Improving Ethical Culture by Measuring Stakeholder Trust
Every business firm has a unique culture. Its culture is made up of the cumulative knowledge, experiences, institutions, beliefs, attitudes, and other social
We have in previous posts suggested that all businesses have a duty to
We have written, in previous posts, that business firms have an obligation to
Strengthening Its Ethical Culture Makes a Firm More Competitive
When we talk about a business firm’s “ethical culture” we are not saying that the firm is ethical. The phrase “ethical culture” is just the phrase that people who study businesses use to talk about the part of a business firm’s overall culture that has to do with ethical or social issues.[i] It can be “strong” – highly ethical – or “weak” – not very ethical – or somewhere in between.
A lot of that will depend on norms. Norms consist of the generally understood informal rules that help people make decisions and interact within an organization. In some organizations, for example, it might be considered “normal” to smile and say hello in the morning, while in other organizations it might be considered “abnormal” to do anything other than go straight to work. Norms, of course, also provide guidance to far more serious issues, and may deal with almost any question regarding how a person or a business firm should act.
People who study how individuals behave in
When the “ethical culture” component of a business firm’s overall culture is strong – when norms and other things guide people in that firm to make sound ethical and social decisions – the firm benefits in two ways: it enhances the positive and controls the negative. In terms of enhancing the positive, a strong ethical culture increases the amount of loyalty and commitment that people associated with a business firm have towards that firm.[iii] A strong ethical culture also contributes to higher levels of job satisfaction.[iv] People who are loyal and committed to a business firm are more likely to make “sacrifices” for that firm, meaning they are more likely to do things like working late or on weekends in order to get a project done, or help another department when that department needs extra help. People who are loyal and committed to a firm are more likely to defend that firm against accusers, and to stand by the firm in times of crisis. Workers who have high levels of job satisfaction are more likely to stay with a firm, and are more likely to refer customers
In terms of controlling the negative, a strong ethical culture significantly reduces bad
Creating a Strong Ethical Culture by Measuring Stakeholder Trust
There are, therefore, tangible, bottom line benefits to a business firm that flow from the creation of a strong ethical culture. A smart business leader will want to create just such a culture. The problems with setting out to do that, however, are first that culture by itself is difficult to measure, so creating
Those problems may be resolved through the use of stakeholder trust as a proxy for the strength of an ethical culture. Trust can be measured – it is already measured by political consultants, by sociologists, and as a component of reputation. Because it can be measured, measurable goals and objective can be set. And once measurable goals and objectives are set, managers – who have the best knowledge of
This already happens in other contexts, for example when business firms use the triple-bottom-line accounting method[vi] or the balanced scorecard performance enhancement tool.[vii] It may take time, and some trial and error, but business firms have shown that if given a
As we have explained in previous posts, our interest in
We cannot, however, ignore the fact that individual business firms will ask for a more compelling reason. In previous
[i] Some people who conduct research on this sort of thing distinguish between a business firm’s ethical “climate” – the set of norms and informal rules and understandings that have to do with ethics – and its ethical “culture” – the ethical climate plus the more formal rules and enforcement mechanisms that have to do with how that firm interacts with society. Regardless of the focus, the research discussed in this post shows that the ethical culture has a powerful effect on the functionality and productivity of a business firm.
[ii] Applebaum, S.H., Deguire, K.J. & Lay, M. (2005). The relationship of ethical climate to deviant workplace
[iii] For example: Ambrose, M., Arnaud, A. & Schminke, M. (2008). Individual moral development and ethical climate: the influence of person-organization fit on job attitudes. Journal of Business Ethics, 77(3), 323-333; Babin, B.J., Boles, J.S. & Robin, D.P. (2000). Representing the perceived ethical work climate among marketing employees. Journal of the Academy of Marketing Science, 28(3), 345-358; Bulutlar, F. & Öz, E.Ü. (2009). The effects of ethical climates on bullying behaviour in the workplace. Journal of Business Ethics, 86(3), 273-295; Cullen, J.B., Parboteeah, K.P. & Victor, B. (2003). The effects of ethical climates on organizational commitment: a two-study analysis. Journal of Business Ethics, 46(2), 127-141; Erben, G.S. & Güneşer, A.B. (2008). The relationship between paternalistic leadership and organizational commitment: investigating the role of climate regarding ethics. Journal of Business Ethics, 82(4), 955-968; Mulki, J.P., Jaramillo, J.F. & Locander, W.B. (2008). Effect of ethical climate on turnover intention: linking attitudinal-and stress theory. Journal of Business Ethics, 78(4), 559-574; Neubert, M.J., Carlson, D.S., Kacmar, K.M., Roberts, J.A. & Chonko, L.B. (2009). The virtuous influence of ethical leadership behavior: evidence from the field. Journal of Business Ethics, 90(2), 157-170; Schwepker, C.H. (2001). Ethical climate’s relationship to job satisfaction, organizational commitment, and turnover intention in the salesforce. Journal of Business Research, 54(1), 39-52; Shapira-Lishchinsky, O. & Even-Zohar, S. (2011). Withdrawal behaviors syndrome: an ethical perspective. Journal of Business Ethics, 103(3), 429-451; Treviño, L.K., Butterfield, K.D. & McCabe, D.L. (1998). The ethical context in organizations: influences on employee attitudes and behaviors. Business Ethics Quarterly, 8(3), 447-476; Tsai, M.T. & Huang, C.C. (2008). The relationship among ethical climate types, facets of job satisfaction, and the three components of organizational commitment: a study of nurses in Taiwan. Journal of Business Ethics, 80(3), 565-581; Weeks, W.A., Roberts, J., Chonko, L.B. & Jones, E. (2004). Organizational readiness for change, individual fear of change, and sales manager performance: an empirical investigation. Journal of Personal Selling & Sales Management, 24(1), 7-17.
[iv] A found by, among others, Babin, B.J., Boles, J.S. & Robin, D.P. (2000). Representing the perceived ethical work climate among marketing employees. Journal of the Academy of Marketing Science, 28(3), 345-358; Elçi, M. & Alpkan, L. (2009). The impact of perceived
[v] For example, Andreoli, N. & Lefkowitz, J. (2009). Individual and organizational antecedents of misconduct in organizations. Journal of Business Ethics, 85(3), 309-332; Balthazard, P.A., Cooke, R.A. & Potter, R.E. (2006). Dysfunctional culture, dysfunctional organization: capturing the behavioral norms that form organizational culture and drive performance. Journal of Managerial Psychology, 21(, 709-732; Deshpande, S.P. & Joseph, J. (2009). Impact of emotional intelligence, ethical climate, and behavior of peers on ethical behavior of nurses. Journal of Business Ethics, 85(3), 403-410; Fritzsche, D. J. (2000). Ethical climates and the ethical dimension of decision making. Journal of Business Ethics, 24(2), 125-140; Fu, W. & Deshpande, S.P. (2012). Factors impacting ethical behavior in a Chinese state-owned steel company. Journal of Business Ethics, 105(2), 231-237; Laratta, R. (2011). Ethical climate and accountability in nonprofit organizations: a comparative study between Japan and the UK. Public Management Review, 13(1), 43-63; Mayer, D.M., Kuenzi, M. & Greenbaum, R.L. (2010). Examining the link between ethical leadership and employee misconduct: the mediating role of ethical climate. Journal of Business Ethics, 95(
[vi] As shown by, among others, Savitz, A. (2012). The triple bottom line: how today’s best-run companies are achieving economic, social and environmental success. New York: John Wiley & Sons; Slaper, T.F. & Hall, T.J. (2011). The triple bottom line: what is it and how does it work? Indiana Business Review, 86(1), 4-8; Willard, B. (2012). The new sustainability advantage: seven business case benefits of a triple bottom line. British Columbia: New Society.
[vii] As shown by, among others, Nair, M. (2004). Essentials of