Organizational

ethics

Organizational ethics is the ethics of an organization, and it is how an organization responds

to an internal or external stimulus. Organizational ethics is interdependent with the
organizational culture. Although it is to both organizational behavior and industrial and
organizational psychology as well as business ethics on the micro and macro levels,
organizational ethics is neither organizational behavior nor industrial and organizational
psychology, nor is it solely business ethics (which includes corporate governance and
corporate ethics). Organizational ethics express the values of an organization to its
employees and/or other entities irrespective of governmental and/or regulatory laws.

Ethics are the principles and values used by an individual to govern his or her actions and
decisions.[1] An organization forms when individuals with varied interests and different
backgrounds unite on a common platform and work together towards predefined goals and
objectives.[1] A code of ethics within an organization is a set of principles that is used to
guide the organization in its decisions, programs, and policies.[2] An ethical organizational
culture consists of leaders and employees adhering to a code of ethics.[2]

Overview

An organization's ethical philosophy can affect the organization in many ways including its
reputation, productivity, and the bottom line of the organization.[2] Ethics within an
organization can offer many benefits. A positive ethical corporate culture improves the
morale among the workers in an organization, which could increase productivity, employee
retention and loyalty.[3] Higher productivity improves the efficiency of the organizations and
increased employee retention reduces the cost of replacing employees. Other essential
benefits of an ethical culture include better internal communication and wider community
development through corporate social responsibility. In the US, the Foreign Corrupt Practices
Act restricts the United States business firms from engaging in bribery and other illegal
practices internationally. There are laws that have the same type of prohibition for European
companies which create a disadvantage competitively for both European and U.S. firms.[4]
Such laws are not a restricting element to organizations that have highly elevated ethical
behavior as part of their values. Organizations that lack ethical practices as a mandatory
basis of their business structure and corporate culture, have commonly been found to fail
due to the absence of business ethics. Corporate downfalls would include, but are not limited
to, the recent Enron and WorldCom scandals, two primary examples of unethical business
practices concerning questionable accounting transactions.

Organizations focusing on encouraging ethical practices are commonly viewed with respect
by their employees, the community, and corresponding industries.[5] Ethical business
practices of organizations have resulted in a solid financial bottom-line. This has been seen
through greater sales and increased revenue by companies retaining talented personnel and
attracting new skilled employees. More importantly, an ethical organization will have the
ability to retain employees that are experienced and knowledgeable (generally referred to as
human capital). This human capital results in less employee turnover, less training time for
new employees, and greater output regarding services (or production of goods).

Basic ethical elements

There are at least four elements that aim to create an ethical culture and behavior of
employees within an organization. These elements are:

1. a written code of ethics and standards (ethical code)

2. ethics training for executives, managers, and employees

3. the availability of ethical situational advice (i.e. advice lines or offices)

4. confidential reporting systems[6]

Organizations are constantly striving for a better ethical atmosphere within the business
climate and culture. Businesses must create an ethical business climate in order to develop
an ethical organization. Otherwise said, companies must focus on the ethics of employees in
order to create an ethical business. Employees must know the difference between what is
acceptable and unacceptable in the workplace. These standards are found in the written
code of ethics or may be referred to as the employee handbook. These standards are a
written form of employee conduct and performance expectations.
Employee handbooks also commonly include rules concerning expectations and
consequences that follow misconduct. Handbooks normally will clearly state the rules,
guidelines, and standards of an organization as well as possible rules, regulations, and laws
that they are bound by. Many company handbooks will include laws regarding sexual
harassment, alcohol abuse, and drug/substance abuse.

For more information regarding situational ethical principles, refer to "Situational Ethics."

Intrinsic and extrinsic organizational rewards

The intrinsic and extrinsic rewards of an ethical organization are bound to an organization's
culture and ethics. Based on the reliability and support structure of each of the four areas
needed for ethical behavior, the organizational ethics will be evident throughout the
organization. The organization including the employees, managers, suppliers, customers, and
other entities, will receive intrinsic and extrinsic rewards. Actions of employees can range
from whistle blowing (intrinsic) to the extraordinary actions of hourly employee purchasing all
the recently produced peanut butter (as produced by his employer), that has no resale value
due to mislabeled jars. This employee was aware that his employer (extrinsic) would
reimburse him in full for purchasing the mislabeled peanut butter.[7]

For more information regarding intrinsic and extrinsic motivation, see "Intrinsic and Extrinsic
Motivation."

Ethical theory and leadership empowerment

There are many theories and organizational studies that are related to “organizational ethics,”
but "organizations" and "ethics" are wide and varied in application and scope. These theories
and studies can range from individual(s), team(s), stakeholder, management, leadership,
human resources, group(s) interaction(s), as well as the psychological framework behind
each area to include the distribution of job tasks within various types of organizations. As
among these areas, the influence of leadership in any organization cannot go unexamined,
because of a clear understanding of the organization's vision, goals (to include immediate
and long-term strategic plans), and values. Leadership sets the tone for organizational
management (strategic actions taken by an organization to create a positive image to both
internal and external public). In turn, leadership directly influences the organizational
symbolism (which reflects the culture, the language of the members, any meaningful objects,
representations, and/or how someone may act or think within an organization). The values
and ideals within an organization generally center upon “values for business” as the
theoretical approach most leaders use to present to their "co-members" (which in truth
maybe subordinates).

In fact, an examination of business reveals that most leaders approach the X(?) from the
perspective of values for the business.[8][9] Alongside presenting the vision, values, and goals
of the organization, the leader should infuse empowerment and motivation to its members.
Leaders using empowerment to motivate their subordinates, is based upon the view of:
“Achieving organizational ownership of company values is a continuous process of
communication, discussion, and debate throughout all areas of the organization”[10] as.

For more information about organization theory, refer to "Organizational Theory."

Stakeholder theory

Whether it is a team, small group, or a large international entity, the ability for any
organization to reason, act rationally, and respond ethically is paramount. Leaders must have
the ability to recognize the needs and desires of members (or called “stakeholders” in some
theories or models), and how they correspond to the organization. It is the stakeholder theory
that implies that all stakeholders (or individuals) must be treated equally, regardless of the
fact that some individuals will contribute more than others to the organization.[11]

Leaders who motivate others must present the goals of an organization to the stakeholders
with respect to particular benefits of the stakeholders. Leaders must set aside individual (or
personal) ambitions (along with any prejudice) in order to present these goals properly.
Furthermore, it is leadership that influences stakeholders towards ethical behavior for the
organization. They must step behind a veil of ignorance and treat every stakeholder as a
means with equal weight. Importantly, the leader (or stakeholder management) must
possess the necessary skills and rank to ensure that each stakeholders voice is respected
and heard within the organization to ensure that other voices are not expressing views (or
needs as in respects to Maslow's Hierarchy of Needs). Therefore, stakeholder management
must ensure an ethical system for their own management styles, personalities, systems,
performances, plans, policies, strategies, productivity, openness, and even risk(s) within their
cultures or industries.

Ethical system implementation

The function of developing and implementing business ethics into an organization is difficult.
Due to each organization's culture and atmosphere being different, there is no clear or
specific way to implement a code of ethics to an existing business. Business ethics
implementation can be categorized into two groups; formal and informal measures. Formal
measures include training and courses pertaining to ethics. Informal measures are led by
example from either the manager or the social norm of the company.[12]
There are several steps to follow when trying to implement an ethical system. Some of these
steps include obtaining a commitment from the board of directors and senior managers,
developing resources for ethics initiatives, and determining ethical risks and developing
contingency plans. Other steps include developing an ethics program that addresses risks
while still maintaining compliance with the ethical standards, providing insight for
implementation and audits of the ethical programs, and communicating with stakeholders to
create shared commitment and values for ethical conduct.[13]

The implementation should be performed to the entirety of the business including all areas of
operations. If it is not implemented pragmatically and with caution for the needs, desires, and
personalities (consider the Big Five personality traits) of the stakeholders, the culture, and the
employees, then problems may arise. Although a great deal of time may be required,
stakeholder management should consider the Rational Decision-Making Model for
implementation of various aspects, details, and standards of an ethical system to the
stakeholders. If an implementation has been performed successfully, then all stakeholders
have accepted the newly designed ethics system for the organization. With the
implementation of an ethical system comes the implementation of new tasks and
responsibilities. The responsibilities include leadership in ethics, delegating, and
communicating as well as motivating the company's ethical position to its employees.[14]

Some corporations have tried to burnish their ethical image by creating whistle-blower
protections, such as anonymity. In the case of Citi, they call this the Ethics Hotline.[15] Though
it is unclear whether firms such as Citi take offences reported to these hotlines seriously or
not.

Theories and models

Refer to the following theories and models for more information:

Stakeholder Theory

Maslow's Hierarchy of Needs

Rational Decision-Making Model

Big Five Personality Traits

See also

Economics

Ethic of reciprocity
 Functional leadership model

Golden Rule

Group Emotion

Human Factors

Human Resources Development

Human Resource Management

Industrial Engineering

Industrial Sociology

Organization design

Organizational development

References

1. Matthews, J. (n.d.). Eight Elements of an Ethical Organization. Retrieved November 30, 2014, from
http://www.entrepreneurship.org/resource-center/eight-elements-of-an-ethical-organization.aspx

2. Kelchner, L. (n.d.). The Importance of Ethics in Organizations. Retrieved November 30, 2014, from
http://smallbusiness.chron.com/importance-ethics-organizations-20925.html

3. "Culture, Morale, and Motivation in Organizations: An Overview" (https://organizationalperformancegr

oup.com/wp-content/uploads/2016/10/Org_Culture_Morale_and_Motivation.pdf) (PDF). December
2018.

4. Svensson, Jakob, “Who Must Pay Bribes and How Much? Evidence from a Cross-Section of Firms,”
Quarterly Journal of Economics, 118(2003), page 207

5. Managing with Soul: Combining Corporate Integrity with the Bottom Line,” November 14, 2003,
www.hreonline.com/HRE.

6. Clark, Margaret M., JD., SPHR, "Corporate Ethics Programs Make a Difference, but not the only
difference", HR Magazine, July 1, 2003, page 36.

7. Peters, T.J., and Austin, N. ,(1985), Passion for Excellence: The Leadership difference. New York:
Ballantine.

8. Dricscoll, Dawn-Marie and Hoffman, W. Michael (2002). Ethics Matters: How to Implement Values-
Driven Management

9. McDaniel, Charlotte, (2004), Organizational Ethics: Research and Ethical Environments, page 39

10. Dricscoll, Dawn-Marie and Hoffman, W. Michael, (2002), Ethics Matters: How to Implement Values-
Driven Management, page 172
11. D.A. Gioia, (1999), "Practicability, Paradigms, and Problems in Stakeholder Theorizing," Academy of
Management Review, 24(2), pp. 228–232.

12. Belak, Jernej (2011). "Informal and Formal Institutional Measures of Business Ethics Implementation
at Different Stages of Enterprise Life Cycle" (http://uni-obuda.hu/journal/Belak_Milfelner_27.pdf)
(PDF). Acta Polytechnica Hungarica. 8 (1): 106.

13. Fraedrich, John (1990). Business Ethics: Ethical Decision Making and Cases. South Western College.
p. 139. ISBN 9781111825164.

14. Murphy, Patrick (1998). "Implementing Business Ethics". Journal of Business Ethics. 7: 907–915.
hdl:10822/827633 (https://hdl.handle.net/10822%2F827633) .

15. "Citi | Investor Relations | Ethics Hotline" (https://www.citigroup.com/citi/investor/ethics_hotline.ht

ml) . www.citigroup.com. Retrieved 2020-06-15.

External links

Organizational Ethics and Integrity (http://www.ethicaledge.com/introduction.html)

Organizational Ethics Articles (http://www.ethics.org/resources/articles-organizational-eth

ics.asp)

ethicsweb.ca (http://www.ethicsweb.ca/resources/business/)

Notes

Halbert, Terry, and Ingulli, Elaine, Law & Ethics in the Business Environment, 5th edition
(2006). Mason, OH: Thomson Learning.

Driscoll, Dawn-Marie and Hoffman, W. Michael, Ethics Matters: How to Implement Values-
Driven Management (2000). Waltham, MA: Bently College Center for Business Ethics.

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