A Conceptual Model of Corporate Moral Development free essay sample

A Conceptual Model of Corporate Moral Development R. Eric Reidenbach Donald P. Robin ABSTRACT: The conceptual model presented in this article argues that corporations exhibit specificbehaviors that signal their true level of moral development. Accordingly, the authors identify five levels of moral development and discuss the dynamics that move corporations from one level to another. Examples of corporate behavior which are indicative of specific stages of moral development are offered. their particular stage of moral development. Such a typology is useful for better understanding the dynamics that contribute to ethical decision making. T h e role of corporate culture in moral development The moral development of a corporation is determined by the organizafons culture and, in reciprocal fashion, helps define that culture. In essence, it is the organizations culture that undergoes moral development. Among the array of definitions of corporate culture are those that focus on the shared values and beliefs of organizational members (e. g. Sathe, 1985; Deal and Kennedy, 1982), specifically, beliefs about what works within an organization, and values about preferred end states and the instrumental approaches used to reach them. Among the constellation of beliefs and values that comprise an organizations culture are those that speak to its beliefs and values about what is right and what is wrong. This is the focus of this article. The principal sources for cultural beliefs and values are from (1) individual organizational members, especially top management (e. g. Schein, 1983; Wiener, 1988), and (2) the reinforcing effect of the organizations success in problem solving and achieving objectives (e. g. , Schwartz and Davis, 1981; Sathe, 1985). Central to this latter source is the organizations selection of a mission from which the more specific objectives and reward systems flow. One mission of profit-making organizations is economic. However, society, with increasing concern and concomitant pressures, is also demandin g that they achieve certain social goals. The moral development of a corporation can be classified according to The recent and continuing revelations concerning the ethical wrongdoing of corporate America have occasioned a studied examination of the dynamics of ethical decision making in business. Several noteworthy effors, particularly those by Trevino (1986) and Ferrell and Gresham (1985), have attempted to model the ethical decision making process in organizations. The Trevino model relies heavily on the idea that an integral part of the ethical decision making process involves the individuals stage of moral development interacting with, among other factors, the organizations culture. It is this complex admixture of individual moral development and corporate culture which leads to the proposition that, just as individuals can be classified into a stage of moral development, so too can organizations. In other words, corporations can be classified according to R. Eric Reidenbach is Professor of Marketing and Director of the Centerfor Business Development and Research at the University of Southern Mississippi. He has written extensively on business and marketingethics. Donald P. Robin, Professor of Business Ethics and Professor of Marketing at the University of Southern Mississippi, is coauthor with R. Eric Reidenbach of two recent books on business ethics with Prentice-Hall. He is a frequent lecturer on business ethics and is the author of severaIarticleson the subject. .Journal ofBusiness Ethics 1O:273284, 1991. Â © 1991 KluwerAcademic Publishers. Printed in the Netherlands. 274 R. E. Reidenbach and D. P. Robin Five stages comprise the model. Each stage is given a label based upon the types of behavior or organizations that are classified within that stage. This produced the following classificatory schemata: the amoral organization; the legalistic organization; the responsive organization; the emergent ethical organization; and the ethical organization. The model is depicted in Figure 1. the degree to which this required social mission is recognized and blended with the economic mission. Several studies and articles have focused on the importance of the organizations culture in determining the morality of corporate actvities (Robin and Residenbach, 1987; Trevino, 1986; Hoffman, 1986). Of particular relevance is the work of Victor and Cullen (1988) which measures work climate. Work climates are defined as perceptions that are psychologically meaningful molar descriptions that people can agree characterize a systems practice and procedures (Schneider, 1975). The ethical climate questionnaire is designed to measure the ethical dimensions of organizational culture. These items, developed within the limited research context of four firms, measure five ethical climate dimensions characterized as caring, law and order, rules, instrumental, and independence. The recognition that culture is an important determinant in ethical decision making has acceptance outside academic management circles. When asked about Drexel Burnham Lamberts recent guilty plea and the reasons behind it, Edward Markey, U. S. Representative (D. Mass. ) replied that there was a solid foundation of criminal activity behind their success. And when asked if this criminality was pervasive in the financial industry during this time, Markey responded, there was definitely a culture that tolerated it (Wall StreetJournal (1988) p. B1). Fig. 1. A modelof corporatemoral development. The model is inspired by the work on individual moral development by Kohlberg (1964, 1976). However, direct application of Kohlbergs work is not possible. Organizations simply do not develop in the same manner and under the same circumstances as individuals. As was mentioned earlier, individua:l moral development does contribute to the monll development of an organization but is not determinant. There are several propositions which make the model operational: Proposition 1: Not all organizations pass through all stages of moral development. Just as not all individuals reach level six of Kohlbergs model, not all corporations are destined to be ethical organizations. The ultimate moral development destination of a corporation is a function of several factors including top management, the founders of the organization and their values, environmental factors (threats and opportunities), the organizations history and mission, and its industry, to name a few (Robin and Reidenbach, 1987). An overview o f the m o d e l The model of organizational moral development is a conceptual model built by the study of a large number of cases of organizations and their actions in response to a diverse number of situations. The classificatory variables include management philosophy and attitudes, the evidence of ethical values manifested in their cultures, and the existence and proliferation of organizational cultural ethics and artifacts (i. e. , codes, ombudsmen, reward systems). By observing the organizations actions, the researcher can deduce differences in the moral development of organizations among the sample of cases. These differences form the hierarchical stages in the model. Evidence involving specific cases supporting the classification schema is provided. Corporate Moral Development Model Proposition 2: An organization can begin its life in any stage of moral development. Again, the determining factors are similar to those mentioned in proposition 1. The key to the beginning point is an overt management decision conditioned by a number of situated factors. Proposition 3: Most organizations in stage one do not leave stage one. Amoral organizations, by their very nature and oportunistic philosophy produce a culture that cannot adapt to the values and rules of society. Thus amoral organizations are either forced to cease operations or, relatively quickly run their life cycles. These organizations that do evolve past stage one do so at the cost of significant structural and cultural change. Proposition 4: An organization comprised of multiple departments, divisions, or SBUs can occupy different stages of moral development at the same time. That is, one operating area of the organization could be classified in stage one while other areas could be located in stage three. This multiple classification is based on subcultural differences within the organization. Each subculture will have embraced, to greater or lesser extents, the formal culture. In those cases where the formal culture dominates all operating areas, a multiple classification is unlikely. However, when the individual subcultures dominate an organization, multiple classifications are possible. Proposition 5: Corporate moral development does not have to be a continuous process. Individual corporations can skip stages. New management or mergers and acquisitions can impose new cultures on an organization. These new cultures may be radically different from the previous culture with respect to their ethical content impelling an organization to a higher stage of moral development. Proposition 6: Organizations at one stage of moral development can regress to lower stages. Regression typically occurs because the concern for economic values is not adequately counterbalanced by the concern for moral values. In times of organizational stress the pursuit of economic values may win out regardless of the morality of those values. In addition, new management or mergers and acquisitions can also provide an impetus for regression. Proposition 7: There is no time dimension associated 275 to the moral development of an organization. Some organizations will stay in a particular stage longer than others. Again, the length of stay in a particular stage will be a function of those factors cited in proposition 1. Proposition 8: Two organizations can be in the same stage but one may be more advaficed. Thus, it is possible that a corporation which is classified as a legalistic corporation may also manifest certain characteristics of a responsive corporation. This is a function of the dynamics of moral development. T h e stages of organizational moral development Stage one the amoral organization The Amoral Organization has a culture that is earmarked by a winning at any cost attitude. Typical of organizations in this stage of moral development is a culture that is unmanaged with respect to ethical concerns. Productivity and profitability are the dominant values found in the culture. Concern for ethics, if it exists at all, is usually on an after-the-fact basis when the organization has been caught in some wrongdoing. At this point the concern for ethics, if at all evidenced, becomes more of a cynical justification or a post hoc rationalization of behavior strictly for damage ontrol purposes. Common to most management philosophies is that being caught in an unethical situation is considered as a cost of doing business. This culture is shaped by a strong belief in Adam Smiths invisible hand and the notion that the only social responsibility of business is to make a profit. Unlike Friedmans original contention, that responsibility is seldom conditioned by the caveat of a need f or law and ethic. Top management rules by power and authority and employees respond by acquiescing to that authority and power through a reward system which supports a go along type of behavior. Obedience is valued and rewarded. Disobedience, on a moral basis, is punishable typically by expulsion from the organization. There is little concern for the employees other than for their value as an economic unit of production. The ethical culture of a stage one organization can be summed up in the ideas that theyll never 276 R. E. Reidenbach and D. P. Robin know, everybody does it, we wont get caught, and theres no way anyone will ever find out. Rules can be broken if there is an advantage in breaking them. If we are not caught, then who is to say its unethical? At the basis of this culture is the philosophical position that business is not subject to the same rules that individuals are and that owners are the most important stakeholders. In essence, belief in a valueless business environment produces a valueless business. FRS A Portrait of the Amoral Corporation ~ Film Recovery Systems, previously located in Elk Grove Village, Illinois, exhibited many of the characteristics of an amoral organization. The company was organized to extract silver from old x-ray film which utilized a chemical process involving cyanide. Because of the potentially acute toxicity of the process, the safety of the workers should have been a principal concern. On February 10, 1983, Stefan Golab, a worker at FRS became weak and nauseated. He was working near a foaming vat of hydrogen cyanide. Fellow employees helped him outside and urged him to breathe deeply in the cold fresh air. At that point, Mr. Golab became unconscious and did not respond to efforts to revive him. He was rushed to a nearby hospital where he was declared dead on arrival. Cause of death cyanide toxicity. The investigation of this case reveals a company that is typical of stage 1 organizations. Inspectors from the Cook County Department of Environmental Control had previously cited the plant for 17 violations that were labeled as gross violations and were ordered to be rectified immediately. Typical of these violations was a lack of a cyanide antidote, legible warning signs, a respirator, and other safety equipment that was judged to be mandatory for a company engaged in this type of work. The plant itself, which was described as a drab, one-story structure contained 140 vats of foaming hydrogen cyanide among which the workers performed the extraction process. Testimony of many of the workers indicated that nausea, nose bleeds, and rashes were commonplace. That same testimony revealed that employees were ordered to remove the skull and cross bones signs from the containers of cyanide and that the owners of FRS had flatly refused to buy what was described as routine safety equipment. In addition, many of the employees who worked around the vats were illegal immigrants from Mexico and Poland (as was the case of Mr. Golab) and did not speak English well. This hiring practice was adopted, according to the testimony of a bookkeeper, because illegal aliens would be less apt to complain. The response of FRS to the investigation involved laying off workers and closing down the plant in mid-1983. The investigation, and ultimate criminal prosecution of three FRS executives centered around the question Can two legitimate corporations form a third (FRS), set it up to engage in a recHess and dangerous activity, ignore legal requirements and get off scot-free? Prosecutors referred to the FRS case as novel but qualified it by saying Its an old story of poor, uneducated people being exploited by people who were more educated, more privileged, and more wealthy. This is a company whose formal culture valued productivity and profits. Costs, especially those that were morally justifiable in caring for employees, were not incurred. To do so would have reduced the profitability of the company. Management operated on the basis that we wont get caught and its ok to break rules as long as we profit from it. Their regard for individuals is readily apparent in their hiring practices and their treatment of their employees. Internally, employees were to obey rules which emphasized productivity and failure to do so meant dismissal and even perhaps prosecution as an illegal alien. Stage two the legalistic corporation Stage 2 is the legalistic corporation so named because of the preoccupation the corporation exhibits for compliance with the letter of the law as opposed to the spirit of the law. Organizations in this stage exhibit a higher level of moral development than organizations in stage 1 because stage 2 cultures dictate obedience to laws, codes, and regulations, a value missing in the cultures of stage 1 organizations. Corporate values flow from the rules of the state, and that is why management is principally concerned with adhering to the legality of an action rather than the morality of the action. If its legal, Corporate Moral Development Model 277 its ok and if were not sure, have the lawyers check it out typifies the operating dictum of stage 2 organizations. More than just a desire to obey societys laws they take an internal lawlike approach themselves. The corporate legal staff operates as a check against wrongdoing as interpreted by legal statute. In this culture, law equates with justice and there is no difference between what is legal and what is right and just. The ethics of an action, if considered at all, is generally considered on a post hoc basis. Codes of Conduct reflect this legalistic thinking. A 1989 article on codes of ethics clustered codes into three categories (Robin et al. , 1989). The largest cluster was one characterized by a Dont do anything unlawful or improper that will harm the organization, suggesting the pervasiveness of this ethos. Cressy and Moore (1983) further suggest that most codes give the appearance of being legalistic documents. It is perhaps not surprising that two of the largest tobacco companies, R. J. Reynolds and Philip Morris, have legalistic codes of conduct. These codes are very concerned with, and limited to, unlawful or improper behavior. The principal emphasis is still on profitability but the difference between stage 2 and stage 1 organizations is that the latter is concerned with the legality of the profits, not necessarily the morality of them. Owners are still the principal stakeholders. Contrary to the win-at-all-cost attitude underlying organizational behavior in stage 1, stage 2 organizations adhere to a notion of reciprocity. That is, compliance with the law will produce good results. By extension then, stage 2 organizations are followers and not social leaders. Society can expect, for the most part, organizations that adhere to the law but do little as far as operating in their own enlightened self interest is concerned. Ford motor of 1973 a portrait of the legalistic corporation 2 While the notorious Pinto case has been dissected from numerous vantage points, far less attention has been focused on the defense that Ford Motor used in its behalf during the Elkhart, Indiana trial in 1980. In its defense can be seen many of the characteristics of an organization in stage 2 of its moral development. It is important to point out that the Ford Motor Company of 1973 and not the Ford Motor Company of 1988, is cited as an example. The trial focused on Fords culpability in the eath of three teenagers who were struck from behind in their 1973 Pinto. The gas tank of the Pinto erupted, burst into flames, resulting in the burning death of the three teenagers. A criminal homicide indictment was brought against Ford on the grounds that the auto company had engaged in plain, conscious and unjustifiable disregard of harm that might result (from its actions) and the disregard involves a substantial deviation from acce ptable standards of conduct. In its defense, Fords attorney, James F. Neal, argued that the Pinto met all federal, state, and local government standards concerning auto fuel systems. This compliance, Fords attorney further argued, was comparable to other subcompacts produced in 1973. He continued by saying that Ford did everything to recall the Pinto as quickly as possible as soon as the N H T S A (National Highway Traffic Safety Administration) ordered it to (emphasis added). Mark Dowie, then General Manager for Mother Jones, claimed that the Pinto was involved in 500 burn deaths and that burning Pintos had become such an embarrassment to Ford that J. Walter Thompson, the ad agency that handled the Pinto, dropped a ine from its radio spot that said, Pinto leaves you with that warm feeling. Michael Hoffman raises an interesting and certainly relevant point in light of the mounting evidence of the Pintos defective fuel system when he asks, Even though Ford violated no federal safety standards or laws, should it have made the Pinto safer in terms of rear-end collisions, especially regarding the placement of the gas tank? In Fords lack of response to this question and their steadfast refusal to recall their product voluntarily can be seen as one of the inhibiting effects of stage 2 behavior. Because of its preoccupation with compliance to laws and regulations, cultural values focusing on what is right rather than on what is legal are either nonexistent or underdeveloped. As a consequence, the organization does only what it is required to do rather than what it should do. This is symptomatic of the legalistic organization. Moreover, Fords concern for the size of the bottom line rather than the morality of the bottom line is evidenced in their cost-benefit analysis contained in a report entitled Fatalities Associated with Crash Induced Fuel Leakage and Fires. The $11 cost per car for the improvement designed to prevent gas 78 R. E. Reidenbach and D. P. Robin tank ruptures was not cost effective. Ford estimated that benefits would run to $49. 5 million, while the costs associated with the improvement would total $137 million. Stage 2 organizations, like their counterparts in stage 1, maintain a preeminent concern for profitability, especially when it involves a tradeoffwit h doing what is right. Stage three the responsive corporation Unlike their legalistic counterparts in stage 2, responsive corporations begin to evolve cultures that contain values other than productivity and a sense of legality. Responsive organizations begin to strike a balance between profits and doing right. However, doing right is still more of an expediency rather than an end unto itself. Social pressures are such that these stage 3 corporations must respond to those pressures or face censure or worse. The managements of these corporations are more sensitive to the demands of society than the managements in the previous stages. Managements begin to recognize that the organizations role exceeds a purely economic one and that it has certain social duties and obligations. Codes of ethics take on greater importance and their focus begins to reflect a greater societal orientation. As an example, consider the codes of ethics of the Bank of Boston, which are typical of stage 3 organizations. Among the codes include standards, values, and prescriptions concerning integrity, confidentiality, quality, compliance, conflict of interest, objectivity, personal finances, decency, and accountability. The standard concerning social responsibility reads, Seek opportunities to participate and, if possible, to play a leadership role in addressing issues of concern to the communities we serve. The major part of the codes, however, is still designed to identify behaviors that will bring potential harm to the Bank of Boston (e. g. , compliance, conflict of interest, personal finances, confidentiality). In that sense they are internally directed. Concern for ethical conduct is evidenced in the accountability statement which reads, Report questionable, unethical, or illega l activity to your manager without delay (Bank of Boston). It is interesting to point out that these codes were published at about the same time that the Bank of Boston pleaded guilty to charges of money laundering. Studies indicate that about 75% of all U. S. firms have codes of conduct. Those same studies also indicate that the most common items mentioned in the codes are conflict of interest provisions, political contributions, use of insider information, illegal payments, bribery and kickbacks, improper relationships, proprietary information, use of corporate assets, gifts and favors, and unrecorded or falsely recorded funds or transactions, most of which, like their stage 2 counterparts, have an internal focus designed to protect the organization (Raelin, 1987, p. 177; Robin et al. 989). Concern for other stakeholders begins to manifest itself as managements being to realize the importance of employees and the community in which they operate. Again, this nascent concern is not motiveated by a sense of doing right for rights sake, but rather as a recognition of the organizations greater social role. Movement from stage 2 to stage 3 is often initiated by outside events. Some potentially damag ing occurrence to the organization or other organizations may happen forcing the organization to react by countering with some apparent ethical response. The intention is to sway opinion of different stateholders by doing good. A do what we gave to do, not because its right but because its expedient dominates the responsive organizations ethical system. P G reacts to the Rely Tampon problem. The reaction that Proctor Gamble made to the Rely Tampon problem is indicative of an organization that has developed a stage 3 responsive level of morality. It is decidedly different from the type of thinking and actions one finds in the stage 2 legalistic type of organization. P G management made an enlightened decision to act in the best interests, not only of themselves, but also with respect to a number of different publics. In the summer of 1980, Proctor Gamble was first made aware, by the Centers for Disease Control, that there might be a possible linkage between the incidence of toxic shock syndrome and the use of tampons. No indication existed that there was any linkage between toxic shock and the specific use of P Gs Rely product. During this same period of time, P G began an investigation into the alleged linkage. Initial information indicated no rela- Corporate Moral Development Model tionship between toxic shock syndrome and tampon usage. On September 15, 1980, the Centers for Disease Control informed P G that in their study of 42 cases of toxic shock syndrome, 71% of the women were Rely users. This put P G management in the position of deciding to defend their brand against what P G scientists consdered rather sketchy evidence. On September 18, 1980, three days after the study results were announced, P G made their decision to withdraw the product from the market and to halt production of Rely Tampons. The decision, according to Edward G. Harness, chairman and chief executive of P G, hinged on the dilemma, We didnt know enough about toxic shock to act, and yet, we knew too much not to act. (Gatewood and Carroll, 1981, p. 12) P G had begun pulling 400,000 cases of their product. Under an agreement with the FDA, P G was absolved of any violation of federal law or liability for product defect. However, the remarkable aspect of the response was yet to come. P G bought back all unused products, including $10 million in free promotional samples. Moreover, they voluntarily pledged research assistance to the Centers for Disease Control for the study of toxic shock and agreed to finance and initiate an educational campaign about the disease. The educational campaign was remarkable in both the speed and the scope of information dissemination. P G management recognized the longer term value of making this type of response. Although 20 years of research and marketing expenditures were tied up in what would ultimately be a significant loss, their action demonstrates a greater balance between profits and ethics than would be seen in earlier stages of corporate moral development. Cynics might respond that P G did this out of economic reasons. In part, that is probably true. Yet, unlike Ford whose sole interests were economic, P G recognized that their long term economic wellbeing was inextricably intertwined with the morality of their decision. This is the hallmark of the responsive organization. Stage three is a pivotal point in the moral development of most corporations. It is a learning stage wherein managements test the efficacy of socially responsive behavior and begin to understand the economic value of moral behavior. This attitude, 279 however, moves the organization beyond a strictly legalistic focus and, in some cases, has the effect of making the organization a social pioneer. Still, it must be emphasized that cultures of stage three corporations are dominated by a reactive mentality, not a proactive mentality. Stagefour- the emergentethicalorganization The emergent ethical organization is one in which management actively seeks a greater balance between profits and ethics. There is an overt effort to manage the organizations culture to produce the desired ethical climate. This change in the culture involves a recognition of a social contract between the business and society. Management approaches problem solving with an awareness of the ethical consequence of an action as well as its potential profitability. One of the more visible manifestations of stage 4 organizations is the proliferation of ethics vehicles throughout the organization. Codes of conduct become more externally oriented and become living documents instead of lofty ideals to be read once and then put away or highly limited rules that are designed primarily to protect the organization. In addition, and typical of stage 4 corporations, is that handbooks, policy statements, committees, ombudsmen, and ethics program directors begin to reinforce the existence of codes. This signals stronger management commitment to ethical behavior. For example, at Boeing, an emergent ethical corporation, greater CEO involvement in ethics, and line management involvement in ethics training programs are two aspects of their cultural concern for morality. In addition, their ethics committee reports to the board and management has installed a toll-free number for employees to report ethical violations. General Mills has developed guidelines for dealing with vendors, competitors, and customers. Recruiting focuses on the hiring of individuals that share the same cultural values and an emphasis on open decision making hallmark their concern for ethical behavior. While responsive corporations begin to develop ethical mechanisms to increase the probability of 280 R. E. Reidenbach and D. P. Robin Dynamics has recently (1988) been indicted on further charges of defense contractor fraud. The process has been revised at General Dynamics to include a squeal clause which is designed to both reward and protect employees who report on coworkers who have broken company standards. Consider the following excerpts from Sara Lees codes which recognize the importance of balancing profits and ethics: Business has a role beyond the generation of profits. By investing their good will, time, and money, companies can and should serve as catalysts in helping deal with significant social issues. Perhaps one of the best examples of the emergent ethical corporation is that of Johnson Johnson. Johnson Johnson is an advanced stage 4 corporation as suggested both by their CREDO and their actions in the wake of the Tylenol tamperings. First consider the CREDO. The CREDO represents a strong balance between ethical concern and profitability. However, what really signals Johnson Johnson as an advanced stage 4 corporation is found in the response of one of their senior executives who was asked about the decision concerning the massive recall of Tylenol products. We never really thought we had much of a choice in the matter of the recall. Our Code of Conduct (CREDO) was such a way of life in thefirm that our employees, including me, would have been scandalized had we taken another course (emphasis added). We never seriously considered avoiding the costly recall. (William and Murphy, 1988). What can be seen in all of these examples is a management that is wrestling with a growing realization that the corporation must develop a mechanism to balance the organizations concern for profits and ethics. Some attempts are clumsy, some work, some dont. What is important is that there is among stage 4 organizations a shift in the culture, one that gives increasing emphasis to the morality of the bottom line. ethical behavior, these organizations are not yet fully comfortable with their implementation. Organizational actions are still characterized by ad hoc attempts to develop and instill organizational values. These attempts often lack direction in both the selection of the values and their implementation. Top management recognizes the importance and value of this type of behavior but lacks the experience and expertise to make it work effectively. Examples of emergent ethical organizations A growing number of organizations can be classified as the emergent ethical. Boeing and General Mills were cited earlier for their ethical efforts. Boeings programs have been in place since 1964 but the mere existence of ethical programs does not insure that the emergent ethical organization will behave ethically. In 1984, a unit of Boeing was cited for illegally using inside information to secure a government contract, a case of regression. Often cited for unethical behavior, General Dynamics has an extensive ethics program. A publication by the giant defense contractor asks 10 questions about the program. These questions include: 1. 2. 3. 4. 5. 6. 7. 8. 9. I 0. W h o is my Ethics Program Director? How can the Ethics Director help me? How can I contact my Ethics Director? Do I need my supervisors permission to talk with the Ethics Director? How does the ethics hotline work? How do I know what General Dynamics ethics standards really are? What is my responsibility if I become aware of someone who is violating the standards? What happens ifI violate the standards? How does the ethics program apply to me? What should I do if I am directed to do something that I believe is a violation of company standards? The publication goes on to answer each question. For example, in response to the question concerning how an employee contacts the Ethics Director, General Dynamics has created a hotline complete with answering machine. In addition, the Ethics Director can be reached by mail, EMOS, or by direct contact. Does the system work? Not perfectly. General Stagefive the ethical organization The final stage of organizational moral development is the ethical organization. We know of no examples of organizations which have reached this level of development. CorporateMoral DevelopmentModel Exhibit 1 Johnson Johnsons Corporate Credo 281 OUR CREDO We believe our first responsibility is to the doctors, nurses and patients, to mothers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate and working conditions clean, orderly and safe. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return. Stage five behavior is characterized by an organization-wide acceptance of a common set of ethical values that permeates the organizations culture. These core values guide the everyday behavior of an individuals actions. Decisions are made based on the inherent justness and fairness of the decision as well as the profitability of the decision. In this sense there is a balance between concerns for profits and ethics. Employees are rewarded for walking away from actions in which the ethical position of the organization would be compromised. At the heart of this organization is a planning system m u c h like the one described by Robin and Reidenbach (1987, 1989). The concept of a parallel planning system wherein ideas and concepts from the normative moral philosophies are used in the analysis of potential organizational activities. An example of parallel planning is seen in the deliberation made Sir Adrian Cadburys grandfather (Cadbury, 1987). Sir Adrians grandfather, then CEO of Cadburys was confronted with a profitable proposition that he found morally repugnant. It concerned a contract to furnish English soldiers in the Boer W a r with a Christmas tin of chocolates. He was opposed to the war on moral grounds but was cognizant of the economic repercussions to his employees that refusal of the contract would bring as well as the morale impact on the soldiers. His decision involved producing the chocolate at cost so that his employees were compensated, the soldiers received the chocolate, but Sir Adrian personally did not profit from a situation he found unethical. In implementing the parallel planning system, the organization may be viewed as a family with certain ethical family values that guide decision making. These core values can be translated into ethical action statements such as: Treat customers with respect, concern, and honesty, the way you yourself would want to be treated or the way you would want your family treated. Make and market products you would feel comfortable and safe having your own family use. Treat the environment as though it were your own property (Robin Reidenbach, 1987, p. 55). W h a t makes an ethical organization work is the support of a culture that has a strong sense of moral duty and obligation inherent within it. This culture Johnson Johnson 282 R. E. Reidenbach and D. P. Robin TABLE I A summary of the moral development of corporations Stage in Moral Development Stage I The Amoral Organization Management Attitude and Approach Get away with all you can; Its ethical as long as were not caught; Ethical violations, when caught, are a cost of doing business Play within the legal rules; Fight changes that effect your economic outcome; Use damage control through public relations when social problems occur; A reactive concern for damage to organizations from social problems Management understands the value of not acting solely on a legal basis, even though they believe they could win; Management still has a reactive mentality; A growing balance between profits and ethics, although basic premise, still may be a cynical ethics pays; Management begins to test and learn from more responsive actions First stage to exhibit an active concern for ethical outcomes; We want to do the right thing; Top management values become organizational values; Ethical perception has focus but lacks organization and long term planning; Ethics management is characterized by successes and failures Ethical Aspects of Corporate Culture Outlaw culture; Live hard and fast; Damn the risks; Get what you can and get out Corporate Ethics Artifacts No meaningful code of ethics or other documentation; No set of values other than greed Defining Corporate Behavior Film Recovery Systems; Numerous Penny Stock Companies Stage II The Legalistic Organization If its legal, its OK; Work the gray areas; Protect loopholes and dont give ground without a fight; Economic performance dominates evaluations and rewards The Code of Ethics, if it exists, is an internal document; Dont do anything to harm the organization; Be a good corporate citizen Ford Pinto Firestone 500 Nestle Infant Formula R. J. Reynolds Philip Morris Stage III The Responsive Organization There is a growing concern for other corporate stakeholders other than owners; Culture begins to embrace a more responsible citizen attitude Codes are more externally oriented and reflect a concern for other publics; Other ethics vehicles are undeveloped P G (Rely Tampons) Abbott Labs Borden Stage IV The Emerging Ethical Organization Ethical values become part of culture; These core values provide guidance in some situations but questions exist in others; A culture that is less reactive and more proactive to social problems when they occur Codes of Ethics become action documents; Code items reflect tile core values of the organization; Handbooks, policy statements, committees, ombudsmen are sometimes used Boeing General Mills Johnson Johnson (Tylenol) General Dynamics Caterpillar Levi Strauss CorporateMoral DevelopmentModel Table I (Continued) Stage in Moral Development Stage V The Ethical Organization Management Attitude and Approach Ethical Aspects of Corporate Culture A total ethical profile, with carefully selected core values which reflect that profile, directs the culture; Corporate culture is planned and managed to be ethical; Hiring, training, firing and rewarding all reflect the ethical profile Corporate Ethics Artifacts Documents focus on the ethical profile and core values; All phases of organizational documents reflect them 283 Defining Corporate Behavior A balanced concern for ethical and economic outcomes; Ethical analysis is a fully integrated partner in developing both the mission and strategic plan; SWOT analysis is used to anticipate problems and analyze alternative outcomes has been designed and managed by top management to produce the work climate necessary to support an assurance of the balance between profitability and ethics. Reward systems are developed which support individuals who make the right decision, even at the expense of profitability. Sanction systems exist to penalize and correct the behavior of those making a wrong decision. Ethics training is an ongoing concern of the stage five organization, which integrates technical training with a focus on the morality of the job. Hiring practices emphasize not only the aptitude and skill of the potential employee but also how that employee is likely to behave in moments of stress. An organizational mentor program exists with the purpose of providing work and moral guidance for the new employee. This parallel system wherein profits and ethics go hand-in-hand is the hallmark of the ethical organization. The principal difference between stage four and stage five organizations is seen in the commitment that the organization makes to ethical behavior. Stage four organizations have not fully planned for and integrated ethical values throughout their culture. Instead, they rely on mechanisms to guide ethical behavior. There is still an imbalance between the goals of profitability and ethics so that in times of stress, it is not uncommon to see the pursuit of profitability produce unethical behavior. It is here where an organization in stage four, in spite of the ethics vehicles existent in an organization, can regress to an earlier stage of moral development. This is unlikely to occur in the stage five organization. The ethical emphasis in the culture of the organization is so strong that the individual is not placed in a dilemma in which he or she must choose the correct action. The correct action is always the just and fair action. Of course, organizations will make mistakes in their planning. However, these mistakes, once identified, will be corrected so that the final outcome corresponds to an ethical outcome. Some concluding c o m m e n t s Organizations are struggling with their records of ethical behavior. This struggling is indicative of moral growth where in organizations move from one level of moral development to another. This conceptual model of organizational moral development identifies five stages of growth. Table 1 summarizes the salient features of this development process. Not all organizations will evolve to the highest stage. And, not all organizations begin at stage 1. It is our opinion that most organizations are currently in the legalistic and responsive stages of moral development. More and more organizations, however, are beginning to manifest the characteristics of stage four organizations. Corporate emphasis on profitability still far outweighs concern for ethics. Moreover, many managements have not yet learned that corporate cultures can be managed to produce 284 R. E. Reidenbach and D. P. Robin Moral Ideology, in L W. Hoffman, ed. , Review of Child Development Research (Russell Sage Foundation, New York). , 1976, Moral Stages and Moralization: The Cognitive Development Approach, in T. Lickona, ed. , Moral the desired ethical behaviors. W h a t we are seeing are cultures that are unmanaged, and when unmanaged, evolve in their own directions, usually in the direction pointed out by the reward system. Thus, cultures devoid of ethical concerns or in which ethical values are absent, will normally grow in the direction of productivity and profitability, two values typically embraced by management. While the conceptual model presented in this article requires confirmation and possible respecification, it represents a start in the study of the dynamics of corporate moral development. Further study is sure to provide a clearer view of the process by which organizations change and develop their own moral characters. Development and Behavior: TheoryResearch and Social Issues (Holt Rinehart Winston, New York). 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