The Power of Ethical Work Climates

Sarbanes–Oxley: Genesis, rationale, and results

The Sarbanes–Oxley Act grew from a collective frustration on the part of shareholders and institutional investors concerning the lack of accountability and ethicality on the part of corporate leaders. In the mid-1990s, amidst a booming economy, millions of American families placed their savings and retirement funds in the stock market. However, in the second quarter of 2000, the bubble burst. Stock prices plummeted and investors fled the market. In subsequent months, numerous revelations

The missing link

Clearly, external regulation plays an important role in enhancing public confidence in the business environment. However, formal regulation is not sufficient. As noted in a recent article in The [London] Times Online, “Some [fraud] is due to criminal activity, as companies such as Enron fleeced their shareholders by fabricating accounts. But some of it is the result of deep and continuing systemic problems in many companies.”

Indeed, a substantial portion of corporate misdeeds results from

Ethical work climates

Ethical work climates represent a subset of the more general concept of organizational work climates. Work climates reveal employees’ perceptions of “how things are done around here.” They capture what it feels like to work in an organization, the “prevailing weather” of the workplace. More specifically, climate reflects employee perceptions of the policies, practices, and procedures that the organization rewards, supports, and expects. It is these perceptions of their work environment that

The psychology of ethics

We often characterize ourselves and others simply as ethical or unethical. However, the psychology of ethics is a more complicated process. According to psychologist James Rest, who extensively studied the development of ethical reasoning, the ethical decision-making process involves four basic components: moral sensitivity, moral judgment, moral motivation, and moral character. Each represents a key step in the process of making ethical decisions.

We briefly review each component here, and

The challenge for managers

Recent research suggests that these four components are reflected not only in individual employees but also in the ethical climates of organizations. Applying these components to organizations, management professors Anke Arnaud and Marshall Schminke have developed a framework identifying four elements that comprise the ethical climate in organizations. Each element reveals the collective norms regarding one of the basic psychological processes involved in ethical decision making. Therefore, the

Lessons learned

In this paper, we have outlined the importance of ethical work climates in creating and maintaining ethical organizations. We noted the inability of formal systems, both external ones such as Sarbanes–Oxley and internal ones such as ethical codes, to prevent unethical behavior in its entirety. We argue that informal systems like ethical work climates provide a powerful supplement to formal regulations and codes. In particular, we suggest that four specific aspects of ethical

Selected bibliography

For more information about ethical work climates, how they are formed, and the influences they exert on employees, see a chapter by Anke Arnaud and Marshall Schminke entitled “Ethical Work Climate: A Weather Report and Forecast” in S. W. Gilliland, D. D. Steiner, and D. P. Skarlicki's (Eds.), Research in Social Issues in Management, Vol. 5 (Greenwich, CT: IAP, 2007, 181–227).

For further insights on compliance-based and values-based ethics programs, see the work of Linda Treviño, Gary Weaver,