Rebounding from Corruption: Perceptions of Ethics Program Effectiveness in a Public Sector Organization

Transcription

1 Journal of Business Ethics (2006) Ó Springer 2006 DOI /s Rebounding from Corruption: Perceptions of Ethics Program Effectiveness in a Public Sector Organization Kathie L. Pelletier Michelle C. Bligh ABSTRACT. We examine the perceived importance of three organizational preconditions (awareness of formal ethics codes, decision-making techniques, and availability of resources) theorized to be critical for ethics program effectiveness. In addition, we examine the importance of ethical leadership and congruence between formal ethics codes and informal ethical norms in influencing employee perceptions. Participants (n=418) from a large southern California government agency completed a survey on the perceived effectiveness of the organization s ethics program. Results suggest that employee perceptions of organizational preconditions, ethical leadership and informal ethical norms were related to perceptions of ethics program effectiveness. Based on these findings, organizations should evaluate the presence (or absence) of essential preconditions and take steps to ensure that leaders model espoused organizational values to foster perceptions of effective ethics programs. KEY WORDS: decision making, ethics, leadership, preconditions, program effectiveness Kathie L. Pelletier is a doctoral student in the School of Behavioral and Organizational Sciences at Claremont Graduate University, 123 East Eighth Street, Claremont, CA 91711; kathie.pelletier@cgu.edu. Her research interests include organizational ethics, ethical leadership, and women s issues in the workplace. Michelle C. Bligh is an assistant professor of Organizational Behavior in the School of Behavioral and Organizational Sciences at Claremont Graduate University, 123 East Eighth Street, Claremont, CA 91711; michelle. bligh@cgu.edu. Her research interests include charismatic leadership, political and executive leadership, and organizational culture. Examples in the organizational world over the last two decades illustrate the detrimental impact of unethical decision making, including insider trading scandals on Wall Street (Werhane, 1989) and the Salomon Brothers scandal in 1991 (Sims and Brinkmann, 2002). Other examples of unethical organizational practices include fraudulent billing for Medicaid services, the moral failings of the United States tobacco industry (Schwarz, 2001), Enron s scheme to illegally manipulate prices in California s energy market, and the subsequent shredding of evidential documents by the consulting firm of Arthur Andersen (Cohan, 2002). In many of these cases, leadership philosophies were blamed for their adverse effect on organizational culture, which in turn had ethical implications for customers and employees within those organizations. These unfortunate outcomes may be a result of the ways organizations and their employees perceive the importance and function of ethical decision-making processes. If the organization does not live up to its code of ethics (if such a code exists), or encourage employees to seek guidance during ethical deliberations, employees might feel that the organization puts ethics on the back burner. Coupled with other organizational and societal factors, such as the emphasis on employee quality of life, severe consequences for unethical behaviors, negative political ramifications, and unfavorable media attention, it is clear that organizations need to devote increased attention to ethical issues. In addition, there is growing evidence that unethical decisions often undermine the financial performance of organizations (Clark and Leonard, 1998).

2 Kathie L. Pelletier and Michelle C. Bligh Now, more than ever, organizations and their members need guidance in creating mechanisms for instilling ethical dialogue and decision making that serve the best interests of their customers and stakeholders. For many organizations, the primary mechanism is the development of a formal ethics program, yet there is a dearth of research on what comprises these programs and what makes them effective. The study of ethics can be defined as the discipline relating to right and wrong, moral duty and obligation, moral principles and values, and moral character (Beck, 2002, p. 13). Ethics has also been defined as the rules or principles that define right or wrong conduct (Bartels, 1967). These principles are primarily developed from one s cognitive moral development (Blasi, 1980; Kohlberg, 1969), value base, or moral philosophies (Cavanagh et al., 1981). Thus, ethical decision making is the process whereby individuals use their moral base to determine whether a certain situation or issue is right or wrong. The purpose of the current study is to examine perceptions of some of the organizational and managerial conditions that may facilitate or hinder ethical decision making, and the implications these findings may have for developing effective ethical programs in the future. aimed at stimulating morally responsible behavior, what factors should the organization take into account? Researchers have suggested several factors that are within the organization s control, including the development and communication of formal ethical codes, training in ethical decision making, and the establishment of congruency between stated policy and actual behaviors. Based on these factors, we focused our literature search on models that have direct bearing on the development of an effective ethics program. We will briefly discuss three theoretical models that take as their focus perceptions of ethics program effectiveness before turning to an in-depth discussion of each of the organizational factors in McDonald and Nijhof s (1999) model. We chose to test McDonald and Nijhof s (1999) model because it incorporates key variables often included in ethical decisionmaking models, such as importance of ethics codes, decision-making processes, resources, and organizational norms (see Ferrell and Gresham, 1985; Hunt and Vitell, 1986; Trevino and Youngblood, 1990). In addition, their theoretical model presents a number of organizational preconditions for stimulating morally responsible behavior that may have practical implications for the design of ethics programs. Understanding ethical practices in organizations According to the results of a 2002 national survey of 200 cities in the United States, 81.5% of cities with populations over 250,000 have incorporated ethics training, with over two thirds of the cities adopting a code of ethics (West and Berman, 2004). Further, in the 2003 National Business Ethics Survey, 82% of respondents perceived that top management modeled ethical behavior and talked about the importance of ethical decision making (Clark, 2003). The rising interest in ethics among practitioners and academicians has stimulated a growing number of models and empirical studies of ethical decision making in organizational settings (e.g., Bartels, 1967; Ferrell and Gresham, 1985; Hunt and Vitell, 1986; McDonald and Nijhof, 1999; Trevino and Youngblood, 1990). These models attempt to address a critical question: when implementing a program Ethical decision-making models Ferrell and Gresham (1985) developed a contingency framework for understanding ethical decision making based on three principal antecedents. The first antecedent of ethical decision making considers individual factors (values, beliefs, knowledge, attitudes, and intentions) that an employee brings to the situation. The second takes into account significant others in the organizational setting, and the third antecedent concerns opportunities for ethical/ unethical action. Opportunities for ethical action may result from a favorable set of conditions that facilitate ethical decision making (i.e., establishment of professional codes and corporate policies) or when there are opportunities to receive feedback for the decision (i.e., reward/penalty systems). However, opportunities for unethical action (i.e., lack of ethical expectations, corporate policies not enforced) are also important. Ferrell and Gresham

3 Ethics Program Effectiveness (1985) found that merely having the opportunity to act unethically actually influenced behavior, and individual factors interacted with organizational factors to influence ethical or unethical decision making. Based on this model, developing a formal ethics program, establishing professional codes and policies, providing ethics training, and establishing appropriate support systems should all be organizational concerns. Hunt and Vitell (1986) prescribed a detailed model that examined the evaluation process in ethical decision making. These researchers identified that intentions, consequences, deontological norms, alternatives and situational constraints may predict or explain certain ethical behaviors. Their model addresses the situation where an individual is presented with an ethical dilemma, and the perception of various possible alternatives. Once the individual perceives the set of alternatives, the researchers suggest that two kinds of evaluations will take place a deontological evaluation and a teleological evaluation. Deontological evaluation consists of evaluating the inherent rightness or wrongness of the behaviors implied by each alternative; teleological evaluation consists of four constructs ranging from perceived consequences of each alternative for various stakeholder groups, desirability or undesirability of each consequence, probability that each consequence will affect each stakeholder group, and the importance of each stakeholder group. The heart of this model postulates that an individual s ethical judgments are a function of the person s deontological and teleological evaluations. Based on Hunt s and Vitell s (1986) model, an organization that is seeking to improve ethical decision making should ensure that suitable decision-making processes exist. Those processes should provide mechanisms for involving employees in the decision-making process. Further, decision makers should be exposed to training on deontological evaluation and should be aware of available alternatives to assist them in their decision-making processes. McDonald and Nijhof s (1999) model expands the conditions beyond those postulated by Ferrell and Gresham and Hunt and Vitell necessary for ethics program effectiveness. McDonald and Nijhof posit that for stimulating morally responsible behavior (the primary objective of an ethics program), three organizational conditions must be present: awareness of formal organizational goals and corresponding informal norms, suitable decision making procedures and corresponding informal norms, and sufficient distribution of resources. Like Ferrell and Gresham (1985), they also argue that employees must have the necessary skills and personal intentions for ethical behavior prior to gaining employment in the organization. The first factor in this model, awareness of formal goals and corresponding informal norms, necessitates that the organization has a formal ethics code defined in written ethics policies, corporate codes of conduct, ethics handbooks, and/or any written communication that provides ethical guidelines. Further, McDonald and Nijhof (1999) suggest that for these formally stated goals to be effective, informal norms and values must be in place that support and reinforce formal ethical policies. The second factor in the model is defined as the level of official agreement on suitable decisionmaking processes. Since organizations have internal decision structures, it is important to examine the influence of that structure on the degree to which employees can assume responsibility for making decisions when moral issues arise. If employees do not have authority to participate in the decisionmaking process, it becomes difficult for them to live up to certain responsibilities. As with ethics code awareness, procedures for decision making also have an informal component. According to McDonald and Nijhof (1999, p. 136), Just as the organizational norms have a formal and informal side, the same is true for the procedures for decision making. For example, informal procedures for decision making are the degree to which discussion about morality is encouraged during the evaluation stage of the decision-making process. Discussion must be legitimized for the employee to feel congruence between informal and formal codes. The last organizational factor in this model concerns the availability of resources. Specifically, are there resources present to facilitate decision makers to act in a responsible way? McDonald and Nijhof (1999) break down resources into four categories: information, finances, existing equipment and time. Decision makers must be able to make informed decisions through access to key information, which may be obtained by

4 Kathie L. Pelletier and Michelle C. Bligh contacting an ethics ombudsperson or through an ethics hotline. Further, the organization must be in a position, financially, to be able to lose a contract if it is ethical to do so, and to procure necessary ethics training tools. Finally, the decision makers must have the time to seek information to evaluate the appropriateness of their potential decision. We have chosen to focus our study on the organizational level conditions presented in these models, as these factors are critical in influencing ethical decisions and can be the foundation for the development of effective ethics programs. Although the individual factors discussed in previous models (e.g., moral intention and personal values) may also be crucial in determining ethical decision making, they tend to be formed prior to the employee s entry into the organization. Consequently, they were not examined in this study. Ethics and leadership In addition to the factors outlined above, leadership may play a critical role in fostering an effective ethics program. Schein (1985) notes that top managers attempt to communicate organizational values to employees to shape their behavior. The ethical orientation of the leader, in terms of specific behaviors and traits, is a key factor in promoting ethical behavior in an organization (Posner and Schmidt, 1992). Previous research also suggests that training employees on ethics policies and enhancing decision-making skills is particularly effective when the leader acts as a role model and coach who models, supports, and reinforces good ethical behavior (Baumhart, 1961; Posner and Schmidt, 1984; Schein, 1985; Sims, 1998). These earlier findings suggest that in addition to the preconditions theorized in McDonald and Nijhof s (1999) model, perceptions of ethical leadership may be another precursor to effective ethics programs. In companies where senior managers and supervisors demonstrate ethical leadership, employees are less likely to observe unethical conduct and are more likely to seek advice when faced with ethical dilemmas (Trevino et al., 1999). When an organization is seeking to re-establish social legitimacy as a result of ethical misconduct, the role of leadership is crucial for enhancing an ethical culture. Particularly in the public sector, any instance of ethical misconduct is likely to result in negative publicity and loss of public and employee trust. Consequently, it is important for public agencies, as well as private sector organizations, to recruit ethical individuals in key leadership positions to foster an ethical culture. The organization examined in this study was involved in a corruption scandal that implicated top elected and non-elected officials, with litigation spanning three years. To begin re-establishing social legitimacy, the organization implemented an ethics program that has been in place for approximately eighteen months. At the time of data collection, the ethics resource office was in the initial stages of developing an ethics training program for its leaders. To develop a curriculum for the training series, employee perceptions of the conditions for an effective ethics program and ethical leadership were sought. It is important to emphasize that this study measures employee perceptions of ethics program components, program effectiveness, and all model variables; thus, our focus throughout the paper is on how employees perceive relevant components of ethical programs, and cannot be interpreted as factual accounts of actual (objective) variables and outcomes. Nonetheless, employee perceptions can provide critical insights into attitudes toward ethical program components and their effectiveness, and these perceptions are likely to be important correlates of more objective program outcomes. Given this context, the current study has three primary purposes: (1) to empirically test the theoretical model proposed by McDonald and Nijhof (1999) to determine if the three organization level preconditions are important in predicting perceptions of ethics program success in an organization that is currently striving to re-establish public trust; (2) to examine the degree of congruence between formal organizational codes and informal norms, and determine whether this level of congruence is related to perceptions of overall ethics program effectiveness; and (3) to extend McDonald and Nijhof s model by incorporating perceptions of ethical leadership as an additional precondition for ethics program effectiveness.

5 Ethics Program Effectiveness Formal ethics codes A formal ethics code can usually be found within the company s mission statement, the employee handbook, ethics statements and brochures, or other formal written media (Korsgaard et al., 2002; McDonald and Nijhof, 1999). There is a substantial amount of literature focused on the issue of corporate codes of ethics; however, little research has been devoted to examining whether ethics codes are effective in improving ethical decision-making behavior, and the research that has been conducted has produced mixed findings (Clark and Leonard, 1998; Ford et al., 1982; Schwarz, 2001; Stevens, 1999). Ford et al. s (1982) empirical study reported minimal effects of corporate codes of conduct on employees behavior. More than a decade later, Clark and Leonard (1998) found that codes of ethics were not influential in determining a person s ethical decisionmaking behavior. Although these two studies concluded that corporate codes of ethics were not effective in influencing a person s ethical decision-making behavior, several studies contradict these findings. Hegarty and Sims (1979) evaluated unethical decision behavior under different policy and organizational environment conditions, and found that ethics policies significantly reduced unethical behavior. In addition, a more recent study found that employees asked ethics officers numerous questions about a recently developed code and directly modified their behavior after having evaluated the ethical code (Schwarz, 2001). Ethics codes and corresponding informal norms As stated above, a code of ethics is a formally written policy statement that describes an organization s primary values and the ethical rules it expects its employees to follow. Informal codes or norms, on the other hand, are the values, attitudes, and behaviors that employees perceive, and may be either consistent or inconsistent with formal codes. Informal norms, therefore, influence the degree to which employees perceive that compliance to the ethics codes or policies is supported and rewarded by upper management. With regard to decision-making processes, informal norms encourage deliberation about ethical issues and legitimize discussion about ethical concerns. We suggest that one of the primary reasons for mixed findings regarding formal ethics codes may lie in the congruence (or lack thereof) between formal and informal ethics codes. As a result, a number of important research questions have yet to be addressed. For example, do organizational members act more ethically simply because a formal code of ethics has been established? What roles do organizational norms play in shaping employee and managerial moral viewpoints and subsequent responses to ethical dilemmas? Further, to what degree are informal codes in alignment with what is written? The congruence of formal and informal codes of ethics thus merits further examination in determining the perceived effectiveness of ethics interventions (Ashkanasy et al., 2000; Baumhart, 1961; Korsgaard et al., 2002; Stevens, 1999). Many organizations formulate and communicate ethical codes in an attempt to influence norms and values (Victor and Cullen, 1988). However, in addition to formal codes, McDonald and Nijhof (1999) also recommend considering informal norms, especially organizational support for responsible behavior through the informal reward system. Organizational decision makers have multiple relationships, and if these other individuals do not support and acknowledge ethical behavior, despite official organizational norms, it becomes more difficult for employees to evaluate and act upon their own beliefs of what is viewed as moral behavior. In some cases, organizational norms that delineate the right thing to do might conflict with written policies. For example, if organizational norms specify that it is unacceptable to accept a bribe or kickback from a contractor, but the employee witnesses such an action, he or she may experience dissonance between what is stated and what is actually being done. In effect, the written policy will have no credence with the employee because management is implicitly reinforcing another message, one that is not congruent with written policy. Based on the more recent ethics code research, we offer the following hypotheses: H1a: There will be a positive relationship between awareness of formal organizational ethics codes and perceptions of ethics program effectiveness.

6 Kathie L. Pelletier and Michelle C. Bligh H1b: Perceptions of informal ethical norms will strengthen the relationship between ethics code awareness and perceptions of ethics program effectiveness. Decision-making processes The second organizational factor in McDonald and Nijhof s (1999) model refers to suitable decisionmaking processes that increase the likelihood of making ethical decisions. According to French (1984), every organization has an internal decision structure that is comprised of two elements. The organizational or responsibility flowchart delineates levels within the corporate power structure and the corporate-decision recognition rules that are normally described in ethics policy clarify the authority employees have when confronting ethical dilemmas. The internal decision structure has an influence on the extent to which employees can bear moral responsibilities. Similar to French s (1984) internal decision structure, these processes delineate levels within the decision-making structure and describe the degree of involvement employees should have in the decision-making process. Perceptions of suitable ethical decision-making processes are defined as employees beliefs that (1) the organization trains individuals to evaluate alternatives (identify the risks and consequences of the decision), (2) management encourages the use of evaluation techniques when making ethical decisions, (3) management encourages dialogue for discussing and resolving ethical dilemmas, and (4) employees understand the expectations with regard to their level of authority in the decision-making process. Decision-making processes and informal norms An ethics program should be designed around a formal decision-making process whereby employees are encouraged to participate in ethical deliberations (Hunt and Vitell, 1986). Just as organizational norms have a formal and informal component, so does the decision-making process. Employees should perceive the ethics program as providing resources to guide them in ethical deliberations, as well as accommodating and legitimizing discussion of potential ethical issues. There are a few studies that have examined the importance of informal norms on ethical behavior and decision making. Ashkanasy et al. (2000) predicted that group and organizational level values would be related to the quality of ethical decision making and tolerance of unethical behavior. In this study, ethical behavior endorsement increased with level in the organizational hierarchy, implying managers lead the way as role models in ethical behavior. Since use of a formal code of ethics was determined by perceptions of others use of the code, this study suggests that senior managers play a pivotal role in reinforcing informal norms by disseminating messages of such codes and supporting decision-making processes that stimulate ethical dialogue and promote ethical inquiry. Nwachukwu and Vitell (1997) examined the extent to which organizational culture influences ethical judgments. They found no significant differences in ethical evaluations of advertisements of harmful products in organizations with formal codes of ethics and those in organizations without formal ethics codes. One surprising result from the study was that in organizations that strictly enforced their codes of ethics, employees perceived advertisements on harmful products to be more unethical than those in organizations without formal ethics codes. Hence, the degree of enforcement of ethics policies may be important in influencing ethical judgments. Merely stating company expectations may not be sufficient in influencing employee attitudes and values. Second, it is possible that ethical judgments were moderated by organizational norms regarding ethics. In organizations with formal codes of ethics, it may be the assumption of practitioners that someone else (e.g., top management) is mandating specific ethical considerations, and in organizations without formal codes of ethics, individuals may believe that they have to take responsibility for their own decisions. Based on these arguments, the following hypotheses are presented: H2a: There will be a positive relationship between perceptions of ethical decision-making processes and perceptions of ethics program effectiveness. H2b: Perceptions of informal ethical norms will strengthen the relationship between perceptions of suitable decision-making processes and perceptions of ethics program effectiveness.

7 Ethics Program Effectiveness Availability of organizational resources The previous discussion highlights the body of research that examines the value of ethics codes and decision-making processes, and the importance of congruency between formal and informal norms and processes. These concepts are important and imperative for an ethics program to be successful in educating employees about how to make decisions that are ethical. In addition to these factors, it may be beneficial to examine why decision makers choose alternatives that are questionable. In a recent study, researchers considered both organizational and personal consequences as factors that influenced decision makers to act more or less ethically; specifically, the potential consequences of a decision included enhancement of organizational profit versus enhancement of personal economic well being (Hoffman et al., 1998). The findings suggested that individuals tend to act less ethically when the personal consequences included risking personal economic well being (e.g., the loss of one s job, loss of pay, demotion) than when the consequences of the decision disadvantaged the profitability of the organization. Similarly, unethical decision making was more prevalent when the participant perceived the organization as relying on the decision in order to survive. Other factors, such as time pressures and organizational financial stability, might exist and may substantially affect the decision-making process. For example, a report on workers, managers, and executives in multiple industries revealed that workers often attributed ethical violations to workplace pressures. These pressures were defined as long hours, sales quotas, job insecurity, balancing work and family, and personal debt (Ethics Officer Association, 1999). These findings correspond to the third organizational level condition in McDonald and Nijhof s (1999) model, availability of resources. As defined in their model, this organizational condition is comprised of three facets: the extent to which the organization provides information to all levels of employees regarding the handling of ethical dilemmas (information), the extent to which the employees perceive they have the time to evaluate alternative options (time), and the extent to which the employee perceives the organization to have sufficient financial resources (money) to choose the most responsible alternative. Based on these factors, we posit the following: H3: There will be a positive relationship between availability of resources (information, time and money) and perceptions of ethics program effectiveness. Beyond ethical codes, decision making, and resources: the necessity for ethical leadership The old adage actions speak louder than words has significance in recent research on ethics. In today s era of mass media, instances of corruption have been highly publicized, with an emphasis on the negative effects of the unethical behavior on the organization s employees; consequently, organizations are increasingly realizing that their leaders need to be more sensitive to their moral obligations to stockholders and employees. According to Kanungo and Mendonca (1996), an organization s survival over the long term is dependent on ethical leadership. Moreover, to the extent the organization s top leaders model espoused values, employees and stakeholders perceive leaders to be ethical. It is largely accepted that an important function of organizational leadership is to articulate ethical expectations and to establish the norms that govern employee behavior (Bennis and Nannus, 1985). In many organizations, the code of conduct or an ethics code serves as the medium for communicating those expectations with leader values and behaviors serving as the foundation for organizational norms. Schein (1985) asserts that top managers attempt to communicate their organizational values to employees to shape behavior, lead the agency, and develop an ethical organizational culture. The ethically oriented organization is one that has the capacity to reflect on values in the decision-making process and establish how leaders can use these observations in managing the organization (Hood, 2003). According to Kanungo and Mendonca (1996), factors of ethical leadership in creating an ethical orientation include the leader s use of a participative leadership style, whereby leaders attempt to influence subordinates through empowerment rather than control. They are sincerely motivated by

8 Kathie L. Pelletier and Michelle C. Bligh a consideration for others and they lead subordinates toward objectives that are in the interest of the entire organization, its members, and the outside community. In addition to communicating organizational values, leaders are also responsible for the organization s moral climate that reflects the moral development of both leaders and followers. Further, leaders can facilitate the moral development of followers through the implementation of morally appropriate influence strategies and tactics guided by moral intent (Mendonca, 2001). In many organizations, it is the ethics program that provides the strategies and resources (e.g., ethics policy development, leadership training, ethical dilemma evaluation training) that leaders draw upon to aid in that moral facilitation. The existence of ethics codes, decision-making processes and organizational resources are certainly important factors to consider when developing an ethics program; however, we believe ethical leadership is also necessary to complement these factors when seeking to establish an ethical organizational culture. Previous studies have shown that leaders can have a positive or negative effect on subordinate decision making, depending on whether the leader is perceived as ethical and trustworthy or unethical and untrustworthy (Jones and Kavanagh, 1996; Korsgaard et al., 2002; Schwarz, 2001). Jones and Kavanagh (1996) found that subordinates reported higher unethical behavior intentions when their supervisors were perceived as engaging in unethical behavior than when supervisors were perceived as not engaging in unethical behavior, showing that the role of leadership is significant in influencing moral intentions. According to McDonald and Nijhof (1999), ethics programs are likely to be perceived as effective when leaders encourage ethical dialogue, create an environment of trust and provide organizational resources to ensure that ethical decisions are made. With this in mind, we assert that ethical leadership is another important factor that affects employee perceptions of ethics program effectiveness: H4: There will be a positive relationship between perceptions of ethical leadership and perceptions of ethics program effectiveness. Method Participants A total of 1000 employees in a southern California government agency were randomly selected to participate in the survey process. Out of 925 valid surveys delivered, a total of 418 responded at a response rate of 45.2%. This response rate compares quite favorably to average response rates of 20 30% reported in recent studies (Griffis et al., 2003; Hayes and Kearney, 2001). Of the respondents, 62.2% were female. The mean age of participants was 45 years (sd = 10.10). The length of time employed by the agency ranged from less than one month to 40 years (mean = 9.5 years, sd = 8.5). Measures A 37-item Perceptions of Ethical Climate questionnaire was embedded in a larger survey administered by the researcher and the agency. Seven items were taken from the Ethics Environment Questionnaire (McDaniel, 1997) and were revised for the purpose of this study. The Perceptions of Ethical Climate assessment consisted of eight scales and was developed by the authors to measure perceptions of ethics program effectiveness (a full list of the items created for this study is provided in Appendix A). All items were presented on a seven-point Likert scale (1 = strongly disagree, 7 = strongly agree) with higher values representing higher levels of agreement. Cronbach s (1951) coefficient alpha (a), an index of the internal consistency of scale items and a useful estimate of reliability, was calculated on each scale. To measure perceptions regarding organizational level conditions of the model, the Ethics Code Awareness Scale included six items (a ¼ :82), and the Perceptions of Ethical Decision Making Processes Scale contained two items (a ¼ :55). The Perceptions of Ethical Resources Scale was composed of three subscales. The first subscale measured availability of time and included three items (a ¼ :65). The second subscale measured perceptions of sufficient organizational financial resources (a ¼ :90) and contained four items, and the third

9 Ethics Program Effectiveness subscale measured ethical information provided by the organization and contained three items (a ¼ :83). Perceptions of Informal Ethical Norms were measured using a 5-item scale (a ¼ :82). The scales measuring Perceptions of Ethics Program Effectiveness and Ethical Leadership contained four items (a ¼ :79) and 10 items (a ¼ :90), respectively. The measurement scales were piloted with 30 employees in the professional, administrative, and exempt bargaining units. In total, 15 managers provided qualitative comment on item clarity. Procedure The questionnaire was distributed to a participant list generated by the payroll department using a random seed algorithm. There were two methods of distribution: paper and pencil and web-based. Participants who did not have access to the agency s intranet received a paper copy of the survey via interoffice mail and were instructed to mail the survey back to the researcher via confidential interoffice mail. As there were two modes of survey administration, t- tests were conducted to determine if there were significant differences between modes of survey administration on the dependent or predictor variables. A significant difference was found between modes of administration on one subscale, decisionmaking procedures. Participants who completed the survey online perceived the organization to have suitable decision-making processes more often than those who completed the paper and pencil version. To control for this difference, method of survey administration was entered in the first step of the model. Results Variable means, standard deviations and intercorrelations are displayed in Table I. We performed hierarchical regression to control for the effects of demographic differences while assessing the main effects of the organizational preconditions and ethical leadership on ethics program effectiveness. Following Cohen et al. (2003), predictors were centered before they were entered into each regression equation. Although perceptions of informal ethical norms and ethical leadership were highly correlated, they did not meet the criteria for multicollinearity (Tabachnick and Fidell, 2001). Ethics code awareness, decision-making processes, availability of resources (information, time and money), and ethical leadership were regressed against perceptions of ethics program effectiveness. For analysis, a five-step hierarchical regression was performed. Demographic variables and method of survey TABLE I Variable means, standard deviations, and intercorrelations Variable M sd Gender 2. Age ).15** 3. Years of employment ).06.36** 4. Method.19** ).01.09* 5. Awareness ) Dec. making ).08.12*.68** 7. Info ).09*.07.56**.50** 8. Time ).06.09*.01.11*.26**.29**.30** 9. Money ) ).11* ).02.51**.42**.49**.33** 10. Informal ).10*.09* ).07 ).04.56**.50**.50**.43**.77** 11. Ethical leadership ) ).09*.03.60**.63**.53**.43**.74**.84** 12. Ethics program effectiveness ** ).05 ).11*.45**.42**.56**.26**.66**.65**.63** Note: *p<.05, **p<.01. Gender was coded as follows: 0 for male, 1 for female. Method of survey administration was coded 1 for paper and pencil and 2 for web-based.

10 Kathie L. Pelletier and Michelle C. Bligh administration were entered in the first step, with organizational preconditions (ethics code awareness, decision-making processes, and availability of resources) entered in the second step. In the third step, ethical leadership was entered. Perceptions of informal ethical norms was entered in the fourth step, as it was considered to be a distinct factor that would add beyond the organizational preconditions and ethical leadership to the prediction of our outcome variable. In the final step, the multiplicative factors (the interaction of awareness of formal ethics code with informal norms and the interaction of decision making with informal norms) were entered to assess for possible moderator effects. Regression analysis: ethics program effectiveness Results of the first step of the regression analysis (see Table II) indicate that demographic variables significantly predicted perceptions of ethics program effectiveness (F 4,347 =4.56, p <.01), but accounted for only 5% of the variance. Age and method of survey administration significantly predicted perceptions of effective ethics program, but gender and length of time employed did not. Standardized coefficients indicated slightly more predictability in perceptions of effective ethics programs was attributed to age (b ¼ :19) than to method of administration (b ¼ :12). The second set of variables entered in the model suggests a significant relationship between the three organizational preconditions and perceptions of ethics program effectiveness. After the demographic variables were partialled out, perceptions of organizational preconditions accounted for 50% of the variance in perceptions of ethics program effectiveness. Examination of individual predictors indicates that Hypothesis 1a was not supported: awareness of formal ethics codes did not significantly add to the prediction of ethics program effectiveness. Hypothesis 2a was supported, however; perceptions of suitable decision-making processes significantly predicted perceptions of ethics program effectiveness (b ¼ :11). With regard to availability of organizational resources, standardized coefficients indicated variance in perceptions of effective ethics programs was attributed to organizational financial stability or money (b ¼ :49) and the availability of information on ethical decision making (b ¼ :29), showing support for two of the three model preconditions posited in Hypothesis 3. Availability of time did not significantly predict perceptions of ethics program effectiveness. TABLE II Relationships between employee demographics, organizational conditions, and ethical leadership on perceptions of ethics program effectiveness Step Hypothesis Predictor R R 2 added b SE b b 1 Gender (F=0, M=1).22**.05** Age ** Length of employment )3.981E ).11 Method ) ).12* 2 1a Ethics code awareness.75***.50*** ) ).04 2a Decision making * 3 Information *** 3 Time 1.118E Money *** 3 4 Ethical leadership.76***.02*** *** 4 Informal ethical norms.76***.01** ** 5 1b Awareness informal.76*** b Decision making informal ) ).03 Note: N=356; *p<.05; **p<.01; ***p<.001; cumulative R squared =.57 (adjusted R squared =.55).

11 Ethics Program Effectiveness Ethical leadership was entered in the third step of the model, and support was found for Hypothesis 4. Perceptions of ethical leadership added significantly to the prediction of ethics program effectiveness beyond the organizational conditions identified by McDonald and Nijhof (1999). The contribution of ethical leadership was significant in predicting perceptions of ethics program effectiveness, accounting for an additional 2% of the variance. Informal ethical norms was entered in the fourth step of the model and added significantly to the prediction of ethics program effectiveness. Beyond the contribution of demographics, organizational preconditions and ethical leadership, perceptions of informal ethical norms accounted for an additional 1% of the variance in perceptions of ethics program effectiveness. Hypothesis 1b posited an interaction between ethics code awareness and informal norms on perceptions of ethics program effectiveness. Hypothesis 2b posited an interaction between perceptions of ethical decision-making processes and informal norms on perceptions of ethics program effectiveness. In the final step, multiplicative factors (awareness of formal ethics codes informal norms and decision making informal norms) were added. No support was found for these two hypotheses. Perceptions of informal ethical norms did not moderate perceptions of program effectiveness with regard to ethics code awareness and decision-making processes. Discussion The primary purpose of this study was to determine if the organization-level conditions specified in McDonald and Nihof s (1999) model were perceived to be salient in an organization attempting to re-establish social legitimacy by implementing an ethics program in response to external pressures. Further, we sought to determine if perceptions of ethical leadership would significantly predict employees perceptions of ethics program effectiveness beyond the presence (or absence) of these conditions. The importance of congruence between formal stated policy and informal norms, as well as decision-making processes and corresponding informal norms, was also examined. The age of the participant contributed significantly to the prediction of ethics program effectiveness. Employees who were older perceived the organization s ethics program as more effective than younger employees, suggesting that older workers may be more inclined to give a new program a chance before formulating judgment. Since age and length of employment tend to be positively correlated, older employees who have experienced organizational consequences of ethical misconduct might have a better appreciation of attempts to rebuild public trust through the formation of an ethics program. Method of survey administration also contributed to the prediction of program effectiveness. Respondents of the online method of distribution had more favorable perceptions of ethics program effectiveness than those who completed the paper and pencil survey (primarily field staff). No support was found for the main effect posited in Hypothesis 1a. Awareness of formal ethics codes was not significantly related to perceptions of ethics program effectiveness. This finding is consistent with Nwachukwu and Vitell s (1997) study that found no significant differences in ethical evaluations in organizations with formal ethics codes and those in organizations without ethics codes. In this sample, stated expectations regarding ethical behavior were not sufficient in influencing employee attitudes about ethics program effectiveness. Hypothesis 2a was supported. Perceptions of ethical decision-making processes were a significant contributor to the prediction of ethics program effectiveness. Hunt and Vitell s (1986) and McDonald and Nijhof s (1999) models suggest decision makers should be exposed to training on evaluation and should be aware of available alternatives to assist them in their decision-making processes. It is possible that members in this sample viewed the organization as having alternatives available to them. This agency s ethics resources office provides ethical decision-making guidelines on its website and also in payroll stuffers so every employee (whether working in the office or out in the field) has access to decision-making guidelines. Partial support was found for two of the three organizational resources presented in Hypothesis 3. Both financial stability and information were significant predictors of ethics program effectiveness

12 Kathie L. Pelletier and Michelle C. Bligh ratings. Employees who perceived the organization as having the financial stability to forego unethical decision making also perceived the organization s ethics program to be effective. This finding was consistent with Hoffman et al. s (1998) finding that unethical decision making is more prevalent when the participants perceive the organization as relying on the decision to survive. Participants who believed that the organization had sufficient financial resources also perceived the ethics program to be more effective. Likewise, employees who felt that the organization provided information to guide ethical decision making had more positive perceptions of ethics program effectiveness than employees who felt that the organization did not provide sufficient information. This finding supports the notion that an ethics office that regularly provides information for evaluating alternatives while simultaneously providing an outlet for voicing ethical concerns positively affects employees beliefs about program effectiveness (McDonald and Nijhof, 1999). We predicted a positive relationship between availability of time and perceptions of ethics program effectiveness. This relationship was not supported. Having sufficient time to evaluate ethical dilemmas was not related to positive perceptions of ethics program effectiveness. It is possible that employees perceived availability of time as a construct of the job, not necessarily the ethics program intervention. Hypotheses 1b and 2b posited that informal norms would strengthen the relationships between two organization-level preconditions (perceptions of ethics code awareness and decision-making processes) and perceptions of ethics program effectiveness. Informal norms that are supportive of ethical behavior were significant in predicting perceptions of ethics program effectiveness, but the interaction between this variable and code awareness and decision making did not achieve significance. Hypothesis 1b posited that informal ethical norms would strengthen the relationship between ethics code awareness and perceptions of ethics program effectiveness. Informal norms did not moderate perceptions. As this organization was involved in an ethical scandal that has been highly publicized during the previous six years, it is possible that employee perceptions of informal norms have not improved with regard to communicating ethical expectations. This finding might also be attributed to the perceived incongruence between written policy and informal norms in the organization. An elected political official in this organization remains an active figurehead even though indicted on several counts of bribery, thus vividly illustrating the consequences of an organization not walking the talk. Hypothesis 2b predicted that informal norms would strengthen the relationship between perceptions of ethical decision-making processes and ethics program effectiveness. The lack of a significant interaction might indicate that employees do not feel comfortable in participating in ethical deliberations, or the employees may not be encouraged to evaluate ethical dilemmas with their superiors. This result may seem surprising in light of the significant effect of ethical leadership. One possible explanation might be the nature of the bureaucratic environment of this agency. Since the ethical misconduct was discovered, every contract the agency executes that is $25,000 or more must be brought before the board for approval, thus limiting the opportunity for lower level employees to be involved in ethical deliberations. Limitations and implications for future research There were several limitations in this study. First, the data were obtained using self-report measures and the correlations may have been somewhat inflated by the use of a single method. Future studies should complement these measures with others obtained with different methods, such as interviews, observation, and longitudinal survey measures. The second limitation in this study is a lack of generalizability; the sample in this study consisted of 418 employees within one public sector agency. Although we examined 16 different bargaining units across 30 different departments, a representative sampling across multiple public and private entities was not possible. Future studies should examine differences in employee perceptions based on other organizational variables such as department, hierarchical level, subculture, etc. An additional limitation of our study is one that is prevalent in ethics research. There is a lack of appropriate measurement tools that assess the constructs specified in many of the theoretical models

13 Ethics Program Effectiveness that have been developed. Validation of these newly developed scales is an important direction for future research. Finally, as with any cross-sectional correlational or regression analysis, causality cannot be inferred. We were interested in how employees perceived leadership, organizational norms, and ethics program effectiveness, and we found a relationship between perceptions of organizational conditions and subjective evaluations of ethics program effectiveness. While our data reflect employees perspectives, rather than completely objective accounts of reality, this methodology is appropriate for our primary interest in how employees themselves perceive and evaluate the ethical characteristics of their organizations. Employee data can provide an important baseline from which to evaluate changing perceptions after implementing ethics interventions, and can be used to examine the longitudinal development of effective programs over time. It is important to point out that the results of this study cannot be used to infer that these conditions will reliably predict other, arguably more objective, measures of program effectiveness (e.g., decreases in litigation against a given organization); however, when seeking to re-establish social legitimacy and employee trust, an examination of employee perceptions is a critical step. In today s business arena, an organization s reputation matters as never before, and maintaining a positive reputation has perhaps never been more difficult. The present decade differs from decades past: public expectations are higher, regulatory agencies are stiffening codes, psychological contracts between employees and leadership are not as strong as they once were, and some senior executives are facing jail terms. In response to these events, an increasing number of organizations, both public and private, are creating internal programs and policies to help employees make ethical business decisions. McDonald and Nijhof (1999) proposed a model that offered a menu of organizational conditions that must exist for an ethics program to be perceived as effective. These conditions are certainly not exhaustive. In addition to identifying the organizational ingredients for a successful ethics intervention, an examination of characteristics of ethical leadership, as perceived by followers, was also noteworthy. Leaders shape and embed organizational culture (Schein, 1985), and influence employees through their own behaviors, values, and expectations. Employees look to their leadership to provide direction and support, especially during times of organizational or market uncertainty, which is when ethical dilemmas are most likely to surface. The results of this study are important for determining the organization-based factors that are perceived as most salient to employees in organizations that are in the process of developing ethics programs, either in response to external pressure, or as a proactive strategy for establishing or maintaining social legitimacy. It is important to identify organization level conditions that must exist to stimulate morally responsible behavior. Further, in organizations that are seeking to transform culture from one of mistrust to one of trust, it is also noteworthy to mention the conditions that must be mitigated (e.g., cynicism) to promote an ethical culture. Last, the importance of congruence between formal and informal norms will guide ethics officers and administrators in training leaders to become better role models for ethical behavior. We hope that the results of this research will provide valuable insights for other organizations in their quest to develop effective ethics programs either as a preventative measure or in response to external pressures for more responsible and ethical behavior. Acknowledgements The first author wishes to acknowledge the assistance of Jan Kottke with regard to scale development and statistical analyses. We also thank Dena Smith, Kendall Kerekes, James Pesta, and Tom Mathers for their technical and advisory support throughout this study. Finally, we also thank the editor and the two anonymous reviewers for their insights and thoughtful comments. An earlier version of this paper was presented at the 2004 Annual Meeting of the Academy of Management in New Orleans, LA.

14 Kathie L. Pelletier and Michelle C. Bligh APPENDIX A Perceptions of ethical climate a Ethics code awareness 1. When a decision has ethical implications, the organization s ethics policy guides me in my decision-making process 2. I have read the organization s ethics code 3. I understand what the organization expects of me in terms of ethical behavior 4. I understand the content of the ethics code 5. When I was hired, the ethical expectations of the organization were communicated to me 6. Policies exist that describe how the organization expects its employees to make ethical decisions Perceptions of ethical decision-making processes 1. When faced with an ethical conflict at work, I seek guidance to determine possible consequences of my decision 2. When faced with making a decision that has an ethical implication, I feel I can discuss the matter with my immediate supervisor Perceptions of ethical resources scale A. Information 1. There is an Ethics Resources Office available to me if I want to ask questions about ethics 2. It is easy to get help from the Ethics Resources Office 3. The ethics officer is available when I need help B. Time 1. In the course of my workday, I have felt time pressures that have led to unethical decision making (R) 2. In this organization, there are many instances where ethical decision making is sacrificed due to time constraints (R) 3. Time pressures affect my ability to thoroughly evaluate ethical dilemmas (R) C. Money 1. This organization makes ethical decisions even in times of budgetary constraints 2. This organization is willing to do the right thing even if it costs more money 3. This organization makes ethical decisions even if it might result in reduced funding 4. This organization will do the right thing no matter the financial costs Perceptions of informal ethical norms 1. The organization rewards employees who exhibit ethical behavior 2. Personnel decisions (hiring and promotion) in this organization reflect ethical principles 3. In my opinion, employee concerns about ethical issues are not heard in my department (R) 4. If I reported a colleague for an ethical violation, there would be retaliation against me (R) 5. If I were to have an ethical concern, I know I would be supported in this organization Perceptions of ethical leadership 1. The top leadership of this organization is concerned with ethical practice 2. I feel comfortable consulting with my immediate supervisor when I have to make a tough ethical decision 3. Top leadership places an equal value on productivity, quality, and ethical practice 4. Moral concerns are given top priority by the organization s top leaders 5. My immediate supervisor sets a good example of ethical behavior 6. Top leadership works quickly to resolve ethical issues 7. My immediate supervisor looks the other way when employees make unethical decisions (R) 8. Top leadership provides employees with ethical guidance when it is needed 9. The organization s top leadership routinely strives to make decisions that are ethical 10. If I reported one of my fellow employees for an ethics violation, my immediate supervisor would support me

15 Ethics Program Effectiveness APPENDIX A Continued Perceptions of ethics program effectiveness 1. The Ethics Resources Office handles concerns and inquiries in a confidential manner 2. The creation of an Ethics Resources Office has increased my trust in the organization 3. The organization instituted the Ethics Resources Office because it is truly concerned about ethical standards 4. The Ethics Program is effective a Note: Respondents indicated their level of agreement with all items on the following Likert scale: 1 = Strongly disagree, 2 = Disagree, 3 = Somewhat disagree, 4 = Neither agree or disagree, 5 = Somewhat agree, 6 = Agree, and 7 = Strongly agree. Items designated with (R) were reverse coded. References Ashkanasy, N. M., S. Falkus and V. J. Callan: 2000, ÔPredictors of Ethical Code Use and Ethical Tolerance in the Public SectorÕ, Journal of Business Ethics 25(3), Bartels, R.: 1967, ÔA Model for Ethics in MarketingÕ, Journal of Marketing 31, Baumhart, R. C.: 1961, ÔHow Ethical are Businessmen?Õ, Harvard Business Review 39, Beck, S.: 2002, Ancient Wisdom and Folly (World Peace Publications, Ojai, CA). Bennis, W. and B. Nannus: 1985, Leaders: The Strategies for Taking Charge (Harper and Row, New York, NY). Blasi, A.: 1980, ÔBridging Moral Cognitions and Moral Action: A Critical Review of the LiteratureÕ, Psychological Bulletin 88, Cavanagh, G. F., D. J. Moberg and M. Velasquez: 1981, ÔThe Ethics of Organizational PoliticsÕ, Academy of Management Review 6(3), Clark, M. A. and S. L. Leonard: 1998, ÔCan Corporate Codes of Ethics Influence Behavior?Õ, Journal of Business Ethics 17(6), Clark, M. M.: 2003, ÔCorporate Ethics Programs Make a Difference, but Not the Only DifferenceÕ, HR Magazine 48(7), 36. Cohan, J. A.: 2002, Ô I Didn t Know and I was Only Doing my Job : Has Corporate Governance Careened Out of Control? A Case Study of Enron s Information MyopiaÕ, Journal of Business Ethics 40(3), Cohen, J., P. Cohen, S. G. West and L. S. Aiken: 2003, Applied Multivariate Regression/Correlation Analysis for the Behavioral Sciences 3rd edition, (Lawrence Erlbaum Associates, Mahway NJ). Cronbach, L. J.: 1951, ÔCoefficient Alpha and the Internal Structure of TestsÕ, Psychometrika 16, Ethics Officer Association: 1999, ÔUnethical Workers and Illegal ActsÕ, Society 36(4), 2 4. Ferrell, O. C. and L. B. Gresham: 1985, ÔA Contingency Framework for Understanding Ethical Decision-making in MarketingÕ, Journal of Marketing 49, Summer. Ford, R., R. Gray and R. Landrum: 1982, ÔDo Organizational Codes of Conduct Really Affect Employees Behavior?Õ, Management Review 71(6), French, P. A.: 1984, Collective and Corporate Responsibility (Columbia University Press, New York, NY) Griffis, S. E., T. J. Goldsby and M. Cooper: 2003, ÔWebbased and Mail Surveys: A Comparison of Response, Data, and CostÕ, Journal of Business Logistics 24(2), Hays, S. W. and R. Kearney: 2001, ÔAnticipated Changes in Human Resource Management: Views from the FieldÕ, Public Administration Review 61(5), Hegarty, W. H. and H. P. Sims: 1979, ÔOrganisational Philosophy, Policies, and Objectives Related to Unethical Decision Behaviour: A Laboratory ExperimentÕ, Journal of Applied Psychology 64(3), Hoffman, J. J., C. Grantham and B. T. Lamont: 1998, ÔThe Effect of Firm Profit Versus Personal Economic Well Being on the Level of Ethical Response Given by ManagersÕ, Journal of Business Ethics 17(3), Hood, J. N.: 2003, ÔThe Relationship of Leadership Style and CEO Values to Ethical Practices in OrganizationsÕ, Journal of Business Ethics 43, Hunt, S. D. and S. Vitell: 1986, ÔA General Theory of Marketing EthicsÕ, Journal of MacroMarketing 8, 5 16 Spring. Jones, G. E. and M. J. Kavanagh: 1996, ÔAn Experimental Examination of the Effects of Individual and Situational Factors on Unethical Behavioral Intentions in the WorkplaceÕ, Journal of Business Ethics 15(5), Kanungo, R. N. and M. Mendonca: 1996, Ethical Dimensions of Leadership (Sage Publications, Thousand Oaks, CA). Kohlberg, L.: 1969, ÔStage and Sequence: The Cognitive-developmental Approach to SocializationÕ, in

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