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The ethics of managers and employees

Linda Klebe Treviño

How can managers understand how people actually think and behave in ethically-charged situations and how can such knowledge help them to manage their own ethical conduct and the conduct of their employees? This sort of question approaches employee conduct (and misconduct) as a management challenge that can be successfully addressed if one understands more about human thoughts, feelings, and behaviors in the realm of ethical and unethical conduct in organizations. In other words, this perspective approaches management ethics less as an abstract normative query (e.g., “what is the right thing to do?”) than as a practical, social scientifically based, endeavor. This chapter focuses, in particular, on how employees and managers face and respond to ethical dilemmas and problems in the workplace.

Ethical dilemmas are situations where (two or more “right”) values are in conflict. For example, a manager may face a dilemma about whether to share information with a close friend about an upcoming layoff that is likely to affect the friend, information that the manager has agreed to keep secret. This dilemma pits loyalty to a friend against promise-keeping and loyalty to the organization. Daily work life is rife with these types of dilemmas but work life also manifests challenges that do not necessarily exemplify ethical dilemmas. Sometimes a manager needs to ensure that employees recognize that a moral value is at stake; on other occasions, a manager may need to encourage adherence to what individuals already recognize as morally important. Normative ethical theories provide multiple frameworks that can help answer the “what should I do” question. However, a social scientific approach raises somewhat different questions. For example, perhaps an employee knows a manager is falsifying expense reports; the employee believes that the incident should be reported but he fears that, if he does so and if his cheating manager learns that he was the reporter, then he will lose his job. Does this employee trust higher-level managers in the organization to protect his identity or to protect him if his identity is learned? These are questions about what it means to be an employee in an authority structure and organizational culture, and about employees’ thoughts, feelings, and behaviors in response to ethically problematic situations that arise within these authority structures and cultures.

This chapter focuses chiefly on what we know about managing the ethics of employees through the ethical structures and contexts within the organization (e.g., ethics and compliance programs, ethical climates and cultures, ethical leadership). The first section addresses ethical awareness as a basic precondition of moral action. The subsequent section considers the use of ethics and compliance programs, followed by a third section that examines some of the chief ways in which an ethical culture may be encouraged and sustained. The concluding section offers summary remarks on how one might think about the management of ethical crises.

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Ethical awareness, judgment, motivation, and action

Based upon early work on ethical decision making by James R. Rest (1986), many traditional ethical decision making models suggested that we need to better understand what drives individuals’ ethical awareness, judgment, motivation, and action. Although awareness is the first stage of Rest’s early ethical decision making model, for a long time moral psychology research and behavioral ethics research focused primarily on ethical judgment and its relation to action. Judgment was understood primarily via Lawrence Kohlberg’s model of cognitive moral development (1969), which argued that individuals develop from childhood to adulthood through multiple stages of cognitive moral development. The first two stages are referred to as the pre-conventional (and most self-centered) level. At the first stage, individuals understand what is right in terms of obedience to authority and the possibility of punishment for misconduct. If the authority figure says something is wrong and will punish the person for doing it, then it is thought to be wrong. At the next stage, the individual begins to look outside the self, understanding the idea of reciprocity. For example, at some point, most children learn that sharing must be good because sharing means that the recipient will reciprocate. Unfortunately, some adults remain stuck at this very self-centered level of moral development. The next two stages comprise the conventional level, where we find most adults. At stage 3, the individual looks around and decides what is right based upon what peers and significant others (including leaders) think. At stage 4, people begin to look beyond significant others to codes, rules, and the law, understanding that the system exists for a purpose. Therefore, a person at stage 4 doesn’t obey traffic signals just because she or he fears getting caught by police but because of an understanding that reduced speed limits in school zones serve an important purpose. At the principled (or post-conventional) level, the person is an autonomous thinker who thinks much like a philosopher about the action that would be most fair (or just) and in service of the greater good. However, only a small percentage of adults reach that level. Therefore, it makes sense for managers to work to influence the ethical thinking and action of those in their charge, most of whom are looking outside of themselves for ethical guidance.

The relationship between a particular cognitive moral development stage and action has been found to be a modest one, leaving open questions about what other variables might be needed to explain moral motivation and action (Blasi 1980). In 1986, Treviño proposed a model that put forward the idea that, if most adults are at the conventional level of cognitive moral development, they are open to influence by contextual factors such as reward systems, leaders, and organizational cultures. Therefore, she proposed a person, situation, interactionist model, arguing that action could be explained as a result of person factors, situational factors, and the interaction between the two. A meta-analysis (Kish-Gephart et al. 2010) of behavioral ethics research provided support for the idea of the importance of personal (e.g., cognitive moral development, locus of control, Machiavellianism) and situational factors (e.g., reward systems, ethical climates) as influences on unethical behavior. But, not enough research has been conducted on the interaction effects proposed in the 1986 model to conduct meta-analytic tests (see Greenberg 2002; Treviño and Youngblood 1990; Ashkanasy et al. 2006 for exceptions). More research on these interactive effects is clearly needed.

More recently, researchers have focused attention on the importance of ethical awareness in an unfolding ethical decision making process. Although Rest’s (1986) model included moral awareness as a conscious first step in the ethical decision making process, that step had mostly been taken for granted and had rarely been studied directly, especially in the organizational ethics arena. In behavioral ethics, as it turned out, the earlier assumption that ethical judgment was the first step in the ethical decision making process was unwarranted: prior to a judgment individuals must first recognize that they are facing a decision with ethical overtones. Without that recognition or awareness, it is fair to say that ethical considerations will simply not be invoked. Rather, the decision may be treated as a “business” or “financial” decision with little thought to ethical concerns.

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Some early behavioral ethics research investigated the importance of ethical awareness (Butterfield et al. 2000), finding that information about harm to other people, the use of charged ethical language, and social consensus in the social environment that something is right or wrong can increase ethical awareness. By contrast, the use of euphemistic language could mute ethical awareness. Much more attention is being paid to this idea in recent years, including the idea put forward by Scott J. Reynolds (2008) that some people are chronically more prone to perceive the ethical nature of a situation. In addition, the publication of a popular book entitled Blind Spots (Bazerman and Tenbrunsel 2011) put forward the thesis that people often make unethical decisions without conscious awareness that they are operating in the ethical realm. In the authors’ words, the ethical characteristics of a situation simply “fade” from view (in a process known as ethical fading) and the person makes the decision without conscious attention to ethical considerations. One way to address ethical fading is through careful framing of the situation as one with ethical overtones.

Yet another strain of related research refers to the process of moral disengagement, a notion developed by Albert Bandura (Bandura et al. 1996). Bandura proposed that humans are self-regulating with internalized norms and standards that generally keep behavior in line because of anticipated guilt if the individual were to breach those internalized standards. However, it is possible for this self-regulatory process to be disengaged through eight theorized mechanisms (e.g., advantageous comparison, diffusion of responsibility, displacement of responsibility, distortion of consequences, moral justification, attribution of blame, dehumanization, euphemistic labeling) and some individuals have been shown to be more prone to moral disengagement than others. Bandura’s research was conducted mostly on children and young adults. Behavioral ethics researchers have become interested in the topic. Moral disengagement mechanisms that are particularly relevant to organizational life include euphemistic labeling (talking about “rightsizing” vs. layoffs or “collateral damage” vs. civilian casualties), displacement of responsibility (my boss made me do it), diffusion of responsibility (it’s not my job, it was a group decision), attribution of blame (it’s their own fault), and advantageous comparison (it’s not as bad as what others are doing). With other scholars, Celia Moore created an eight-item reliable measure of moral disengagement for adults (Moore et al. 2012) that has been shown to predict a variety of types of unethical behavior and that has since been used in other research. It is also available for organizations to use.

Much of the work associated with the view that awareness is important focuses on a less conscious, less rational, and more emotional ethical decision making process. Moral psychologist Jonathan Haidt (2001) is a major contributor to a more intuitive, emotional view of ethical decision making. He proposed a social intuitionist model in which individuals react impulsively and automatically to ethical situations, often with evaluative emotional responses such as the visceral emotion of disgust, which they cannot explain in rational terms, but will attempt to justify post hoc. This phenomenon has been referred to as “moral dumbfounding” (Haidt 2001). People evaluate something as “bad” (“that’s disgusting”) without being able to explain why in rational terms, but they stick to the evaluation nevertheless. Thus, the intuitive judgment precedes the more rational deliberative judgment. In one of the dilemmas he presented to research subjects, Haidt (2001) presented subjects with a story about a brother and sister who vacationed together and decided that it would be interesting to have sex. The woman was on birth control and they used a condom for extra safety. Afterward, although they enjoyed it, they decided they wouldn’t repeat it or tell anyone about it. Subjects had the expected “that’s disgusting and immoral” response although they had trouble logically explaining why (beyond the fact that incest is deemed to be wrong in the Bible and in society). As a result of this and related work, researchers became even more interested in understanding the circumstances under which decisions are more automatic than deliberative. Joshua D. Greene and colleagues (Greene et al. 2001) have found that decisions are more emotional and more automatic when the decision is a more personal one that involves potential harm to others (cf., Moore and Gino 2015). If emotions are so important to ethical decision making, then the muting of moral emotions is likely to dampen ethical concerns. For example, psychopaths have been found to react with less empathy to the distress of others. Moore and Gino (2014) provide an excellent review of the research in this realm.

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Managing ethical conduct through ethics and compliance programs

Managing ethics and compliance has become a significant activity in many organizations. These activities are structured in a variety of ways and have different emphases. Some are focused broadly on risk assessment in order to evaluate the organization’s work and where it is likely to be at risk of non-compliance with laws or other potential bases for scandal or negative attention. The primary emphasis of a risk assessment approach appears to be on compliance with the law and regulations, largely because of the growing number of laws and regulations that apply to organizations. This emphasis on legal compliance was heavily influenced in the US in the early 1990s by the US Sentencing Commission’s institution of sentencing guidelines for organizations that were caught breaking the law. The guidelines are based upon a carrot and stick approach to organizational sentencing whereby organizations that can demonstrate that they have followed the guidelines and made a good faith effort to manage misconduct can see their fines and other penalties reduced considerably. The seven guidelines include the following:

These guidelines stimulated many organizations to develop ethics and compliance “programs,” and a whole new profession (the ethics/compliance officer or variations on the title) was developed in response. These programs responded to the elements discussed in the guidelines. They established standards (codes of conduct), put a high-level person in charge (usually an ethics/compliance officer or sometimes the chief legal counsel), communicated standards (through communication and training devices), set up reporting systems (helplines or hotlines), and took action to discipline misconduct when it occurred and to take steps to prevent future misconduct. These programs varied greatly in effectiveness depending upon their perceived orientation toward values or legal compliance (Weaver and Treviño 1999), the extent to which all of the guidelines were followed, and the extent to which they were integrated into the daily life of the organization (Treviño et al. 1999) versus being decoupled from daily organizational life (MacLean and Benham 2010). A good source of current information about ethics and compliance programs can be found in the National Business Ethics Survey reports published by the Ethics Research Center (located at www.ethics.org/research/eci-research/nbes).

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In 2004, revisions to the guidelines stipulated that the board of directors oversee compliance; the result of this stipulation meant that most boards set up oversight committees, with the further outcome that ethics/compliance officers in the US now regularly report directly to the corporate board about compliance issues. Many such officials have a direct or dotted line reporting relationship to the board. The idea of ethical culture also began to garner attention in the world of organizations with this 2004 revision because the Sentencing Commission noted that an ethics/compliance program, to be effective, must be seen as an integral part of the organization’s culture rather than just a check-the-box “program” that can easily be decoupled from the organization’s daily life (MacLean and Benham 2010). Although the guidelines are only advisory, they have had a profound impact on US businesses’ efforts toward ethics and legal compliance. Other types of organizations, including universities, are jumping on the bandwagon, albeit a bit late compared with corporations. Other regulatory agencies such as the US Securities and Exchange Commission have also become interested in organizations’ ethical cultures, adding to the focus.

Ethical culture

A focus on culture has left many ethics and compliance officers scratching their heads because the Sentencing Commission did not explain what it meant by “ethical culture.” One framework for thinking about ethical culture builds on the more general organizational culture work of Schein (1985) and the more specific ethical culture work of Treviño (Treviño 1986, 1990; Treviño and Nelson 2014). We can think of ethical culture as a combination of formal and informal systems. Formal ethical culture systems include official leader communication, systems (and criteria) for employee selection, values statements and codes of ethics, orientation and training programs, performance management systems, and formal decision making processes. Informal ethical culture systems include the role models and heroes, the norms of daily behavior, the organization’s rituals, and the language that is used in the organization.

Leadership and role models

When we focus on the ethics of managers, we are really talking about the ethics of leaders in the organization—leaders at all levels. Leadership has long been important to those interested in business ethics and ethical culture. We have known, for example, that a leader’s honesty and integrity were related to others’ perceptions of effective leadership. Other well-researched leadership fields such as transformational and socialized charismatic leadership have emphasized the importance of leader values and altruistic motivation. But, until around 2000, we could not point to a body of literature that was dedicated to understanding “ethical leadership” as a separate construct. Michael E. Brown and colleagues defined ethical leadership as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision making” (Brown et al. 2005: 120). They used a social learning framework to explain the expected effects. Ethical leaders, because of their behavior and leadership on ethics, are legitimate role models who have a positive influence on followers who wish to mimic the leader’s normatively appropriate behavior. Followers also learn about the consequences of right and wrong behavior from ethical leaders who set standards and hold followers accountable to them. The ethical leadership literature has developed substantially since publication of the 2005 article, demonstrating how important leaders are at every level of the organization. With ethical leadership, we see greater prosocial behavior, reduced deviance and unethical behavior, more voice, and better performance (see Treviño and Brown 2014 for a review). Scholars and practitioners have long talked about “tone at the top.” Indeed, senior leaders matter a lot because they set the tone for the organization, communicate the importance of ethics (or not), and provide resources (or not) for those whose job it is to keep ethics in the forefront of people’s minds (e.g., ethics and compliance officers). Evidence also exists that ethical leadership at the top level “trickles down” to supervisors in the organization (Mayer et al. 2009) and that these supervisors create ethical “unit” cultures with a large impact on ethical/unethical behavior outcomes (Schaubroeck et al. 2012). Therefore, executive leadership is extraordinarily important to planting and sustaining the seeds of an ethical culture. However, research also tells us that executive leaders are often uninformed about the ethical cultures in their organizations. Perceptions of ethics tend to be rosier the higher you go in the organization. So, these leaders must do their best to keep in touch with the ethical culture, especially perceptions of employees at lower levels (Treviño et al. 2008).

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Equally if not more important than senior executives are the managers who are on the front lines, leading employees every day. These are the managers who interact with employees regularly, conduct their performance evaluations, and make important decisions about pay and promotion. Especially in organizations with a strong emphasis on bottom line performance, ethical leaders focus attention at least equally on the importance of using ethical means to achieve bottom line goals. Importantly, they also demonstrate that they care about their employees, lead their personal and professional lives in an ethical manner (demonstrating integrity or wholeness), make principled and fair decisions, and are trustworthy. They set an obvious example by role modeling ethical behavior, setting and communicating high ethical standards and using reinforcement mechanisms to hold everyone accountable to those standards. Most of the research on ethical leadership and its effects has been conducted at the supervisory level and, as noted above, ethical leadership at that level is associated with important positive outcomes, including the creation of an ethical culture at the unit level.

Less work has been conducted on the negative side of leadership, although a robust literature exists on the topic of abusive supervision. Abusive supervisors are hostile and aggressive and have been found to have profound negative effects on employee outcomes, including ethics-related outcomes (for a review, see Tepper 2007).

Values statements and codes of conduct

Values and mission statements are broad statements of the organization’s identity; they express what the organization stands for and cares about. Nonetheless, they are often the butt of jokes (see Dilbert comics for examples) because cynical observers see them as words on a poster that do not reflect the identity and daily behavior of the actual organization. But, in some organizations, values statements reflect the true identity of the organization (sometimes the founder’s mission for creating the organization in the first place) and serve as a compass that directs the actions of the organization and its employees. In order to be effective, values statements should reflect the organization’s unique identity and should guide organization members’ behavior every day. For example, Johnson & Johnson’s Credo states that the organization’s first responsibility is to doctors, nurses, and patients, followed by employees, and then shareholders, The Credo is credited with guiding the organization’s behavior in the famous Tylenol poisoning crisis in the 1980s when the organization initiated an expensive recall of all Tylenol products and created the tamper-proof packaging that is now so familiar to all of us. Some observers question the continuing relevance of the Credo in today’s large decentralized Johnson & Johnson organization that appears to have lost its way in a number of ethical mishaps in recent years. But, this only helps to highlight the complexity of building and sustaining an ethical culture with its many systems that must work together seamlessly in order to succeed. A Credo alone is clearly not sufficient. All of the cultural systems must be aligned to support ethical conduct.

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Values statements often are accompanied by codes of conduct that provide much more specific guidance about the behavior that the organization expects of its employees. Codes often include guidelines regarding the giving or receiving of gifts, participating in social media, and conducting business legally overseas or with government contractors, and much more. Many organizations post their values statements and/or codes of conduct on their public websites, and many require that their employees take training each year to ensure familiarity with and agreement to the code’s contents. Some organizations are also now requiring that multiple exchange partners (e.g., suppliers, contractors) agree to comply with the firm’s conduct codes because companies are increasingly being held responsible for the behavior of exchange partners in their supply chains.

Selection systems

Once the values are established, an important way that organizations create and sustain ethical cultures is by attempting to select employees who share the organization’s values. The organization that cares about the ethics of recruits can address this in a number of ways. It can make its values and ethical standards clear in recruiting materials so that it attracts those who share them. It can ask values and ethics-based questions in interviews or when checking references in an attempt to find those who will fit the organization’s ethical culture. It can use internships to bring potential employees into the organization for a trial run so that they can be vetted. It can also attempt to insure that those applicants who definitely will not fit the ethical culture are weeded out. For example, the organization can conduct background checks on potential employees, check their social media profiles, check references, etc. Finally, once employees are hired, organizations can use provisional periods to observe new employees in action and ensure a good values fit. Those who don’t fit can be asked to leave. An advantage of selecting those who share the organization’s values is that the organization is more likely to have a strong culture where behavior is consistent across members. But a potential downside is that too much homogeneity may reduce the expression of dissent and new ideas (see Benjamin Schneider’s work, 2008, on the attraction, selection, attrition—ASA—model).

Orientation and training

Once employees are selected, the organization that cares about creating and sustaining an ethical culture will orient new employees to the values and ethical expectations of the organization. In the best case scenario, the CEO or a surrogate will show up at these orientation sessions to demonstrate commitment to the values and culture from the top of the organization, perhaps taking the trainees through a real ethical dilemma and role modeling good values and ethical decision making. Preferably, supervisors and coworkers are also on board and will reinforce those values outside of the orientation program. Most employers of any significant size today also require ethics/compliance training, usually annually. Minimally, this training focuses on insuring that employees know the rules and laws that are applicable to their jobs. The best training is probably face-to-face with managers in the room and will focus on gray areas, providing guidance about the ethical dilemmas that are likely to face employees in their industry, organization, or work. Most large organizations require some sort of ethics or compliance training today. But, unfortunately, we have little research evidence about training effectiveness. The consensus seems to be that every employee should be trained annually. This is mostly because the Sentencing Guidelines say that employees should be trained on the company standards (although no time interval is noted). This particular guideline has led most large organizations to implement annual on-line ethics training that allows the organization to “check the box” that says every employee has been trained annually. Yet, as noted above, this training may or may not be effective. We just don’t know. If it leads to cynicism among employees who believe that they are “wasting time,” or believe that they already know the content, it could actually backfire, leading employees to perceive a “check the box” culture rather than one that truly supports ethics.

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Performance management systems

One of the most significant ethical culture components is the performance management system. Organizational members pay close attention to what is measured and rewarded (or punished) in the organization. Most will try to do what is rewarded and to avoid doing what is disciplined. Therefore, in order to sustain an ethical culture, the formal performance management system should hold organizational members accountable to do their work in a way that upholds the organization’s values and ethical standards. For example, if respect for others is a value, then the performance evaluation should include something like “treats others with respect.” Those with whom the person works should be given the opportunity to evaluate him or her via peer evaluation (and in other cases, leaders should be evaluated by subordinates). If integrity is a value, the performance evaluation should consider whether the employee is thought to be honest and trustworthy by coworkers, supervisees and customers. Many organizations still emphasize more easily measurable bottom-line outcomes such as sales in their decisions about pay and promotion. But, for an ethical culture to be effective, the performance management system must attend at least as much to the means for achieving outcomes, and count those at least as much in important decisions about compensation and promotion. So, an important question to ask is this: do employees perceive that one can be promoted or get a raise if the individual is not achieving goals in a way that is consistent with the organization’s stated values? If the answer is no, the message to employees is clear that the organization means what it says about its values. But, if the answer is yes, there is little the organization can do to convince employees that it means what it says until it changes the performance management system. It will be clear to employees that only the bottom line matters and how one gets there does not.

Authority structures and reporting systems

Organizations are authority structures and managers are in a position to strongly influence followers because most people are going to do what an authority figure tells them to do (Milgram 1974). However, organizations also differ in terms of the messages they send about whether it’s all right or even expected that their members question authority. Deference to authority helps the organization to run smoothly, but it also allows followers to avoid feeling responsible for ethics-related outcomes. Thus, unethical behavior is more likely. Because of the human inclination to defer to authority, without a strong message to the contrary, most employees will assume that obedience is expected. As a result they will be hesitant to speak up. In fact, some have argued that silence is the default mode among organization members (Kish-Gephart et al. 2010) and that it takes great effort to overcome this default mode. Employees are reluctant to speak up even about routine concerns. But, when the concern is an ethical concern, that reluctance generally becomes complete silence unless the organization has worked especially hard to convince employees that speaking up about ethical concerns is not only safe but expected. Convincing employees that it’s safe is a tall order because “whistleblowers” tend to fare poorly. At least those are the stories we hear the most. Because of government requirements, most organizations have some kind of formal reporting system (such as a hotline that is answered by an outside contractor) for employees to report ethical or legal violations. The reports can be anonymous or not. Generally, the person is given a case number and is contacted (if not anonymous) or (using the case number) can check back for an update on the investigation. Protecting the reporter from retaliation is extremely important and some organizations even track the person’s career over time to be sure that the reporter has not been retaliated against. The two most powerful reasons that people don’t report wrongdoing is because they fear retaliation or expect nothing to come of their report. Therefore, protecting reporters and letting them know that the report was taken seriously, investigated, and acted upon represents the best of an ethical culture. In addition, research tells us that employees are more likely to report misconduct if they feel supported by their leader and coworkers (Mayer et al. 2013).

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Decision-making processes

Many organizations have formal decision-making processes and standard operating procedures to guide organization members in the process of making important decisions. If ethical considerations are a routine part of important decisions, employees learn that the organization really does care about the impacts of its decisions. For example, evaluating impacts on the community is more common today than it was a few decades ago. Many organizations have also committed to sustainability goals. Therefore, considering whether a new product or plant contributes to those goals may be required before a final decision to move forward can be made. Some organizations may invite the Ethics/Compliance Officer and or Sustainability Officer to participate in high-level meetings about important decisions as a way to insure that ethical considerations are taken into account. The opposite situation exists when employees perceive that only the bottom-line counts and that, despite what the organization might say in formal documents, they should make decisions with only the bottom line in mind.

Role models

On the more informal side, every organization has people who are looked to as heroes or role models. In a strong ethical culture, the heroes and role models are people who are known for doing the right thing even when it’s hard to do. They are people of integrity who not only care about others but are trustworthy, fair, respectful, humble and principled. There may be stories about them or they may be held up as exemplars at important events. By contrast, if the role models are those who get ahead by stepping on others, or by lying to and cheating customers, the message is clear that the people who employees are looking to mimic are models of unethical behavior not ethical behavior.

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Norms of daily behavior

Norms are the standards that guide conduct every day. Most employees (who are at the conventional level of cognitive moral development) look around and see what their leaders and coworkers are actually doing and they tend to follow and do the same. It doesn’t matter what the values state or what the code of conduct says. So, to understand an organization’s culture, it is more important to ask what people are actually saying and doing every day. Do they behave as if ethics matters? Or, do they behave as if only financials matter and ethics is relegated to annual ethics training and dismissed missives from the CEO?

Rituals

Organizations have rituals that demonstrate what they value. Like an anthropologist, one can learn much about an organization’s culture by studying the organization’s rituals. Is integrity celebrated at those rituals or is only financial performance the focus? For example, many organizations have annual sales meetings. Who at these meetings is given sales awards at the ritual dinner? Is it the salesperson who lied to and cheated customers and stepped on colleagues to get ahead? Or, is it the salesperson who turned down a request for a bribe by a foreign customer? Other rituals may be more mundane but send important signals about what the company stands for. For example, if on-site child care is provided, does one routinely see employees having lunch with their children in the cafeteria? If so, that’s a ritual that sends a powerful message that taking time to spend with your child during the day is supported and celebrated. Or, is going out for a ritual happy hour the expectation, so that a colleague who skips happy hour to pick up children at day care is ostracized from the group or denied the knowledge that is shared at such events? Employees pay very close attention to the signals and symbols represented by these rituals.

Language

We said earlier that the use of ethical language increases ethical awareness and that framing decisions as “ethical” decisions makes ethical fading less likely. Therefore, the question becomes, is the organization one where ethical language is not only accepted but expected and even celebrated—where one is expected to ask questions such as “is this proposal the ethical thing to do?” or to ask whether potential harm to stakeholders has been adequately considered before a decision is made. On the other hand, is organizational talk full of euphemistic language that mutes ethical awareness? As one example, “collateral damage” is a euphemistic term used by military and government officials to refer to civilian casualties in war. One’s ethical antennae are much more likely to be stimulated by talk about civilian deaths than by talk about collateral damage. It’s important for managers to understand the muting effect of euphemistic language and to search for euphemisms in their own organization.

Alignment of formal and informal systems

In order to have a strong ethical culture the many cultural components outlined above should be fully aligned with each other. They all need to be pulling and pushing behavior in the same direction. For example, the performance management system must support the values and ethical standards, and the norms of daily behavior should align with what employees are taught in training. If the culture components are misaligned, employees will get mixed messages and they may infer, plausibly, that the organization doesn’t mean what it says about ethics.

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Ethical climate

At around the same time that Treviño began discussing ethical culture, Victor and Cullen (1988) introduced the construct of ethical climate as the shared perceptions of the organization’s orientation toward ethics that could orient and guide employees’ attitudes and behaviors. The authors originally proposed nine theoretical climates. However, subsequent research based upon their survey measure tended to support fewer of these. For example: 1) an instrumental climate based upon self-interest; 2) a caring climate grounded in benevolence; 3) an independence climate based on individual decision-making; 4) a rules climate based upon following organizational rules and policies; 5) a law and code climate reliant on society’s laws and regulations to guide decision making. Kelly D. Martin and John B. Cullen (2006) published a meta-analytic review of the ethical climate research. They found the largest and most consistent support for positive relationships between a caring (benevolent) climate and positive employee work attitudes as well as lower unethical behavior; they found the opposite for instrumental climates—in a more self-interested climate employee attitudes are more negative and unethical behavior is higher. Similarly, in their meta-analysis Jennifer J. Kish-Gephart and colleagues (2010) found that egoistic (or self-interest) climates were positively associated with unethical choice while benevolent and principled climates were positively associated with ethical choice. Anke Arnaud and Marshall Schminke (2012) also followed this reduction of ethical climate to these two dimensions (self-interest vs. benevolence climates), suggesting that future work on climate is likely to focus on these two dimensions alone. They suggested that a collective moral emotion and moral efficacy are an important part of the ethical context and serve to moderate the influence of ethical climate on outcomes. They also created a shorter, more usable measure of ethical climate that can be used in future research. Indeed, they found that ethical climate had a significantly stronger effect on outcomes when employees shared concern for stakeholders (collective emotion) and felt that they could do something about ethical issues (collective efficacy). Their approach explained twice as much variance in unethical behavior as we typically find with traditional measures of ethical climate alone. These findings suggest that future research should focus on the complexities of ethical contexts and their relations to outcomes. Treviño, Butterfield, and McCabe (1988) found that ethical culture and climate were highly correlated and had similar relationships with attitudinal and behavioral outcome measures. Kish-Gephart and colleagues’ (2010) meta-analysis found similar results. So, there is work yet to do to determine how best to measure the ethical context in organizations.

Finally, in addition to thinking about the ethical climate or culture of the entire organization, research suggests that subunits also have climates and cultures. John M. Schaubroeck and colleagues (2012) found that ethical leaders influence unethical behavior through their influence on creating unit ethical culture. More work will also be required to understand how one creates subunit culture and how subunit cultures relate to organizational cultures.

Assessment—conducting an ethical culture audit

Given the features listed above, how does one get to know and understand an organization’s ethical culture? After reading about the complexities of ethical culture, it should be clear that this is not a simple task. The best way to fully understand an ethical culture is to conduct an ethical culture audit. A thorough audit would generally involve interviews, focus groups, and surveys that attempt to capture employee perceptions of the realities of organizational life and the ethical culture of the organization. One would need to assess each culture component as well as whether these are aligned with each other to support ethical behavior or unethical behavior—or, whether these components send mixed messages about what the organization really wants and stands for. In response to mixed messages, employees generally presume that bottom line outcomes matter more than ethics; as a result, ethical culture is compromised. Organizations that are willing to commit the time and resources to assessing their ethical cultures can learn extraordinarily important things about daily life in their organizations, information that is often a shock to senior managers for whom the ethical culture is always “rosier” than it is for those lower down the hierarchy (Treviño et al. 2008). Beyond these more traditional methods for assessing culture, we are likely to see efforts to harness “big data” to track things such as the words (perhaps euphemisms) in employee emails, employee comings and goings, and other actions. These new methods come with substantial privacy concerns and must be handled cautiously lest they send the message to employees that they are not trusted.

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Assessment is just the first step in creating and sustaining an ethical culture, which is a complex task that requires ongoing commitment, resources, and management support. An ethical culture can easily be undermined if this commitment to ongoing support disappears (Gehman et al. 2013).

Concluding remarks

Understanding individuals’ ethical actions in the context of organizations can help us to understand ethical crises and their management. For example, we discovered in 2015 that Volkswagen engineers created a software program to deceive emissions testing devices. Our inclination might be to focus on those individual engineers and their faulty normative ethical decision making. However, a management perspective focuses our attention on the culture that created a context within which those engineers thought that what they did was the “right” thing to do or, at minimum, it was what they were supposed to do or perhaps had to do in order to keep their jobs. What we know thus far is that the CEO at the time had set tough (if not impossible to achieve) emissions goals for “clean” diesel cars that were going to be sold in the US where emissions requirements are tougher than they are in Europe. The company had set challenging goals for itself in terms of sales of these “clean” diesels in the US. We know that goals are highly motivating and engineers tried all kinds of things in their attempts to meet the expectations. However, they found it difficult to achieve those goals in a legitimate manner and turned instead to the deceptive software. There was something about the culture at Volkswagen that created a context within which this could occur and remain hidden (perhaps even from senior management) for years. An ethics and compliance “program” will not solve Volkswagen’s problem although it could be a part of a culture overhaul. The only solution will be a thorough ethical culture audit followed by an overhaul of the culture with constant follow-up in ensuing years to insure that the old ways have not returned.

In the past few decades we have learned a great deal about the management of ethics in organizational context. We now know that we can’t take ethical awareness for granted; we have to work to ensure that employees recognize and are attentive to ethical issues when they arise. We also know that managers who are interested in driving ethical behavior in their organizations must create ethical climates and cultures that support and encourage doing the right thing. These go beyond the mentality of some organizations that follow the US Sentencing Guidelines in order to “check the box.” Employees are quick to recognize the difference between authenticity and hypocrisy. Also, as noted above, ethical culture is a complex phenomenon composed of multiple formal and informal ethical culture systems that must all work together. Mixed messages suggest hypocrisy. Therefore, an authentic ethical culture or climate can do much to produce positive attitudes and behaviors in employees. However, one that is seen as hypocritical is quickly and easily dismissed as a façade. It isn’t easy to create and sustain an ethical context in an organization over time. This is something that must be regularly assessed and the organization must be ready to tackle changes when ethical culture audits reveal problems.

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Essential readings

Much of the research on managing the ethics of employees is summarized in Linda Klebe Treviño and Kate Nelson’s Managing Business Ethics: Straight Talk about How to Do it Right (2014) which reviews the literature on ethical culture and climate (Chapter 5), and ethics programs (Chapter 6) and much more. To understand the foundation of research on moral reasoning, see the discussion in Lawrence Kohlberg, “Stage and Sequence: The Cognitive Developmental Approach to Socialization” (1969) and the more recent work of James R. Rest, Moral Development (1986). For an update on moral reasoning that includes the social intuitionist approach, see Jonathan Haidt’s study, “The Emotional Dog and its Rational Tail” (2001). For reviews and meta-analyses of literatures more broadly related to the management of ethics in organizations, see the following: Jennifer Kish-Gephart, David Harrison, and Linda Klebe Treviño, “Bad Apples, Bad Cases, and Bad Barrels” (2010); Kelly D. Martin and J. Cullen, “Continuities and Extensions of Ethical Climate Research” (2006); Linda Klebe Treviño, Niki den Niewenboer, and Jennifer Kish-Gephart, “(Un)ethical Behavior in Organizations” (2014); Linda Klebe Treviño, Gary Weaver, and Scott Reynolds “Behavior Ethics in Organizations: A Review” (2006); and Celia Moore and Francesca Gino, “Approach, Ability, Aftermath: A Psychological Process Framework of Unethical Behavior at Work” (2015). For an understanding of what works and what doesn’t in ethics and legal compliance in organizations, see Linda Klebe Treviño, Gary Weaver, David Gibson, and Barbara Toffler, “Managing Ethics and Legal Compliance: What Works and What Hurts” (1999), as well as research reports from the Ethics and Compliance Initiative based upon the National Business Ethics Survey (see ethics.org).

For further reading in this volume on management ethics (including intuitive moral judgment), see Chapter 26, Theoretical issues in management ethics. On the notion of ethical climate (or culture) and business leadership, see Chapter 25, Leadership and business ethics: are leaders wolves in business ethics? On some of the ways in which business ethics education may assist moral awareness (or alleviate moral blindness), see Chapter 4, Teaching business ethics: current practice and future directions. On management and corporate governance, see Chapter 24, Corporate governance. On relations between managers and employees, see Chapter 28, Employee ethics and rights. For a discussion of the ways that marketing may prove unethical, see Chapter 30, Ethical issues in marketing, advertising, and sales. On the emphasis on compliance in global ethics programs, see Chapter 32, The globalization of business ethics. A discussion of theoretical perspectives in international management may be found in Chapter 33, Cross-cultural management ethics in multinational commerce.

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