The Role of Organizational Culture in Ethical Decision Making

Last week I blogged about whether ‘business ethics’ is an oxymoron. While I concluded it was not, at least any more than in most endeavors in life, I did not point out ethical dilemmas sometimes bringing companies down. The reason is Ethical Dissonance.

MaryJo Burchard points out that businesses pay too little attention to the examination of the ‘ethical person-organization fit’ in developing an ethical culture. She presents what she calls “the Ethical Dissonance Model” to illustrate the interaction between the individual and the organization, based on the person-organization ethical fit at various stages of the contractual relationship in each potential ethical fit scenario.

To keep it simple, I address the basics of the person-organization interchange and its implications for ethical behavior within organizations. This is an important consideration because the ethics of an individual influences the values that one brings to the workplace and decision making, while the ethics (through its culture) of an organization influences that behavior. The hypothesis is that there can be a dissonance between what is considered ethical and what may actually be “best” for the subject inviting ethical consideration.

Of the four potential fit options, two possess high person-organization fit: (1) high organizational ethics, high individual ethics (High-High), and (2) low organizational ethics, low individual ethics (Low-Low); and two possess low person-organization fit: (1) high organizational ethics, low individual ethics (High-Low) and (2) low organizational ethics, high individual ethics (Low-High).

Let’s pause for a moment and consider the practical implications of this model. Imagine that you are interviewing for a position with a mid-sized company in your town. You can easily find out information about the company on the Internet to prepare for the interview, such as the scope of its operations, products and services, customer base, and geographical locations. However, it is less easy to find out about its reputation for ethics, although reports in the media about specific events might be of some use. Now, let’s assume that you knew what is meant by organizational fit and in this case the fit is Low-High. Would that affect whether you interview with the company? Might you ask questions to better understand why that fit exists? Would it affect your final decision whether to work for the company? The information you might gather during the process could be invaluable when you face ethical dilemmas in the workplace.

In two of the fit options (High-High and Low-Low), no ethical dissonance exists. Person-organization fit is optimal, and the organization is highly effective, either to constructive or destructive ends. The other two (High-Low and Low-High) demonstrate a lack of person-organization fit in the realm of ethics and values.

The recent financial recession is a case in point about ethical dissonance. Many financial institutions got caught up in the subprime debacle. They made home mortgage loans to unqualified buyers; they re-packaged these loans as structured investments and sold them off to unsuspecting investors; and investors hedged their bets by investing in credit default swaps thereby transferring risk to the AIG’s of the world.  

We know enough by now to realize that many people knew what was going on and the risks should the housing bubble burst, as it did. Still, they let the organization dictate ethical behavior rather than following their own ethical instincts.

A Harvard Business School study demonstrates the phenomenon of the "pot calling the kettle black," whereby people are guilty of the very fault they identify in others. Recalling an undeniable ethical failure, people experience ethical dissonance between their moral values and their behavioral misconduct. Their findings indicate that to reduce ethical dissonance, individuals use a double-distancing mechanism. Using an overcompensating ethical code, they judge others more harshly and present themselves as more virtuous and ethical. The researchers show this mechanism is exclusive for ethical dissonance and is not triggered by prominence of ethicality, general sense of personal failure, or ethically neutral cognitive dissonance.

What does this all mean? It means that unless the culture of an organization is changed from within it is more likely than not that employees will have to conform their behavior to the prevailing culture or look for another employer that values ethical decision-making.

The organizational culture represents “how we do things around here,” while the ethical culture represents “how we do things around here in relation to ethics and ethical behavior in the organization.” The ethical culture represents the organization’s “ethics personality.”  

From an ethical systems perspective, creating and sustaining a strong ethical culture is the key to creating an organization that supports people making good ethical decisions and behaving ethically every day. There are so many variables that lead people to take ethical shortcuts. But when all relevant organizational systems are pushing people in the same ethical direction, ethical failure is much less likely. 

Blog posted by Steven Mintz on June 16, 2016. Dr. Mintz is a professor in the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at www.ethicssage.com.