Construct Validity of Unobtrusive Measures of Organizational Ethical Climates

Abstract

Prior studies have examined the relationship between organizational ethical climates and an array of work-related attitudes and behaviors. However, current research is hampered by the lack of knowledge on how ethical climates relate to organizational outcomes. To advance research on this topic, we developed three unobtrusive measures of organizational ethical climates based on words used in annual letters to shareholders of Fortune 500 companies and examine how organizational ethical climates relate to corporate reputation and a readability index. Results reveal that our measures of organizational ethical climates align with well-known reputation measures as well as the overall readability of letters to shareholders. Our theory and evidence open a novel path for both researchers and practitioners to benefit from an initial validation of measures of organizational ethical climates in studying corporate reputation.

Appendix 1: Dictionaries

To locate the references cited in each dictionary, consult the articles selected to build the dictionaries.

Instrumental Ethical Climates
Victor and Cullen (1987) p. 54: “… maximizing one's own interests” p. 55 “… or an "instrumental" climate where self-interest is the dominant criterion.” Victor and Cullen (1988) p. 105: “In a largely egoistic climate, self-interest might be the dominant consideration.” p. 106: “In the context of the egoism criterion, the loci of analysis identify the particular "self" (e.g., individual, company) in whose interests one is expected to act At the individual locus of analysis, the egoism criterion is defined as consideration of the needs and preferences of one's own self (e.g., personal gain, self-defense). At the local locus of analysis, it is defined as considerations of the organization's interest (e.g., corporate profit, strategic advantage). Finally, at the cosmopolitan locus of analysis, it is defined as considerations of the larger social or economic "system's" interest (e.g., efficiency).” p. 107: “This is in contrast to local egoism, in which a reified organizational construct is the locus of concern.” p. 107: “In the upper left corner is individual egoistic reasoning as it might be found among residential real estate brokers or in a telemarketing "boiler room" where each person's sales and commissions are relatively independent and organizational commitment is quite low. In this case, decision making might be characterized as involving mostly considerations of each person's self-interest. For example, recent concern about sales abuses of stockbrokers (and their negative effects on clients and firms) are often attributed to decisions by brokers that are characteristically self-interested (Wall Street Journal, 1987) Cullen et al. (1989) P. 54: “Essentially, egoism is motivated by the wish to maximize one’s own interests.” p. 55: “and the self-interested broker would probably act on the information.” p. 57: An instrumental climate fell into the self-interest and company profit boxes. Statements such as, "In this company, people are only out for themselves" and "People are expected to do anything to further the company's interests" capture this ethical type Self-interest is the key criterion in organizational decision making when the firm has an instrumental climate;…” p. 60: “Flagrant types of crime, such as fraud and outright deception, may be most likely to occur in self-interested climates that stress instrumentality- that is, getting ahead—at the expense of caring and rules.”
Cullen et al. (2003) p. 129: “In the egoistic climate, company norms support the satisfaction of self-interest.” p. 129: “For instance, in an egoistic-individual climate, norms encourage individuals to make ethical decisions mostly in their self-interest.” p. 130: “Egoism is primarily based upon the maximization of self-interest. The decision-maker usually seeks the alternative with the consequences that most satisfies his/her needs, ignoring the needs or interests of others. Egoism postulates that one should choose those actions that result in the maximum of good for oneself (Rosen 1978). Within an egoistic climate, the individual's self-interest becomes the expected primary source of moral reasoning when a decision has to be made (Victor and Cullen 1987, 1988). The needs and interests of others (within the same department or organization) are of less concern In an egoistic ethical climate, norms encourage a focus on personal gains. The expectation is that individuals do not care about the well-being of others (Victor and Cullen 1988).” p. 130: “However, an egoistic climate implies that employees perceive that the organization generally promotes self-interested decisions at the expense of other constituents.” Parboteeah et al. (2005) p. 461: “In the egoistic climate, company norms support the satisfaction of self-interest.” p. 463: “The egoism dimension is generally based upon the maximization of self-interest (Cullen, Parboteeah, Hoegl 2003). Within the egoist climate, the normative expectation is that the decision-maker likely chooses alternatives that benefit himself/herself the most while ignoring the needs of others. According to Victor and Cullen (1988), an egoist ethical climate can be found among real estate brokers where each person's sales are relatively independent. In such an organization, an egoist climate is likely to develop as all salespeople try to behave in self-interested fashion to make sales. When applied to the present paper, an accountant in an egoistic climate will more likely choose those actions that result in the maximum of good for himself/herself.” p. 463: “Victor and Cullen (1987, 1988), in their original conceptualization of the egoistic ethical climate, argue that egoist organizations encourage individuals to be motivated by personal gains.” p. 464: “As such, because an egoistic climate indicates that people in an organization consider the maximization of their self-interest as ethical and moral, it is logical to expect that organizations in more individualist societies such as the US should develop ethical climates that support the welfare of the individual as a reflection of the societal norm. Consequently, organizations in countries that are high on individualism are more likely to exhibit egoistic ethical climate, because the latter reflects the ultimate concern for the self.”
Martin and Cullen (2006) p. 177: “The first construct, egoism, applies to behavior concerned first and foremost with self-interest and self-interest maximizing behavior.” p. 178: “Actors perceiving an instrumental ethical climate see their organizational unit as having norms and expectations that encourage ethical decision-making from an egoistic perspective. What is more, the actor perceives that self-interest guides behavior, even to the possible detriment of others. One believes that decisions are made that serve the organization’s interests or provide personal benefits (Wimbush and Shepard 1994).” Martin et al. (2009) p. 112: “Egoistic climates involve norms concerned primarily with self-interest. In egoistic climates, organizational members perceive decisions and activities predominantly as a means to advance the organization's interests, or to provide personal benefits, even to the possible detriment of other members or stakeholder groups (Flannery and May 2000; Peterson 2000).” Simha and Cullen (2012) p. 21: “Egoism refers to behavior that is concerned chiefly with self-interest.” p. 22: “Instrumental climates are associated with the egoism construct and the individual and local loci of analysis. As such, employees operating in instrumental climates tend to see their organizational unit as having norms and expectations that encourage ethical decision making from an egoistic perspective. Behavior that promotes self-interest is the norm even to the possible detriment of others.”
Caring Ethical Climates
Victor and Cullen (1987) p. 54: “… maximizing joint interests …” p. 55: “People who are "caring" tend to be less cognizant of law or rules. To some extent they also may be less amenable to arguments employing rule or principle.” p. 55: “For example, if an organization had what might be labeled a "caring" climate, then the well-being of others should be the dominant criterion used to identify and solve ethical problems.”
Victor and Cullen (1988) p. 105 “In an organization characterized primarily by a benevolent climate, a teleological consideration of the wellbeing of others may be the dominant reasoning used by employees to identify and solve ethical problems.” p. 107: In the context of the benevolence criterion, the loci of analysis both identify for organizational members "who we are" and set the boundaries for "our concerns." This subject-object distinction, and the concomitant obligation for other-regarding, differentiates the benevolent from the egoistic (Gilligan 1982; Haan et al. 1985). At the individual locus of analysis, the benevolence criterion is defined as consideration of other people without reference to organizational membership (e.g., friendship, reciprocity). At the local locus of analysis, it becomes consideration of the organizational collective (e.g., esprit de corps, team play). This is in contrast to local egoism, in which a reified organizational construct is the locus of concern. At the cosmopolitan locus of analysis, benevolence is defined as consideration of other constituencies outside the organization (e.g., social responsibility).” p. 107: “In the center is local benevolent reasoning. This climate might exist in a semiautonomous workgroup or in a research lab in which there is a high need for cooperation and the focus is on jointly produced outcomes. In this case, decision making involves the comparison of each alternative's impact on each member of the team. For example, Peters and Waterman (1982) found a "corporate family" theme in many of the companies they reviewed: the needs of everyone (often including each employee's own family) were considered in company policy decisions.” Cullen et al. 1989 P. 54: “utilitarianism by the wish to maximize the interests of oneself and significant others;” p. 55: “People who are “caring” are not apt to pay a great deal of heed to laws and rules;” p. 55: “The caring broker would probably counsel his friend to stop such harmful activities;” p. 57: “A caring climate spanned all three benevolent cells: friendship, team interest, and social responsibility. This climate is characterized by statements like, "Our major consideration is what's best for everyone in the company" and "It is expected that you'll always do what is right for the customer and the public." p. 57: “In caring climates, the company emphasizes benevolent criteria such as the interests of other employees or the welfare of the work team
Cullen et al. (1989)—Cont p. 60: “A climate that is low on caring could create an environment in which employees are treated in callous and potentially illegal ways; such a climate may lower motivation and increase the turnover rate. Conversely, an employee of a caring organization, when faced with the ethical decision of offering a bribe or losing a contract, may take the illegal course; the employee may reason that he or she ought to give the bribe since the contract would help the people who work for the firm Cullen et al. 2003 p. 129: “In the benevolent climate, company norms support maximizing the interests of a particular social group.” p. 130: “Benevolence is based on concern for others (Victor and Cullen 1987, 1988). The decision-maker seeks the alternative that maximizes joint interests even if it means a lesser satisfaction of individual needs (Weber 1995). A person perceiving a benevolent climate is most likely to make those decisions that provide the greatest good for the greatest number of people involved in the decision. Such individuals see their organizations as having a sincere interest for the wellbeing of others (Wimbush and Shepard 1994) In a benevolent climate, the expectation is that unit members are concerned with the well-being of each other within and outside the organization (Victor and Cullen 1987, 1988). Group process characteristics typical of a benevolent climate, such as cooperation, mutual personal attraction, and positive feelings about tasks may establish a positive affective tone among organizational members (Wech et al. 1998).” p. 130: “It is also likely that a benevolent climate (i.e., where organizational members are more sensitive and more willing to assist each other) produces more cohesiveness among the organizational members. This cohesiveness (Hackman 1992) is a result of the heightened personal attraction inherent in a caring environment.” p. 131: “Because a general benevolent climate is synonymous with general caring for the well-being of their employees, it can make employees feel a higher level of perceived organizational support.” Parboteeah et al. (2005) p. 461: “In the benevolent climate, company norms support maximizing the interests of a particular social group.” p. 464: “Benevolent decisions, which involve understanding the consequences of decisions on others and choosing those decisions that benefit most, are thus more likely to be made to benefit all stakeholders of accounting firms.”
Parboteeach et al. (2005) – Cont p. 464: “Benevolence is primarily based on concern for others (Victor and Cullen 1987, 1988). Within such a climate, the decision-maker is likely to make those decisions that results in maximum collective gains even at the expense of individual needs (Cullen et al. 2003). Benevolent climates are likely to develop, for example, in research labs where there is high need for cooperation to achieve the desired success outcomes (Victor and Cullen 1988). In the context of our study, an accountant who perceives a benevolent climate will likely choose those alternatives that provide the greatest good for the greatest number of people affected by the decision.” p. 465: “A benevolent ethical climate is relevant because, parallel to collectivism, it indicates caring and norms that support the interest of the company/in-group.” Martin and Cullen (2006) p. 177: “Utilitarianism accomplishes this through decisions and actions that arrive at the greatest good outcome for the greatest number of people.” p. 179: “In this atmosphere, individuals perceive that decisions are and should be based on an overarching concern for the well-being of others. They perceive that ethical concern exists for others within the organization, as well as society at large. Concern for and consideration of others is also perceived to be supported by the policies, practices, and strategies of the firm by its actors.” Martin et al. (2009) p. 112: “Benevolent climates involve utilitarian ethical norms where the intent of decisions and actions is to achieve positive and other-concerning outcomes that enhance the overall well-being of people. In benevolent climates, individuals perceive that decisions are and should be based on an overarching concern for the well-being of others, including employee peers, organizational stakeholders, and society at large (e.g., Joseph and Deshpande 1997; Kennedy et al. 2001).” p. 113: “Other research suggests that the social support characteristic of benevolent climates deters deviance (e.g., Peterson, 2002; Weber 1995; Weber and Seger 2002).” Simha and Cullen (2012) p. 21: “Benevolence is similar to utilitarianism, in that decisions and actions are taken to produce the greatest good for the greatest number of people.”
Simha and Cullen (2012)—Cont “Caring climates are associated with the benevolence construct and the individual and local loci of analysis; employees operating in caring climates perceive that their decisions are and should be based on an overarching concern for the wellbeing of others. This climate tends to encourage behaviors that yield a positive outcome for the greatest number of constituents.”
Rules-based Ethical Climates
Victor and Cullen (1987) p. 54: “… adherence to universal principles …” p. 55: “In contrast, people who are "principled" tend to be less sensitive to particular and temporal effects on others.” p. 55: “This might be contrasted with a "principled" climate in which rules or law are the dominant criteria, …” Victor and Cullen (1988) p. 105: “With a largely principles climate, the application and interpretation of rules or law might be the dominant form of reasoning.” p. 107: “In the context of the principle criterion, the loci of analysis define sources of principles expected to be used in the organization. At the individual locus of analysis, the principles are self-chosen. That is, one is expected in this climate to be guided by personal ethics. At the local locus of analysis, the source of principles lies within the organization (e.g., rules and procedures). At the cosmopolitan locus of analysis, the source of principles is extra-organizational (e.g., the legal system, professional organizations). In the local and cosmopolitan climates one is guided by sources of principles apart from the individual and, thus, regardless of one's personal ethical preferences.” p. 107–108: Finally, in the lower right corner is cosmopolitan principle reasoning as it might exist for a group of lawyers or certified public accountants. In this case, decision making might be dominated by discussion of how law and professional code apply to an issue. For example, in-house corporate counsels often maintain their own organizational structure within a firm. This structure is outside the mainstream of corporate career ladders and incorporates characteristics like the private law firm, such as associate and partner status distinctions. One rationale for this structure is the need for lawyers to adhere to an extra-organizational source of guiding principles (Kalish 1980)
Cullen et al. (1989) p. 54: “… and deontology is motivated by the abstract desire to do what is right, independent of the action’s specific outcome and whose interests are particularly affected by it.” p. 55: “people who are “principled” are likely to screen out the effects of a given choice on themselves, and on other individuals.” p. 55: “the principled broker might well report the violation to the SEC, despite the pain that the disclosure could bring to him and his friend;” p. 57: “An independent climate emerged in the personal morality box, with descriptors including, "In this company, people are expected to follow their own personal and moral beliefs." The rules and standard operating procedures (SOP) eel] had its own rules-oriented climate, characterized by statements such as, "Everyone is expected to stick by the company's rules and procedures." Finally, a laws-and-codes climate emerged in the principled-cosmopolitan cell. For this climate, organizational members selected such statements as, 'The first consideration is whether a decision violates any law" and "The ethical code of the profession is very important." p. 57: “The laws-and-codes climate prevails wherever the company uses externally generated standards and principles in choosing a course of action. The rules climate is in effect when internally generated principles and guidelines are used to direct decision making.” p. 57: “and individual moral judgment is of foremost importance in an independent climate.” p. 60: “For example, a rules-oriented climate that plays down the importance of the employee's individual judgment could lead to misinterpretation or conflict between various rules and regulations.” p. 61: “The decision-making process implied by a laws-and-codes climate requires obeying principles that were developed by external organizations-and thus necessitates a strong legal function within the organization Cullen et al. (2003) p. 129: “Finally, in the principled climate, company norms support following abstract principles independent of situational outcomes.” p. 129: “In contrast, the principle-cosmopolitan refers to ethical decisions made based on laws or professional codes.”
Cullen et al. (2003)—Cont p. 131: “Victor and Cullen's (1988) ethical criterion of principle embodies the application or interpretation of rules, laws, and standards in the normative expectations in a social unit. In general, when faced with an ethical dilemma, organizational or group norms suggest that the decision-maker resort to decisions that are based on adherence to rules and codes. The expected sources of principles for such moral reasoning can be internal to an individual with a principled-individual climate, or external such as with a local ethical code (principled-local) or a broader code such as the Bible or laws (principled-cosmopolitan) (Victor and Cullen, 1988).” p. 131: “Professionals are expected to internalize professional principles and give them priority over organizational norms (Blau and Scott 1962; Scott 1966). As such, it seems likely that when organizations develop principled climates they are more likely to be congruent with internalized professional norms and values, which should lead to greater levels of organizational commitment.” p. 131: “To the degree that principled climates are based on external rules and standards that transcend organizational boundaries, they seem less relevant to a work group that has no unique professional codes.” Parboteeah et al. (2005) p. 461: “Finally, in the principled climate, company norms support following abstract principles independent of situational outcomes.” pp. 465–466: “The principled ethical climate embodies making ethical decisions based on the application or interpretation of rules, laws and standards (Cullen et al. 2003, Victor and Cullen 1988). The existence of principled climates is expected in professional organizations such as those for lawyers or accountants. As discussed by Victor and Cullen (1988, p. 108), decision making is typically dominated by discussions of "how law and professional code apply to an issue. Such rules and codes may originate, for instance, from professional accounting standards or elements of the organizational policies and procedures.” p. 466: “As such, the principle climate is important as it reflects the adherence to codes and rules that form the basis of most accountant professional training.” “Such rules and regulations can be most accurately reflected in a principled climate, where ethical issues are guided by external principles
Martin and Cullen (2006) p. 177: “Rules, law, codes, and procedures specify decisions and actions for the good of others in deontological theory.” p. 179: “This climate indicates that individuals believe they should act on deeply held, personal moral convictions to make ethical decisions. In their view of the organization, decisions with moral consequences should emphasize personal moral beliefs with minimal regard for external forces and outside influence on ethical quandaries. The individual’s principles, upon which decisions are made, are presumably determined through careful consideration (e.g., Schminke et al. 2005; Watley 2002).” “The particular climate of law and code is based on the perception that the organization supports principled decision-making based on external codes such as the law, the Bible, or professional codes of conduct. In decision-making situations with a law and code climate, it is perceived that actors should make decisions based on the mandate of some external system (i.e., to avoid breaking the law). It is these external codes that are perceived to govern an employee’s ethical decision-making and behavior in the context of the organization (e.g., Elmand Nichols 1993; Peterson 2002).” “Organizational decisions are perceived to be guided by a strong, pervasive set of local rules or standards such as codes of conduct (e.g., Appelbaum et al. 2005; Aquino and Becker 2005; Liu et al. 2004). Indeed, the multifaceted codes of conduct increasingly being implemented by organizations in the contemporary corporate landscape appeal primarily to this theoretical dimension of ethical climate.” Martin et al. (2009) p. 112: “Principled climates involve deontological perceptions that decision making should be based on rules or codes such as federal laws or professional behavior standards. Organizational decisions are perceived to be guided by a strong, pervasive set of local or external rules or standards, such as codes of conduct. In principled climates, organizational members' ethical reasoning is predominantly influenced by external system mandates (i.e., to avoid breaking the law), or internal system frameworks (i.e., adhering to an organizational code of ethics).” Simha and Cullen (2012) p. 21: “Principle is similar to deontology, in that decisions are made and actions are taken in accordance with laws, rules, codes, and procedures.” p. 21: “Independence climates are associated with the principle construct and the individual locus of analysis; employees believe that they can act on deeply held personal convictions to make ethical decisions. These climates emphasize personal moral beliefs with minimal regard for external influences.”
Simha and Cullen (2012)—Cont p. 22: “Rules climates are associated with the principle construct and the local locus of analysis. In these climates, organizational decisions are perceived as being guided by a strong and pervasive set of local rules or standards, such as codes of conduct (Appelbaum et al. 2005; Aquino and Becker 2005; Liu et al. 2004; Martin and Cullen 2006).” p. 22: “Law and code climates are associated with the principle construct and the cosmopolitan locus of analysis; principled decision making is based on external codes such as the law, the Bible, or professional codes of conduct.”