6.pdf

©2017 Ethics Quarterly 27:4 (October 2017). ISSN 1052-150X
DOI: 10.1017/beq.2017.23

pp. 475–512

Ethical Climates in Organizations:
A Review and Research Agenda

Alexander Newman
Heather Round

Sukanto Bhattacharya
Achinto Roy

Deakin University

ABSTRACT: Since seminal meta-analytical work in 2006 we have witnessed bur-
geoning research on ethical climates. This article offers a comprehensive review
of literature examining the antecedents and outcomes of ethical climates over the
last decade, as well as moderators of the relationship between ethical climates and
other variables. Based on the review, an agenda for future research is also presented.
In addition to highlighting the potential for incorporating alternative theoretical
perspectives such as situational strength theory, trait-activation theory, social
information processing theory, and institutional theory to better our understand-
ing of ethical climates, this article highlights the need for future research
to incorporate a dynamic perspective to study ethical climates, examine the
curvilinear effects of ethical climates on work outcomes, extend the study of
ethical climates to different levels of the organization, and examine the effects
of culture on ethical climates.

KEY WORDS: ethical climate, organizational climate, antecedents, outcomes,
measurement

In the last three decades since Victor and Cullen (1987, 1988) introduced the ethical climate framework, we have witnessed burgeoning research on ethical climates in
the management literature. An ethical climate refers to shared perceptions between
members of an organization or part of an organization as to “what constitutes right
behavior” and arises when “members believe that certain forms of ethical reasoning
or behavior are expected standards or norms for decision making within the firm”
(Martin & Cullen, 2006: 177).

Ethical climates develop as a result of organizational policies, practices, and
leadership, and exert significant influence on the ethical decision making of
organizational members and their subsequent attitudes and behavior at work
(Schminke, Arnaud, & Kuenzi, 2007; Simha & Cullen, 2012). As highlighted
in Martin and Cullen’s (2006) meta-analytical study, early work on ethical
climates examined their relationships with employee work attitudes such as
organizational commitment. However, over the last decade we have witnessed
growing research linking ethical climates to both ethical as well as behavioral
outcomes in the workplace, and identifying the organizational and team-level

Ethics Quarterly476

antecedents of ethical climates. Although Simha and Cullen (2012) carried out a
brief review of the ethical climate literature, their study had selective coverage,
failing to include recent work which has examined the influence of ethical cli-
mates on performance outcomes, identified the antecedents of ethical climates,
treated ethical climate as a mediator or moderator, and examined the boundary
conditions of the relationship between ethical climates and work outcomes. They
also did not highlight the key theoretical perspectives which explain the effects
of ethical climate and factors which attenuate or accentuate its effects, did not
address key methodological concerns regarding the measurement of ethical cli-
mate, and did not provide a detailed agenda for future research. The years since
the publication of Simha and Cullen (2012) have witnessed a growth in work on
ethical climate, including studies that have examined the antecedents of ethical
climate and treated ethical climate as a mediator or moderator, thereby calling
for a fresh review.

This study conducts a systematic review of key research on ethical climate that has
been published in the last decade since Martin and Cullen’s (2006) meta-analysis.
In particular, it provides a detailed and focused review of empirical work on the
antecedents and outcomes of ethical climate, studies in which ethical climate was
treated as a mediator and moderator, and work which has examined the boundary
conditions of the relationships between ethical climate and its outcomes, as well as
highlights issues associated with the conceptualization and measurement of ethical
climate. In line with best practice (Short, 2009), the Web of Science, Google Scholar,
and related databases were used to identify journal articles with “ethical climate”
or “climate” in their title, keywords, or abstract that were published from 2006 to
2016. As a result, 102 articles were identified for inclusion in this review, of which
95 were empirical (91 quantitative and 4 qualitative), more than three times the
number reviewed by Simha and Cullen (2012).

As well as consolidating our knowledge of research on ethical climates, the
present study also makes an important contribution by providing a roadmap for
future research indicating key avenues for theoretical and empirical development
of the field. We highlight the potential for theoretical development of the ethical
climate domain via incorporation of relevant theories such as social information
processing theory, trait-activation theory, situational strength theory, and institutional
theory. From an empirical viewpoint, we highlight the need for more work on eth-
ical climates at multiple levels of analysis, the dynamic nature of ethical climates,
the curvilinear effects of ethical climates on different outcomes, and the effects of
culture on ethical climates.

The rest of the article is structured in the following way. First, in order to set
the scope and context for the review, we discuss the definition and measurement
of ethical climates. Following on from this, we review in detail what research con-
ducted since Martin and Cullen’s (2006) meta-analysis found with regard to ethical
climate. These findings are divided into three sections: antecedents, outcomes, and
finally, moderators and mediators. We then present an agenda for future research
which includes both opportunities for theoretical advancement and opportunities
for empirical advancement.

Ethical Climates in Organizations 477

DEFINITION AND MEASUREMENT

In this section we first pay attention to the definition and measurement of ethical
climate. This provides the foundation for the sections which categorize the existing
research broadly into antecedents, outcomes, and moderators as depicted in Figure 1.

Defining Ethical Climate

Scholars have provided a number of definitions of ethical climate, with the most
widely used being Victor and Cullen’s (1987) definition. They defined ethical climate
as “the shared perception of what is correct behavior and how ethical situations
should be handled in an organization” (Victor & Cullen, 1987: 51). A year later
they defined ethical climate as the “prevailing perceptions of typical organizational
practices and procedures that have ethical content” (Victor & Cullen, 1988: 101).
Although the wording is slightly different, both definitions highlight the role orga-
nizations play in shaping the ethical behavior of employees.

Based on concepts of moral philosophy, Victor and Cullen’s (1987, 1988) con-
ceptualization led them to divide ethical climates into three categories, namely,
egoism, benevolence, and deontology/principle climates (Fritzche & Becker, 1984;
Williams, 1985). These categories are distinguished based on the criteria used for
intra-organizational moral reasoning, maximizing self and joint interests, or adher-
ing to principles (Victor & Cullen, 1988). Using these categories and three loci
of analysis (individual, local, and cosmopolitan) to specify the sources of ethical
reasoning within an organization, Victor and Cullen (1987, 1988) developed a
theoretical typology of ethical climates. As can be seen in Figure 2, they originally
posited nine ethical climate types, represented in a 3 x 3 matrix form with the rows
representing ethical criteria (egoism, benevolence, principle), and the columns
representing loci of analysis (individual, local, cosmopolitan).

A lack of reliable empirical support uniformly across all the nine theoretical
ethical climate types led Victor and Cullen (1988) to refine the original nine types
into five climates that were commonly found empirically: instrumental, caring,
independence, law and codes, and rules (Victor & Cullen, 1988). In doing so, they
highlighted how units such as departments have different climates where the varia-
tion between units is greater than the variation among individuals. Although Cullen,
Victor, and Bronson (1993) note that all ethical climate types derived from theory
have been empirically observed, they have rarely been observed in the same study.
This may result from the lack of heterogeneity in units or organizations in any one
study. While some researchers continue to use the original ethical climate categories
to establish the ethical climates observable in organizations or organizational units
as per Figure 2 (e.g. Parboteeah & Kapp, 2008; Putranta & Kingshott, 2011), the
overwhelming majority use the subset of five commonly observed ethical climates
as identified by Victor and Cullen (1988).

Other authors have forwarded alternative definitions of ethical climate. For example,
Olson (1994) proposed a more general definition of ethical climate by diluting
the focus on organizational influence. Ethical climate, according to Olson (1998:
346), “provides the context in which ethical behavior and decision-making occurs.”

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478

Figure 1: Categorization of Existing Research

Ethical Climates in Organizations 479

However, the role of the organization is still implicit in this definition to the extent
that it is the encompassing organizational environment that often provides the context
in which individual decision making occurs at work. Other definitions of ethical
climate have also tried to highlight the individual (as opposed to organizational)
angle of this construct (e.g. Babin, Boles, & Robin, 2000).

In more recent work, Arnaud (2010: 125) attempted to significantly broaden
the definition of ethical climate by defining it as “a molar concept reflecting the
content and strength of the prevalent ethical values, norms, attitudes, feelings, and
behaviors of the members of a social-system.” In response to criticisms of Victor
and Cullen’s (1987, 1988) framework as to whether it “is comprehensive enough
to capture the true breadth of the ethical climate construct” (Arnaud, 2010: 347),
Arnaud (2006; 2010) proposed a broader theoretical model of ethical work climate
by drawing on the four-component cognitive development model of Rest (1984,
1986) which is based on Kohlberg’s work (Kohlberg, 1970). It not only captures
the moral reasoning dimension that was the basis of Victor and Cullen’s theoretical
framework, but also encompasses other aspects of the ethical decision-making
process, namely collective moral motivation, moral character, and moral sensitivity.
However, this conceptualization has yet to be widely adopted in empirical work,
probably because the most advanced forms of moral development (sensitivity,
motivation, and character) rarely exist at the collective level in organizations as
they take time to develop and because of the popularity of Victor and Cullen’s
conceptualization. A summary of the various definitions (and measures) of ethical
climate is provided in the Appendix.

Distinguishing Ethical Climate from Other Moral Constructs

Ethical climate, as conceptualized by Victor and Cullen (1987, 1988), differs from
other moral constructs such as moral identity and moral awareness in that it looks
at how the social context in organizations influences ethical behavior of employees
through fostering their collective moral reasoning. In contrast, moral identity focuses
on the extent to which morality is an important part of an individual’s self-concept
(Shao, Aquino, & Freeman, 2008), and moral awareness is defined as “a person’s
determination that a situation contains moral content and legitimately can be considered
from a moral point of view” (Reynolds, 2006: 233). In other words these constructs
focus on the individual determinants of ethical behavior, rather than organizational

Figure 2: Theoretical Types of Ethical Climate (Victor & Cullen, 1988)

Ethics Quarterly480

drivers. Although we might envisage situations under which individuals develop a
collective moral identity which encompasses aspects of morality, and jointly recog-
nize how their collective decisions influence others in a way that may conflict with
ethical standards, empirical research examining whether collective moral identity
and moral awareness exist at the level of the group or organization is limited. This
is perhaps due to the fact that collective moral identity and moral awareness are
only rarely evidenced in organizational contexts where employees frequently
interact and work towards shared objectives.

Another collective moral construct that has been proposed by researchers that
shares some overlap with ethical climate is ethical culture, which has been defined
as a subset of organizational culture that captures the organization’s systems and
practices of behavioral control that promote ethical or unethical behavior (Trevino,
Butterfield, & McCabe, 1998). Although both ethical climate and ethical culture
are primarily concerned with explaining similar organizational phenomena
(e.g. ethical or unethical behavior in the workplace), and refer to ethical features
of the organizational environment, researchers have only recently begun to pay
attention to differentiating the two constructs (Kaptein, 2011; Kish-Gephart,
Harrison, & Trevino, 2010). Trevino et al. (2008) contrasted the narrower focus of
ethical culture on formal and informal systems aimed at behavioral control, with
the broader focus of ethical climate on perceived organizational values that shape
ethical decision making. Although climate researchers have generally argued that
organizational climates such as ethical climate provide the behavioral evidence for
the culture within an organization through influencing the behavior of individuals,
i.e. acts as an precursor to the development of an ethical culture (Schein, 2010;
Schneider, Salvaggio, & Subirats, 2013), other researchers have argued that ethical
culture may act as a source of employees’ shared perceptions of the ethical climate
because ethical culture captures their shared perceptions of organizational practices
and arrangements that are put in place by the organization to ensure compliance with
what constitutes ethical or unethical behavior, and the ethics-related messages that
result from such systems and practices (Kish-Gephart et al., 2010). Supporting the
latter view, research has shown that ethical climate is a more proximate predictor
of unethical intentions or behavior than ethical culture. For example, recent meta-
analytical work by Kish-Gephart et al. (2010) found that when ethical culture was
included as a predictor with ethical climate dimensions, it did not explain any unique
variance in both outcomes, suggesting that ethical climate acts as a more proximate
antecedent of ethical work outcomes. As Kaptein (2011) points out, whilst ethical
climate refers to employees’ perceptions about what is the right thing to do in the
organization, ethical culture is procedural in that it relates to whether employees’
believe the conditions are in place in the organization to influence ethical behavior
and, therefore, we argue, provides a basis from which the ethical climate develops.

Measuring Ethical Climate

The Ethical Climate Questionnaire (ECQ) has been widely used to measure ethical
climate. The ECQ was developed by Victor and Cullen (1987) based on a “climate
approach” to research (Schneider, 1983: 111) and written to capture the nine ethical

Ethical Climates in Organizations 481

climate types determined by theory. The original questionnaire consisted of 26
items and respondents were asked to indicate on a six-point Likert-type scale how
accurately each item describes their work climate (Victor & Cullen, 1987). This
measure, either in its entirety or with modifications (abbreviated versions), appears
to be the most favored method of measuring ethical climate (Lemmergaard &
Lauridsen, 2008). In a subsequent review by Cullen et al. (1993), ten additional items
were added to the scale, which was then tested and found to have strong validity
and reliability. In our review we identified a total of fifty-four studies which have
adopted the original or the modified version of the ECQ to measure ethical climate.
While researchers acknowledge the limitations of the Victor and Cullen (1987, 1988)
framework, and have argued that both the conceptualization and measurement
of ethical climate need to be reconsidered (Salaman & Mesko, 2016), they have
continued to use the ECQ for the reason that it has been widely validated (Dark &
Rix, 2015), and therefore provides a basis for the comparison of findings between
studies.

Although the ECQ is the most widely used measure of ethical climate, a number
of other measures have been developed and adopted in previous research. Building
on solid theoretical reasoning and empirical data from three distinct samples, Arnaud
(2006, 2010) developed the Ethical Climate Index (ECI) as an alternative measure
of ethical climate at the unit-level. This measure captures four dimensions of ethical
climate; collective moral sensitivity, collective moral judgment, collective moral
motivation, and collective moral character. Although Arnaud offered an alternative
way of conceptualizing and measuring ethical climate (Arnaud, 2006, 2010), only
one additional study has utilized Arnaud’s ECI to measure ethical climates (Salaman &
Mesko, 2016). Even Arnaud, in a study with Schminke (2012), reverted to using a
modified version of the Victor and Cullen (1987, 1988) ECQ. Despite this, in line
with other scholars (Macklin, Martin, & Mathison, 2015), we call on researchers to
consider using the ECI (Arnaud, 2010) as it provides a basis from which researchers
can measure the wider multidimensional nature of ethical climates, and therefore
enriches Victor and Cullen’s (1987, 1988) initial work which only captures the moral
reasoning dimension of ethical climates.

Another measure of ethical climate used in multiple studies is Schwepker’s (2013)
scale. This scale consists of seven five-point Likert-type statements and was devel-
oped based on the work of Qualls and Puto (1989). It measures the perceptions of the
ethical practices within the organization, the enforcement of codes, and management
actions governing ethical behaviors. This scale has been shown to have acceptable
reliability and validity (Schwepker, Ferrell, & Ingram, 1997), and has been used
in its entirety in seven studies (e.g. Jaramillo, Mulki, & Solomon, 2006), and in an
abbreviated form in three studies (e.g. Tanner, Tanner, & Wakefield, 2015).

Three studies have used the Ethical Work Climate (EWC) scale developed by
Babin et al. (2000) to measure the ethical work climate of marketing employees
involved in sales and/or services (DeConinck, 2010, 2011; Lopez, Babin, & Chung,
2009). This scale is based on four ethical climate dimensions: trust/responsibility,
the perceived ethicality of peers’ behavior, the perceived consequences of violating
norms, and the nature of the organization’s selling practices.

Ethics Quarterly482

Other scales which have been used in multiple studies include the Schminke,
Ambrose, and Neubaum (2005) 16-item scale which captures self and other-focused
reasoning. Some, but not all, studies in the area of healthcare have used the Olson
(1994) Hospital Ethical Climate Scale (Schluter, Winch, Holzhauser, & Henderson,
2008). Finally, a few studies have relied on global unidimensional scales devel-
oped by the authors themselves, and include a global ethical climate six-item scale
developed by Mayer, Kuenzi, and Greenbaum (2010), a four-item measure developed
by Jaramillo, Mulki, and Boles (2013), a two-item measure developed by Stewart,
Volpone, Avery, and McKay (2011), and a six-item scale developed by Luria and
Yagil (2008).

Methodological Concerns

Our review identified a number of methodological concerns with prior research. Our
first concern relates to the conceptualization and measurement of ethical climate
in prior work. Victor and Cullen (1987) initially conceptualized ethical climate
based on two dimensions (locus of analysis and ethical theory) which resulted in
the nine theoretical types categories (see Figure 2), and later (1988) using factor
analysis rationalized this to a subset of five climate types as noted before. Our review
highlights that the majority of studies have continued to utilize these five types as
a basis for conceptualizing ethical climate. This construct typology has exhibited
structural validity; however, there are very few studies that have sought to further
develop this conceptualization of ethical climate. In addition, we identified that there
is a lack of consistency over how ethical climates have been measured in prior work.
As highlighted earlier, although the majority of studies use different versions of the
ECQ (Cullen et al., 1993; Victor & Cullen, 1987, 1988), other studies use abbreviated
measures, or with the exception of Arnaud (2010), develop their own measures without
adequate theoretical rationale. As such we recommend researchers use either the ECQ
(Cullen et al., 1993; Victor & Cullen, 1987, 1988) or the ECI (Arnaud, 2010) in future
work, as these measures have been developed based on sound theoretical reasoning.

Second, 89 out of the 91 quantitative studies in our review were cross-sectional
in nature. Cross-sectional designs limit our ability to infer causality and also suffer
from a greater likelihood of common method bias compared to longitudinal designs,
where variables are collected at different points in time (Demirtas & Akdogan,
2015). By facilitating a chronological separation of the antecedent variables from
the mediator and outcome variables, longitudinal studies provide us with greater
confidence that the association between variables is not spurious and provide stron-
ger inferences of causality (Hansen, Dunford, Alge, & Jackson, 2016). In order to
strengthen inferences from existing work, future work should incorporate longitu-
dinal designs which would open up new avenues for investigating ethical climate
such as allowing researchers to ask questions about the impact of organizational or
contextual changes on ethical climate.

A final limitation concerning the measurement of ethical climates is that most
studies (70 out of 91 quantitative studies) have measured ethical climates at the
individual-level of analysis (i.e. captured employees’ perceptions of the ethical climate
in their organizations) rather than aggregating such perceptions to the organizational

Ethical Climates in Organizations 483

or departmental level to produce a more objective measure of climate. This is in spite
of the fact that Victor and Cullen (1987) originally conceptualized ethical climate
as construct which captured employees’ shared perceptions as to the ethical climate
in their organizations. As we highlight later on, given ethical climate was originally
conceptualized as a variable which captures employees’ shared perceptions of the
organizational climate, future work should examine whether ethical climates mean-
ingfully exist at higher-levels of analysis, and the extent of climate strength across
organizational levels of analysis.

ANTECEDENTS OF ETHICAL CLIMATE

Although the antecedents of ethical climates have received less attention than their
outcomes, we have witnessed growing empirical work on the antecedents of ethical
climates in the decade since Martin and Cullen’s (2006) meta-analytical work. Such
antecedents include leadership and managerial practices, organizational practices,
organizational and cultural context, and individual differences.

Leadership and Managerial Practices

Most research examining the antecedents of ethical climate have identified lead-
ership as a key variable which leads to the establishment and maintenance of
ethical climates. Researchers have generally drawn upon social learning theory to
explain the process by which leaders influence ethical climates in the organization
through role-modelling expected behaviors to employees (Demirtas & Akdogan,
2015; Mayer et al., 2010; Shin, 2012; Shin, Sung, Choi, & Kim, 2015). Martin and
Cullen’s (2006) meta-analysis highlighted only a handful of studies prior to 2006
which focused on leadership or managerial orientation as an antecedent of ethical
climates. Since then a growing number of studies have examined the influence of
specific leadership styles such as ethical leadership on ethical climates. By drawing
on social information processing and social learning theories, Mayer et al. (2010)
found that ethical leadership led to the development of ethical climates that foster
adherence to ethical standards. Similarly, both Lu and Lin (2014) and Demirtas
and Akdogan (2015) found that ethical leadership enhanced employee perceptions
of the ethical climates in their organizations. Finally, both Shin (2012) and Shin et al.
(2015) found that the ethical leadership of top management fostered a positive
ethical climate in their organizations. Longitudinal research by Hansen et al. (2016)
found that employees’ perceptions of organizational corporate social responsibility
practices influenced their perceptions of the ethical leadership of top management,
which in turn influenced their perceptions of the ethical climate.

Researchers have also examined the influence of other leadership styles on
ethical climates. For example, prior research has found that instrumental lead-
ership (Mulki, Jaramillo, & Locander, 2009), benevolent leadership (Ghosh, 2015)
and the benevolent and moral dimensions of paternalistic leadership (Cheng & Wang,
2015; Erben & Guneser, 2008; Otken & Cenkci, 2012) influence ethical climate.

Finally, researchers have also examined the influence of managerial practices on
ethical climates. Drawing on social exchange theory, Parboteeah, Chen, Lin, Chen,

Ethics Quarterly484

Lee, and Chung (2010) found that the employment of communication practices by
managers was positively related to principle climates, and the use of empowerment
practices was negatively related to egoistic climates.

In conclusion, over the last decade growing research has enhanced our under-
standing as to whether specific leadership styles and managerial practices influence
ethical climate.

Organizational Practices

In their meta-analytical study, Martin and Cullen (2006) did not draw attention
to work that examined the relationship between organizational practices and
ethical climates. Since then, researchers have begun to examine the influence
of organizational practices, such as human resource management (HRM) practices,
on ethical climates. Although Manroop and colleagues (Manroop, 2015; Manroop,
Singh, & Ezzedeen, 2014) drew on the resource-based view of the firm to hypoth-
esize that HRM might act as an important antecedent to the development of ethical
climates in their conceptual work, only Guerci, Radaelli, Siletti, Cirella, and Shani
(2015) have empirically examined the influence of HRM on ethical climates.
Drawing on the ability-motivation-opportunity (AMO) framework, they found that
an organization’s use of ability-enhancing practices and opportunity-enhancing
practices are positively related to employees’ perceptions of benevolent and principle
organizational climates, whilst the use of motivation-enhancing practices are posi-
tively related to employees’ perceptions of egoistic climates. Luria and Yagil (2008)
found that employees’ perceptions of the justice climate in their organization is
positively related to the ethical climate. Qualitative work by Humphries and Woods
(2016) established that understaffing in a healthcare facility led employees to have
negative perceptions of the ethical climate due to the chronic work pressures they
faced. In contrast, another qualitative study amongst healthcare employees found
that organizational practices which fostered meeting needs of patients and next of
kin, receiving and giving support and information, and developing standards of
behavior fostered a positive organizational climate (Silen, Kjellstrom, Christensson,
Sidenvall, & Svantesson, 2012).

Although research has begun to address the limited focus of organizational prac-
tices on ethical climate, given the complexity of the organizational environment, and
the pervasiveness of organizational policies and practices, we agree with Manroop
and colleagues (Manroop, 2015; Manroop et al., 2014) that more attention needs
to be paid to the role of organizational policies or procedures in shaping ethical
climate through the resource-based perspective.

Organizational and Cultural Contexts

In their …