioral effects at the micro-individual level. Consequently, we identify the individual-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 and sustainable ethic with its employees. Recently, empirical studies on ethical t from Sims and Kroeck (1994, p. 946) and Ambrose et al. (2008, p. 330) have converged thereby increasing the signicance of their ndings. Together, they support the assertion that it is in an organizations best interest to continually look for ethical congruence between their workforce and the ethical climate. Such concerted academic advances in the eld of organizational ethics should therefore enable executives and managers to substantiate the social and business phenomenon of CSR, whereby at present, society at large has been increasingly 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 ndings 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

VOL. 5 NO. 4 2009 SOCIAL RESPONSIBILITY JOURNAL PAGE 537

important reason for leaving a job and 21 percent citing pressure to engage in illegal activity (Verschoor, 2006, p. 22).

References
Aguilera, R.V. and Vadera, A.K. (2008), The dark side of authority: antecedents, mechanisms, and outcomes of organizational corruption, Journal of Business Ethics, Vol. 77 No. 4, pp. 431-49. Ambrose, M.L., Arnaud, A. and Schminke, M. (2008), Individual moral development and ethical climate: the inuence of person-organization t on job attitudes, Journal of Business Ethics, Vol. 77 No. 3, pp. 323-33. American Management Association (2003), Corporate Governance Survey, American Management Association, New York, NY. Bhattacharya, C.B., Sen, S. and Korschun, D. (2008), Using corporate social responsibility to win the war for talent, MIT Sloan Management Review, Vol. 49 No. 2, pp. 35-45. Canary, H.E. and Jennings, M.M. (2008), Principles and inuence in codes of ethics: a centering resonance analysis comparing pre- and post-Sarbanes-Oxley codes of ethics, Journal of Business Ethics, Vol. 80 No. 2, pp. 263-78. Cohan, J.A. (2002), I didnt know and I was only doing my job: has corporate governance careered out of control? A case study of Enrons information myopia, Journal of Business Ethics, Vol. 40 No. 3, pp. 275-99. Cragg, W. (2000), Human rights and business ethics: fashioning a new social contract, Journal of Business Ethics, Vol. 27 Nos 1-2, pp. 205-14. Dahlsrud, A. (2008), How corporate social responsibility is dened: an analysis of 37 denitions, Corporate Social Responsibility and Environmental Management, Vol. 15 No. 1, pp. 1-13. Delaney, J.T. and Sockell, D. (1992), Do company ethics training programs make a difference? An empirical analysis, Journal of Business Ethics, Vol. 11 No. 9, pp. 719-27. Deshpande, S. (1996), The impact of ethical climate types on facets of job satisfaction: an empirical investigation, Journal of Business Ethics, Vol. 15 No. 6, pp. 655-62. Di Lorenzo, V. (2007), Business ethics: law as a determinant of business conduct, Journal of Business Ethics, Vol. 71 No. 3, pp. 275-99. Etzion, D. (2007), Research on organizations and the natural environment, 1992-present: a review, Journal of Management, Vol. 33 No. 4, pp. 637-64. Gottlieb, J.Z. and Sanzgiri, J. (1996), Towards an ethical dimension of decision making in organizations, Journal of Business Ethics, Vol. 15 No. 12, pp. 1275-85. Graham, J.W. (1995), Leadership, moral development, and citizenship behavior, Business Ethics Quarterly, Vol. 5 No. 1, pp. 43-54. Hassink, H., de Vriesk, M. and Bollen, L. (2007), A content analysis of whistle blowing: policies of leading European companies, Journal of Business Ethics, Vol. 75 No. 1, pp. 25-44. Kelley, S.W., Skinner, S.J. and Ferrelh, O.C. (1989), Opportunistic behavior in marketing research organizations, Journal of Business Research, Vol. 18 No. 4, pp. 327-40. Kohlberg, L. (1984), The Psychology of Moral Development, Harper Row, San Francisco, CA. Lefebvre, M. and Singh, J.B. (1992), The content and focus of Canadian corporate codes of ethics, Journal of Business Ethics, Vol. 11 No. 10, pp. 799-808. McDonald, G. and Nijhof, A.A. (1999), Beyond codes of ethics: an integrated framework for stimulating morally responsible behaviour in organizations, Leadership & Organization Development Journal, Vol. 20 No. 3, pp. 133-46. Maxwell, J., Rothenberg, S., Briscoe, F. and Marcus, A.A. (1997), Green schemes: corporate environmental strategies and their implementation, California Management Review, Vol. 39 No. 3, pp. 118-34. Piety, M.G. (2004), The long term: capitalism and culture in the new millennium, Journal of Business Ethics, Vol. 51 No. 2, pp. 103-18.

PAGE 538 SOCIAL RESPONSIBILITY JOURNAL VOL. 5 NO. 4 2009

Ramus, C.A. and Montiel, I. (2005), When are corporate environmental policies a form of greenwashing?, Business & Society, Vol. 44 No. 4, pp. 377-414. Reichert, A.K., Webb, M.S. and Thomas, E.G. (2000), Corporate support for ethical and environmental policies: a nancial management perspective, Journal of Business Ethics, Vol. 25 No. 1, pp. 53-64. Serpa, R. (1985), Creating a candid corporate culture, Journal of Business Ethics, Vol. 4 No. 5, pp. 425-30. Shahinpoor, N. and Matt, B. (2007), The power of one: dissent and organizational life, Journal of Business Ethics, Vol. 74 No. 1, pp. 37-48. Sims, R. and Kroeck, K.G. (1994), The inuence of ethical t on employee satisfaction, commitment and turnover, Journal of Business Ethics, Vol. 13 No. 12, pp. 939-48. Steinmann, H. and Lorh, A. (1996), A republican concept of corporate ethics, in Urban, S. (Ed.), Europes Challenges: Economic Efciency and Social Solidarity, Gabler, Wiesbaden, pp. 21-6. Svensson, G. and Wood, G. (2004), Corporate ethics and trust in intra-corporate relationships: an in-depth and longitudinal case description, Employee Relations, Vol. 26 No. 3, pp. 320-36. Svensson, G. and Wood, G. (2008), A model of business ethics, Journal of Business Ethics, Vol. 77 No. 3, pp. 303-22. Trevino, L.K. (1986), Ethical decision making in organizations: a person-situation interactionist model, Academy of Management Review, Vol. 11 No. 3, pp. 601-17. Van der Weide, J.G. and Wilderom, C.P.M. (2004), Deromancing leadership: what are the behaviours of highly effective middle managers?, International Journal of Management Practice, Vol. 1 No. 1, pp. 3-20. Verschoor, C.C. (2008) Vol. 3, LRN ethics study: workplace productivity, available at: www.lrn.com/ index.php?option com_content&task view&id 387 (accessed March 3, 2008). Victor, B. and Cullen, J. (1988), The organizational bases of ethical work climates, Administrative Science Quarterly, Vol. 33 No. 1, pp. 101-25. Vitell, S.J. and Davis, D. (1990), The relationship between ethics and job satisfaction: an empirical investigation, Journal of Business Ethics, Vol. 9 No. 6, pp. 489-94. von der Embse, T.J., Desai, M.S. and Desai, S. (2004), How well are corporate ethics codes and policies applied in the trenches? Key factors and conditions, Information Management & Computer Security, Vol. 12 No. 2, pp. 146-53. Warren, R. and Tweedale, G. (2002), Business ethics and business history: neglected dimensions in management education, British Journal of Management, Vol. 13 No. 3, pp. 209-19. Weber, J. (1990), Measuring the impact of teaching ethics to future managers: a review, assessment, and recommendations, Journal of Business Ethics, Vol. 9, pp. 183-90. Weber, J. (1995), Inuences upon organizational ethical subclimates: a multi-departmental analysis of a single rm, Organization Science, Vol. 6 No. 5, pp. 509-23.

Further reading
Jones, T.M. (1991), Ethical decision making by individuals in organizations: an issue-contingent model, The Academy of Management Review, Vol. 16 No. 2, pp. 366-95.

Corresponding author
Steven H. Appelbaum can be contacted at: shappel@jmsb.concordia.ca

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints

VOL. 5 NO. 4 2009 SOCIAL RESPONSIBILITY JOURNAL PAGE 539