Article Critique

ETHICAL LEADERSHIP AND FOLLOWERS’ ATTITUDES TOWARD CORPORATE SOCIAL RESPONSIBILITY: THE ROLE

OF PERCEIVED ETHICAL WORK CLIMATE

SUK BONG CHOI Korea University

S. M. EBRAHIM ULLAH Samsung Research and Development Institute Bangladesh Ltd.

WON JUN KWAK Soongsil University

Increasing attention is being paid to how leaders influence followers’ perceptions of the importance of ethics and corporate social responsibility (CSR) for organizational effectiveness. However, few researchers have conducted empirical investigations into the impact of leadership style on followers’ attitudes toward CSR. In this study, participants comprised 313 employees of 5 large financial and banking service firms in Korea. Results indicated that ethical leadership was strongly associated with followers’ rating of CSR. In addition, we examined how employees’ perception of ethical work climate mediates and moderates the relationship between ethical leadership and followers’ attitudes toward CSR. Our findings supported a positive link between ethical leadership and followers’ attitudes toward CSR, with perception of an ethical work climate acting as a significant mediator and moderator in this relationship. Implications for leadership practice and CSR, and recom- mendations for future research directions are discussed.

Keywords: corporate social responsibility, ethical leadership, perceived ethical work climate, organizational effectiveness, Korean employees.

Corporate social responsibility (CSR) has caught the attention of organizational leaders as corporations focus more on stakeholders’ interests and social issues

SOCIAL BEHAVIOR AND PERSONALITY, 2015, 43(3), 353-366 © Society for Personality Research http://dx.doi.org/10.2224/sbp.2015.43.3.353

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Suk Bong Choi, College of Business and Economics, Korea University; S. M. Ebrahim Ullah, Department of Human Resources, Samsung Research and Development Institute Bangladesh Ltd.; Won Jun Kwak, Department of Business Administration, Soongsil University. Correspondence concerning this article should be addressed to: Won Jun Kwak, Department of Business Administration, Soongsil University, Cumming Hall #106 Sangdo-Dong, Dongjak-Gu, Seoul, Republic of Korea. Email: [email protected]

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(Angus-Leppan, Metcalf, & Benn, 2010; Groves & LaRocca, 2011). In previous studies, researchers have discussed how institutional drivers, such as political, financial, educational, labor-related, and cultural systems, motivate and force the practice of CSR (Matten & Moon, 2008; Waddock, 2008). However, in recent studies, researchers have been arguing that non-institutional drivers are encouraging CSR much more than institutional drivers are, with CSR affecting societal and individual perceptions (Angus-Leppan et al., 2010). Specifically, some scholars have argued that organizational leaders play the most significant role as a noninstitutional driver to promote CSR (Angus-Leppan et al., 2010; Waldman et al., 2006). For example, Angus-Leppan et al. stated that leadership behaviors strongly reinforce and inspire employees’ attitudes toward CSR and its successful practice. Although CSR has been linked to organizational performance in these studies, in addition to the link between CSR and organizational performance, there is an ongoing need to examine the association of CSR with the ethical or moral values of the leader (Donaldson & Preston, 1995).

To promote CSR, managers prioritize business issues, such as thinking beyond self-interest, stakeholders’ interests, environmentally friendly organizational policies, collective interests, social welfare, and ethical decision making (Brown & Treviño, 2006; De Hoogh & Den Hartog, 2008). As employees in an organization look for ethical guidance (Treviño, 1986), this indicates the need for ethical leadership, which has been defined as “the demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and the promotion of such conduct to followers through two-way communication, reinforcement, and decision making” (Brown Treviño, & Harrison, 2005, p. 120). Ethical leaders manage the firm with ethical values based on a moral foundation that can promote social interest, rather than just on maximization of the firm’s profit. As a result, they can inspire employees to work ethically and to form an organizational vision in which both the firm’s growth and social progress are promoted (see Brown et al., 2005). Groves and LaRocca (2011) established that a leader’s ethical value system is strongly related to CSR.

Ethical leadership may influence employees’ CSR beliefs through the perception of the employees that the climate in their work unit is ethical. An ethical work climate has been defined as the “prevailing perceptions of typical organizational practices and procedures that have ethical content” (Victor & Cullen, 1988, p. 101). In this study, perceived ethical work climate refers to employees’ perceived sense of obligation to behave in an ethical manner. The perceived ethical work climate among employees is the output of ethical leadership, as leaders using this leadership style act morally, promote morality, and emphasize interest in employees (Brown et al., 2005). Victor and Cullen (1988) outlined the necessity of an ethical work climate and the factors influencing its development. In addition, Barnett and Vaicys (2000) stated that behavioral intentions have an

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impact on an ethical work climate. In the studies cited here, the researchers have related leadership style to the development of an ethical work climate in an organization. However, although Groves and LaRocca (2011) argued that leaders with transactional and transformational leadership styles enhanced followers’ attitudes toward CSR, they presented the impact of an ethical work climate on followers’ attitudes from a narrow perspective. Therefore, our aim in this study was to fill the gap in the literature regarding the impact of leadership style on the perceived ethical work climate among employees and the impact of followers’ perception of an ethical work climate on their attitude toward CSR. Thus, we measured the role of perceived ethical work climate as a mediator and moderator of the relationship between ethical leadership and followers’ attitudes toward CSR.

When the work climate is ethical, this plays a significant role in promoting CSR, as it ensures the norms, codes of conduct, and broad organizational climate are ethical (Hunt & Vitell, 1986; Treviño, 1986), and it also influences organizational practices and procedures (Victor & Cullen, 1988). It is evident that the organizational climate must be supportive in order for CSR to work effectively. For example, Carroll (2000) found that the work climate was a crucial factor in promoting CSR in an ethically challenging situation. Further supporting this view, Groves and LaRocca (2011) found that an environment in which ethical values are supported was required for CSR to operate. For leaders to influence followers’ attitudes toward CSR, they need a supportive work climate in which to practice ethical values (Kanungo, 2001). Employees’ perception of an ethical work climate could play a moderating role in improving followers’ attitudes toward CSR, but currently there is inadequate evidence to support this view. Thus, we measured the potential of the ethical work climate to act in a moderating role in the relationship between leadership and CSR, at the individual level.

Hypotheses Development

Ethical Leadership and Corporate Social Responsibility Ethical leadership is associated with followers’ attitudes toward CSR in the

following four ways: First, the social learning perspective of ethical leadership influences followers to perform their duties in the organization ethically to a greater extent (Bandura, 1986). As leadership style influences followers through modeling a value system (Yukl, 2006) in which social welfare and the collective interest of the social unit have priority, ethical leadership promotes CSR. Second, Treviño and colleagues (2000) found that ethical leaders draw their followers’ attention to the main issue of ethical messages in the organizational context. When ethical practices are followed in the organization, followers feel inspired to look at social issues from an ethical perspective, and they develop a positive

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sense of CSR (Kanungo, 2001). Third, Brown et al. (2005) observed that ethical leaders are honest, trustworthy, fair, and caring. Such characteristics promote an open-minded organizational culture based on sharing information and attention to collective issues. From the perspective of the collective interest, ethical leadership influences followers’ attitudes toward CSR. Fourth, ethical leadership involves the following five key components of leader social responsibility: moral–legal standard of conduct, internal obligation, concern for others, concern about consequences, and self-judgment (Winter, 1992). Such socially responsible feelings will not only make leaders CSR-oriented, but they will also become role models for their followers, thus promoting followers’ attitudes toward CSR. Therefore, we proposed the following hypothesis: Hypothesis 1: Ethical leadership will be positively associated with followers’ attitudes toward CSR.

Mediating Role of Employees’ Perceived Ethical Work Climate An ethical work climate affects the moral content of an organization, and an

ethical leader empowers employees to make democratic/participative decisions in which they prioritize morality, social values, and the collective interest of company. In this regard, ethical leaders encourage employees to suggest creative and ethical solutions to the problems encountered in the decision-making process to reach the organizational goal effectively and ethically. Such leader behaviors also encourage employees to follow ethical practices in performing their work and thereby strengthen the moral base from which employees operate (Singhapakdi, Kraft, Vitell, & Rallapalli, 1995). When a work climate is ethical, this encourages the development and practice of ethical values among followers, and the ethical style of leadership functions to create a sense of social awareness that is strongly related to the perception of CSR (Wyld & Jones, 1997). An ethical workplace climate acts positively as a mediator in the relationship between ethical leadership and CSR in the following ways: Firstly, the focus of the manager using an ethical leadership style is on maintaining organizational morality. This promotes ethical human capital for leaders and followers who work in the ethical work climate. As a result, the action plan of the leader and of every follower is comprehensively influenced by ethics and morality. Gradually, followers make ethical decisions and work for the interest of both the firm as a business that is financially viable and for the social well-being and collective interest of the firm as a social unit (Ferrell & Fraedrich, 1997). Second, ethical leaders emphasize the ethically based work climate. Third, when a work climate is ethical, and both making a profit and social integrity are promoted, this leads to that climate being shared not only by employees but also by the stakeholders in the firm, such as consumers, investors, and the community in which the firm does business. Thus, the ethical work climate positively influences the realization

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of the organizational vision (Kanungo, 2001). As the leader recognizes the employees’ contribution to building up an ethical work climate, the relationship between leader and followers becomes one of trust. When employees see that the leader (or the organization) values what they have done for the organization, they become motivated to follow the leader’s example of prioritizing the collective and social interests – including the interests of the stakeholder groups – for the long-term survival of the firm. Thus, these leader behaviors and the employees’ relationship of trust with the leader will positively influence the employees’ attitude toward CSR. Thus, we proposed the following hypothesis: Hypothesis 2: Employees’ perception of an ethical work climate will act positively as a mediator in the relationship between ethical leadership and followers’ attitudes toward CSR.

Moderating Role of Employees’ Perceived Ethical Work Climate An ethical work climate encompasses the organizational climate that affects

the leader’s behavior and organizational performance. Further, it positively moderates the relationship between ethical leadership and CSR in the following ways: First, the leader’s ethical behavior determines the status of the ethical work climate (Dickson, Smith, Grojean, & Ehrhart, 2001). When a leader’s ethical behavior flourishes in an organization, this has an impact on followers, and CSR practices grow in an effective way. The ethical work climate is a moderating factor in the level of success. Second, individual employee ethical behavior is shaped and reinforced by the leader as well as by the ethical work climate (Lovelace & Rosen, 1996), which inspires individuals to be ethical and to prioritize social issues. Third, in an ethical work climate the emphasis is on collective interests rather than self-interest (Ferrell & Fraedrich, 1997). Moreover, ethical leaders influence followers to be CSR-oriented by encouraging social and collective interests more than individual interests. Fourth, when the work climate is morality-based and ethical, this can promote high levels of CSR in an organization. It is important that the three levels of moral reasoning, namely, egoism, benevolence, and principled, will be reflected in three ethical criteria (Victor & Cullen, 1988). The egoism criterion ensures that followers have an enriched mindset toward CSR (Ferrell & Fraedrich, 1997). The benevolence and principled criteria that empower employees to take on ethical decision making and to understand universal principles, strengthen the relationship between leadership behavior and CSR (Barnett & Vaicys, 2000). Thus, we proposed the following hypothesis: Hypothesis 3: Employees’ perception of an ethical work climate will act positively as a moderator in the relationship between ethical leadership and followers’ attitudes toward CSR.

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Method

Participants Participants were employees of five large financial and banking service firms

in Korea. Of the 313 employees, 76% were men (n = 239) and 24% were women (n = 74). Their average age was 31.8 years; 49% were married and 51% had never married or were widowed, divorced, or separated. In terms of education, a little over 80% of respondents had a bachelor’s degree or higher academic qualification. The average length of organizational tenure was 6.3 years.

Procedure We followed a similar procedure to that of Angus-Leppan et al. (2013), that

is, surveys/scales originally written in English, were administered in Korean. We followed Brislin’s (1980) translation–backtranslation procedure. A professional translator rendered the original version into Korean, which was then translated back into English by a bilingual academic who was blind to the objectives of the study and had not seen the original survey. This translator was also asked to comment on any ambiguously worded items. No noteworthy changes in any of the items used in this study were suggested. We then pilot tested the Korean version using 50 employees of the participating organizations, none of whom were included in the final sample. We reworded a few items to ensure clarity, according to feedback from the pilot test.

As described by Pearce and Sims (2002), the research design incorporated the following time lag to reduce common method bias: Leadership measures were collected at Time 1, and followers’ attitudes toward CSR measures were collected approximately 3 months later at Time 2. This time lag enhanced our interpretation of the results by reducing potential concerns about temporal causality caused by the cross-sectional research design.

Measures The items of each psychometric measure were assessed on a 7-point scale,

where 1 = strongly disagree and 7 = strongly agree. Ethical Leadership Scale (ELS; Brown et al., 2005). We measured ethical

leadership behavior using the 10-item ELS. Sample items are as follows: “My leader makes fair and balanced decisions,” and “My leader disciplines employees who violate ethical standards.” Cronbach’s alpha reliability was .93 in this study. This result is consistent with that of previous research ( = .88; Mayer, Kuenzi, Greenbaum, Bardes, & Salvador, 2009).

Perceived Role of Ethics and Social Responsibility (PRESOR; Singhapakdi et al., 1995). Followers’ beliefs concerning the importance of ethics and CSR were measured using the 13-item PRESOR Scale. This scale includes five reverse-scored items that represent a shareholder view of CSR. Of these items,

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sample items are as follows: “The most important concern for a firm is making a profit, even if it means bending or breaking the rules” and “Efficiency is much more important to a firm than whether or not the firm is seen as ethical or socially responsible.” The Cronbach’s alpha reliability estimate for the PRESOR scale was .93 in this study.

Ethical Climate Questionnaire (ECQ; Victor & Cullen, 1988). We used the ECQ, as modified by Schminke, Ambrose, and Neubaum (2005), to measure ethical work climate. The ECQ consists of 26 items and sample items are as follows: “In this company, people are mostly out for themselves” and “People in this company view team spirit as important.” The Cronbach’s alpha reliability estimate for the ECQ was .96 in this study.

Control variables. As one’s age, education, gender, and organizational tenure may be associated with the relationship between leadership and CSR (Groves & LaRocca, 2011), these were examined as control variables in the hypotheses testing. Age was measured in years. Gender was a dummy variable (1 for men, 2 for women). Education was measured by the highest level of education achieved, ranging from 1 (middle school or below) to 4 (graduate school or above). Organizational tenure was measured using respondents’ self-reported years of working in the organization.

Results

Preliminary Analysis Before testing the hypotheses, we conducted a series of confirmatory factor

analyses using AMOS version 20.0 to examine whether or not the data captured distinct constructs (see Table 1). The hypothesized three-factor model fit the data well and better than all the alternative models, providing support for the distinct constructs of ethical leadership, CSR, and perceived ethical work climate.

Table 1. Comparison of Measurement Models

Models and structure 2 df 2 TLI CFI IFI RMSEA

Hypothesized three-factor model 832.67 342 - .91 .92 .92 .06 Two-factor model with EL merged with PEWC 2602.19 347 1769.52 .60 .63 .63 .14 One-factor model 3386.88 348 2554.21 .46 .50 .51 .16

Note. EL = ethical leadership; PEWC = ethical work climate; TLI = Tucker-Lewis index; CFI = comparative fit index; IFI = incremental fit index; RMSEA = root mean square error of approximation. All chi-square differences are significant at p < .001. The 2 is in relation to Model 1.

Common method bias was assessed via post hoc analysis using Harman’s single-factor test for all items. No single factor emerged in the results, and one

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general factor did not account for most of the variance. An unrotated factor analysis extracted three distinct factors that accounted for 62.45% of the total variance. The factor that explained 20.28% of the variance was the largest. These results show that common method bias was not likely to be a significant problem in the data. Moreover, to check for multicollinearity, we computed variance inflation factors (VIFs), the values of which ranged from 1.02 to 1.08, which were under the recommended 10.0. This indicated there was no need for serious concern regarding multicollinearity (Neter, Wasserman, & Kutner, 1989).

Hypothesis Tests Means, standard deviations, and variable correlations are presented in Table 2.

Table 2. Variable Means, Standard Deviations, and Correlations

Scale M SD 1 2 3 4 5 6 7

1. Gender 1.24 0.42 1 2. Age 39.97 9.03 -.42** 1 3. Marital status 1.52 0.50 -.32** .62** 1 4. Education 3.97 0.57 -.21** .20** .16** 1 5. Organizational tenure 6.31 4.70 -.26** .63** .56** -.04 1 6. Ethical leadership 4.50 1.07 -.11* .08 .11* .03 .00 1 7. Perceived ethical work climate 4.63 1.18 -.11* .21** .19** .09 .16** .23** 1 8. CSR 5.02 0.91 -.24** .29** .23** .10 .22** .36** .25**

Note. N = 313. * p < .05, ** p < .01, two-tailed.

In Hypothesis 1, we predicted that ethical leadership would be positively associated with followers’ attitudes toward CSR. As shown in Model 3 of Table 3, Hypothesis 1 was supported.

To test Hypothesis 2 i.e., that employees’ perceived ethical work climate would positively mediate the relationship between ethical leadership and followers’ attitudes toward CSR, we used the following criteria established by Baron and Kenny (1986): (a) ethical leadership must be significantly related to the perceived ethical work climate; (b) ethical leadership must be significantly related to employees’ attitudes toward CSR; and (c) when controlling for perceived ethical work climate as the mediator variable, the relationship between ethical leadership as the independent variable and employees’ attitudes toward CSR as the dependent variable must be either no longer significant or significantly reduced.

We found that ethical leadership was positively related to the perceived ethical work climate, as seen in Model 2 in Table 3. As shown in Model 4 in Table 3, the perceived ethical work climate became a stronger predictor of employees’ attitudes toward CSR. However, the coefficient of ethical leadership was smaller than it would have been as the sole predictor in the relationship with employees’

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attitudes toward CSR. The regression analyses showed that the perceived ethical work climate partially mediated the relationship between ethical leadership and employees’ attitudes toward CSR. Therefore, Hypothesis 2 was supported.

In Hypotheses 3, we proposed positive moderating effects of employees’ perceived ethical work climate on the relationship between ethical leadership and employees’ attitudes toward CSR. To test this hypothesis, we conducted a hierarchical regression in which the control variables were entered in Step 1, the main effects were entered in Step 2, and the interaction was entered in Step 3. As shown in Model 5 in Table 3, the interaction between ethical leadership and the perceived ethical work climate was statistically significant. Therefore, Hypothesis 3 was supported.

Table 3. Regression Results for the Direct, Mediation, and Moderation Models (Hypotheses 1-3)

Variables CSR PEWC CSR

Model 1 Model 2 Model 3 Model 4 Model 5

Step 1 Gender -.14** -.10** -.12** -.12** -.11**

Age .13 .13 .11 .04 .04 Marital status .04 -.01 .02 -.02 -.01 Education -.02 -.03 -.01 -.03 -.03 Organizational tenure -.15 -.05 -.09 -.08 -.06

Step 2 EL .18*** .21*** .15*** .11

Step 3 PEWC .55*** .23**

EL × PEWC .46***

R2 .12 .28 .16 .44 .46 R2 change .12 .16 .04 .28 .02 F 6.94*** 15.26** 8.48*** 30.59*** 29.22***

Note. N = 313. PEWC = perceived ethical work climate; EL = ethical leadership. Standardized coefficients are reported. * p < 0.1, ** p < .05, *** p < .01, two-tailed.

Discussion

Theoretical Implications Our results in this study show that there was a positive relationship between

ethical leadership and followers’ attitudes toward CSR, and also that perceived ethical work climate acted as both a mediator and a moderator within these relationships. Our findings extend those of previous leadership and CSR researchers, who have shown that leaders with ethical values promote CSR (Angus-Leppan et al., 2010; Groves & LaRocca, 2011; Waldman et al., 2006). In this study, we showed that ethical leadership inspires followers to go beyond their self-interest and to consider stakeholders’ social interests in a broader

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perspective, in which CSR values are embedded. Past researchers have shown that for a company to embrace the values of CSR, it is necessary to have a leader who uses a leadership style distinct from the traditional one (Angus-Leppan et al., 2010), such as a transformational leadership style in which ethical values are embedded (Groves & LaRocca, 2011). However, we focused on the relationship between ethical leadership and CSR, and extended the boundaries of ethical leadership by linking CSR with followers. In this way, we found that ethical leadership influences followers’ attitudes toward social issues such as CSR.

Although previous researchers have examined the moderating effect of individuals’ perceptions of ethical work climate on their ethical judgments and behavioral intentions (Barnett & Vaicys, 2000), in this study, we confirmed the significant mediating role of employees’ perceived ethical work climate in the relationship between ethical leadership and followers’ attitudes toward CSR. We have shown how ethical leadership affects employees’ attitudes toward the development of CSR, a finding that is related to that of Victor and Cullen (1988).

We also confirmed the moderating role of employees’ perceived ethical work climate. Our findings are consistent with those of Barnett and Vaicys (2000), who found that individuals’ perceptions of ethical work climate influenced and strengthened their commitment to ethical work behavior. Our findings also support those of Victor and Cullen (1988), by showing that perceived ethical work climate can motivate followers to practice a morally based work process, dedicate themselves to the well-being of the organization, and, with the help of ethical leadership, to consolidate CSR.

Managerial Implications Our results have several managerial implications for organizations. First,

ethical leaders should emphasize value-based organizational training and promotional steps, resulting in an ethical work climate. Managers can motivate followers to build a sense of collectivity and group interests and to pursue the vision of the organization. Thus, organizational leaders can encourage employees to have positive attitudes toward the welfare of the organization and the stakeholders. Organizational leaders should also motivate employees to be independent thinkers and decision makers according to moral values. They can reinforce moral reasoning to raise employee awareness of morality and ethics and to increase their desire to make ethical decisions (Groves & LaRocca, 2011; Jones, 1991).

Second, it is necessary for followers to perceive that their work climate is ethical in order to embed CSR values among them, and followers’ perceptions of the ethical work climate can enhance ethical decision making and collective interests (Barnett & Vaicys, 2000). Leaders should maintain an ethical work climate in which employees are concerned about the stakeholders’ interests and

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that will bring social benefits in general (Waldman et al., 2006). An ethical work climate will facilitate employee participation in organizational decision making with the help of transformational and ethical leaders.

Limitations and Future Research Directions There are several limitations in this study. First, our data were limited to

Korean financial and banking service firms. As Waldman et al. (2006) stated in their longitudinal study, which they conducted in 15 countries, CSR decision making is influenced by different cultural value systems and leadership styles. Therefore, we suggest that future researchers examine different leadership styles and industries. Although we focused on ethical leadership in this study, we suggest that future researchers consider other leadership styles that are based on ethical values. Second, we conducted our analysis at the individual level. However, as CSR broadly relates to collective interests, we suggest that future researchers use an integrated research framework with analysis of factors at the group and organizational level. Third, we found that the perception of an ethical work climate, both as a mediating and moderating variable, had a positive impact on the main causal relationships. We suggest that future researchers look at other factors that may act as mediators and/or moderators, to identify other possible managerial implications and to bring about a better understanding of employees’ attitudes toward CSR.

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