Ethical Climate Review Electronic Submission # 11360 a Review, Critique, and Prescription for the Empirical Research on Ethical Climate a Review, Critique, and Prescription for the Empirical Research on Ethical Climate

A REVIEW, CRITIQUE, AND PRESCRIPTION FOR THE EMPIRICAL RESEARCH ON ETHICAL CLIMATE There is currently a marked interest in understanding unethical behavior in organizations. In their seminal work, Victor and Cullen (1987; 1988) suggest that ethical climate (i.e, the shared perception of what is correct and ethical behavior in organizations) may be a useful way to examine organizational determinants of unethical behavior. Their work has sparked over 30 empirical articles on the topic in the past 15 years. Results from these empirical examinations have shown some support for the antecedents (e.g., social norms, organizational form, firmspecific factors) proposed by Victor and Cullen, and have demonstrated a number of beneficial attitudinal (e.g., job satisfaction, commitment) and ethics-related (e.g., less misbehavior, less deviance, less deception) consequences of ethical climate. While ethical climate has captured the interest of many scholars, there is presently no review of the empirical research. Further, although a number of advances have been made in terms of measurement, and in identifying antecedents and consequences of ethical climate, there are a number of changes that would help propel ethical climate research to a more advanced stage of development. The purpose of this paper is to provide a critical review of the empirical work on ethical climate, to highlight important methodological and conceptual issues that must be addressed for the field to continue to progress, and to provide future directions for research. Ethical Climate Review Electronic Submission # 11360 2 A REVIEW, CRITIQUE, AND PRESCRIPTION FOR THE EMPIRICAL RESEARCH ON ETHICAL CLIMATE The plethora of corporate scandals currently dominating the popular press has spurred a renewed interest in business ethics. Indeed, many scholars have called for quality empirical research on business ethics to help better understand the factors that contribute to unethical behavior in organizations (Ford & Richardson, 1994; Randall & Gibson, 1990). Approximately 15 years ago, Victor and Cullen (1987; 1988) introduced the concept of “ethical climate” to gain an understanding of how organizational characteristics impact ethical behavior. They define ethical climate as,” the shared perception of what is correct behavior, and how ethical situations should be handled in an organization,” (Victor & Cullen, 1987: 51). A premise of this construct is that unethical behavior is not just the product of a few “bad apples” but rather the climate under which organizational members operate can either facilitate or inhibit (un)ethical acts. The theoretical work by Victor and Cullen (1987; 1988) has sparked over 30 empirical studies since its conceptualization. However, despite the large number of empirical studies on ethical climate, there is no published review of this literature. Indeed, great strides have been made in terms of identifying antecedents and consequences of ethical climate. While there has been a marked interest in this topic and important empirical advances have been made, there are a number of operational, methodological, and analytical issues that need to be addressed for this area of research to continue to flourish. In this paper I argue that is essential for empirical research on ethical climate to develop in terms of methodological rigor and in expanding the types of precursors and outcomes examined. Such advances will be important in helping ethical climate to become an integral part of mainstream organizational behavior like other types of climate (e.g., service, safety, innovation implementation, diversity) have become in recent years. Ethical Climate Review Electronic Submission # 11360 3 The purpose of this paper is to provide a summary and integration of the empirical research on ethical climate. In doing so, I describe Victor and Cullen’s (1987; 1988) initial conceptualization, measurement issues, and antecedents and consequences of ethical climate. In addition, I provide a critical analysis of issues that may impact the validity of the research findings. Finally, I highlight a number of important areas for future research on ethical climate. Inclusion Criteria Only published empirical research on ethical climate is described in this review. In order to determine which articles would be included in this review, a literature search was conducted using the Business Source Premier, Business Wire News, PsycArticles, PsycInfo, and Psychology and Behavioral Sciences Collection databases with the key words “ethical climate” and “moral climate. ” In addition, a screening of reference sections of related business ethics articles was conducted to ensure an adequate level of breadth. This comprehensive search yielded a total of 35 studies that met the inclusion criteria. At this stage of research on ethical climate, a qualitative review is most appropriate. While a number of antecedents and consequences have been studied, there is not a large enough number of studies including the same variables to warrant the adoption of meta-analysis techniques. Further, this qualitative review allows for a more detailed examination of conceptual and methodological issues and directions for future research—issues that are important to address at this stage of development for the ethical climate literature. The Conceptualization of Ethical Climate Ethical climate has at its core the notion that ethical behavior in organizations is the result (at least in part) of the environment in which the organization operates and the specific characteristics of the organization. The idea is that there are not simply good people and bad Ethical Climate Review Electronic Submission # 11360 4 people in organizations but rather that an organization can facilitate either unethical or ethical behavior by how it is structured and what it values. Victor and Cullen (1987; 1988) are known as the "fathers" of ethical climate. Their influential work has precipitated over 30 empirical articles on the topic of ethical climate over the past 15 years. In their seminal work, Victor and Cullen discuss three primary assumptions of ethical climate. First, organizations or sub-groups within organizations develop institutionalized normative systems. Second, although not homogenous, these normative systems can be perceived by organizational members. Third, perceptions of ethical climate are different than affective reactions to the ethical climate. These three assumptions led to two propositions. First, there is more between group variance (across organizations) than within group variance on perceptions of ethical climate. Second, perceptions of ethical climate may not correlate with affective responses to the climate (Victor & Cullen, 1987; 1988). These propositions and assumptions lay the foundation for the operationalization and subsequent empirical examination of the ethical climate construct. This brief overview of the initial conceptualization of ethical climate proposes the idea that organizational characteristics (i.e., climate) can impact ethical behavior. This is consistent with the work by Kohlberg and his colleagues (Higgins, Power, & Kohlberg, 1984) on moral development in which they discuss the notion of a “moral atmosphere” and “just community” to better understand how social forces impact unethical acts. This multi-discipline focus is also utilized in the theoretical development of the primary measure used to assess ethical climate, as described in the next section. Ethical Climate Review Electronic Submission # 11360 5 The Operationalization of Ethical Climate Victor and Cullen (1987; 1988) utilized philosophical, psychological, and sociological perspectives in developing a theoretical basis for creating a measure of ethical climate. More specifically, they used a two-dimensional theoretical perspective to understand the different types of ethical climates that exist in organizations. The first dimension, ethical criterion, maps on to the three major classes of ethical theory: egoism (i.e., maximizing self-interest), benevolence (i.e., maximizing joint interests), and deontology or principle (i.e., adhering to a principle) (Williams, 1985, Fritzche & Becker, 1984). The second dimension is referred to as the locus of analysis and draws heavily on the work by Merton (1957) on roles and references groups. Locus of analysis relates to who the referent is for your actions. The three loci of analysis include: self (i.e., oneself), local (i.e., one’s organization or subunit), and cosmopolitan (i.e., the environment external to the organization). This three (ethical criteria) by three (loci of analysis) matrix forms nine theoretical dimensions of ethical climate (see Table 1). Victor and Cullen (1987; 1988) wrote four items to tap each of these dimensions for a total of 36 items which make up the Ethical Climate Questionnaire (ECQ). The items are published in Cullen, Victor, and Bronson (1993). The ECQ has been the most commonly used measure of ethical climate. Empirical work has sought to determine whether these nine theoretical dimensions hold up when empirically tested with a factor analysis. In order to look at the specifics of each study, a complete review of the measures used for all studies as well as other study characteristics are found in Table 2. Victor and Cullen (1987) conducted an exploratory factor analysis and found support for a six factor solution. The first factor, Professional, consists primarily of items form the “Cosmopolitan” level of analysis for the “Benevolent” and “Principle” forms of ethical criteria. Ethical Climate Review Electronic Submission # 11360 6 The second factor, Caring, contains items from the “Individual” and “Local” levels of the “Benevolent” criteria. The third factor, Rules, has the highest loadings on the “Local” level of analysis and “Principle” criteria. The fourth factor, Instrumental, focuses primarily on the “Individual” and “Local” levels wit