b Markkula Center for Applied Ethics, Santa Clara University, Santa Clara, CA 95053, U.S.A.
Find articles by Ann Gregg Skeeta Centre for Applied Ethics, University of Deusto, Avda. Universidades 24, 48007 Bilbao, Spain
Find articles by Pedro M. Sasia a Centre for Applied Ethics, University of Deusto, Avda. Universidades 24, 48007 Bilbao, Spain b Markkula Center for Applied Ethics, Santa Clara University, Santa Clara, CA 95053, U.S.A. ∗ Corresponding authorCopyright © 2020 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
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This study analyzes real experiences of culture management to better understand how ethics permeates organizations. In addition to reviewing the literature, we used an action-research methodology and conducted semistructured interviews in Spain and in the U.S. to approach the complexity and challenges of fostering a culture in which ethical considerations are a regular part of business discussions and decision making. The consistency of findings suggests patterns of organizational conditions, cultural elements, and opportunities that influence the management of organizational cultures centered on core ethical values. The ethical competencies of leaders and of the workforce also emerged as key factors. We identify three conditions—a sense of responsibility to society, conditions for ethical deliberation, and respect for moral autonomy—coupled with a diverse set of cultural elements that cause ethics to take root in culture when the opportunity arises. Leaders can use this knowledge of the mechanisms by which organizational factors influence ethical pervasiveness to better manage organizational ethics.
KEYWORDS: Business ethics, Ethical culture, Culture management, Ethical decision-making, Cultural change
In the last 40 years, globalization, accelerated by technological development, has transformed the context in which companies work and compete (Dolan & Raich, 2009). Technology amplifies the influence of a broad group of social and political actors that have no financial stakes in companies (Kennedy, 2013). Managers have to deal with this complex and dynamic framework of social, organizational, and individual drivers of socially responsible performance. Instances of these drivers include policies, laws, and regulations (social factors); organizational ethics and tone at the top (organizational factors); and individual preferences of customers, employees, and investors. Moreover, these drivers are evolving dynamically at all three levels in response to the consequences of globalization (Aguinis & Glavas, 2012). Environmental degradation, growing inequality, the 2007-2009 financial crisis, and the global COVID-19 pandemic have revived the debate on ethics in the business realm.
As a result, researchers and managers have shown renewed interest in managing organizational ethics. Companies began incorporating new values and goals beyond economic profit in their organizational cultures as a strategy to deal with the dynamic and uncertain context in which they are operating (Garriga & Melé, 2004). Thus companies’ social roles and ways of doing business have evolved (Freeman, 2017). In August 2019, the Business Roundtable redefined the purpose of a corporation as promoting an economy for the benefit of all stakeholders; not just shareholders but also customers, employees, suppliers, and communities (Business Roundtable, 2019). They did not, however, explain how companies would achieve this new purpose. Many companies are adopting culture management, including ethics, as a strategy for meeting social demands (Treviño et al., 2014). But neither the traditional triple bottom line nor the culture underpinning decisions have fully encompassed ethics (Burford et al., 2016). One of the main causes of the 2007–09 financial crisis was the lack of ethics in management. Ethics has received more attention since then owing to high-profile ethical dilemmas in the technology sector, long considered an economic bellwether. Governance is also now focused on ethical culture. In 2017, the NACD Blue Ribbon Commission recommended that boards should monitor their organizations’ culture and integrate it into ongoing discussions with management about strategy, risk, and performance (NACD, 2017). Although companies linked to the financial crisis and companies in the technology industry had strong reputations for corporate social responsibility and appeared to embrace ethics, the behavior of some managers in these companies was clearly unethical (Sims & Brinkmann, 2009).
The predominant approach to culture management has focused on the alignment of values between the individual employee and the organization (DiStaso, 2017). As a consequence, research has focused primarily on individual factors—age, behavior, personal values, or organizational commitment—more often than on organizational factors, such as culture, policies, rewards, or training (Lehnert et al., 2015).
But everyday business practices have challenged the idea of a direct link between values and behavior that underlies this familiar paradigm. When inconsistencies or conflicts are perceived to threaten cognitive frameworks, individuals (Lord & Brown, 2001; Watson et al., 2004) and groups (List & Pettit, 2011) adjust their values to preserve integrity, affirm a positive self-image, or support contextual pressures that orient their behaviors. Therefore, behaviors may be most effectively influenced if management shifts its focus from defining values to creating a learning process that builds and activates a shared ethical culture (Appelbaum et al., 2007; Watson et al., 2004). Caterina Bulgarella used the appealing metaphor of an “architect of culture” to describe this new paradigm, offering fresh insights for facing the complexity of managing culture and ethics (Ethical Systems, 2018).
This study focuses on the organizational level. Using a model developed by Gutiérrez Díez (1996) proved remarkably effective to connect elements of culture to conditions and opportunities to build shared ethical culture. It revealed patterns between the types of cultural elements in use, the conditions present in the company, and the organization’s ability to take advantage of opportunities for promoting ethics in the company. Companies can use these findings to establish mechanisms to build individual and organizational ethical abilities and successfully manage their organizational ethics.
Culture relates to a unique shared purpose and set of values articulated in a system that internally provides a shared mindset for employees. It shapes how a company interacts with its context, orients its decision-making processes, and performs its functions (Flamholtz & Randle, 2011; Schein, 1990). Therefore, culture influences the degree to which ethics becomes embedded within an organization. It makes sense that intentionally managing culture is an appropriate strategy to promote ethics (Treviño et al., 2014).
Gutiérrez Díez (1996) proposed four groups of cultural elements after studying previous approaches based on Schein’s (1990) culture framework of basic assumptions, espoused values, and cultural artifacts. Gutiérrez Díez’s model helps to further define the visible and invisible aspects of culture, a relevant topic in contemporary business literature (Rick, 2015). The types of elements, from minor to major visibility, are normative, symbolic, declarative and structural.
Normative elements constitute a framework to explain reality, to understand how it is and how it should be. Examples of these elements are beliefs, implicit values or standards, sanctions, or taboos.
Symbolic elements include rites, ceremonies, the physical appearance of facilities, attire, logos, exemplary people or heroes, organizational codes, stories, and myths, and group jargon that create feelings of unity among employees.
Declarative elements are statements and formal declarations of mission, vision and values statements, codes, industry pledges, public messages, or internal messages to employees.
Structural elements involve organizational structures and visible procedures using the previous elements, including organizational charts and hierarchies, communication and dialogue channels, internal participation mechanisms, and human resource management (Gutiérrez Díez, 1996).
Literature and practice identified three main steps in the process of designing and managing organizational culture. The first step is the definition or redefinition of shared values that the company declares and communicates. The second step is using those values in decision making, inculcating them into organizational life and practices. Finally, the alignment of policies and procedures with the values affirms and consolidates culture in signs and observable behaviors in the company (Arthur W. Page Society, 2012; Treviño et al., 2014). As a result, the different elements of culture develop as the company evolves; thus more evolved, mature companies present a greater variety of cultural elements.
Still, the incorporation of ethics cannot be taken for granted in the complex process of culture management. All too often, companies do not use ethical principles in culture management or in establishing a hierarchy of organizational values. For ethics to permeate the organization, the steps of culture management should incorporate ethical values in order to build ethical cultures (Grandy & Sliwa, 2017).
Cultures are ethically sound when the shared set of values is ethically conceivable and credible both inside and outside of the company. Employees must perceive decisions as ethically consistent with their personal values, so that they and the groups they participate in are committed to acting according to this common ethical framework and to revisiting it as new obligations arise (Haski-Leventhal et al., 2015; Rothschild, 2016). At the same time, political and social agents outside of the company must see the business culture in this same way for ethics to take hold over time.
But even when managers are committed to orienting organizational culture ethically, they may not know how to effectively integrate ethics. Moreover, two companies with similar conditions can also differ in the way and extent to which they incorporate ethics (Eccles et al., 2014). So how does ethics permeate organizations to create ethical cultures and encourage moral behavior? What are the cultural elements influencing ethics to take root in culture?
To answer these questions, we have studied the real experiences companies have had incorporating ethics in their cultures. We analyzed experiences of 18 businesspeople diverse in terms of age, seniority, and leadership positions. Their companies varied in size and type of industry, and they operated in two countries with different cultural, political, and regulatory frameworks on two different continents. All participants interviewed were engaged in ethical forums promoted by university centers of applied ethics. These executives have been participating, some for many years, in a group that meets regularly to discuss ethics in a confidential setting, allowing a learning community to form over time. They are a sample of motivated, ethically aware leaders in high- and medium-level positions who are willing to share information about their companies based on relationships they held with each of the ethics centers over time. We felt it likely that we would be able to study the ethical evolution of culture in their companies in enough detail to truly examine decision making and other actions taken in these companies in the context of promoting ethics in organizational cultures.
We started the study at the Centre for Applied Ethics at Spain’s University of Deusto, with nine men and three women. In three half-day sessions, this learning community analyzed two real cases of cultural change and discussed them with experts to identify patterns of ethics pervasiveness. In the U.S., we posed the same questions answered in Spain to another six businessmen from the learning community at the Markkula Center for Applied Ethics at Santa Clara University. Individual semistructured interviews with participants at their companies helped us reconstruct the ways ethics had been introduced. The analysis of data confirmed and enriched the patterns identified in Spain. As a final step, we presented our conclusions to the learning community in Spain for further discussion and validation.
Our study, although its sample is small, meets conditions for the validity of findings (Guest et al., 2006). But some characteristics of participants may introduce bias, so further studies, with a wider group of companies and incorporating greater participant diversity, are required to confirm and complete the patterns identified here.
From the data we collected, patterns emerged around three aspects. First, we identified some consistent situations with similar characteristics that companies used to embed ethical principles in corporate culture. We named the three types of situations opportunities. These opportunities correlate well with the main stages of building organizational culture, so we used them to classify our findings. Second, we identified three conditions present in companies successful at promoting ethics in their cultures. Finally, we found that a mix of cultural elements, rather than overreliance on one or two types, contributed to ethics in the culture. More mature companies used a greater array of elements and had more and better developed practices for promoting ethics.
Opportunities of the first type, which we refer to as turning points, are challenging situations rife with difficulty, uncertainty, or complexity. These situations are opportunities to introduce and incorporate ethics. A second type of opportunity emerged around decision-making processes, which can be informed by ethics. Finally, transmission of ethics in culture, resulting in the broader dissemination and further strengthening of the norms shared throughout the company, is another opportunity to affirm culture. In some stories, participants described companies’ abilities to leverage one situation for more than one type of opportunity. For example, they leveraged staff turnover—a turning point—not only for introducing but also for affirming ethics; or they used development of ethical skills—an example of transmission— to both affirm and use values ( Table 1 ). This suggests a cyclical dynamic in the process of introducing, using, and affirming ethical values (Lozano, 2009; Treviño et al., 2014).
Examples of opportunities