How Can We Create Ethical Organizations?

July 15, 2011

By David M. Mayer 

Corporate indiscretion, wrongdoing, and corruption are perpetually the subject of media attention as well-known companies such as Enron, Tyco, WorldCom, and most recently the News of the World, have been found guilty of unlawful behavior; and the U.S. economic crisis has in part been blamed on unethical actions from Wall Street. These corporate scandals and current financial woes have brought renewed interest to business ethics—namely, understanding the factors that promote ethical behavior in organizations. Although conventional wisdom suggests that unethical behavior is the result of a few “bad apples,” there is mounting evidence that in addition to the personal values of employees, the organizational environment plays a critical role in encouraging ethical conduct.

If the organizational environment is important in promoting ethical conduct, how can such a context be created? We argue that there are three key pieces of the ethical environment that work together to promote ethical behavior: (1) ethical leadership, (2) ethical practices, and the (3) ethical climate.

Ethical leaders set the tone for how employees should behave in organizations. Ethical leaders are both moral persons who have desirable characteristics and moral managers who influence employees conduct directly:

  • Moral Persons: listen to employees, conduct their personal lives in an ethical manner, have the best interests of employees in mind, make fair decisions, can be trusted.
  • Moral Managers: Discipline employees who violate ethical standards, discuss business ethics or values with employees, set an example of how to do things the right way in terms of ethics, define success not just by results but also the way they are obtained, ask “What is the right thing to do?” when making decisions.

Ethical practices are actions or activities related to ethics that are repeated and recognizable in organizations—they are what organizations actually do rather than just what is touted. Research demonstrates there are six critical organizational practices related to ethics:

  • Recruitment and Selection: Using ethical hiring practices, hiring employees with strong ethical values, emphasizing ethics when recruiting new employees, searching for ethical applicants


  • Orientation and Training: Requiring attendance at ethics training, using the things employees learn in ethics training when performing their jobs, discussing ethical issues with new employees as part of their initial orientation
  • Policies and Codes: Strictly following written codes of ethics, the ethics code serving as more than just window dressing, enforcing all ethical behaviors—not just the ones that are high profile
  • Reward and Punishment Systems: Providing positive feedback and rewards for making ethical decisions, measuring and tracking ethical behaviors, disciplining employees who violate ethical standards
  • Accountability and Responsibility: Holding employees accountable for their actions, taking responsibility for the outcomes of one’s own actions, questioning authority if unethical behavior occurs
  • Decision-Making: Taking ethical issues into account when making decisions, discussing ethical concerns at meetings, talking about whether something is the “right thing to do”

Ethical climate is a general perception organizational employees have about whether the organization is ethical. In an ethical climate you would see the following things:

  • Employees have a lot of skill in recognizing ethical issues
  • Success is defined not just by the results, but also the way they are obtained
  • Employees continually strive to maintain high ethical standards
  • Employees have a lot of knowledge regarding how to handle ethical issues
  • Employees rarely feel pressured to compromise the organization’s ethical standards to achieve business objectives

Although there is a human tendency to blame a few “bad apples” for wrongdoing in organizations, the inconvenient truth is that the organizational environment—including the leadership, practices, and climate—is the most critical factor in creating ethical organizations.

For Further Information:

Mayer, D. M., Kuenzi, M., & Greenbaum, R. L. (2009). Making ethical climate a mainstream management topic: A review, critique, and prescription for the empirical research on ethical climate. In D. De Cremer (Ed.), Psychological perspectives on ethical behavior and decision making: 181-213. Greenwich, CT: Information Age Publishing.

Mayer, D. M., Kuenzi, M., & Greenbaum, R. L. (2011). Creating an ethical organizational environment: How ethical leadership, ethical practices and ethical climate help reduce unethical behavior. Working manuscript.