Creating and Maintaining an Ethical Corporate Climate
Copyright © 1990 Woodstock Theological Center. All rights reserved. Published by Georgetown University Press (ISBN 0-87840-521-6).
TABLE OF CONTENTS
Section I The Challenge
Section II The Values
- Responsibility of Purpose
- Responsibility to Constituencies
- Respect for the Individual
- Respect for Property
Section III The Corporate Climate
Section IV Check Points
|Dr. Margaret M. Blair, co-rapporteur
Economic Studies Program
The Brookings Institution
|Mr. Willard C. Butcher
The Chase Manhattan Bank
|Mr. Willard C. Butcher
The Chase Manhattan Bank
|Rev. William J. Byron, S.J.
The Catholic University of America
|Mr. E. Eugene Carer
|Mr. A. W. Clausen
Chairman & CEO
|Rev. James L. Connor, S.J.
Woodstock Theological Center
|Mr. Lloyd N. Cutler
Wilmer, Cutler, and Pickering
|Dr. Thomas Donaldson
School of Business Administration
|Dr. Karen Gaertner
School of Business Administration
|Dr. Kenneth E. Goodpaster
University of St. Thomas
|Dr. Ronald M. Green
|Hon. Joseph A. Grundfest
Stanford Law School
|Mr. John H. Gutfruend
Chairman and CEO Salomon Brothers, Inc.
|Hon. Lee H. Hamilton
U. S. House of Representatives
|Mr. Thomas S. Johnson
Manufacturers Hanover Trust Co.
|Mr. J. W. Kaempfer
The Kaempfer Company
|Mr. Duane R. Kullberg
Managing Partner, CEO - retired
Arthur Andersen & Co.
|Rev. John Langan, S.J.
Kennedy Institute of Ethics
|Mr. Martin Lipton
Wachtell Lipton Rosen & Katz
|General Edward C. Meyer
|Rev. Leo J. O'Donovan, S.J.
|The Honorable Henry David Owen
Consultants International Group
|Dr. Lynda S. Paine, co-rapporteur
Harvard Business School
|Dr. Robert S. Parker
Dean, School of Business Administration
|Mr. Charles O. Rossotti
Chairman and President
American Management Systems, Inc.
|Mr. Andrew G. C. Sage, II
Glen Cove, New York
|Rev. Donald W. Shriver, Jr.
Union Theological Seminary
|Hon. William Stanton
The World Bank
|Mr. D. C. Thomas
President & COO
|Mr. Raymond C. Tower
President & COO - retired
|Dr. Patricia H. Werhane
Henry Wirtenberger Prof. of Ethics
|Mr. Howard H. Williams, III
McKinsey and Company, Inc.
|Dr. J. Philip Wogaman
Wesley Theological Seminary
"Creating and Maintaining an Ethical Corporate Climate" is
the product of two years of study and two major conferences of members of the business
community, government, and academia. This report distills highlights of those
conversations and offers evaluation and recommendations for creating and maintaining an
ethical climate in a business corporation.
Those whose names appear above were participants in the process. Not every member of
the group subscribes to every sentence in this report, but all support its basic contents
and sentiments, deeming its distribution within the business community and beyond to be
useful. Their support does not involve any organization with which they may be affiliated.
They hope their shared experience and insight may help other corporate leaders who face
similar ethical challenges.
This project was conceived in the fall of 1988, while the members of the Woodstock
Theological Center's continuing Seminar on Business Ethics were
discussing ethical dilemmas in the conduct of mergers and acquisitions. From those
conversations came a publication, entitled, Ethical Considerations in
Corporate Takeovers (Georgetown University Press, 1990). The group, however, felt that
deeper, systemic issues still needed to be addressed.
This publication represents the group's investigation into the often overlooked
influence of a corporate environment upon an individual's ethical behavior. From personal
experience, the group generated a checklist of practical questions for executives intent
upon creating and maintaining an ethical climate. This checklist and the introductory
executive summary provide a brief overview of the whole statement.
For this publication we are grateful to the Seminar Steering Committee: General Edward
C. Meyer, Ambassador Henry Owen, Mr. Howard H. Williams, III, and Rev. John P. Langan,
S.J. We are indebted to Dr. Lynda Sharp Paine and Dr. Margaret M. Blair who shared the
role of rapporteur.
We are happy to acknowledge our gratitude to Bank of America, Chemical Bank,
Manufacturers Hanover Trust Company, and an anonymous foundation for financial support for
Studies and published reports on ethical issues in corporate life are a major dimension
of Woodstock's work. The Woodstock Theological Center was established at Georgetown
University in 1974 by the Society of Jesus to study the interaction between moral values
and problems facing contemporary society.
James L. Connor, S.J.
Woodstock Theological Center
December 1, 1990
Leadership from the top is the single most important factor in creating and
maintaining an ethical climate in any business. That having been said, however, how should
effective leadership be exercised?
Corporate executives and managers face risks and problems in the workplace today that
are placing extraordinary new demands on them for moral leadership. Issues confronting
them range from chemical dependency on the part of workers or other managers, to race and
gender discrimination, insider trading, industrial espionage, bribe-giving or
bribe-taking, embezzlement, or other white-collar crime. Moreover they, and their
companies, may be held accountable for injury to individuals or to the environment
resulting from malfeasance or negligence by employees.
Besieged by problems that may seem out of their control, some corporate leaders
complain that they encounter people in the business world who are preoccupied with
financial success and steeped in a culture of selfish individualism. Self-indulgent
permissiveness, they fear, has become so pervasive and corrosive that these executives
have lost confidence that their employees and colleagues will act in ethically responsible
ways. As a result, they are worried more than ever about law suits, institutional
instability, and the erosion of respect for business as a profession, as well as about the
substance of ethical dilemmas they confront in conducting their business.
In response to these troubling issues, the Woodstock Theological Center Seminar in Business Ethics brought together a group of corporate
executives, academics, and religious leaders to discuss these problems, share experiences,
analyze more closely the roots of the difficulties, and develop suggestions for ways in
which concerned business leaders can meet the challenge presented by them.
This monograph summarizes their findings.
Section I below explores some sources of the belief
that there has been some breakdown in ethical discipline in business, and its implications
for corporate executives. In particular, it examines several social and economic trends
that are simultaneously weakening and redefining boundaries of firms, expanding the social
claims being made on them, and undermining the discipline, loyalty, integrity, and sense
of social responsibility of individuals who work for them. Because of these trends, many
executives believe that they must, more than ever, take action to ensure that ethical
standards are maintained, even as their capacity to establish and enforce such standards
by fiat has been diminished. Thus their task becomes one of creating a workplace climate
in which ethics is so integral to day-to-day operations that ethical behavior is virtually
self-enforcing. In fact, a key insight that emerged from the deliberations of the
Woodstock group was that ethical behavior in business is not simply a matter of the
character and virtue of each individual involved in a business enterprise, but that it is,
partly at least, built into the environment within which individuals work.
Section II discusses eight values which the Woodstock
group feels are critical to a strong ethical climate and a healthy ethical role for
business in the larger society. These include responsibility, honesty, reliability,
fairness, integrity, respect for individuals, and respect for property.
Section III considers the elements of corporate
culture, and how ethical considerations must be woven into the fabric of that culture.
While different for every firm, that culture must increasingly be participatory rather
than authoritarian. Thus, the maintenance of ethical standards requires both consensus and
commitment on the part of virtually all managers and employees.
Section IV presents a checklist of questions to help
managers begin the tasks of assessing how well their firms are doing, and of developing
ways to improve the ethical climate in their firms.
The Conclusion offers a few final thoughts on the
commitment required from top managers.
The business community has been buffeted by problems in recent years that have
challenged its moral and ethical leadership and raised fundamental questions about ethical
standards within corporations. Insider trading problems on Wall Street, charges of
bribery, self-dealing and gross incompetence in the savings and loan fiasco, claims of
damage to employees from racial or gender discrimination, charges of negligence or
malfeasance in product liability lawsuits and environmental accidents, and problems of
injury and productivity loss resulting from substance abuse by employees have put
corporate managers on the defensive. Whether ethical problems are greater now than in
previous times is not clear, but participants in the Woodstock group are uneasy about what
they regard as a weakening in ethical norms in society at large, and about the problems
this creates for the executive who wants to run a "clean" company, where ethical
standards are set and maintained at a high level.
The concerns expressed by those assembled for this study seem to arise from several
broad social and economic trends. The workplace and the institutional arrangements in
which work gets done have been undergoing massive changes in recent years because of the
takeover, breakup and reconfiguration of corporations, the decline of unions, and the
broad shift from a mass-production, manufacturing-based economy to a service-based
economy. Alongside these economic trends, two related and long-running cultural trends are
transforming American society. The first is the expansion of cultural diversity (an
inevitable consequence of liberal immigration policy, increasing travel and reporting on
events abroad, and the growth in importance of international trade); and the second is the
growth of emphasis on individualism and individual rights, both in the economic and the
The effect of these trends has been to weaken cultural cohesiveness in American society
in general. Consequently, it is no longer reasonable to assume that most of the workers
and managers who come to work for a corporation share a common set of values and a common
interpretation of those values. Nor is it necessarily reasonable to assume that lenders,
shareholders, suppliers, customers, and communities where a company operates share a
common understanding about the obligations and priorities of the firm. The latter fact
raises a whole set of questions about the appropriate social role of firms, while the
former may account for corporate leaders' growing concern about the ethical climate within
their firms and the problem of building ethical commitment into their operations.
In the course of its deliberations, the Woodstock group quickly came to appreciate that
ethical standards, if they are to have significant influence on behavior, must be built
into the very climate and culture of the firm. Ethical behavior in business is not simply
a matter of the character and virtue of each individual involved in a business enterprise.
It is also a product of, and a contributor to, the ethical climate in which that firm
operates. In fact, many benefits of individual good deeds may be lost if they are not
supported by a strong ethical climate. Thus, if the norms of society at large do not
provide enough direction, discipline, and reinforcement to set high standards and elicit
consistent ethical behavior in the business environment, it will be up to the leaders of
corporations to create a climate that encourages and enforces ethical standards in their
Though always important, this task has taken on a new urgency for corporate executives.
The traditional mission of the corporation has been primarily economic. Its moral
imperative was regarded as largely fulfilled if the economic goals of the firm, and the
means it used to achieve those goals, did not violate the values of society. While these
principles are still valid, a number of members of the Woodstock group felt that in
today's world, a further responsibility is now falling on corporate leaders to define
explicitly the standards that must be adhered to by the firm and its employees, and to
create a climate that will support those standards.
This view arises from the realization that a corporation is a community of its own,
although it obviously also exists within a larger community of the nation or nations in
which it operates. Like other communities, it thrives on trust, shared values, and a
shared commitment to worthwhile objectives. If the moral context of the larger society
fails to instill these qualities in the people who participate in corporations, the
leaders of these organizations must work all the harder to fill the void by consciously
creating an ethical business climate.
In doing so, business leaders cannot take for granted that values they may hold are
necessarily common to all employees and other constituents of the firm. For this reason,
participants in the Woodstock group felt that the first step for corporate leaders hoping
to create an ethical climate in their firms is to identify and articulate the values they
regard as vital if business is to function effectively and make a positive contribution to
the larger society. The next section identifies a core set of ethical values, and
discusses the implications of a commitment to these values.
Ethical values are different from personal desires or business objectives. They
find support in diverse religions and moral philosophies; they also arise from our common
participation in society and thus respond to specific individual and social needs. Without
general respect for honesty, for example, communication would be impossible. Fidelity to
commitments makes planning and coordination possible. Ethical values enhance human
freedom. They help us to coordinate and guide our individual choices and actions in a
world of limited rationality, limited knowledge, and limited sympathies. They provide the
foundations for social trust and cooperation and a framework for individual aspirations
and constraints that give meaning to more personal objectives. The very centrality of
ethical values to our lives and our traditions underlines the need for them to last over
Some fundamental ethical values related to the purpose, responsibilities, and conduct
of business firms and of the individuals in those firms are outlined below. Participants
in the Woodstock project intend the brief discussion of each value to serve as a starting
point for more concrete consideration in the context of each firm's business. Each concept
sets minimum requirements of conduct, which establish an operational floor of commitment.
It also suggests certain aspirations, which set a tone and establish the possibility for
moral improvement. Managers concerned about managing the ethical climate of their
organizations will want to elaborate these values and consider how they come into play in
The starting point for any organization must be a purpose and a set of goals that
reflect the organization's obligation to serve the larger human community. While a
corporation or business organization exists to generate income and wealth for its
employees and its investors, the products or services it sells should be ones that its
employees and shareholders can point to with pride as good things for society to have or
use. A firm committed to this standard will obviously rule out any clearly illegal or
immoral activity, such as the selling of cocaine, but it also may rule out certain legal
but questionable activities as inconsistent with its self-definition and its moral
A responsible organization, like a responsible individual, will be concerned about the
impact of its behavior on others. Many classes of individuals are affected by how a
business conducts its affairs. Typically, the groups most directly affected are employees,
customers or clients, stockholders and creditors, suppliers, competitors, the local
communities in which it operates, and the general public. Being responsible to these
constituencies means conducting business in a way that respects their legitimate rights
and interests, and is mindful of their concerns and needs. Fulfilling the firm's
responsibilities to its constituencies may require the firm to institute systems or
procedures for identifying and weighing their concerns, for anticipating and monitoring
the impact of its action on these groups, for sometimes involving them in decision-making,
and for disseminating information to these groups.
Honesty requires the avoidance of deception and careless misrepresentation of
information on which others may rely. Communications, both internal and external, should
be truthful and accurate. Care should be taken, for example, to ensure that accounting,
financial reporting, and marketing efforts are not misleading. Honesty also calls for
directness and candor with colleagues and openness to inquiries from legitimate
constituencies, insofar as compatible with the obligations of confidentiality and with
other responsibilities. In some cases, honesty may require specific disclosures, so that
affected parties will have access to relevant information.
Reliability implies fidelity to promises and other commitments. Making promises that
cannot be kept, such as committing to unrealistic delivery dates, or breaking promises
when advantageous, undermines the ability of others to conduct their affairs and plan for
their future. Reliability also calls for acknowledgment of implicit commitments, such as
the commitment to protect confidences received in the course of doing a job.
Competence and quality are subcategories of reliability. Executives, managers, and
employees must all strive to perform according to the technical standards required for
their jobs, to avoid careless mistakes in the performance of these jobs, and to offer only
those goods and services that they are competent to provide. Likewise, the products which
the firm sells should live up to the performance standards specified or implied for the
product. Although competence and quality are more often thought of as nonethical values or
business goals, they are closely connected to ethical values. Incompetence, carelessness,
or the production of flawed goods injures the firm's constituencies and increases the
pressure to violate other ethical principles.
The requirements and standards of fairness are varied. In its most general sense,
fairness requires an equitable distribution of burdens and benefits. Individuals, whether
employees, suppliers, customers, or shareholders, should not be disadvantaged for
irrelevant reasons of race, gender, religion, ethnic background, or sexual orientation.
Favoritism for irrelevant reasons is inappropriate as are certain forms of unfair
competition. Taking advantage of the vulnerable and ignoring the legitimate claims of
those who have been wronged are other forms of unfairness. Self-dealing by executives and
self-defined compensation programs that are not reasonably related to performance are
inherently unfair to the rest of the firm. They undermine fair dealings throughout the
organization and contribute to a climate of cynicism.
Employees at all levels, but especially managers and executives, should not subject
themselves to improper influences or conflicts of interest that may undermine their
ability to exercise independent, unbiased judgment. Financial and personal involvements,
as well as the use of drugs and other substances, may interfere with their ability to do
good work or to exercise good judgment on behalf of their firm or client. Managers also
should try to ensure that employees are not subjecting themselves to such improper
influences. Loyalty in carrying out the duties of a job is an important aspect of
integrity. Integrity also implies self-control and self-respect. In its fullest sense, it
requires managers to act with the courage of their convictions, to adhere to moral
requirements even when there is a price for doing so, and to be willing to answer to both
their superiors and their subordinates for the consequences of their actions.
Respect for the individual requires fairness, honesty, reliability, and many of the
other values already discussed. Beyond that, however, it involves recognition that
individuals participate in valuable relationships outside the firm, as well as respect for
individual autonomy and privacy, for a sphere of personal choice that is left to the
individual. Recognition of this principle limits duties that the firm may impose on
individual employees, as well as the types of information it may seek from them. The firm
that respects the individual rights and needs of its employees also will provide them with
relevant information when it is necessary for them to make important personal decisions.
While business firms must respect a certain zone of privacy and autonomy of individual
employees, there also may be important reasons why firms may require that employees
provide highly personal information to the firm. Corporations are being asked by society
to participate in the provision of certain personal and social benefits that may be only
indirectly related to the business needs of the firm, such as education and training,
health care, child care, substance abuse counseling, unemployment benefits, and pension
funds. Clearly, detailed personnel records must be kept for these purposes. But respect
for the individual requires that the firm use these records with care and discretion, and
only for legitimate reasons. An important part of the job of human resource managers and
of managers of company benefit programs is to find the right balance point between these
competing claims and goals.
Respect for property requires recognition of the proprietary rights of others and the
exercise of care in handling assets of all types tangible property, patents and
proprietary processes, confidential information, and real estate. Special care must be
shown when business activity involves the property of others and the property of the
public, including the natural environment.
Commitment to all these values, as outlined above, benefits not only the life of the
whole society, but the internal functioning of the firm and the operation of the economy
of which it is a part. Shared value commitments form the basis of trust and cooperation,
simplify the task of management, help the firm avoid legal trouble, and reduce the need
for excessive managerial oversight. They also contribute to employee morale. People take
pride in working for companies where ethical values define a way of life, and find
strength and reassurance in the knowledge that ethical judgment is expected from them and
highly valued. They also strengthen the firm's reputation, which makes it easier to do
business with customers, suppliers, and other external constituencies. Corporate
indifference to ethical values, on the other hand, may lead some of its otherwise good and
responsible employees to neglect the ethical dimensions of their behavior or to act in
ethically questionable ways that harm themselves, the firm, or external constituencies of
the firm. At the very least, it frustrates and demoralizes individuals trying to behave in
an ethical manner.
The Woodstock group felt that the above values are basic and essential, and are the
foundation upon which such business goals as profitability, market leadership, or
innovativeness rest. In cases where these basic values and business goals seem
irreconcilable, managers may find that the conflict is actually between short-run and
long-run objectives. In the long run, the failure to adhere to such values as integrity
and reliability hurts profitability. When examined carefully, there may be far fewer
conflicts between ethical values and business goals than is commonly thought to be the
Nonetheless, there may be times when two or more ethical values are brought into
conflict. For example, respect for the privacy of individuals may conflict with an
employer's legitimate need to be certain that workers who are responsible for public
safety or who operate dangerous equipment are not under the influence of chemical
substances that affect their performance. When policies are set that give preference to
one ethical value over another, managers should explain the decision to all affected
parties, and seek ways to minimize any damage to the competing value.
The climate of social trust that results from common adherence to ethical principles
is, like clean air and water, a public good. Individual transgressions, negligence, or
passivity can tear apart an ethical climate because that climate is not a static thing but
an ongoing process, being constantly molded and changed by the official and unofficial
decisions and behaviors of the firm and its various participants.
The next section discusses the features of an ethical climate, and the way in which the
ethical norms and expectations within the firm are built into, and expressed by, the
numerous practices, operating procedures, expectations, performance measures, and rules of
thumb by which the firm does business every day.
An ethical climate is not a thing, but a process. It is both the setting in
which all the multiple large and small transactions of the groups and individuals involved
in the firm take place and the net effect of all those transactions. The explicit rules
and implicit understandings that govern all those transactions are built on precedent,
constantly evolving, fluid, flexible, living, repetitious, and organic. So, an ethical
climate is either developing or deteriorating, enriching itself or impoverishing itself.
It needs constant care and attention.
The all-pervasive, cumulative quality of an ethical climate makes the task of building
such a climate harder in some ways and easier in others. Easier because successes build on
themselves. As the track record grows and ethical considerations are increasingly known to
matter within the organization, social pressure on every individual to adhere to ethical
norms will increase. But harder because effort must be directed at every level and facet
of the firm at the very time that employees of the firm are becoming more autonomous and
less tolerant of hierarchal and paternalistic organizational structures.
In the United States, corporations exist in an environment that has increasingly
oriented people to think individualistically, rather than socially. Liberalism, as it
emerged from the Enlightenment, put less emphasis on community, especially its authority,
and more emphasis on the freedom of individuals to discover truth and establish values on
their own. Moreover, specialized production and services are now replacing mass production
as the base of the economy, while technical change is moving decision-making authority
down and making workers more independent. The effect is to create a world in which
excessively authoritarian corporations may be doomed to failure. Some young people born
into a culture of individualistic liberalism may find it difficult to work effectively in
an authoritarian, rule-oriented, paternalistic, bureaucratically structured firm.
Likewise, some firms may find it difficult to be flexible and responsive enough to meet
the rapidly changing needs of its customers. For these reasons, the guiding concept for
corporate structures has changed from highly centralized control to more decentralized
While the role of leadership cannot be overstated, the executive interested in making
ethics an integral part of corporate culture must be sensitive to this changing reality of
the contemporary corporation. An ethical climate can be developed, fostered, and rewarded;
it is more difficult for it to be imposed by edict. It will be more effective if it begins
with consensus and is secured by commitment. Consensus requires development of a shared
understanding of the values to be honored, a shared interpretation of values in the
business context, and a shared language of values. Commitment can best be ensured by
making certain that the internal procedures and explicit and implicit rules of thumb by
which the firm operates are consistent with the identified core values, even when this
involves short-term costs or trade-offs against business objectives. Commitment also must
be reinforced by programs and procedures in which rewards and punishment, honor and
dishonor for individual actions, signal and give substance to the firm's commitment to the
This sounds complicated, but what it means is that some attention must be paid at every
phase of the firm's operations to ethical issues and to the development of a climate in
which ethics is routinely taken into account. The tone and example set by top management
is of utmost importance in creating and maintaining a strong ethical climate. But good
intentions at the top of the organization may not necessarily be enough to elicit
commitment by employees to ethical standards. The ethical climate is also strongly
affected by the strategic choices of the firm, its organizational structure, hiring
policies, performance standards, reporting and information systems, reward and incentive
programs, and internal controls. Management's task is to design organizations and
procedures that make it easier rather than harder to do the right thing.
The ethical influence of forces external to the firm also cannot be ignored. Pressures
for unethical behavior sometimes emanate from suppliers, customers, venture partners, and
competitors. Responding to such external pressure for ethical short-cuts may require
management to take a leadership position in defining ethical values, not only in its own
firm, but in the industry as a whole, and not only through their example in that firm, but
also through their involvement in wider education, research, and discussion of ethics.
The tools that management uses to influence the firm's ethical climate are the same
tools they use to set its strategic goals and objectives, and to recruit, train, motivate,
direct, evaluate, and compensate employees. Obviously, corporate executives can develop
codes of ethics and appoint ethics committees to talk to both employees and management
about ethical concerns. These are worthwhile actions, but their effectiveness will be
limited unless they are part of an ongoing concern for ethics that permeates the firm in
many other ways. Ethical standards and goals should be an integral part of the corporate
identity. They should be spelled out explicitly in the firm's mission statement, and top
management must exemplify these standards by their personal behavior.
A prospective employee's first encounter with the firm probably will be with the hiring
office or personnel department. That initial interaction also will introduce the person to
the firm's ethical style. They should learn at once that high ethical standards are set
for all employees, that a commitment to values identified in the firm's mission statement
is considered a necessary qualification for the job, and that the firm recruits and hires
in a fair, non-prejudicial way.
A new employee also should discover that ethical matters are discussed alongside
technical and procedural ones in training programs, seminars, discussion groups, and in
the firm's formal and informal publications, newsletters, memos, and other communications.
Ethical standards are reinforced by the anecdotes, mottoes, and maxims that make up the
firm's oral culture. Over time, employees should observe that instruction or counseling
from supervisors sometimes includes a discussion of ethics, and that routine
decision-making and goal-setting are based in part at least on ethical criteria. Employees
also should learn that monitoring and control systems exist that make it difficult to
conceal gross ethical violations, and that such violations will elicit sanctions and
penalties. More importantly, they should learn that ethical standards are taken into
account in performance evaluations and in the structure of incentive and compensation
systems, and that exemplary conduct is recognized and rewarded.
A firm that incorporates ethical considerations deeply into its day-to-day operating
style will find that it earns a reputation among its customers, clients, competitors, and
investors as a fair, honest, and reliable firm with which to do business. The communities
where the firm operates will, over time, probably come to appreciate its presence in the
community, respect its employees as good corporate citizens, and cooperate with it in
building facilities and creating jobs.
This last section is based on the group's conviction that a strong ethical
climate cannot be created in an organization by means of a few mechanical measures
overlaid on a structure that other-wise gives little emphasis to ethical considerations.
Ethics must be integral to all operations of the firm. But executives who want to create
or strengthen this kind of ethical climate in their firms must start somewhere. The
following checklist of questions provides some suggestions. It is not intended to be
comprehensive or absolute, but rather to stimulate thinking about the different and
complex ways in which the message about the organization's norms, expectations, and
requirements can get built into everyday interactions as well as formal structures.
The questions are organized roughly in order of priority. The first two groups of
questions (A and B) examine top management's degree of consensus about and commitment to
ethical values. Without absolute commitment at the top level, a program to instill ethical
values in an organization will have little chance of success. Group C explores the level
of consensus about and commitment to ethical values among lower level managers and rank
and file employees, while Group D asks about efforts to build consensus and commitment.
The next three groups of questions (E, F, and G) probe whether and how formal and informal
procedures and policies in the company support the consensus and commitment explored in
earlier questions. Question groups H and I look at procedures for dealing with breaches of
ethical standards, while the final question serves as a litmus test for whether the
organization has established a strong ethical climate.
A. Does top management have a common understanding of and strong commitment to
- Do the organization's purpose, responsibilities, and governing principles of conduct
stress these values?
- Are there forums for top managers to discuss the organization's ethical values?
- Do top managers routinely discuss ethical questions and work out differences?
- What are the ethical challenges currently facing top management?
B. Do management's actions and policies reflect the organization's ethical values?
- Do individuals chosen for promotion and recognition exemplify those values?
- Do management's strategic choices reflect those values?
C. Do employees throughout the firm share management's ethical values and
- How does management communicate the ethical values that should guide employee conduct?
- Are these communications clear and effective?
- Is ethics included in orientation and training programs for new employees?
- Does management monitor the ethical climate of the firm?
- Is top management aware of the ethical concerns of employees at all levels?
- Is top management aware of the barriers to ethical conduct that may exist at various
levels of the organization?
D. Do managers at all levels work to build shared ethical values?
- Does the firm hold seminars, workshops, and discussion groups on ethics?
- Does the organization periodically revise and update its code of conduct, credo, or
ethics statement? Does top management participate in this activity? Do rank and file
- Do employees in various functional areas meet to discuss ethical questions specific to
- Do ethical issues come up in informal discussions?
- Do managers discuss ethical issues with their subordinates?
- Are employees comfortable discussing ethical questions with their bosses?
- Are ethical matters addressed in formal communications such as newsletters, memoranda,
and policy statements?
E. Does management provide employees with ethical guidance when needed?
- Does management have a method for identifying and clarifying areas where ethical
standards are unclear or in conflict with other objectives of the firm?
- Does management monitor and report on ethical problems in the industry that may affect
employees' ability and willingness to uphold the firm's standards?
- Do employees have opportunities to raise ethical questions and concerns? Do they use
- Does management communicate with employees concerning areas of ethical uncertainty or
- Do supervisory personnel regard ethical guidance as part of their job?
F. Are ethical considerations included in personnel decisions?
- Are job candidates informed about ethical expectations and standards?
- Is commitment to the firm's stated values included among the organization's hiring
- Are ethical considerations built into personnel evaluations and promotion decisions?
G. Does the firm's system of rewards include ethical accountability?
- Does performance reporting include ethical performance?
- Do employees' goals and objectives include goals related to maintaining a strong ethical
- Are compensation and bonuses affected by ethical performance?
- Does the organization identify and recognize individuals who make extraordinary
contributions to maintaining the organization's ethical values?
- Does the compensation system avoid penalizing employees who are unable to achieve
financial or other business objectives because of ethical constraints?
- Is management confident that employees will not be rewarded for financial
accomplishments achieved using unethical methods?
H. Does the organization have a procedure for identifying and dealing with ethical
- Does the organization have a hotline, ombudsman, ethics office or other designated
channel for employees to raise ethical questions about the conduct of their immediate
- What are the designated channels for reporting, investigating, and sanctioning
- Does the organization have adequate controls to prevent and detect ethical violations?
- Are reporting relationships structured to promote honest and accurate communication?
I. Does the organization have designated personnel whose job it is to monitor and
promote an ethical climate?
- Does the board have a standing ethics committee or is the audit or other board committee
charged with monitoring the ethical climate?
- Is there an ethics committee or office within the firm to handle day-to-day questions
and activities related to ethics such as conducting seminars and training programs,
carrying on research, providing guidance to employees, investigating ethical violations,
and reviewing the ethical impact of firm policies?
J. As a result of all the above, does every employee consider ethical conduct,
supervision, and guidance part of the job?
Managing the ethical climate of an organization is not easy given the myriad
influences, both internal and external, on the firm. Corporate ethics programs will not
completely eliminate unethical conduct, nor will they resolve all of the perplexing
conflicts of ethical values that arise in various social and economic arenas today.
Nevertheless, managers' efforts to strengthen the ethical climate in their organizations
will have real benefits for employees, for the performance of the firms, and for society
at large. By legitimizing the discussion of ethical considerations in business, by
standing up for ethical values despite short-term costs, by giving serious consideration
to problems of conflicting values, managers and executives can contribute to strengthening
their organizations and to building public trust in business.