You are on page 1of 13

A Conceptual Model of Corporate Moral Development

R. Eric Reidenbach Donald P. Robin

ABSTRACT: TTie conceptual model presented in this article argues that corporations exhibit specific behaviors 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.

The role of corporate culture in tnoral development

The moral development of a corporation is determined by the organization's culture and, in reciprocal fashion, helps define that culture. In essence, it is the organization's 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 organization's 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 organization's success in problem solving and achieving objectives (e.g., Schwartz and Davis, 1981; Sathe, 1985). Central to this latter source is the organization's selection of a mission firom which the more specific objectives and reward systems flow. One mission of profit-making organizations is economic. However, society, with increasing concem and concomitant pressures, is also demanding that they achieve certain social goals. The moral development of a corporation can be classified according to

The recent and conrinuing 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 individual's stage of moral development interacting with, among other factors, the organization's 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 umtten extensively on business and marketing ethics. Donald P. Robin, Professor of Business Ethics and Professor of Marketing at the University of Southern Mississippi, is coauthor with R. Eric Reidenhach of two recent booh on business ethics with Prentice-Hall. He is a frequent lecturer on business ethics and is the author of several articles on the subject.

Journal of Business Ethics 10: 273284, 1991. 1991 Kluwer Academic Publishers. Printed in the Netherlands.


R. E. Reidenhach and D. P. Robin

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 organization's culture in determining the morality of corporate activities (Robin and Residenbach, 1987; Trevino, 1986; Hoffman, 1986). Of pardcular 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 system's 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 Lambert's recent guilty plea and the reasons behind it, Edward Markey, U. S. Representative (D. Mass.) replied that there was a solid foundation of criminal acdvity behind their success. And when asked if this criminality was pervasive in the financial industry during this dme, Markey responded, "there was definitely a culture that tolerated it" {Wall StreetJournal (1988) p. Bl).

Five stages comprise the model. Each stage is given a label based upon the types of behavior or organizadons that are classified within that stage. This produced the following ciassificatory schemata: the amoral organizadon; the legalisdc organizadon; the responsive organization; the emergent ethical organizadon; and the ethical organizadon. The model is depicted in Figure 1.
SAumcED conciiiN

Fig. 1. A model of corporate moral development.

An overview of the model

The model of organizational moral development is a conceptual model built by the study of a large number of cases of organizadons and their acdons in response to a diverse number of situadons. The ciassificatory variables include management philosophy and atdtudes, the evidence of ethical values manifested in their cultures, and the existence and proliferadon of organizadonal cultural ethics and ardfacts (i.e., codes, ombudsmen, reward systems). By observing the organizadon's acdons, the researcher can deduce differences in the moral development of organizadons among the sample of cases. These differences form the hierarchical stages in the model. Evidence involving specific cases suppordng the classificadon schema is provided.

The model is inspired by the work on individual moral development by Kohlberg (1964, 1976). However, direct applicadon of Kohlberg's work is not possible. Organizadons simply do not develop in the same manner and under the same circumstances as individuals. As was mendoned earlier, individual moral development does contribute to the moral development of an organizadon but is not determinant. There are several proposidons which make the model operadonal: Proposition 1: Not all organizadons pass through all stages of moral development. Just as not all individuals reach level six of Kohlberg's model, not all corporadons are desdned to be ethical organizadons. The uldmate moral development desdnadon of a corporadon is a funcdon of several factors including top management, the founders of the organizadon and their values, environmental factors (threats and opportutiides), the organizadon's history and mission, and its industry, to name a few (Robin and Reidenbach, 1987).

Corporate Moral Development Model


Proposition 2: An organizadon can begin its life in any stage of moral development. Again, the determining factors are similar to those mendoned in proposidon 1. The key to the beginning point is an overt management decision condidoned by a number of situated factors. Proposition 3: Most organizadons in stage one do not leave stage one. Amoral organizadons, by their very nature and oportunisdc pMosophy produce a culture that cannot adapt to the values and rules of society. Thus amoral organizadons are either forced to cease operadons or, reladvely quickly run their life cycles. These organizadons that do evolve past stage one do so at the cost of significant structural and cultural change. Proposition 4: An organizadon comprised of muldple departments, divisions, or SBUs can occupy different stages of moral development at the same dme. That is, one operadng area of the organizadon could be classified in stage one while other areas could be located in stage three. This muldple classificadon is based on subcultural differences within the organizadon. 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 muldple classificadon is unlikely. However, when the individual subcultures doniinate an organizadon, muldple classificadons are possible. Proposition 5: Corporate moral development does not have to be a condnuous process. Individual corporadons can skip stages. New management or mergers and acquisidons can impose new cultures on an organizadon. These new cultures may be radically different from the previous culture with respect to their ethical content impelling an organizadon to a higher stage of moral development. Proposition 6: Organizadons at one stage of moral development can regress to lower stages. Regression typically occurs because the concem for economic values is not adequately counterbalanced by the concem for moral values. In times of organizadonal stress the pursuit of economic values may win out regardless of the morality of those values. In addidon, new management or mergers and acquisidons can also provide an impetus for regression.

to the moral development of an organizadon. Some organizadons will stay in a pardcular stage longer than others. Again, the length of stay in a pardcular stage will be a funcdon of those factors cited in proposidon 1. Proposition 8: Two organizadons can be in the same stage but one may be more advaiiced. Thus, it is possible that a corporadon which is classified as a legalisdc corporadon may also manifest certain characterisdcs of a responsive corporadon. This is a funcdon of the dynamics of moral development.

The stages of organizational moral development

Stage one tlie amoral organization

The Amoral Organizadon has a culture that is earmarked by a "winning at any cost" atdtude. Typical of organizadons in this stage of moral development is a culture that is unmanaged with respect to ethical concerns. Producdvity 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 organizadon has been caught in some wrongdoing. At this point the concern for ethics, if at all evidenced, becomes more of a cynical jusdficadon or a post hoc radonalizadon of behavior strictly for damage control purposes. Common to most management philosophies is that being caught in an unethical situadon is considered as a cost of doing business. This culture is shaped by a strong belief in Adam Smith's invisible hand and the nodon that the only social responsibility of business is to make a profit. Unlike Friedman's odginal contendon, that responsibility is seldom condidoned by the caveat of a need for 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 organizadon. There is litde concem for the employees other than for their value as an economic unit of producdon. The ethical culture of a stage one organizadon Proposition 7: There is no dme dimension associated can be summed up in the ideas that "they'll never


R. E. Reidenbach and D. P. Robin what was described as roudne safety equipment. In addidon, 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 pracdce was adopted, according to the tesdmony of a bookkeeper, because illegal aliens would be less apt to complain. The response of FRS to the invesdgadon involved laying off workers and closing down the plant in mid-1983. The invesdgadon, and uldmate criminal prosecudon of three FRS execudves centered around the quesdon "Can two legidmate corporadons form a third (niS), set it up to engage in a reckless and dangerous acdvity, ignore legal requirements and get off scot-free?" Prosecutors referred to the fTlS case as "novel" but qualified it by saying "It's 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 producdvity and profits. Costs, especially those that were morally Jusdfiable 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 won't get caught" and "it's ok to break rules as long as we profit from it." Their regard for individuals is readily apparent in their hiring pracdces and their treatment of their employees. Internally, employees were to obey rules which emphasized producdvity and failure to do so meant dismissal and even perhaps prosecudon as an Olegal alien.

know," "everybody does it," "we won't get caught," and "there's 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 it's unethical? At the basis of this culture is the philosophical posidon 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 characterisdcs of an amoral organizadon. The company was organized to extract silver from old x-ray film which utilized a chemical process involving cyanide. Because of the potendally acute toxicity of the process, the safety of the workers should have been a principal concem. On Febmary 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 invesdgadon of this case reveals a company that is typical of stage 1 organizadons. Inspectors from the Cook County Department of Environmental Control had previously cited the plant for 17 violadons that were labeled as "gross violadons" and were ordered to be recdfied immediately. Typical of these violadons was a lack of a cyanide anddote, 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 14-0 vats of foaming hydrogen cyanide among which the workers perfonned the extracdon process. Tesdmony of many of the workers indicated that nausea, nose bleeds, and rashes were commonplace. That same tesdmony revealed that employees were ordered to remove the skull and cross bones signs from the containen of cyanide and that the owners of FRS had fiatly refused to buy

Stage two the legalistic corporation

Stage 2 is the legalisdc corporadon so named because of the preoccupadon the corporadon exhibits for compliance with the letter of the law as opposed to the spirit of the law. Organizadons in this stage exhibit a higher level of moral development than organizadons in stage 1 because stage 2 cultures dictate obedience to laws, codes, and reguladons, a value missing in the cultures of stage 1 organizadons. Corporate values flow from the rules of the state, and that is why management is principally concemed with adhering to the legality of an acdon rather than the morality of the acdon. "If it's legal.

corporate Moral Development Model


it's ok and if we're not sure, have the lawyers check it out" typifies the operadng dictum of stage 2 organizadons. More than just a desire to obey society's laws they take an intemal lawlike approach themselves. The corporate legal staff operates as a check against wrongdoing as interpreted by legal statute. In this culture, law equates with jusdce 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 legalisdc thinking. A 1989 ardcle on codes of ethics clustered codes into three categories (Robin et al, 1989). The largest cluster was one characterized by a "Don't do anything unlawful or improper that will harm the organizadon," suggesdng the pervasiveness of this ethos. Cressy and Moore (1983) further suggest that most codes give the appearance of being legalisdc documents. It is perhaps not surprising that two of the largest tobacco companies, R J. Reynolds and Philip Morris, have legalisdc codes of conduct. These codes are very concemed with, and limited to, unlawful or improper behavior. The principal emphasis is sdll on profitability but the difference between stage 2 and stage 1 organizadons is that the latter is concemed with the legality of the profits, not necessarily the morality of diem. Owners are sdll the principal stakeholders. Contrary to the "win-at-all-cost" atdtude underlying organizadonal behavior in stage 1, stage 2 organizadons adhere to a nodon of reciprocity. That is, compliance with the law will produce good results. By extension then, stage 2 organizadons are followers and not social leaders. Society can expect, for the most part, organizadons that adhere to the law but do little as far as operadng in their own enlightened self interest is concerned.
Ford motor of 1973- a portrait of the legalistic corporation^

death of three teenagers who were struck from behind in their 1973 Pinto. The gas tank of the Pinto erupted, burst into flames, resuldng in the buming 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 acdons) and the disregard involves a substandal deviadon from acceptable standards of conduct" In its defense. Ford's attomey, James F. Neal,
argued that the Pinto met all federal, state, and local government standards concerning auto fuel systems. This

While the notodous Pinto case has been dissected from numerous vantage points, far less attendon 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 characterisdcs of an organizadon 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 Ford's culpability in the

compliance. Ford's attomey further argued, was comparable to other subcompacts produced in 1973. He condnued by saying that Ford did everything to recall the Pinto as quickly as possible as soon as the NHTSA (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 bum deaths and that buming Pintos had become such an embarrassment to Ford that J. Walter Thompson, the ad agency that handled the Pinto, dropped a line from its radio spot that said, "Pinto leaves you with that warm feeling." Michael Hoffman raises an interesdng and certainly relevant point in light of the mounting evidence of the Pinto's defecdve 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 Ford's lack of response to this quesdon 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 preoccupadon with compliance to laws and reguladons, cultural values focusing on what is right rather than on what is legal are either nonexistent or underdeveloped. As a consequence, the organizadon does only what it is required to do rather than what it should do. This is symptomadc of the legalisdc organizadon. Moreover, Ford's 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 endded "Fatalides Associated with Crash Induced Fuel Leakage and Fires." The $11 cost per car for the improvement designed to prevent gas


R. E. Reidenbach and D. P. Robin Studies indicate that about 75% of all U. S. firms have codes of conducL Those same studies also indicate that the most common items mendoned in the codes are conflict of interest provisions, polidcal contribudons, use of insider informadon, illegal payments, bdbery and kickbacks, improper reladonships, propdetary informadon, use of corporate assets, gifts and favors, and unrecorded or falsely recorded funds or transacdons, most of which, like their stage 2 counterparts, have an intemal focus designed to protect the organizadon (Raelin, 1987, p. 177; Robin era/. 1989). Concem 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 concem is not modveated by a sense of doing dght for right's sake, but rather as a recognidon of the organizadon's greater social role. Movement from stage 2 to stage 3 is often initiated by outside events. Some potendally damaging occurrence to the organizadon or other organizadons tnay happen forcing the organizadon to react by countedng with some apparent ethical response. The intendon is to sway opinion of different stateholders by doing good. A "do what we gave to do, not because it's right but because it's expedient" dominates the responsive organizadon's ethical system. P&G reacts to the Rely Tampon problem. The reacdon that Proctor & Gamble made to the Rely Tampon problem is indicadve of an organizadon that has developed a stage 3 responsive level of tnorality. It is decidedly different from the type of thinking and acdons one finds in the stage 2 legalisdc type of organizadon. 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 indicadon existed that there was any linkage between toxic shock and the specific use of P & G's Rely product. During this same period of dme, P & G began an invesdgadon into the alleged linkage. Inidal informadon indicated no rela-

tank ruptures was not cost effecdve. Ford estimated that benefits would run to $49.5 million, while the costs associated with the improvement would total $137 million. Stage 2 organizadons, like their counterparts in stage 1, maintain a preeminent concem for profitability, especially when it involves a tradeoff with doing what is right.

Stage three the responsive corporation

Unlike their legalisdc counterparts in stage 2, responsive corporadons begin to evolve cultures that contain values other than producdvity and a sense of legality. Responsive organizadons 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 corporadons must respond to those pressures or face censure or worse. The managements of these corporadons are more sensidve to the demands of society than the managements in the previous stages. Managements begin to recognize that the organizadon's role exceeds a purely economic one and that it has certain social dudes and obligadons. Codes of ethics take on greater importance and their focus begins to reflect a greater societal orientadon. As an example, consider the codes of ethics of the Bank of Boston, which are typical of stage 3 organizadons. Among the codes include standards, values, and prescripdons concerning integrity, confidendality, quaUty, compliance, conflict of interest, objecdvity, personal finances, decency, and accountability. The standard concerning social responsibility reads, "Seek opportunides to pardcipate and, if possible, to play a leadership role in addressing issues of concern to the communides we serve." The major part of the codes, however, is still designed to idendfy behaviors that will bring potendal harm to the Bank of Boston (e.g., compliance, conflict of interest, personal finances, confidendality). In that sense they are intemally directed. Concem for ethical conduct is evidenced in the accountability statement which reads, "Report quesdonable, unethical, or illegal acdvity to your manager without delay" (Bank of Boston). It is interesdng to point out that these codes were published at about the same dme that the Bank of Boston pleaded guilty to charges of money laundering.

Corporate Moral Development Model


donship 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 posidon of deciding to defend their brand against what P & G sciendsts 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 fi-om the market and to halt producdon of Rely Tampons. The decision, according to Edward G. Harness, chairman and chief execudve of P & G, hinged on the dilemma, "We didn't 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 violadon 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 promodonal samples. Moreover, they voluntarily pledged research assistance to the Centers for Disease Control for the study of toxic shock and agreed to finance and inidate an educadonal campaign about the disease. The educadonal campaign was remarkable in both the speed and the scope of informadon disseminadon. P & G management recognized the longer term value of making this type of response. Although 20 years of research and marketing expenditures were ded up in what would uldmately be a significant loss, their acdon 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 pan, that is probably tme. 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 organizadon. Stage three is a pivotal point in the moral development of most corporadons. It is a leaming stage wherein managements test the eflficacy of socially responsive behavior and begin to understand the economic value of moral behavior. This atdtude.

however, moves the organizadon beyond a strictly legalisdc focus and, in some cases, has the effect of making the organizadon a social pioneer. SdU, it must be emphasized that cultures of stage three corporadons are dominated by a reacdve mentality, not a proacdve mentality.

Stagefour the emergent ethical organization

The emergent ethical organizadon is one in which management acdvely seeks a greater balance between profits and ethics. There is an overt efFort to manage the organizadon's culture to produce the desired ethical climate. This change in the culture involves a recognidon of a social contract between the business and society. Management approaches problem solving with an awareness of the ethical consequence of an acdon as well as its potendal profitability. One of the more visible manifestadons of stage 4 organizadons is the proliferadon of "ethics vehicles" throughout the organizadon. Codes of conduct become more externally odented and become living documents instead of lofty ideals to be read once and then put away or highly limited rules that are designed pdmarily to protect the organizadoa In addidon, and typical of stage 4 corporadons, 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 corporadon, greater CEO involvement in ethics, and line management involvement in ethics training programs are two aspects of their cultural concem for morality. In addidon, their ethics committee reports to the board and management has installed a toll-free number for employees to report ethical violadons. General Mills has developed guidelines for dealing with vendors, compedtors, and customers. Recruiting focuses on the hidng of individuals that share the same cultural values and an emphasis on open decision making hallmark their concem for ethical behavior. While responsive corporadons begin to develop ethical mechanisms to increase the probability of


R. E. Reidenbach and D. P. Robin

ethical behavior, these organizadons are not yet fully comfortable with their implementadon. Organizadonal acdons are still charactedzed by ad hoc attempts to develop and insdU organizadonal values. These attempts often lack direcdon in both the selecdon of the values and their implementadon. Top management recognizes the importance and value of this type of behavior but lacks the expedence and experdse to make it work effecdvely.
Examples of emergent ethical organizations A growing

Dynamics has recendy (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 Lee's 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 corporadon is that of Johnson & Johnson. Johnson & Johnson is an advanced stage 4 corporadon as suggested both by their CREDO and their acdons in the wake of the Tylenol tamperings. First consider the CREDO. The CREDO represents a strong balance between ethical concem and profitability. However, what really signals Johnson & Johnson as an advanced stage 4 corporadon is found in the response of one of their senior execudves 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 liad we taken another course (emphasis added). W e

number of organizadons can be classified as the emergent ethicaL Boeing and General Mills were cited earlier for their ethical efforts. Boeing's programs have been in place since 1964 but the mere existence of ethical programs does not insure that the emergent ethical organizadon will behave ethically. In 1984, a unit of Boeing was cited for illegally using inside informadon to secure a government contract, a case of regression. Often cited for unethical behavior. General Dynamics has an extensive ethics program. A publicadon by the giant defense contractor asks 10 quesdons about the program. These quesdons include: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Who is my Ethics Program Director? How can the Ethics Director help me? How can I contact my Ethics Director? Do I need my supervisor's permission to talk with the Ethics Director? How does the ethics hotline work? How do I know what Genera] Dynamics' ethics standards really are? What is my responsibility if I become aware of someone who is violating the standards? What happens if I 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 violadon of company standards?

never seriously considered avoiding the cosdy recall." (William and Murphy, 1988). What can be seen in all of these examples is a management that is wrestling with a growing realizadon that the corporadon must develop a mechanism to balance the organizadon's concern for profits and ethics. Some attempts are clumsy, some work, some don't. What is important is that there is among stage 4 organizadons a shift in the culture, one that gives increasing emphasis to the morality of the bottom line.
Stagefive the ethical organization

The publicadon goes on to answer each quesdon. For example, in response to the quesdon concerning how an employee contacts the Ethics Director, General Dynamics has created a hotline complete with answering machine. In addidon, the Ethics Director can be reached by mail, EMOS, or by direct contact. Does the system work? Not perfecdy. Genetal

The final stage of organizadonal moral development is the ethical organizadon. We know of no examples of organizadons which have reached this level of developmenL

Corporate Moral Development Model Exhibit 1 Johnson & Johnson's Corporate Credo OURCRjEDO 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, tbe 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 bejust 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, tbe 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 organization's culture. These core values guide the everyday behavior of an individual's 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 much like the one described by Robin and Reidenbach (1987, 1989). The concept of a parallel planning system wherein ideas and concepts fi-om the normative moral philosophies are used in the analysis of potential organizational activities. An example of parallel planning is seen in the dehberation made Sir Adrian Cadbury's grandfather (Cadbury, 1987). Sir Adrian's grandfather, then CEO of Cadbury's was confronted with a profitable proposition that he found morally repugnant. It concemed a contract to furnish English soldiers in the Boer War with a Christmas dn 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 implementir^ 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).

Johnson &Johnson

What makes an ethical organizadon work is the support of a culture that has a strong sense of moral duty and obligadon inherent within it. This culmre


R. E. Reidenbach and D. P. Robin TABLE 1 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; It's ethical as long as we're 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 concem 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 leam from more responsive actions First stage to exhibit an active concem 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 fasq Damn the risks; Get what you can and get out

Corporate Ethics Artifacts No meaningful code of ethics or other documentation; No set ofvalues other than greed

Defining Corporate Behavior Film Recovery Systems; Numerous Penny

c t r ^

itocK Companies

Stage 11 The Legalistic Organization

Ifit's legal, it's OK; Work the gray areas; Protect loopholes and don't give ground without a fighr. Economic performance dominates evaluations and rewards

The Code of Ethics, ifit exists, is an intemal document; "Don't do anything to harm the organization"; "Be a good corporate citizen"

Ford Pinto Firestone 500 Nestle Infant Formula K.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 concem for other publics; Other ethics vehicles are undeveloped

P & G (Rely Tampons) Abbott Labs Borden

Stage rV 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 the core values of the organization; Handbooks, policy statements, committees. ombudsmen are sometimes used

Boeing General Mills Johnson & Johnson (Tylenol) ^ 1 r\ General Dynamics Caterpillar Levi Strauss

Corporate Moral Development Model

Tahle I (Continued)


Stage in Moral Development Stage V The Ethical Oi^anization

Management Attitude and Approach 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 altemative outcomes

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

Defining Corporate Behavior

has been designed and managed by top management to produce the work climate necessary to support an assurance of the balance between profitabUity 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 concem 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 ro an ethical outcome.

Some concluding comments

Organizations are struggling with their records of ethical behavior. This struggling is indicative of moral growth where in organizations move firom 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 vwill 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 oi^anizations. Corporate emphasis on profitability still far outweighs concem for ethics. Moreover, many managements have not yet learned that corporate cultures can be managed to produce


R. E. Reidenbach and D. P. Robin Moral Ideology', in L W. Hoffman, ed.. Review of Child Development Research (Russell Sage Foundadon, New York). , 1976, 'Moral Stages and Moralization: The Cognitive Development Approach', in T. Lickona, ed. Moral Development and Behavior: Theory Research and Social Issues (Holt Rinehart & Winston, New York). Raehn, J. A.: 1987, 'The Professional as the Executive's Ethical Aide-de-Camp', The Academy of Management Executive 1, No. 3, pp. 171182. Robin, D. P. and R. E. Reidenbach: 1987, 'Social Responsibility, Ethics, and Marketing Strategy: Closing the Gap Between Concept and Application', foumal of Marketing Qanuary). , 1989, Business Ethics: Where Profits Meet Value Systems. Ei^lewood Cliffs, NJ: Prentice-Hall. Robin, D. P., M. Giallourakis, F. R. David and T. E Moritz: 1989, 'A Different Look at Codes of Ethics', Business Horizons QanuaryFebruary). Sathe, V.: 1985, Culture and Related Corporate Realities. Homewood, IL: Richard D. Irwin. Schein, E J 1983, 'The Role of the Founder in Creating Organizational Culture', Organizational Dynamics 12, No. 1, pp. 13-28. Schwartz, R and S. M. Davis: 1981, 'Matching Corporate Culture and Business Strategy', Organizational Dynamics (Summer), pp. 3048. Trevino, L. K.: 1986, 'Ethical Decision Making in Organizations: A Person-Situation Interactionist Model', Academy of Management Review II, No. 3, pp. 601617. Victor, B. and J. B. Cullen: 1988, 'Tlie Organizational Bases of Ethical Work Climates', Administrative Science Quarterly (March), pp. 101-125. Williams, O. F. and P. E. Murphy: 1988, 'The Ethia of Virtue: An Answer to a Misplaced Debate', presented at the Tenth Annual Macromarkedng Seminar in San Diego, California. Weiner, Yoash: 1988, 'Forms of Value Systems: A Focus on Organizadonal Effecdveness and Cultural Change and Maintenance', Academy of Management Review 13, No. 4, pp. 534545. , 1988, 'Mixed Feelings About Drexel's Decision', Wall Streetjoumal (December 23), p.Bl. Codes ofEthia, Bank of Boston, 1985. Center for Business Development and Research, University ofSouthern Missippi, Hattiesberg, MS 39406-5094, USA. Department of Marketing, University of Southern Mississippi, Hattiesberg, MS 39406-5094, U.SA.

the desired etbical behaviors. What 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.

' Abstracted from McClory, Rj 1986, 'Murder on the Shop Floor', Across the Board (June), pp. 29.-32. ^ Abstracted from Hoffman, W. M.: 1984, T h e Ford Pinto', in W. M. HofFman and J. Mills Moore (eds.). Business Ethics (McGraw-Hill Book Co., New York).

Cadbury, Sir Adrian: 1987, 'Ethical Managers Make Their Own Rules', Harvard Business Review (SeptemberOctober), pp. 69-73. Cressey, D. R. and C. A. Moore: 1983, 'Managerial Values and Corporate Codes of Etliics', California Management Review 25(4) (Summer), pp. 5377. Deal, T. E. and A. A. Kennedy: 1982, Corporate Cultures: The Rites and Rituals of Corporate Life, (Addison-Wesley, Reading, MA). FerreU, O. C. and L Gresham: 1985, 'A Contingency Framework for Understanding Ethical Decision-Making in Marketing', yoMma/ of Marketing (Summer) pp. 8796. Gatewood, E. and A. B. Carroll: 1981, 'The Anatomy of Corporate Social Response: The Rely, Firestone 500, and Pinto Cases', Business Horizons 24 (SeptemberOctober), pp. 9-16. General Dynamics Ethics Programs, published by General Dynamics. Hoffman, W. M.: 1984, The Ford Pinto', in Business Ethics, W. M. Hoffman and J. Mills Moore (McGraw-Hill Book, Co., New York), p. 419. Hoffman, W. M.: 1986, 'Developing the Ethical Corporation', Branessirasi^AjS (Fall), pp. 1015. Kohlberg, L: 1964, 'Development of Moral Character and