Ethical Climate and its Relationship to Ethical Behavior and Ethical Mechanisms



Chiao Da Management Review 的1.31No. 2, 2011 pp.33-60


Ethical Climate and its Relationship to Ethical Behavior

and Ethical Mechanisms

溫金豐 Jin-FengUen


lnstitute ofHuman Resource Management, National Sun Yat-sen University

吳亭 I TingWu


Institute of Human Resource Management, National Sun Yat-sen University 蔡慧負 Hui-ChenTsai


Institute of Human Resource Management, National Sun Yat-sen University

摘要 :企業倫理逐漸受到各國重視,不但學界討論倫理氣候, 也成為業界影 響員工行為的重要因素 。 通過跨層次分析,本研究討論倫理氣候的理論及實 務、檢驗倫理氣候和倫理行為間的關條、並探討與倫理氣候相關的組織倫理 機制及與未來應用於倫理氣 11要研究的相關建議。基於企業倫理對金融業人員 的影響,研究對象為台灣金融業的理財專員;研究結果顯示,由於透過體制 強制的約束力,規範、法律及規則型氣候對員工行為產生顯著影響,與其他 類型的倫理氣候只引起特定的倫理行為不同 。若組織另具備倫理守則及獎懲 系統,則將影響組織中規範 、 法律及規則型倫理氣候的型塑 。 關鍵詞: 倫理氣 11美;倫理行為;倫理機制;跨層次分析

Abstract : Business ethics is widely perceived as a global issue


and ethical c1imate is considered to be a significant factor affecting employees' behavior. This study explores organizational ethical cLimate by: firstly


illustrating the theoretical

I Corresponding author: lnstitute of Human Resource Manageme肘, National Sun Yal-sen University Kaohsiung, Taiwan, Email:


34 Ethical Climate and its Relationship 10 Ethical Behavior and Ethical Mechanisms and empirical basis


discussing the relationship between ethical cJimate and ethical behavior, as well as examining the relevant organizational ethical mechanisms regarding forming ethical cJimate; the implications for future research conceming ethical cJimate are introduced. This study appJies multilevel

analysis; samples are 企om Taiwanese financial consulting firms due to the significance conceming ethics in this industry. The results suggest that a “rules,

law and code" ethical cJimate has a significant inf1uence on employees' ethical

behavior because of institutionalized coercion, while other ethical cJimate

dimensions affect certain limited ethical behaviors. Moreover


organizations with a code of ethics and enforcement systems will inf1uence the formation of rules, law and code ethical cJimate

Keywords: Ethical cJimate; Ethical behaviors; Ethical mechanisms; Multilevel


1. Introduction

Because of ongoing unethical scandals wor1dwid巴, business ethics issues challenge countries universally (Hulpke and Lau, 2008). The thriving economic

growth 企omthe 1990s in East Asian areas not only establishes the eminent role of

this region in the global economy, but also draws academics and practitioners' attention to the relevant business ethics issues in these countries (Chatterjee and Pearson, 2003; Martin and Cullen, 2006; Sha缸, 2008; Weeks, Loe, Chonko and Wakefield, 2004). On the one hand, economic development leads to cross-border investment, prompting investors to probe into the ethical environrnent in the foreign financial markets where they invest (Baker and Veit, 1996). On the other

hand, concems about ethical issues have given rise to many frameworks and much research in different management fields (Martin and Cullen


2006; Weeks et al.



Unethical behavior is regarded as costly to enterprises as well as to society as

a whole (Dubins旬, Nataraajan and Huang, 2004). Arnong relative investigations,

financial consultants become the main target when mentioning ethical issues because they are expected to act ethically and are trusted by the investing pubJic


Chiao Da Management Review Vol. 31 No. 2, 2011 35

(Román and Munuera, 2005). Since tinancial investments are abstract and need dependable information


financial consultants




serve the critical role of

providing moral and correct direction. However


if they disregard ethical

principles and act unethically


the authorities can intervene and reduce these financial consultants' flexibility, which may result in increased costs, and

influence public confidence (Brown


Treviño and Harrison


2005). At worst



intervention may further impair firrns' performance and underrnine entire country's economy. Accordingly, practitioners and academics are making efforts

to develop theoretical frameworks as well as implement empirical examinations conceming organizational factors (e.g. codes of conduct, reward systems, and organizational c1imate) (Weeks et al., 2004) and individual influences (e.g. ethical

leadership) (Brown et al., 2005).

Because of the introduction of ethical c1imate in 1980s (e.g. Victor and Cullen, 1988), relevant research has extended in both business and ethics fields

Oerived from general organizational work c1imate since the 1950s, ethical c1imate is used to refer to the organizational members' shared perceptions of organizational ethical practices




values and procedures (Babin


Boles and



2000; Martin and Cullen 2006; Schwepker


2001; Victor and Cullen



Organizational ethical climate consists of rules


law and code


and has caring


independence and instrumental dimensions


characterized as the tenets applied when employees make decisions within an organization (Victor and Cullen, 1988)

Organizations communicate ethical regulations and standards to employees to

c1early specify their expected behavior, and further guide members when encountering ethical dilemmas (Schneider, 1975)

The knowledge basis of business ethics are cumulated gradually, especially

the appearance of Ethical climate theory (ECT) acting as the influential factors in this area (Martin and Cullen 2006). Studies delineate the antecedents and consequences of ethical c1imate are broadly examined, and the significance ofthis specific work c1imate are emphasized since it influences behaviors of organizational members to a certain extent and further affect the operation of

business perforrnance (Martin and Cullen 2006; Schneider, 1975). Accordingly,


36 Elhical Climate and its Relalionship 10 Ethical 8ehavior and Ethical Mechanisms

investigates the relationship between ethical climate


ethical behavior and ethical

mechanisms in Taiwanese financial consulting firms by applying a multilevel method. Understanding these relationships may provide greater insights for

embedding ethics into organizations,巴在ectively managing financial consultants,

and further maintaining long-term customer relationships. A workplace with a complete ethical context may affect employees' compliance behavior, and raise

moral standards when resolving such issues (Martin and Cullen


2006; Román and


, 2005;




We also bring knowledge related to di 何erent outcomes of organizational ethical mechanisms in upholding the organizational ethical cIimate. Ethical

mechanisms are regarded as the institutional instruments which cIari秒

appropriate behaviors and can promote the ethical cIimate in the organizations Establishing a code of ethics


providing ethical training


and implementing enforcement systems may be significant steps to encourage ethical behavior and

limit unethical actions (Baker and Ve此, 1996). Subsequently, through these ethical



organizational members feel obliged to follow the rules and


, and adjust

their behavior to 日 t in with the institutionalized context (Weber, 1993). 1n the current study, we begin with a review of the theoretical foundation of ethical cIimate, followed by a discussion of the research methods

and results. The primary objectives of this study are as follows: (1) to address the theoretical basis of organizational ethical cIimate; (2) to investigate its influence on employees; and (3) to indicate the organizational ethical mechanisms and their impact upon ethical climate. Next, we discuss the limitations and implications for

缸tureethical cIimate research.

Our study contributes to the literature in the following aspects. Firstly, by

summarizing previous discussions (e.g. Martin and Cul1en, 2006), we examine

three different organizational ethical mechanisms for upholding the formation of

ethical cIimate which may provide insights for practitioners when business

ethics concems prevail (Brown et al., 2005). ln addition, we broaden the

comprehension of ethical cIimate by adopting a multilevel method to investigate related issues. Studies focusing on contextual influence are suggested because most prior ethical climate research has investiga


Chiao Da Management Review Vol. 3/ No. 2, 20// 37

whereas multilevel analysis can enable further research to explore different levels of analysis with empirical understandability (Martin and Cullen, 2006). In the current research, we hope to extend the previous theoretical views for the further development of ethical c1imate theory and relevant practical ethical mechanisms.

2. Literature Review and Hypotheses



Ethical Climate

Organizational c1imate is defmed as shared psychological meanings derived from aggregated individual perceptions of the work environment that communicate standards, regulations, policies and behavioral expectations to employees (James, Choi, Ko, McNeil, Minton, Wright and Kim, 2008; Schneider, 1975; Wimbush and Shepard, 1994). It is characterized as an extension of the psychological c1imate that describes one's perception of the work environment in terrns of one's own well-being. Organizations c1early inform each member of what they should do, and tend to shape and guide employees' behavior by way of the organizational c1imate (Martin and Cullen, 2006; Victor and Cullen, 1988)

Since the late 1950s, there has been growing interest in various aspects of organizational c1 imat巴,such as service, safety, support, and innovation (Wimbush and Shepard, 1994). Ethical climate as a multidimer>sionalconstruct is one of the

streams of organizational climate research (Victor and Cullen


1987; 1988). An ethical climate refers to the psychologically shared perceptions that employees hold towards perceived ethical practices and policies which retlect the organizational norrns and values (Schneider, 1975; Schwepk哎, 2001; Victor and Cullen, 1988; Wimbush and Shepard, 1994). These shared perceptions are derived from organizational members' observations of how the organization manages

ethical dilemmas and decision-making (Wimbush and Shepard, 1994). Similar to other kinds of organizational climates, ethical c1imate is expected to specify and intluence certain ethical behavior within organizations (Schneider, 1975)

Organizational ethical c1imate as one of the norrnative control systems is


38 Erhical Climare and ils Relationship 10 Elhical Behavior

and Elhical Mechanisms

a legitimate entity that internalizes as well as fits in with the social process, norr間,

and obligations (Schwepker and Good, 2007; Victor and Cullen, 1988). Consequently, organizational ethical c1imates serve as one of the institutionalized

societal norrns (Victor and Cullen



The theoretical bases of ethical c1imate stem from cosmopolitan-Iocal constructs (i.e. individual, local, and cosmopolitan) and ethical theory (i.e. egoism,

benevolence and deontology) (Victor and Cull凹, 1988). On the one hand, the

forrner construct is used as a referent source when individuals consider what

behavior is acceptable or unacceptable (Wimbush et al., 1997). On the other hand, these major ethical theories are taken as main decision-making criteria when

individuals encounter ethical dilemmas. Victor and Cullen (1987; 1988) integrated the three ethical theories and the three referent sources to develop ethical c1imate

dimensions, inc1uding the caring, law and code, rules, and independence dimensions. These different dimensions existing in an organization affect how

ethical conflicts are taken into account and resolved. So far


it remains the most

prevalent categorization to date (Shafì哎,別的;Victor and Cu l1凹, 1988; Weeks et al.


2004; Wimbush and Shepard



In a caring ethical c1imate, employees wil1 care for the well-being of one another and those who may be affected by the ethical decisions


both within and outside of the organization. If an organization is depicted as adopting a law and code ethical c1 ima侃, employees are requested to follow the regulations of the

government or professional institutes. This dimension requires individuals to go beyond the organization itself to professional associations or the government in order to define what “proper" behaviors are when dealing with ethical issues. ln

an ethical c1imate characterized by the rules dimension, employees wil1 adhere to the organizational policies and standards. ln an independence ethical climate, employees are led by their own moral beliefs and personal principles


while in an

instrumental ethical c1imate


organizational members look out for their own

interests, regardless of others who may be affected by their decisions (Victor and Cullen, 1987; 1988; Wimbush and Shepard, 1994)

Sirnilar to other climate research, it is imperative to identify the proper level


Chiao Da Management Reνiew Vol. 31 No. 2, 2011 39

(Wimbush and Shepard, 1994). To extend the Iines of investigation, it is necessary to distinguish individual climate perception 企om organizational climate. The fonner depicts individual senses and perceptions of organizational features, while the latter refers to organizational members' shared perceptions of the organizational structure, practices and policies (Victor and Cull凹, 1988). EthicaI climate represents a collective concept resulting from employees' shared perceptions when working in the same environment and agreeing with organizational practices and procedures (Wimbush and Shepard, 1994)

From the previous discussion, we know that the significance of ethical climate can convey expected conduct (Treviño, Butterfield and McCa恤, 2001), decrease role ambiguity (Schwepker, Ferrell and Ingram, 1997), and increase the predictability of employees' ethical behavior (Wimbush and Shepard, 1994). For practitioners, the development and recognition of an ethical climate are essential An ethical climate may exist because the coherent perceptions are shared by organizational members (Wimbush et al., 1997). By understanding certain ethical clirnate dimensions existing in the organization, managers are able to manage practices and policies to enhance employee ethical behavior in that organization Employees' behavior that is consistent with the climate will be expected throughout the organization (Wimbush et al., 1997). More ethical behavior can be anticipated in organizations where ethical values and behavior are supported and promoted (Schwepker and Good, 2007; Wimbush and Shepard, 1994)

According to the previous discussion, an organizational ethical climate refers to a composition of members' shared perceptions conceming organizationaI ethical values derived from policies and procedures (Schwepker and Good, 2007). If employees' perceptions are similar throughout the organization


common understandings may be facilitated, and there will be further inf1uence on their behavior (Wimbush et al., 1997)

In order to understand the re\ationship between ethical climate and behavior,

each ethical theory underlying ethical climate dimensions should be underscored because they serve as a foundation when making decisions in terms of ethical behavior (Wirnbush and Shepard, 1994). On the one hand, in an organization in which benevolence and deontological ethical crite


40 Ethical Climate and its Relationsh伊 to Ethical Behavior

and Ethical Mechanisms assumed that ethical behavior will be prevalent among employees because organizational activities are concemed with the interests of others when making decisions in both moral theories. On the other hand


ifthe predominant dimension of the ethical climate is recognized as egoi泣, employees would increase their self-interest despite the inf1uences and consequences the decisions have on others (Wimbush and Shepard, 1994; Wimbush et al., 1997). Of the five ethical climate dimensions, the instrumental climate is the one that is most likely to lead to unethical behavior. To sum up, we propose that ethical climate


as employees' shared perceptions of the organizational ethical values


wiJl inf1uence members' behavior. Further


different ethical climate dimensions also foster different ethical behavior. The frrst hypothesis is therefore as follows

Hla: The dimensions


the caring


the ru帥" law and code


and the

independence ethical climates are positively related ω employees'

ethical behavioκ

Hl b: The instrumental dimension


the ethical climate is negatively related to employees' ethical behavior.

2.2. Ethical Mechanisms

In the late 197船, Weber (1993) suggested

institutionalizing ethics into business, thus depicting organizations' effi。此sto integrate ethics into employees' decision-making processes. Ethical climate (i.e. employees' shared perceptions of an organization's practices and policies) would have inf1uence on the individual's ethical behavior


and further affect the organization's overaJl performance (Wimbush and Shepard


1994). Without adequate organizational practices and policies that require employees' ethical conduct


employees may ignore the consequences of ethical decision-making as long as the final goals and performance are achieved. As a result, organiz泌ional ethical mechanisms are characterized as an instrument to strengthen and improve organizational ethical climate and to further motivate employees' ethical conduct within the orgamzatlOn


Chiao Da Managemenl Reνiew Vol. 31 No. 2, 2011 41 ethical c1imate. Through ethical mechanisms, organizations can instruct and guide employees in terms of what behaviors are acceptable, and highlight the organizational ethical values (Schwepker and Good, 2007; Victor and Cul1en, 1988). Previous studies (e.g. Schwepker and Good, 20肘; Weber, 1993) suggest similar ethical mechanisms


inc1uding a code of ethics


ethical 甘ammg and enforcement systems (i.e. reward and punishment systems) that empirically

facilitate an ethical climate. ln this research


we applied these three mechanisms to investigate their impact on the formation of organizational ethical c1imate and employees' ethical behavior (Schwepker and Good, 2007; Weber, 1993)

An organization's code of ethics is the written description of the moral

standards and a value embraced by the organization, and is a manifestation of the

ethical climate to guide employees (Steven


2008; Weber


1993). As suggested by previous authors


ethical codes not only decrease wrongdoing

, but also

encourage correct ethical conduct (e.g. Somers


2001; Steven


2008). Besides


studies have

also suggested that when a code of ethics is supported by other instruments


such as development programmes (e.g. employee etmcs training and enforcement

mechanisms), it wil1 have a positive intluence on employees' perceptions (Kaptein and Schwartz


2008; Weber



Ethical training is related to the institutionalization of ethics within an organization (Weber, 1993). There are different types of training,企om general

co叩orate introductions to particular professional rule descriptions. ln order to

embed the ethics in organizational members' decision-making processes


ethics training aims to stimulate employees' awareness of ethical issues, and enhance employees' ability to make ethical judgments. Consequently

, by means

of ethical training programmes


organizations not only communicate ethical standards to employees


but also create an advantageous environment to promote an ethical

c1imate (Schwartz, 2004; Weber, 1993).

In addition to framing the code of ethics and arranging ethics training


practitioners signify that enforcement systems play an important role in

effectively implementing the previously mentioned mechanisms (Román and



2005; Schwartz


2004). Without coherent and fair enforcement systems



42 Ethical Climate and its Relatiol1ship 10 Ethical Behavior and Ethical Mechanisms decision-making (Schwartz, 2004). The enforcement systems, including positive reward and negative sanction mechanisms




on the one hand


punish employees who act unethically; on the other hand, they should reward those who adhere 10 the systems (Román and Munuera, 2005; Schwepker and Good, 2007) Without properly managing ethical issues, employees may challenge the effectiveness of the enforcement systems and further undermine the foundation of an ethical climate within the organization (Schwepker and Good



The organizational ethical mechanisms can suppo口 the development of an ethical climate, motivate an ethics spirit, and foster employees' ethical behavior. Establishing an ethical climate through codes of ethics


ethical training and enforcement systems will decrease the chance of unethical behavior occurring (Schwepker and Good


2007). As a result


generating a code of ethics, implementing ethical training programmes


and establishing enforcement systems will encourage employees' ethical behavior as well as influence employees' perceptions ofthe organizational ethical standards. Therefore:

H2a: The more prevalent the ethical mechanisms


the greater the presence of the four "positive" dimensions (i.e. caring




law and code


and independence) ofthe ethical climate.

H2b: The more prevalent the ethical mechanisms


the fewer occurrences ofthe instrumental dimension ofthe ethical climate.

3. 加lethod

3.1. Samples

Generally, tinancial services that advocate credence and uprightness are highly abstract and usually difficult for customers to fully understand. Therefore


it is necessary for customers to obtain accurate information and request appropriate guidance from tinancial consultants. 1n this circumstance


tinancial consultants may emphasize self-interest and pursue the required performance by taking advantage of their consumers due 10 the asymmetrical ownership of


Chiao Da Management Review Vol. 31 No. 2, 2011 43

information (Román and Munue悶, 2005). Furthermore, financial consultants are expected to generate the organizations' revenues in a short period of time

According旬,our samples were collected from financial consultants in the banking and financial industry in Taiwan because their ethical behavior will influence organizational performance and further affect the trust of and long-term relationships with their customers

We sent 40 questionnaires to the managers representing firms approbated by the Financial Supervisory Commission, Executive Yuan, Taiwan, and 410 questionnaires to flllancial consultants in each financial consulting department in these organizations (10-12 for each company). The managers responded to questions conceming whether or not their organizations have ethical mechanisms


while the financial consu!tants answered questions about their evaluation of their own ethical behavior and the ethical climate of the organizations. While a total of 40 firms (90%) agreed to participate


responses were received from managers representing 36 of these companies, giving a response rate of 90 percent. A total of 298 usable questionnaires were retumed of the 410 distributed, i.e. a 72.68% response rate. The majority of the respondents were female (63.3%), and 39.73% were between 30 and 35 years old. Most (69.8%) had at least a college d巴gree,

while 30.3% had less than three years of job tenure. Among the 36 participating organizations


19 are financial holding companies.

3.2. Measures

Variables related to the current research as well as their corresponding sources of information are delineated below. We list the complete scales in the Appendix

3.2.1. Ethical Climate

This measure was derived from Victor and Cullen (1988)


as it is generally considered to be the most appropriate instrument for assessing the dimensions of ethical climate (Martin and Cul1en


2006; Wimbush and Shepard


1994). It

consisted of 26 items in a five-point Likert scale format (ranging from 1, strongly disagree, to 5, strongly agree). We conducted exploratory facìor analysis (EFA)


44 Ethical Climate and its Re/ationship 10 Ethical Behavior and Ethical Mechanisms

because of the sensitive cultural and professional features. The ethical climate construct may be affected by different cultures and professions in tenns of cognition and attitude toward similar ethical issues. We extracted four dimensions,

and further used content analysis to check the meanings of each extracted ethical climate dimension. We named them the “rules, law and code,"“caring," “independence" and “instrumental" climates. Compared to Victor and Cullen (1988), we combined the rules, law and code ethical climates into one dimension because the difference between these ethical climates is whether the behavioral standards are derived 台omthe organization itself or from outside institutes (e.g government/professional associations) (Victor and Cullen


1988). The scale items are Iisted in the Appendix


and the coefficient alpha is .91. The coefficient alpha for the caring, independence, and instrumental ethical climates are .徊, .77 and. 侶,


Similar to other relevant climate research (e.g. Liao and Chuang, 2007),

ethical climate is constructed through a bottom-up emergence process that is shared by organization members (Chan, 1998; Kozlowski and Klein, 2000). 1n order to ensure that employees have similar thoughts regarding organizational ethical climate, we came up with the organizational-Ievel constructs by aggregating each employee's scores to the organizational level after testing the within-group agreement to veri秒 ifthere was consensus toward ethical climate (i.e. Rwg; James, Demaree and Wolf, 1993) and, consequently, all samples in the same group passed the test

3.2.2. Ethical Behavior

Ethical behavior was measured by 20 items adopted from Lin and Yeh's

(1996) scale


using a 5-point Likert-type scale ranging from 1 (strongly disagree) to 5 (strongly agree). Lin and Yeh (1996) developed their ethical behavior scale in a Taiwanese industrial context. Those items were based on the prior Iiterature and interviews with managers for the content validity. This was the only measure we found specifically appropriate within Taiwan's context when we conducted the research (See Appendix 2). We further conducted EFA to improve the construct validity and reliability. There were three extracted dimensions, including honest,


Chiao Da Managemenl Reνiew VoI. 31 No. 2, 2011 45

decent and obedient behavior


after conducting factor analysis. Honest behavior was characterized as providing al1 information based on customers' needs, while decent behavior il1ustrates the avoidance of self-serving acts. Obedient behavior exists when the employee takes the organization's interests as the first priority The coefficients ofthe alphas are .92, .85 and .79, respectively

3.2.3. Ethical Mechanisms

The questionnaires measuring ethical mechanisms were completed by th巴

managers of each d巳partment.We included the following 3 items:

whether or not the organization has a code of ethics",“whether the organization has enforcement systems"


and “whether the organization implements ethical training" to investigate if there ar巴 anyethical mechanisms within the organizations





Correlation of Measures

The descriptive statistical results are presented in Table 1. Since this study is a multilevel study, we firstly discuss the correlations between variables in accordance with the different levels. According to the table


at the organizational leve1, training is significantly correlated with a code of ethics (r = .32, p < .10) and with enforcement systems (r = .77


p < .001). Moreover


it is significantly correlated with the rul白, law and code (r = .37, p < .05), and the independence ethical c1imates (r = .33, P < .05). As for enforcement mechanisms, they are significantly correlated with the rules, law and code (r = .36, p < .01) and the independence ethical c1imate dimensions (r = .38, p < .05). The caring ethical c1imate dimension is significantly correlated with the rules


law and code ethical c1imate (r = .42, p < .05). The independence ethical c1imate is significantly correlated with the rules, law and code (r = .52, p < .01), and the caring ethical c1imate dimensions (r = .33, p < .05)


46 Ethical Climate and ils Relationship 10 Ethical Behavior and Ethical Mechanisms

behavior" is significantly correlated with "decent behavior" (r = .58


P < .001) and

obedient behavior" (r


.18, P < .01); the correlation between

decent behavior" and

obedient behavior" is also significant (r = .23


p < .001)

Table 1



Means and Standard Deviations of Key Variables

Variable Mean SD 2 3 4 5 6 7

Group-Ievel measures a

1. Code of ethics 0.61 0.49 2. Training 0.56 0.50 0.32+ 3. Enforcement systems 0.67 0.48 。 20 。 77 4. Rules, law and code dimension 4.22 0.36 0.14 0.37' 0.36 3.15 0.41 。 12

-0.11 。 42 65ICnadnEnpg enddIernriecne Sdioimn ension 3.44 0.39 0.01 0.33' 0.38' 0.52" 0.33' 7. lnstrumental dimension 4.11 0.44

Individual-Ievel measures b

1. Honesty 4.18 0.60

2. Decency 4.24 0.57

3. Obedience 3.44 0.80 +p<.10*p<.05 **p<.OI ***p<.OOI

Notes : "For group-Ievel measures, n = 36

-0.26 -0.09 0.04


。 18" 0.23'"

b For individual-Ievel measures, n = 298



,2, Aggregation of Organization-Level Variables

0.05 0.22

We checked the viability of the organization-level variables (i.e. ethical c1imate dimensions) by examining the within-group agreement rwg; (James et a



1993), intrac1ass correlation (ICC1), and tbe reliability of the group mean index (ICC2). The obtained median values for the caring, the rules

, la

w and code, and the independence instrumental c1imate dimensions are .97, .89




and .90


respectively. These values are well above the conventional1y acceptable value of .70 (James et a



1993). The ICCI and ICC2 values are as fol1ows: rules


law and code


.26 and .75; caring, .16 and .62; independence


.19 and .66; and instrumental, .14 and .59. We then conducted one-way analyses ofvariance and found significant between-group variance for the variables. Consequently, we aggregated the ethical c1imate data from the individual levels and generated our organizationallevel variables.


ChiaoDα Managemenl Review Vol. 31 No. 2, 2011 47

Our study is multilevel in nature


with the employee data nested in different organizations. These hierarchical data include both the individual-employee level and the organizational level of analysis. We applied hierarchical Iinear modeling

(HLM) analyses to investigate our hypotheses because it delineates the nested data and can examine the intluences of factors at different levels on

individual-Ievel results, and thus maintain a proper level of analysis for the

variables (Bryk and Raudenbush, 1992). Consequently


we conducted hierarchical linear modeling (HLM) analyses to test the hypotheses because our framework is multilevel in nature

4.3. The Relationship between Ethical Climate and Ethical Behavior

Our first hypothesis examines the relationships between organization-Ievel

ethical c1imate and individual-Ievel ethical behavior. We estimated a series of null models of “honest behavior",“decent behavior", and “obedient behavior" using HLM. No predictor were specified for either the Level 1 or Level 2 如 nctionto test the significance level of the between-group variance for the employe郎, ethical behavior by examining the significance level of the Level 2 residual

variance of intercept (τ00) and lCCJ. The analyses revealed the following results

for honest behavior, τ00 = 0.048, P < .001, ICCI = .07; decent behavior, τ00 = 0.023,p < .05, ICCI = .07; and for obedient behavior, 'too= 0.169,p < .001, ICCl

= .26. Hence, there is significance in the between-group variance of the ethical

behaviors. We then proceeded to test our hypothesis using HLM

Table 2 presents the resuJts of the HLM analyses to test our hypothesis about

the impact of the



law and code" ethical climate on employees'

honest behavior" (y = 0.39, P < 0.01), “decent behavior" (y = 0.34, p < 0.05) and

obedient behavior" (y = 0.37

, P

< 0.05). The

caring ethical c1imate" dimension intluences “obedient behavior" (y 0.43


P < 0.05). With regards to the “independence ethical c1imate", it only affects the occurrence of “obedient

behavior" (y = 0.38, P < 0.05). Finally, the R squares of ethical climate regarding

"honest behavior",“decent behavior" and “obedient behavior" are .俑, .05and.峙, respectivel


To sum up, the first hypothesis is partially supported


48 Ethical Climate and its Relationship to Ethica/ Behavior

and Ethica/ Mechanisms

Table 2

日LMResults of Ethical Behavior

Ethical behavior b

Variable Honest behavior Decent behavior Obedient behavior




Level-2 •

4.18'" 1.93

Rules, law and code 。 39"


Caring dimension 0.11

Independence dimension -0.07 Instrumental dimension 0.13 Between-group variance 0.05'" 0.03 Within-gro叫pvanance 0.30 0.30

R2 total c 0.06

*p<.05 **p<.OI ***p<.OOI Notes : a For group-level measures, n = 36

b For individual-level measures, n = 298

4.24'" 2.51'" 3.47'" 0.18 0.02 0.3 1 0.34' 0.16 -0.14 0.07 0.01 0.31 0.05 0.37 0.43' 0.38' -0.23 0.17 0.07 0.49 0.49'" 0.16

c R2to叫=R2出叩our(l-ICCl)+R2between go

附*rCC1(Bryk and Raudenbush, 1992)



The Relationship between Ethical Mechanisms and Ethical


In this study, the second hypothesis is to examine whether organizations with ethicaL mechanisms will have significant influences on ethicaL cIimate. According

to the t-test results shown in Table 3, the organizations which possess a code of

ethics have significant variances for the rules, law and code and the independence

ethical climate dimensions. Moreover


whether or not the organizations have

enforcement mechanisms creates great differences in terms of the rules


law and code and the independence ethical cIimate dimensions. Generally speaking


once organizations establish ethical mechanisms


these mechanisms will have a partial

influence on the ethical cIimate in the organization. Consequently, the second


ChiaoDaManαgement Review Vol. 31 No. 2, 2011 49

Table 3

The Relationship between Ethical Climate and Ethical Mechanisms a

Code of ethics Training Enforcement systems

Rules, law and code dimension Caring dimension

Independence dimension Instrumental dimension

y b N b I-value Y N I-value Y N I-value 4.33 L 4.06 2.34' 4.27 4.17 0.81 4.31 4.04 2.17' 3.15 3.15 -0.02 3.19 3.10 0.73 3.12 3.21 -0.68 3.54 3.28 2.02+ 3.44 3.43 0.05 3.54 3.23 2.35' 4.08 4.16 -0.52 4.01 4.23 -1.57 4.12 4.08 0.22

+p<.10*p<.05 **p<.OI ***p<.OOI

Notes : a Group-Ieve1 analys凹,n= 36

b Y: Existence of ethical mechanisms; N: Non-existence of ethical mechanisms 'Mean



The current study builds on past research by exarnining the relationship between ethical c1imate and ethical behavior in Taiwanese financial consulting firms, and examines the organizational ethical mechanisms that enhance ethical c1imate and help encourage ethical behavior to attain the desired business performance

To begin with, we attempt to advance understandings of ethical c1imate by illustrating how these dimensions re1ate to employee ethical behavior. The prior literature illustrates that the relationship between ethical c1imate and ethical behavior mainly derives from the empirical decision-making criteria that may take others into consideration and thus lead to acting ethically (Schwepker and Good, 2007; Victor and Cull凹, 1988; Wimbush et al., 1997) However, most previous research has focused on either an organizational level or individual level of analysis (e.g. Weeks et al., 2004). This current study links the macro and micro perspectives by applying multilevel approaches to investigate individual-Ievel and organizational-level variables, inc1uding ethical c1imate


ethical mechanisms and ethical behavior

We found that a



law and code" ethical climate has a significant influence on ethical behavior (i.e. honest


decent and obedient behavior). Baker and Veit (1996) suggested that organizations dominated by this ethical c1imate request members to comply with the regulations within and outside the


50 Ethical Climate and its Relationsh伊 10 Ethical Behavior

and Ethical Mechanisms

organization. According to their studi白,compared to North America, investment financial consultants in Hong Kong show greater willingness to accept authority as well as the ethical standards imposed by employers and professional

organizations because of the higher power distance index (Baker and Veit


1996) By explicitly conveying how organizations expect members to perform through

formal standards and policies


individuals may gradual1y adjust their behavior

when solving ethical dilemrnas. For these financial consultants


clearly understanding the regulations and consequences may reduce the possibility of behaving unethical1y, such as committing fraud and making an overstatement

Consequently, dysfunctional behavior is anticipated to decrease under a rules, law

and code ethical climate (Schwepker and Good, 2007)

We also found the caring ethical climate affects employee's obedient

behavior. In this study, obedient behavior existing in the caring ethical climate

shows a firm's principles have higher priority than other regulations for members to fol1ow when making decisions. In such an atmosphere, employees make decisions on the basis of concem for others within the organization as wel1 as the

whole society (Martin and Cul1en, 2006; Wimbush and Shepard, 1994) Subsequent1y, individuals perceive that their concems wil1 be supported by the

organizational practices and policies when behaving ethical1y (Martin and Cu\len


2006). Due to a lesser degree of individualism compared to Westem countries


organizational members wi\l expect the establishment and enforcement of ethical

norms by both organizations and authorities because of the significance of

group-focus (e.g. families, place of employment) (Baker and Veit, 1996) However


the insignificant results also suggest that without forcible implementation, the caring dimension exerts a limited impact on certain ethical conduct (i.e. obedient behavior)

There is a significant relationship between the independence ethical climate

and obedient behavior. In this type of ethical climate, organizations assume that

individuals make decisions out of careful consideration; thus they allow organizational members to follow their own principles to the full (Martin and Cul1en


2006). While receiving respect and adequate autonomy from


Chiao Da Managemenl Reν iew Vol. 31 No. 2, 2011 51

making decisions (Ghosh, 2008). H is also relevant to the Job Characteristic

Model that employees are empowered to make ethical decisions in an

independence c1imate with higher autonomy; they may experience responsibility and be inclined to act more ethically, especially in those professional groups with high growth needs (Hackman and Oldham, 1975)

We now discuss the effects of ethical mechanisms on the development of ethical climate, Organizations can guide employees and influence their

decision-making by means of integrated ethical mechanisms (e.g. codes of ethics, ethical training and enforcement systems) (Schwepker and Good, 2007; Somers,

2001). The results indicate that organizations with a code of ethics and enforcement systems are signi日cantly related to the rules, law and code and the independence ethical c1imates,

Researchers have gradually tumed their focus to the existence of formal codes of ethics (Schwartz, 2004; Schwepker and Good, 2007; Somers


2001) Somers (2001) suggests that a code of ethics is made up of three themes,

including its attributes, the extent of prevalence in the coun甘y, and the influence on employees. This idea has received growing interest, and the general focus on the content and implementation process of ethical codes explores the contextual and behavioral factors within organizations (Schwartz, 2004). The former refers to organizational-specific attributes and values, while the latter mainly indicates employees' ethical behavior. Subsequently, studies not only emphasize the descriptive characteristics (e.g, size, industry) but also show increased interest in contextual factors such as c1imate and values; hence


we investigated the re\ationship between organizations with ethical codes and the deve\opment of an ethical c1imate (Somers, 2001).

The partially consistent results suggest that organizations with a code of ethics have a significant influence on the rules, law and code and the independence ethical climates. On the one hand, organizations with explicit ethical codes will 企equentlyexplicate moral standards, give guidance and suppo此 to employees in terms of the organization members' routines, and serve as the judgement indicator when making ethical decisions (Somers, 2001), On the other


52 Elhícal Clímale and íls Relatíonshψ 10 Elhical 8ehavior and Elhical Mechanisms

of the philosophical values embraced by the organization, and signal the prohibited misbehavior (Helin and Sandstrom, 2007; Somers


2001; Stevens


2008). If organizations have written and formal ethical documents, employees are guided by a prevalent set of moral rules or standards

, and

their perceptions of the organization's ethical values may be further atfected such that they ultimately develop aggregated mindsets emphasizing rules, codes and procedures that can be described as a rules, law and code ethical c\imate (Martin and Cullen, 2006;

Stevens, 2008)

Employees make ethical decisions based on personal moral be\iefs when working in an independence ethical c1imate (Martin and Cullen, 2006). The results present a significant relationship between a code of ethics and an independence ethical c1imate. Organizations with explicit and formal codes of ethics provide basic guidance for employees' reference when making ethical decisions. Under this assumption, organizations may provide a certain degree of delegation to employees to follow their own principles. ln turn


while perceiving trust and autonomy, these financial consultants may solve ethical dilemmas on the basis of both organizational formal documents and their own moral criteria

Our study is consistent with the previous literature in that we failed to find a significant relationship between ethical training and organizational ethical c1imate (e.g. Schwepker and Good, 2007). A possible explanation may be as follows firstly

, gaps exist

between received training and actual implementation. Receiving ethical training may not imply that employees learn new things and further change their behavior. Moreover, even if employees learn ethical issues from the training programmes


it is not guaranteed that the knowledge will actually be put into practice. In particular


in this s叫你, the questionnaire items regarding ethical mechanisms simply query whether the firm has ethical training programmes or not. It is the presence or absence of ethical training that determines the results


not the quality of the ethical training itself (Liao and Chuang, 2004; Schwepker and Good, 2007). Therefore, fu削re research should directly measure training program effectiveness, inc1uding the transfer of training to ethical behavior to examine the quality and influence of ethical training programmes on employees' ethical behavior (Liao and Chuang, 2004)


Chiao Da Management Review Vol. 31 No. 2, 2的 11 53

ln order to embed the ethical climate into employees' decision making



the implicit values and explicit policies should be upheld by

enforcement mechanisms (i.e. reward and punishment systems). The results show

that the enforcement mechanisms have a significant influence on the rul郎, 1aw

and code and the independence ethical climates. Ethical climate describes a

combination of organizational members' shared perceptions of ethica1 disciplines

which can be recognized and institutionalized through exp1icit regulations and

distinct practices (Wimbush et al., 1997). Our empirical findings enhance previous studies when depicting the relationship between enforcement mechanisms and ethical climate (Román and Munuera, 2005; Weber, 1993). A reward system comprises a set of practices to guide and motivate individuals


while organizations execute punishments if emp10yees violate the regulations and

behave unethically (Honeyci哎, Glassman, Zugelder and Karand巴, 2001).

Enforcement mechanisms can enhance organizational members' awareness of

their behavior patterns


and further develop shared perceptions within

organizations to foster organizational ethical climate (Román and Munuera, 2005;

Schwepker and Good, 2007)

Prior studies have indicated that di仟erentcompensation systems can lead to

di 仟erent consequences when making ethica1 decisions (Román and Munuera,

2005). Organizations embracing commission-based systems focus on immediate

individual performance and organizational interests. On the contrary


if the

organization adopts a salary-based system, employees feel less pressure and

attempt to maintain a longer relationship with their customers (Román and

Munuera, 2005). Further examination is needed to fully comprehend the relationship between different reward systems and employees' behavior

Organizations, therefore, are urged to make additional efforts regarding

establishing codes of ethics, investing in training, and enforcing proper disciplines on those financial consultants who violate ethical standards, while strengthening the shared ethica1 values in organizations (Baker and Veit



From a theoretical perspective


our findings initially contribute to an

understanding of ethical climate by applying a multilevel method to investigate its influence on employees' ethical behavior. We attempt to extend the use


54 Ethical Climαte and its Relationship to Ethical Behavior and Ethical Mechanisms

multilevel method in ethical climate research. There are a number of ethical

climate studies exploring the psychological dimensions/individual level effects

(e.g. Shafer, 2008). However, issues conceming organization context and level of

analysis are still limited (Martin and Cullen, 2006). Currently, the literature

integrating ethical climate's group-level effects still requires great improvement.

The growth and application of a multilevel approach coordinated with the

development of analytical tools such as HLM will support future empirical

research to comprehensively explore the multiple level ethical issues. By applying

hierarchical linear modeling, this study examines the influence of ethical climate

at different levels, while simultaneously retaining the proper level of analysis for

these variables (Hofmann, 1997)

In order to facilitate the generalization of the findings, future replication of

the current multilevel sωdy is encouraged in a variety of industries to increase the

research extemal validity. Moreover


researchers can obtain new perspectives

concerning the antecedents (e.g. leadership, managerial orientation, individual

differences) and consequences (e.g. job satisfaction and psychological well-being)

of ethical climate by using longitudinal methods (Brown et al., 2005; Martin and

Cullen, 2006; Shafer, 2008). Also, fu仙re research can expand the role of ethical climate as the mediator between ethical mechanisms and ethical behavior from a

multilevel viewpoint. In addition to int1uencing employee ethical behavior



effects of their shared ethical climate perceptions on organizational commitment

and turnover intentions, for instance, should be emphasized from cross-level

viewpoints to avoid ecological fallacy issues (Schwepker, 2001). Also, 如ωre

studies might need to consider some moderators, for example social culture, firm

size or indust旬, in their analysis (Martin and Cullen, 2006). Although ethics

research may be affected by the possibility of social desirability response bias



provided assurances of confidentiality by guaranteeing our samples anonymity

and ensuring the absence of identifying marks on the questionnaires which were

then mailed directly to us (Chung and Monroe, 2003; Weeks et al., 2004)

Business ethics are important in any organization. However


to bring them to


Chiao Da Managemenl Review Vol. 31 No. 2, 2011 55

practices, a shared ethical value can be enhanced and supported in the

organization, which can then lead to more ethical behavior within the organization

(Hulpke and Lau, 2008). In conclusion, our study contributes to the knowledge of

ethical climate and related issues by bringing the micro and macro views together

to investigate multilevel variables within organizational contexts.

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Chiao Da Management Reνiew Vol. 31 No. 2, 2011 59

Appendix 1 : Measure of Ethical Climate

Components Items Cronbach'sα

Pe油ple are expected to comply with the laws and professional standards over and above other consid巳ratIons

In this company, people are expected 10 s甘ictlyfol1ow legal or professional standards

Rules一 lawand I~ this ωmpany, the laws or ethical code of their profession is

c∞od一i……et山hi叫1叫 t伽h忱e maj阿叮 c∞s耐叫on 0ω.9

cli叮Ima剖te Ever句yone I的s expect紀ed tωo adhere tωo c∞ompany ru叫Jles and procedures

It is very impo口 ant to fol1ow the company's rules and procedures here

ln 也is company, tI把伽st consideration is whether a decision violates any law

What is best for everyone in the company is the m句 or

consideration her官

The most important concem is the wel1being of al1 the people

Car叫“h叫 inthe company as a whole 0.84



ethical cl imate

Ourm句。rconcem is always what is best for the other person

In 出 iscompany, people look out for each other's wel1being

I且 this company, people are expected 10 fol1ow their own personal and moral be!iefs

Each person in this company decides for themselves what is right and wrong

The most important concem in this company is each person's

own sense of right and wrong

In this company, people are guided by their own personal ethics


Instrumental In th 的 company, people protect their own interests above al1

else 0.83

ethical climate


60 Elhical Climale and ils Relalionship 10 Ethical BehaνIOr and Ethical Mechanisms

Appendix 2 : Measure of Ethical Behavior

Components ltems

I will provide proper investment suggestions based on customers' demands

I wil\ adequately inform customers of their rights and

Cronbach's a

Honest behavior ?bli~at!ons 0.92

I will show complete information related to goods or services 1 neither exaggerate the effects of goods nor conceal the possible


1 do not accept money or gifts from customers Decent behavior 1 actively avoid conf1ict of interest

Obedient behavior

I do not conduct insider 甘ading

Whenever there is conf1ict between the organizati凹 'sinterests and professional principles,l will take the organization's interest as first priority

Whenever there is conf1ict between individual and organizational interests, 1 will take the organization 's interests as first priority

When individual ethical standards are higher th叩 those of the organization, 1 will take the organizational ethical standards and mve up my own