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Perceived Corporate Ethics and Individual Ethical Decision Making: When in Rome, Doing as the Romans Do Sean Valentine University of North Dakota...

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Perceived Corporate Ethics and Individual Ethical Decision Making: When in Rome, Doing as the Romans Do Sean Valentine University of North Dakota Lynn Godkin Lamar University John Vitton University of North Dakota The purpose of this study was to explore the degree to which beliefs about corporate ethics are positively related to ethical decision making, operationalized as ethical issue recognition, ethical judgment, and ethical intention. Using a self-report survey containing different ethics measures, information was collected from over 200 individuals employed in different organizations located the south central United States. The findings indicated that perceptions of corporate ethical values were positively related to the different steps of individual ethical reasoning, and that these steps were positively interrelated. Company leaders should develop organizational ethics to prompt ethical reasoning in employees. INTRODUCTION Since the earliest commercial trading, ethics has been a key challenge in business. Throughout history, ethical scandals have been commonplace, including the South Sea Bubble of the 18 th century, the Yazoo land scheme of 1776, the initial Ponzi scheme that occurred in the 1920s, and the British victory bonds that defrauded individuals following World War I (Owen, 2010). However, it appears that many more ethical infractions have been reported in recent years, particularly in the United States. For instance, organizations such as Adelphia, Arthur Anderson, HealthSouth, ImClone Systems, Merrill Lynch, Tyco, and WorldCom have been involved in ethical scandals, with some of their top leaders facing criminal charges, job loss, and prison time (A Guide to Corporate Scandals, ; Dess et al., 2010; Lavelle, 2002; Owen, 2010; Pearce & Robinson, 2009; Thompson et al., 2010, Trevino & Nelson, 2007). Other recent examples of business impropriety include Bernie Madoff’s use of an illicit Ponzi financial scheme, which took $50 billion in charity and retirement contributions from individuals before going defunct in 2008 (Dess et al., 2010), and the U.S., German, and Russian investigation of Hewlett-Packard’s alleged use of multi-million-dollar bribes to gain access to the Russian market to sell computer products (Crawford & Searcy, 2010). Perhaps the most widely publicized scandal of the past decade involved Enron, a company that was originally admired for its business practices. In reality, the Journal of Leadership, Accountability and Ethics vol. 9(2) 2012 55
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company was misrepresenting its financial position, which resulted in a large-scale bankruptcy, a $64 billion deficit to investors, and a loss of workers’ retirement funds (Thompson et al., 2010). A common underlying theme in these scandals is the lack of a positive organizational culture and leadership that promotes ethics to employees. For instance, a study of 141 top financial professionals indicated that 17% of individuals had their CEOs, over a span of five years, request that they distort company financial information, and 5% had evidently complied (Roman, 2002; Wheelen & Hunger, 2008). A different study found that 53% of individuals working for a variety of firms indicated that they would falsify financial figures if someone in charge encouraged them (Kurlantzick, 2003; Wheelen & Hunger, 2008). The institutionalization of unethical norms is demonstrated particularly in the collective actions of employees. For instance, an investigation “by the Ethics Resource Center of 1,324 employees of 747 US companies found that 48% of employees surveyed said that they had engaged in one or more unethical and/or illegal actions during the past year. The most common questionable behaviors involved cutting corners on quality (16%), covering up incidents (14%), abusing or lying about sick days (11%), and lying to or deceiving customers (9%). Some 56% of workers reported pressure to act unethically or illegally on the job” (Nearly Half of Workers…, 1997, p. 18B; Wheelen & Hunger, 2008, pp. 61-62). Given the frequency and severity of poor work attitudes and conduct, encouraging employees to connect more positively to the work environment is viewed as a paramount issue, not only from a compliance standpoint, but also from a position of business sustainability. An ethical orientation indeed presents many advantages to professions and organizations, including increased organizational effectiveness, numerous beneficial employee attitudes, and other positive work responses (e.g., Carlson & Perrewe, 1995; Dess et al., 2010; Hunt et al., 1989; Trevino et al., 1998; Valentine & Fleischman, 2008; Valentine et al., 2011). As such, organizations are focusing more readily on corporate governance as a mechanism for managing generalized business and employee ethics: As the list as the list of companies engulfed in scandal grows—form Enron to Tyco to WorldCom—the revolution is gaining momentum. Top executives who once blithely ignored criticism of their clubby boards are scrambling to institute reforms. Directors whose main contribution to boardroom debate had been golf scores and gossips are returning to the classroom to learn how to read a balance sheet. Compensation committees that routinely awarded massive pay packages to poorly performing CEOs are having second thoughts. And while many official reforms have already been passed following Enron’s meltdown, boards are going even further, instituting sweeping changes in their composition, structure, and practices on a scale not seen since skyrocketing executive pay gave birth to the modern governance movement in the 1980s (Lavelle, 2002, p. 245). Organizations are also interested in developing a work context that encourages employees to perform ethically. Such an environment relies on the ethical position of leaders, the company’s written or espoused values, and other positive behavioral norms (Hunt et al., 1989; Trevino et al., 1998; Trevino & Nelson, 2007) and is triggered through several complementary processes. Some of these processes include the immediate ethical climate (Barnett & Vaicys, 2000; Victor & Cullen, 1988) and organizational ethical culture (Treviño, 1986; Treviño & Youngblood, 1990), which underscore the important components of ethical context (e.g., Kish-Gephart et al., 2010; Valentine & Fleishman, 2008). Ethical climate consists of the “…group of prescriptive climates reflecting the organizational procedures, policies, and practices with moral consequences” (Martin & Cullen, 2006, p. 177), and conduct results from individuals’ beliefs about the expectations embodied in behavioral norms and standards (e.g., Barnett & Vaicys, 2000; Martin & Cullen, 2006; Wimbush & Shepard, 1994). For instance, an egositic environment (Victor & Cullen, 1988) that promulgates self-interest among employees is known to increase unethical decision making and behavior (Barnett & Vaicys, 2000; Peterson, 2002; Kish-Gephart et al., 2010). “However, the reverse relationship is found where there is a climate that focuses employees’ attention on the well-being of multiple stakeholders, such as employees, 56 Journal of Leadership, Accountability and Ethics vol. 9(2) 2012
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