Ethical issues and their impact on the Army
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
1 March 2018
US ARMY SERGEANTS MAJOR ACADEMY
Sergeants Major Course (SMC)
Developing Organizations and Leaders
Developing Ethical Organizations
Developing Ethical Organizations: Ethics as Organizational Culture ∗
INTRODUCTION
“Culture” has become a common way of thinking about and describing an organization’s internal
world - a way of differentiating one organization’s “personality” from another. In this chapter, we apply
this culture concept to organizational ethics. We will propose that organizations can and should
proactively develop an ethical organizational culture and that organizations with “ethics problems” should
take a culture change approach to solving them. Given recent ethical scandals in the corporate world, we
also propose that individuals should evaluate the ethical culture of an organization before joining it.
Doing so can avoid stressful conflicts between personal values and organizational values and help ensure
a satisfying work experience. Ethics is an integral part of the organization’s overall culture. Therefore,
designing an ethical organization means systematically analyzing all aspects of the organization’s ethical
culture and aligning them so that they support ethical behavior and discourage unethical behavior. This
kind of analysis and alignment requires a substantial and sustained effort over a long period of time and
the full involvement of senior leaders who must proactively develop an ethical organizational culture.
ALIGN MULTIPLE SYSTEMS TO SUPPORT ETHICAL BEHAVIOR Organizations that are
serious about ethics must proactively develop an ethical culture that will guide employee actions and
decisions. Cultures are complex combinations of formal and informal organizational systems. To create
an ethical culture, these systems must be aligned (work together) to support ethical behavior. In other
words, the formal and informal systems must be sending the same message. For example, if the formal
ethics code tells people that honesty is highly valued in the organization, and high-level managers
routinely tell customers the truth about the company’s ability to meet their needs, employees receive a
consistent message about the organization’s commitment to honesty. The systems are aligned. On the
other hand, if the same organization regularly deceives customers in order to land a sale, the organization
is out of alignment. The formal code says one thing while its actions say quite another. Deceit is what the
organization is really about, despite the ethics code.
ETHICAL LEADERSHIP AND ETHICAL CULTURE Senior leadership represents an important
component of an organization’s ethical culture, as integrity (or the lack of it) flows from the top down and
employees take their cues from the messages sent by those in formal leadership roles. But most
employees don’t know the senior executives of their organization personally. They only know what they
can make sense of from afar. Senior executives must develop a “reputation” for ethical leadership by
being visible on ethics issues. A recent study 20 found that such a reputation rests upon dual dimensions
that work together: a moral person dimension and a moral leader dimension. (See Figure 1: Executive
Ethical Leadership.) First, we will explain what each dimension represents and then we’ll combine these
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
2 March 2018
dimensions into a matrix that shows how leaders can develop a reputation for ethical leadership, unethical
leadership, hypocritical leadership, or ethically neutral leadership.
Figure 1
Executive Ethical Leadership
The moral person dimension represents the “ethical” part of the term ethical leadership and is the
key to developing a reputation for ethical leadership among employees. As a “moral person,” the
executive is seen first as demonstrating certain individual traits (integrity, honesty, and trustworthiness).
For example, one executive described ethical leaders as “squeaky clean.” But probably more important
are visible behaviors. These include doing the right thing, showing concern for people and treating them
with dignity and respect, being open and listening, and living a personally moral life. To some extent,
senior executives live in glass houses. They are often public figures and active in their communities. So,
they need to be particularly careful about their private behavior. Rumors can begin quickly and taint an
otherwise solid reputation. Finally, contributing to one’s perception as a moral person is making decisions
in a particular way—decisions that are explicitly based upon values, fairness, concern for society, and
other ethical decision rules.
But being a moral person, by itself, isn’t enough to be perceived as an ethical leader. Being a moral
person tells employees how the leader is likely to behave, but it doesn’t tell them how the leader expects
them to behave. Therefore, to complete the ethical leadership picture, executives must also act as “moral
leaders”—they must focus on the “leadership” part of the term “ethical leadership” by making ethics and
values an important part of their leadership message and by shaping the firm’s ethical culture. They do
that by conveying the importance of ethical conduct in a variety of ways. The large majority of the
messages employees receive in business are about bottom-line goals. Therefore, senior executives must
make ethics a priority of their leadership if ethics is to get attention from employees. Moral leaders do this
by visibly role-modeling ethical conduct, by communicating openly and regularly with employees about
ethics and values, and by using the reward system to hold everyone accountable to the standards. This
“moral person/moral leader” approach is similar to what executive headhunters Thomas Neff and James
Citrin list as their number one strategy (of six) of corporate stars: “Live with Integrity, Lead by Example.”
They say, “Integrity builds the trust in senior management that is critical for high-performing
organizations. “ 21
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
3 March 2018
UNETHICAL LEADERSHIP Unfortunately, unethical leaders can influence the development of an
unethical culture. In terms of our matrix, unethical leaders have reputations as weak moral persons and
weak moral leaders. In interviews, senior executives cited Al Dunlap as a senior executive with a
reputation for unethical leadership. John Byrne of Business Week wrote a book about Dunlap entitled
Mean Business and published excerpts in the magazine. According to Byrne, Dunlap became famous for
turning struggling companies around. But while at Sunbeam, he was also known for “emotional abuse” of
employees—being “condescending, belligerent and disrespectful.” “At his worst, he became viciously
profane, even violent. Executives said he would throw papers or furniture, bang his hands on his desk,
and shout so ferociously that a manager’s hair would be blown back by the stream of air that rushed from
Dunlap’s mouth.” Dunlap also demanded that employees make the numbers at all costs, and rewarded
them handsomely for doing so. As a result, they felt pressure to use questionable accounting and sales
techniques. Dunlap also lied to Wall Street, assuring them that the firm was making its projections and
would continue to reach even higher. In the end, Dunlap couldn’t cover up the real state of affairs and
Sunbeam’s board fired him in 1998. But he left the company crippled. 26 In 2002, Dunlap settled a civil
suit filed by the SEC. He paid a $500,000 fine and agreed to never again be an officer or director of a
public company. Whether federal prosecutors will pursue him remains an open question. Investigators
have learned that allegations of accounting fraud on Dunlap’s watch go back to the 1970s and follow him
through a number of companies.
HYPOCRITICAL LEADERSHIP There may be nothing that makes us more cynical than a leader
who talks incessantly about integrity and ethical values but then engages in unethical conduct, encourages
others to do so either explicitly or implicitly, rewards only bottom-line results, and fails to discipline
misconduct. This leader is strong on the communication aspect of moral management hut clearly isn’t an
ethical person—doesn’t “walk the talk.” It’s a “do as I say, not as I do” approach. Al Dunlap made no
pretense about ethics. All that mattered was the bottom line and he didn’t pretend to be a nice guy. But
hypocritical leadership is all about ethical pretense. The problem is that by putting the spotlight on
integrity, the leader raises expectations and awareness of ethical issues. At the same time, employees
realize that they can’t trust anything the leader says. That leads to cynicism, and employees are likely to
disregard ethical standards themselves if they see the leader doing so.
ETHICALLY NEUTRAL LEADERSHIP Many top managers are neither strong ethical nor
unethical leaders. They fall into what employees perceive to be an ethically “neutral” leadership zone.
They simply don’t provide leadership in the crucial area of ethics, and employees aren’t sure what the
leaders think about ethics, if anything. This may be because the leader doesn’t realize how important
executive ethical leadership is to the organization’s ethical culture, or just doesn’t care that much. On the
moral person dimension, the ethically neutral leader is not clearly unethical, but is perceived to be more
self-centered than people-oriented. On the moral leader dimension, the ethically neutral leader is thought
to focus intently on the bottom line without setting complementary ethical goals. There is little or no
ethics message coming from the top. But it turns out that silence represents an important message. In the
context of all the other messages being sent in a highly competitive business environment, employees are
likely to interpret silence to mean that the top executive really doesn’t care how business goals are met
(only that they are met), and they’ll act on that message. 28
Research has found that executive ethical leadership is critical to employees. In a recent study,
unethical behavior was lower, and employees were more committed to their organization, more ethically
aware, and more willing to report problems to management in firms that had an ethical culture
characterized by top executives who represented high ethical standards, regularly showed that they cared
about ethics, and were models of ethical behavior. 31 But, interestingly, senior executives are often not
aware of how important their ethical leadership is. Many believe that being an ethical person who makes
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
4 March 2018
ethical decisions should be enough. But, it isn’t enough. Executives must lead on this issue (be moral
leaders) if it is to register with employees. In a highly competitive environment of intense focus on the
bottom line, employees need to know that the executive leaders in their organization care about ethics. An
ethical leader makes it clear that strong bottom-line results are expected, but only if they can be delivered
in a highly ethical manner.
AUTHORITY, RESPONSIBILITY, AND ETHICAL CULTURE With bureaucracy comes the idea
of legitimate authority. Look at any organizational chart. It will tell you who supervises whom—who has
authority over whom. These authority figures serve important bureaucratic roles. They direct work,
delegate responsibility, conduct performance appraisals, and make decisions about promotions and raises. 35 But the idea of legitimate authority can present problems for the ethical culture. First, recall from
Chapter 7 that people tend to obey authority figures no matter what they are ordered to do. 36 This natural
tendency toward unquestioning obedience can be a real threat to the organization’s attempt to build
individual responsibility into its ethical culture. In attempting to control employee behavior, many firms
expect loyalty and some demand unquestioning obedience to authority from their employees. You might
think that’s a good idea—that authority figures have more experience and should know what’s right, and
employees should follow their orders. But even the military expects soldiers to question unethical orders.
Loyalty is generally a good thing, but you shouldn’t be expected to be Loyal or obedient to an unethical
boss or organization. Unquestioning obedience to authority means that employees are not expected to
think for themselves, question bad orders, or to take personal responsibility for problems they observe.
Therefore, a culture that expects unquestioning obedience from employees can result in serious
ethical problems. A recent study found that the more a firm demands unquestioning obedience to
authority, the higher the unethical conduct among employees, the lower their tendency to seek advice
about ethical issues, and the lower the likelihood that employees would report ethical violations or deliver
“bad news” to management. 37
The structure of an organization can also fragment jobs and roles. 39 It isn’t necessarily that
individuals don’t want to take responsibility. But jobs and roles get so divided up that they simply can’t
see the big picture. 40 We saw in Chapter 7 how military bureaucrats passed the buck for responsibility
during an investigation of the My Lai massacre. They saw themselves only as cogs in a machine. No one
felt responsible for the larger outcomes of their actions.
The ethical culture must incorporate a structure that emphasizes and supports individual responsibility
and accountability at every level. Each person must he encouraged to take responsibility for his or her
actions and to question authority figures when they suspect problems. And individuals must be held
accountable for negative consequences when they occur. However, tracking responsibility is difficult and
time consuming and is rarely done well. Many organizations don’t do this kind of record keeping at all,
perhaps preferring to keep responsibility ambiguous and keep a scapegoat a viable possibility.
Values and Mission Statements, Policies and Codes
Many organizations aim to guide employees’ behavior through formal organizational value
statements, mission statements, credos, policies, and formal codes of ethical conduct. Value and mission
statements and credos are abstract, general statements of guiding beliefs. ‘Most companies have them, but
it’s important that the mission statement be closely aligned with other dimensions of the culture.
According to James Collins, co-author of ‘Built to Last: Successful Habits of Visionary Companies’; “the
words matter far less than how they are brought to life. The mistake most companies make is not setting
up procedures to make sure the mission is carried out”.
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
5 March 2018
Reward Systems
The importance of reward systems was discussed in Chapter 7. To be effective, rewards must be
linked to specific results and behaviors that are deliberately articulated and managed. This link is created
through performance management. Effective performance management systems involve the entire process
of articulating goals, aligning goals up, down, and across the organization, identifying performance
metrics, and then providing a compensation structure that rewards individual, and frequently team, effort.
Just as publicly traded companies are rewarded in the stock market for results, a well-designed
performance management system rewards individuals for a variety of results, financial and non-financial.
The importance of an effective performance management system is worth repeating here where we focus
on the reward system as a key component of the ethical culture and, in particular, the essential role it
plays in alignment or misalignment of cultural systems.
DESIGNING A PERFORMANCE MANAGEMENT PROCESS THAT SUPPORTS ETHICAL
CONDUCT Since people “do what’s measured and rewarded,” the best way for an organization to
design a comprehensive performance management system is to spend time identifying which factors drive
business results. This type of corporate soul-searching generally results in a list of factors, only some of
which are financial and many of which are related to operational decisions that drive future financial
performance. Just as Fortune magazine considers reputation when designing its famed “lists,” many
sophisticated companies understand that reputation, in many cases, drives financial results. However,
many companies continue to design performance management programs that consider only financial
results, ignoring the non-financial drivers that can actually serve as the underpinning of the numbers.
These companies focus on “what” business results are delivered and they ignore “how” those results were
achieved. That is probably the fastest way for an organization’s ethical culture to get out of alignment.
Here’s how performance management systems can be designed to get great results the right way.
First, an organization needs to focus on the mechanics. For example, once an organization understands
what is necessary to drive results, it needs to set goals to achieve those desired results and metrics to
determine whether the goals are being met. Real success in this area comes when organizations
effectively communicate those goals to every employee, helping employees identify how each person can
create value for the organization and then rewarding employees fairly for their contribution toward
achieving those goals.
Once the mechanics are in place, the next challenge is to marry the “what” with the “how,” and that’s
where an organization’s articulated values come in. Those values—probably concerning the importance
of people and integrity and diversity and customer service, and so forth— need to be translated into
metrics for which every employee is held accountable. When such a process is in place, high fliers who
exceed all of their numbers can be held accountable for “how” they met those numbers because it is built
right into their performance expectations and rewards process.
REWARDING AND PUNISHING BEHAVIOR To understand the ethical conduct of individuals in
the organization, we need to look more specifically at the behaviors that are rewarded and punished and at
how this system aligns with (or doesn’t align with) the rest of the ethical culture. When managers are
asked about ethics in their organization, reward systems are frequently cited as a significant problem.
They report that concern about the bottom line often conflicts with and overwhelms concern about ethics.
Employees are rewarded for reaching a particular goal or for selling a certain amount of product, with
little attention to how the goal is achieved. Because people tend to do those things that are rewarded,
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
6 March 2018
management must ensure that performance goals are realistic and can be achieved without resorting to
unethical behavior.
Misalignment of the reward system with other aspects of the ethical culture is quite common. We
frequently hear this from managers who work in an organization with a code of ethical conduct that isn’t
enforced. Think about what happens when these cultural systems conflict. For example, imagine an
organization where everyone knows that the top sales representative’s sales depend on unethical practices.
Not only does the unethical conduct go undisciplined, but the sales representative receives large bonuses,
expensive vacations, and recognition at annual sales meetings. Members of the sales force recognize that
the reward system carries the “real” message, and so the code becomes meaningless, or worse yet, an
example of top management’s hypocrisy.
Recall from Chapter 7 that the reward system includes discipline as well as rewards. For an ethical
culture to be in alignment, unethical behavior must be disciplined and disciplined equally across
organizational levels. That means that the star executive who always makes the numbers must be
punished for knowingly breaking the rules just as a lower-level employee would be disciplined. In fact, at
that level, the discipline should probably be harsher because the higher in the organization one goes, the
more responsibility one holds.
THE REWARD SYSTEM AND WHISTLE-BLOWERS The organization’s treatment of whistle-
blowers is a relevant reward system concern 53 and a frequent source of misalignment. In today’s
organizations, fewer employees are directly supervised. Therefore, organizations must rely more on their
employees to report misconduct. However, as we all know, powerful norms exist against blowing the
whistle. The words we use to describe this behavior, “tattling,” “squealing,” “snitching,” “informing,” and
“ratting,” all have negative connotations. In fact, there isn’t a nice or even a neutral word to describe it.
As suggested in Chapter 3, whistle-blowers frequently suffer retaliation, particularly when they report
managerial or organizational misconduct. 54 They’re punished rather than rewarded for doing what they
think is right. If an organization claims that it’s attempting to develop an ethical culture, retaliation
against a whistle-blower is a powerful example of misalignment. Again, the workers view this
“punishment” of the whistle-blower as an example of the organization’s real ethical beliefs. The ethical
organization, however, should view the whistle-blower as an important cog in its control system and must
find ways to make whistle-blowing a safe activity. Some organizations even reward whistle-blowing.
But most people don’t expect or want a reward for doing the right thing. They just don’t want to be
punished for it. In an attempt to protect whistle-blowers, many organizations have installed hotlines and
ombudspersons. Whistle-blowers can call these hotlines and speak confidentially and without fear of
retaliation. Examples of how these work are included in Chapter 10. In addition, society has changed the
laws, providing more protection to whistle-blowers under the Sarbanes-Oxley Act.
Thus, organizational reward systems are important in themselves because they provide guidance
about expected behavior, but they’re particularly important in the sense that people look to them to reflect
the “real” message about what is valued in the organization. Is there consistency between what the
organization says (e.g., codes) and what it does (rewards and punishments)? Reward systems frequently
represent the source of “cultural misalignment” that can lead to cynicism about organizational ethics.
Orientation and Training Programs
Socialization is often begun through formal orientation programs and reinforced through ongoing
training. The organization’s values and guiding principles can be communicated in orientation programs.
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
7 March 2018
More specific guidance in ethical rules and decision making can be provided in subsequent training
programs. Ethics training must be consistent with the ethical culture—how we really do things around
here—because training programs out of alignment are thought of, at best, as a pleasant day away from the
office. At its worst, the ethics training will be taken as a joke, when managers attempt to reconcile what
they’re hearing with their experience in the real organization.
Decision-Making Processes
Ethical decisions are influenced by the organization’s formal decision-making processes. For
example, managers may ignore the ethical dimension of decisions unless leaders state that ethical
concerns must be a formal part of all decision making. This emphasis on ethics can also be reinforced by
regularly addressing ethical concerns in meetings and by making them an expected part of managers’
reports regarding new products or new business ventures. Environmental impact is now an expected and
routine part of corporate decision making in many firms. Some organizations are also creating special
high-level “ethics” committees charged with reviewing major organizational level decisions from an
ethical perspective. 60 Others have advocated the implementation of moral quality circles, groups set up to
assess the morality of business decisions. 61
INFORMAL CULTURAL SYSTEMS
In addition to the formal systems described previously, organizational culture is kept alive informally
and symbolically through informal norms, heroes, rituals, myths, and stories. Information about these is
carried through informal communication systems such as the grapevine. In this way, people come to
know what behaviors are “really” rewarded, how decisions are “really” made, and what organizational
leaders “really” care about and expect. If messages from the formal and informal cultural systems differ,
the ethical culture is out of alignment. And people are more likely to believe the messages carried by the
informal system—the informal norms, for example. Recent research has found that employees’
perceptions of informal cultural systems influence their ethics-related behavior more than the formal
systems do. 64 Therefore, management of these informal systems is extremely important.
Norms: “The Way We Do Things around Here”
Norms are standards of behavior that are accepted as appropriate by members of a group. They exert
a powerful influence on individual behavior in organizations, and they can serve to support ethical or
unethical conduct. For example, imagine an individual entering a computer software sales job who is told
immediately by peers in the sales force that customers should always be dealt with honestly because long
term customer relations are so important to the firm. Here, the norm of honesty with customers supports
ethical conduct. On the other hand, consider the individual who begins a new job and is told by his or her
colleagues that making the sale is all that counts even if you have to lie to the customer about the
capabilities of the software or delivery dates to make it. This norm supports unethical conduct. Either kind
of norm (ethical or unethical) can become “the way we do things around here” in the organization.
Formal procedures are often inconsistent with the informal norms that develop. For example, the
salesperson described previously may have attended a mandatory ethics training Session that taught rules
of honesty in customer relationships. But if the message being sent on the job is to make the sale no
matter what, the formal rule is overridden.
Similarly, at a fast-food restaurant, new employees may be told about a rule against eating food
without paying for it. However, once on the job, they may see coworkers eating while the supervisor
looks the other way. These coworkers may rationalize their behavior because of their low pay or poor
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
8 March 2018
working conditions, or because the supervisor doesn’t seem to care that he eats food him or herself.
Encouraged to join in, the new employee is likely to do so, having learned the “real” rules. Thus, despite
formal rules, regulations, codes, and credos, informal norms are frequently the most influential behavior
guides. And when informal norms are inconsistent with formal rules and codes, the organization is clearly
out of alignment.
Heroes and Role Models
Heroes personify the organization’s values. 65 They’re symbolic figures setting standards of
performance by modeling certain behaviors. These heroes can be the organization’s formal leaders. For
example, Bill Gates can be considered the hero of Microsoft and Herb Kelleher the hero of Southwest
Airlines. Heroes can be founders who are no longer even present in the organization. As we noted earlier,
Thomas Jefferson is still very much alive at the University of Virginia, and Walt Disney haunts the
corridors at The Walt Disney Company. Stories about the values of these heroes continue to influence
decision making. Thus, a hero who is a champion for integrity and who stands up for what is right may
influence the behavior of many in the organization.
Much socialization about ethics is informally conducted by role models and mentors who may be
superiors or just more experienced co-workers. Mentoring is usually an informal process whereby a more
senior person takes a junior person under wing, providing information, career strategies, and so on.
Individuals who are passing through organizational “boundaries,” such as new hires, or who are
transferring from one part of the organization to another are most vulnerable to these socialization
influences. 67 The mentor or role model may emphasize the importance of integrity and resistance to
pressure to behave unethically, or the role model may indoctrinate the individual into accepted unethical
practices, making it difficult for the individual not to go along. 68 The new accounting graduate who was
told by his superior in a public accounting firm, “You’re too honest to be an auditor,” received a powerful
message about ethics (or the lack thereof) in that organization. When looking for evidence of
misalignment; ask whether the organization’s heroes represent the values formally espoused by the
organization or not.
Savvy executives understand the role that heroes play in forming or changing a culture. One CEO of a
financial services firm was very serious about identifying and rewarding people who lived his
organization’s values. He challenged his executives to bring him stories of employees who were doing the
right things in the right way, who were models of the culture. He collected these stories and sent personal,
handwritten thank-you notes to those model employees. While a phone call might have sufficed,
employees were so thrilled with his written recognition and praise that they displayed his notes in their
offices. Those framed notes sent a rather loud message to other employees about what kind of behavior
was valued at high levels. Of course, they also helped spread word of the “heroes” and their deeds.
Rituals
Rituals tell people symbolically what the organization wants them to do and how it expects them to
do it. 69 Rituals are a way of affirming and communicating culture in a very tangible way. 70 Other
companies have awards ceremonies that convey the values of the organization. What values are
celebrated at these ceremonies? Is it success with integrity, or are only those who make their numbers
celebrated? Ask whether the rituals are consistent with the formal rules and reward systems to help
determine if the culture is in alignment.
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
9 March 2018
Myths and Stories
Another extremely important way organizational culture is communicated and kept alive is through
the informal communication network. People tell stories to give meaning to their world and life. 72
Organizational myths and stories explain and give meaning to the organizational culture. They’re
anecdotes about a sequence of events drawn from the organization’s history. The story’s characters are
employees, perhaps company heroes, and the moral of the story expresses the organization’s values. 73
At IBM, a story that has been told and retold describes how a low-level employee denied Torn Watson,
then IBM president, entry into a restricted area of the company because Watson was not wearing his IBM
identification badge. Watson praised the employee, suggesting the importance of upholding company
rules and applying them to everyone.
Language
Cultures develop and use language to communicate values to employees. The old joke that business
ethics is an oxymoron suggests that many consider the language of ethics to be out of place in the
business context. A number of the corporate ethics officers we interviewed suggested that the word
“ethics” is “charged” and “emotional” for employees who often react negatively to any hint that their
ethics might not be okay. When possible, they use other words to describe what they’re trying to do. For
example, employees seem to be more comfortable talking about integrity or shared values than ethics.
Research suggests that managers are reluctant to describe their actions in moral terms even when they are
acting for moral reasons, a phenomenon referred to as moral muteness. This reluctance can be attributed
to managers’ avoidance of the interpersonal confrontation that may take place if they question an
organizational practice or decision, to the value placed on “efficient” decision making such that moral talk
can be thought of as a distraction, and to the desire to appear powerful and effective. Moral talk can
appear idealistic and inconsistent with the expectation that managers can solve their own problems. 76
Getting people to talk about ethics has also been likened to sex education. Although parents agree that
sex education is a good thing, they find it difficult to broach the subject with their children. Similarly,
managers may find it difficult to begin a conversation about ethics with other managers or with their
subordinates. If these topics are typically not discussed, the manager who brings it up may feel like a
goody-goody or a spoilsport. 77 But managers who become comfortable talking about ethics will be role
modeling important behaviors for their subordinates.
Top managers can also make ethics an acceptable topic of conversation by sending a message that it’s
not only OK but expected to talk about one’s ethical concerns. They can do this by leading discussions
about ethics, discussing the ethics code and its application in a video that is shown to employees, and
otherwise openly discussing ethical problems with managers and employees. Senior managers can also
build “moral talk” into the fabric of the organization by requiring routine discussion of moral issues and
inclusion of ethical issues in business proposals. 78
It’s difficult to imagine discussing questions of organizational ethics without an acceptable
vocabulary to support the discussion. Both educators and employers have a role to play in providing
students and workers with the language that can he used to discuss and analyze organizational problems
from an ethical perspective. It could be as simple as using words such as “right,” “wrong,” “honesty,”
“integrity,” “values,” and “character.” How often does your organization ask whether the decision is the
right one, in a moral as well as a business sense? Is this the “proper” thing to do for customers, suppliers,
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
10 March 2018
and the community? How often is a job applicant evaluated for integrity, values, and character, in
addition to performance?
The use of ethical language may be related to decision-making behavior. In one study, individuals
who discussed their decision-making process using the language of ethics were more likely to be the ones
who made an ethical decision. 79 These people talked about ethics, morals, honesty, integrity, values, and
good character. Those who had made the unethical decision were more likely to recount the decision in
the more traditional business language of costs and benefits. This research suggests a link between
language and ethical decision making. The implication for organizations is that their employees may need
to be taught the language of ethics and its appropriateness for business decision making.
Special organizational language can also be used to avoid the moral implications of actions. For
example, in Nazi Germany, the code names for killing and genocide were “final solution,” “evaluation,”
and “special treatment.” This use of euphemisms allowed people to avoid confronting the true meaning of
their behavior. 80 Similarly, in recent years companies have created euphemisms to avoid the pain of
decisions to lay off employees. “Downsizing,” “rightsizing,” “restructuring,” and “targeted out-
placement” are just a few of the terms we’ve encountered. It may be easier to impose a “targeted
outplacement” than a layoff, but are the moral considerations as obvious with “targeted outplacement” as
they are with layoffs’? Using moral language increases individuals’ moral awareness.
DEVELOPING AND CHANGING THE ETHICAL CULTURE
We can conclude from this cultural analysis that ethics at work is greatly influenced by the
organization’s culture. Both formal and informal organizational systems and processes channel and
reinforce certain kinds of behavior. Each of the systems on its own can support either ethical or unethical
conduct. In addition, these multiple systems can work together or at cross purposes to support ethical or
unethical conduct in the organization, leading to an organization that is in alignment or misalignment.
Imagine an organization with an ethics code that forbids employees from accepting gifts of any kind, but
a senior executive is known to have accepted box seats at the ball game from a client. This “we say one
thing, but do another” approach leads to widespread cynicism. The code loses all credibility as workers
pay more attention to what’s done than to what’s said. On the other hand, the organization that disciplines
that executive visibly reinforces the code, supporting its ethical stance with all workers.
Developing or changing organizational ethics, then, involves simultaneously developing or changing
multiple aspects of the organization’s ethical culture, if the effort is to be successful, this ethical culture
development or change should involve the alignment of all relevant formal and informal organizational
systems. Obviously, this requires a major commitment from the most senior levels in the organization.
Culture change attempted at lower levels is not likely to be effective unless it is fully supported and
modeled by senior management.
Changing organizational culture is more difficult than developing it. In a new organization, workers
are quite open to learning and accepting the culture of their new organizational home. However
anthropologists and organizational scientists agree that changing culture is an extremely difficult process. 81 This view is consistent with an idea basic to all organizational change and development efforts—that
changing individual and group behavior is both difficult and time consuming. The human tendency to
want to conserve the existing culture is referred to as “cultural persistence” or inertia. Culture has an
addictive quality, perhaps because culture members are aware that culture components cannot be altered
without affecting other, cherished values and institutions. 82 Also, an unethical culture tends to feed on
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
11 March 2018
itself. Why would successful (but unethical) managers want to change? They wouldn’t. They would tend
to hire people like themselves and perpetuate the culture that exists.
Most often, pressure for culture change comes from outside—from stockholders, the government,
regulators, and other outside stakeholders. The public’s general mistrust of business executives 83 and the
threat of increased government regulation may encourage leaders to look more closely at their ethical
cultures. In addition, organizations whose members have been “caught” engaging ill unethical behavior,
or those faced with costly lawsuits are prime candidates for such ethical culture change attempts. Finally,
the government’s sentencing guidelines for corporate crime turned the attention of many organizations to
an evaluation of their ethical cultures during the 1990s. The same is likely true now as companies and
their boards evaluate the impact of new legislation such as the Sarbanes-Oxley Act.
A CULTURAL APPROACH TO CHANGING ORGANIZATIONAL ETHICS
Any attempt to develop or change organizational ethics can benefit from an organizational change
approach that includes a system-wide, long-term view. In addition, it should be based on the assumption
that human beings are essentially good and capable of development and change.
A Cultural Systems View
The cultural approach relies on the idea that to be successful, any attempt to develop or change the
organization’s ethics must take the entire cultural system into account. 85 The change effort must target
multiple formal and informal organizational subsystems. All of these must work together to create clear,
consistent messages about what is and is not appropriate behavior in the organization. If subsystems
conflict, confusion and mixed messages will result. Thus, the entire range of formal and informal
subsystems must be analyzed and targeted for development and change.
This complex, multisystem approach to managing organizational ethics argues against any short-
term, quick-fix solutions that target only one system. The idea that an organization could solve its ethics
problem simply by establishing a code of ethics or by hiring a consultant to deliver a one-hour ethics
training program becomes ludicrous when the complexity of the ethics culture is understood. The
management of ethical conduct must be complex because it’s influenced by multiple systems, each of
them complex in itself. Thus, the complexity of the solution must match the complexity of the problem. A
solution that isn’t sufficiently complex will miss important information, make incomplete diagnoses, and
produce overly simple and short-sighted solutions. The organization that creates a code of ethics in
response to external pressure and files it away without making changes in other systems such as the
reward system and decision-making processes is more likely making a negative statement about
organizational ethics rather than a positive one. The informal message is that management is hypocritical
and that the code of ethics serves no useful purpose beyond the creation of a false facade. The same can
be said of lofty values statements. For example, many of these statements talk about valuing diversity.
But what happens when people look around the organization and see few minority managers’? Executives
need to understand that when they put a values statement in writing, employees expect a commitment to
follow through. The bottom line about systems thinking is to understand that, if an organization decides to
get into the “ethics business” with a values statement, code, or training program, employees expect
follow-through in other parts of the organization. A failure to follow through will be interpreted as
hypocrisy.
Diagnosis: The Ethical Culture Audit
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
12 March 2018
Formal attempts to develop or change organizational ethics should begin with diagnosis. Diagnosing
culture calls for time-consuming techniques, such as auditing the content of decision making, coding the
content of organizational stories and anecdotes, and holding open-ended interviews with employees at all
levels. 88 It also requires systematic analysis of formal organizational systems, such as the structure and
criteria for rewards and promotion.
The framework presented in this chapter can provide guidance for an audit of the organization’s
ethical culture.89 The audit should include probes into the formal and informal organizational systems that
are maintaining the ethics culture in its current state. First, formal organizational systems can be analyzed
in a number of ways. Through surveys, interviews, observation at meetings, orientation and training
sessions, and analysis of organizational documents, perceptions of how formal organizational systems
either encourage or discourage ethical behavior can be identified. Samples of the kinds of questions that
can be asked are listed in Table 9.1.
Auditing informal systems is equally important. The culture can be analyzed to identify the
organization’s heroes as well as the behaviors that are reinforced through stories, rituals, and language.
This can be accomplished through open-ended interviews, observation of organizational rituals, and
analysis of the organization’s stories. Some questions that might be asked in an audit of the informal
system are offered in Table 9.2. The questions in Tables 9.1 and 9.2 are designed to suggest the general
direction of an ethical culture audit. Specific questions that arise out of the particular system being
analyzed must be developed to tap that system’s unique problems and needs. Canned approaches to
discovering culture that assume they can identify the relevant dimensions in advance are bound to fail. 90
In addition, the multisystem nature of organizational culture suggests that responses must be compared
within and across systems to answer the key question of whether formal and informal systems are aligned
within themselves and with each other.
Table 9.1 Selected Questions for Auditing the Formal System
1. How are organizational leaders perceived in terms of their integrity? Is ethics part of their “leadership” agenda?
2. How are ethics-related behaviors modeled by organizational leaders?
3. Are workers at all levels encouraged to take responsibility for the consequences of their behavior? To question authority when they are asked to do something that they consider to be wrong? How?
4. Are whistle-blowers encouraged and are formal channels available for them to make their concerns known confidentially?
5. Is misconduct disciplined swiftly and justly in the organization, no matter what the organizational level?
6. Are people of integrity promoted? Are means as well as ends important?
7. Is integrity emphasized to recruits and new employees?
8. Are managers oriented to the values of the organization in orientation programs? Are they trained in ethical decision making?
9. Are ethical considerations a routine part of planning and policy meetings? Is the language of ethics taught and used?
_____________________________________________________________________________________
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
13 March 2018
Table 9.2 Selected Questions for Auditing the Informal System
1. Identify informal organizational norms. Are they consistent with formal rules and policies? 2. Identify the organization’s heroes. What values do they represent? Given an ambiguous ethical
dilemma, what decision would they make and why?
3. What are some important organizational rituals? How do they encourage or discourage ethical behavior? Who gets the awards, people of integrity who are successful or individuals who use
unethical methods to attain success?
4. What ethical messages are sent to new entrants into the organization—must they obey authority at all costs, or is questioning authority acceptable or even desirable?
5. Does analysis of organizational stories and myths reveal individuals who stand up for what’s right despite pressure, or is conformity the valued characteristic? Do people get fired or promoted in these
stories?
6. Does acceptable language exist for discussing ethical concerns? Is this language routinely incorporated and encouraged in business decision making?
7. What informal socialization processes exist and what norms for ethical/unethical behavior do they promote? Are these different for different organizational subgroups?
_____________________________________________________________________________________
As you may have determined by now, a full-fledged ethical culture audit is a complex process that the
average manager is probably not prepared to conduct. Many large organizations will have human
resources staff with the required expertise, and conducting such an audit within the firm can send a
powerful message that the firm cares about ethics (assuming that the audit is followed up with action).
But, other organizations that do not have the expertise in-house will need assistance with these diagnoses
and intervention efforts. And in some firms, employees may be more willing to discuss sensitive ethical
issues with a trusted outsider.
Ethical Culture Change Intervention
Once the audit is complete, the data should be discussed with employees who can then be enlisted in
the development of a culture change intervention plan. The plan will be guided by the diagnosis and the
cultural, multisystem framework shown in Figure 9.2. Complementary changes in both the formal and
informal organizational systems should be a part of any recommended change effort.
Though difficult, changing formal systems is a more straightforward process than changing informal
systems. Gaps and problems identified in the diagnosis can be addressed in a number of ways. Structure
can be altered to encourage individuals to take responsibility for their behavior and to discourage
unquestioning deference to authority. Codes of ethics can be designed in a participative manner,
distributed, and enforced. Reward systems can be designed to punish unethical behavior. Performance
management systems can be designed with an emphasis not only on “what” people do but also on “how”
they do it. Whistle-blowers can be encouraged and provided formal communication channels and
confidentiality. 91 Orientation programs can be designed to incorporate the organization’s values, and
training programs can be set up to prepare individuals to handle the ethical dilemmas they are most likely
to face in their work. Integrity can be emphasized in selection and promotion decisions. Decision-making
processes can incorporate attention to ethical issues by devoting time at meetings and space in reports.
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
14 March 2018
It’s more difficult to change the informal systems, particularly those that have been found to maintain
unethical behavior in the organization. However, these changes must be undertaken if the total change
effort is to be effective. These changes require attention to the “art” rather than the science of
management and are consistent with ideas about the importance of “symbolic management.” With
symbolic management, organizational leaders and managers are encouraged to create rituals, symbols,
and stories that will influence those they manage. 92
ETHICAL CULTURE CHANGE EVALUATION As with any organizational change and
development effort, results should be evaluated over an extended period of time. Evaluation, like
diagnosis and intervention, should be guided by the multisystem framework. Surveys and interviews can
he repeated regularly to determine if norms have changed and to pinpoint potential problem areas.
Documents can be analyzed to determine if ethical issues are being consistently considered. Other
outcomes, such as number of lawsuits or reports of unethical behavior, can also be tracked. However,
interpretation may need to go beyond simply the numbers. Increased reporting to a hotline, for example,
may only mean that ethical sensitivity has been raised and can be viewed as a positive outcome rather
than a negative one. This is probably the part of culture building that is most neglected. Most
organizations are unwilling to make the investment in evaluation, and therefore they really can’t calculate
the effectiveness of their efforts.
THE ETHICS OF MANAGING ORGANIZATIONAL ETHICS
An effort aimed at changing organizational ethics requires us to face a particularly knotty ethical
dilemma: Whose values or ethics are to prevail? We believe that a change effort that involves employees
is not manipulative or coercive and is most consistent with a concern for the ethics of the change effort
itself. Employees should participate in the problem diagnosis and planning process. They should be aware
of what’s happening and should take part in identifying problems and recommending solutions.
CONCLUSION
This chapter has proposed a cultural framework for thinking about ethical and unethical behavior in
the organizational context. Although individual character traits may predispose a person to ethical or
unethical behavior, the cultural context in the organization also has a powerful influence on the behavior
of most employees. An organization that wishes to develop or change its ethical culture must attend to the
complex interplay of formal and informal systems that can support either ethical or unethical behavior.
* By Linda K. Treviño and Katherine A. Nelson. This article originally appeared as Chapter 9 of Managing Business Ethics: Straight Talk about
how to Do It Right (John Wiley & Sons, 2004). It has been condensed. Used by permission and may not be further reproduced.
15 March 2018
Quick-fix solutions are not likely to succeed. A broad, multisystem approach to developing and changing
organizational ethics was outlined to guide organizations in diagnosing and, if necessary, changing their
ethical culture.