A Conceptual Model of Corporate
Eric Reidenbach
Moral Development
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 indica-
tive of specific stages of moral development are offered.
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 note-
worthy efFors, particularly those by Trevino (1986)
and Ferrell and Gresham (1985), have attempted to
model the ethical decision making process in organi-
zations.
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 admix-
ture 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: 273—284, 1991.
© 1991 Kluwer Academic Publishers. Printed in the Netherlands.
R.
Donald P. Robin
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 deter-
mined by the organization's culture and, in recipro-
cal 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 mem-
bers, 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 develop-
ment of a corporation can be classified according to
274 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 deter-
mining 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, instru-
mental, and independence.
The recognition that culture is an important
determinant in ethical decision making has accept-
ance 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 crimin-
ality was pervasive in the financial industry during
this dme, Markey responded, "there was definitely a
culture that tolerated it" {Wall StreetJournal (1988) p.
Bl).
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 philoso-
phy 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.
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.
The model is inspired by the work on individual
moral development by Kohlberg (1964, 1976). How-
ever, 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 deter-
minant.
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 indi-
viduals 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 mis-
sion, and its industry, to name a few (Robin and
Reidenbach, 1987).
 Corporate Moral Development Model 275

Proposition 2: An organizadon can begin its life in to the moral development of an organizadon. Some
any stage of moral development. Again, the deter- organizadons will stay in a pardcular stage longer
mining factors are similar to those mendoned in than others. Again, the length of stay in a pardcular
proposidon 1. The key to the beginning point is an stage will be a funcdon of those factors cited in
overt management decision condidoned by a num- proposidon 1.
ber of situated factors.
Proposition 8: Two organizadons can be in the same
Proposition 3: Most organizadons in stage one do not stage but one may be more advaiiced. Thus, it is
leave stage one. Amoral organizadons, by their very possible that a corporadon which is classified as a
nature and oportunisdc pMosophy produce a cul- legalisdc corporadon may also manifest certain char-
ture that cannot adapt to the values and rules of acterisdcs of a responsive corporadon. This is a
society. Thus amoral organizadons are either forced funcdon of the dynamics of moral development.
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 The stages of organizational moral
and cultural change. development
Proposition 4: An organizadon comprised of muldple Stage one — tlie amoral organization
departments, divisions, or SBUs can occupy different
stages of moral development at the same dme. That The Amoral Organizadon has a culture that is
is, one operadng area of the organizadon could be earmarked by a "winning at any cost" atdtude.
classified in stage one while other areas could be Typical of organizadons in this stage of moral
located in stage three. This muldple classificadon is development is a culture that is unmanaged with
based on subcultural differences within the organi- respect to ethical concerns. Producdvity and profit-
zadon. Each subculture will have embraced, to ability are the dominant values found in the culture.
greater or lesser extents, the formal culture. In those Concern for ethics, if it exists at all, is usually on an
cases where the formal culture dominates all operat- after-the-fact basis when the organizadon has been
ing areas, a muldple classificadon is unlikely. How- caught in some wrongdoing. At this point the con-
ever, when the individual subcultures doniinate an cern for ethics, if at all evidenced, becomes more of a
organizadon, muldple classificadons are possible. cynical jusdficadon or a post hoc radonalizadon of
behavior strictly for damage control purposes. Com-
Proposition 5: Corporate moral development does not mon to most management philosophies is that being
have to be a condnuous process. Individual corpora- caught in an unethical situadon is considered as a
dons can skip stages. New management or mergers cost of doing business. This culture is shaped by a
and acquisidons can impose new cultures on an strong belief in Adam Smith's invisible hand and the
organizadon. These new cultures may be radically nodon that the only social responsibility of business
different from the previous culture with respect to is to make a profit. Unlike Friedman's odginal
their ethical content impelling an organizadon to a contendon, that responsibility is seldom condidoned
higher stage of moral development. by the caveat of a need for law and ethic.
Proposition 6: Organizadons at one stage of moral Top management rules by power and authority
development can regress to lower stages. Regression and employees respond by acquiescing to that
typically occurs because the concem for economic authority and power through a reward system which
values is not adequately counterbalanced by the supports a "go along" type of behavior. Obedience
concem for moral values. In times of organizadonal is valued and rewarded. Disobedience, on a moral
stress the pursuit of economic values may win out basis, is punishable typically by expulsion from the
regardless of the morality of those values. In addi-organizadon. There is litde concem for the em-
don, new management or mergers and acquisidons ployees other than for their value as an economic
can also provide an impetus for regression. 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
276 R. E. Reidenbach and D. P. Robin
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 value-
less business environment produces a valueless busi-
ness.
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 organ-
ized to extract silver from old x-ray film which
utilized a chemical process involving cyanide. Be-
cause of the potendally acute toxicity of the process,
the safety of the workers should have been a princi-
pal 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 Environ-
mental 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 work-
ers 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
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 book-
keeper, 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 employ-
ees. Internally, employees were to obey rules which
emphasized producdvity and failure to do so meant
dismissal and even perhaps prosecudon as an Olegal
alien.
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 con-
cemed 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 organiz-
adons. 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 any-
thing 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 organiza-
dons 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 under-
lying 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^
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
277
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, con-
scious 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
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 Administra-
tion) 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 defec-
dve 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 preoccupa-
don with compliance to laws and reguladons,
cultural values focusing on what is right rather than
on what is legal are either nonexistent or under-
developed. 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 con-
tained 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
278 R. E. Reidenbach and D. P. Robin
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 coun-
terparts in stage 1, maintain a preeminent concem
for profitability, especially when it involves a trade-
off 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 organiza-
don'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, con-
flict of interest, objecdvity, personal finances,
decency, and accountability. The standard concern-
ing 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., compli-
ance, conflict of interest, personal finances, con-
fidendality). In that sense they are intemally directed.
Concem for ethical conduct is evidenced in the
accountability statement which reads, "Report ques-
donable, 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.
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 reladon-
ships, 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 import-
ance of employees and the community in which they
operate. Again, this nascent concem is not modve-
ated 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 damag-
ing occurrence to the organizadon or other organiz-
adons tnay happen forcing the organizadon to react
by countedng with some apparent ethical response.
The intendon is to sway opinion of different state-
holders 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 de-
veloped 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 enlight-
ened 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-
 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 Cen-
ters for Disease Control for the study of toxic shock
and agreed to finance and inidate an educadonal
campaign about the disease. The educadonal cam-
paign 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 well-
being was inextricably intertwined with the morality
of their decision. This is the hallmark of the respon-
sive 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.
279
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 be-
tween 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, ombuds-
men, and ethics program directors begin to reinforce
the existence of codes. This signals stronger manage-
ment 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 deal-
ing 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
280 R. E. Reidenbach and D. P. Robin
ethical behavior, these organizadons are not yet fully
comfortable with their implementadon. Organiza-
donal 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 exped-
ence and experdse to make it work effecdvely.
Examples of emergent ethical organizations A growing
number of organizadons can be classified as the
emergent ethicaL Boeing and General Mills were
cited earlier for their ethical efforts. Boeing's pro-
grams have been in place since 1964 but the mere
existence of ethical programs does not insure that
the emergent ethical organizadon will behave ethi-
cally. 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 publi-
cadon by the giant defense contractor asks 10
quesdons about the program. These quesdons in-
clude:
1. Who is my Ethics Program Director?
2. How can the Ethics Director help me?
3. How can I contact my Ethics Director?
4. Do I need my supervisor's permission to talk
with the Ethics Director?
5. How does the ethics hotline work?
6. How do I know what Genera] Dynamics' ethics
standards really are?
7. What is my responsibility if I become aware of
someone who is violating the standards?
8. What happens if I violate the standards?
9. How does the ethics program apply to me?
10. What should I do if I am directed to do some-
thing that I believe is a violadon of company
standards?
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
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 co-
workers 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 corpora-
don 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
never seriously considered avoiding the cosdy re-
call." (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 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.
Johnson &Johnson
281
Stage five behavior is characterized by an organi-
zation-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 organiza-
tion 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 pro-
position that he found morally repugnant. It con-
cemed 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).
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
282
A summary of the moral development of corporations
Stage in Moral Management Attitude
Development and Approach
Stage I Get away with all you
The Amoral can; It's ethical as long as
Organization we're not caught; Ethical
violations, when caught.
are a cost of doing
business
Stage 11 Play within the legal
The Legalistic rules; Fight changes that
Organization effect your economic
outcome; Use damage
control through public
relations when social
problems occur. A
reactive concem for
damage to organizations
from social problems
Stage III Management understands
The Responsive the value of not acting
Organization solely on a legal basis.
even though they believe
they could win; Manage-
ment 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
Stage rV First stage to exhibit an
The Emerging active concem for ethical
Ethical outcomes; "We want to
Organization do the 'right' thing"; Top
management values
become organizational
values; Ethical perception
has focus but lacks or-
ganization and long term
planning; Ethics manage-
ment is characterized by
successes and failures
1
R. E. Reidenbach and D. P. Robin
TABLE 1
Ethical Aspects of Corporate Ethics Defining Corporate
Corporate Culture Artifacts Behavior
Outlaw culture; Live No meaningful code of Film Recovery Systems;
hard and fasq Damn the ethics or other
risks; Get what you can documentation; No set Numerous Penny
c t r^
and get out ofvalues other than itocK Companies
greed
Ifit's legal, it's OK; The Code of Ethics, ifit Ford Pinto
Work the gray areas; exists, is an intemal
Protect loopholes and document; "Don't do Firestone 500
don't give ground anything to harm the Nestle Infant Formula
without a fighr. organization"; "Be a D I D U
Economic performance good corporate citizen" K.J. Reynolds
dominates evaluations Philip Morris
and rewards
There is a growing Codes are more P & G (Rely Tampons)
concern for other externally oriented and
corporate stakeholders reflect a concem for Abbott Labs
other than owners; other publics; Other Borden
Culture begins to ethics vehicles are
embrace a more undeveloped
"responsible citizen"
attitude
Ethical values become Codes of Ethics become Boeing
part of culture; These action documents; Code
core values provide items reflect the core General Mills
guidance in some values of the organiza- Johnson & Johnson
situations but questions tion; Handbooks, policy (Tylenol)
exist in others; A statements, committees. ^ 1 r\
culture that is less ombudsmen are General Dynamics
reactive and more sometimes used Caterpillar
proactive to social
problems when they Levi Strauss
occur
 Corporate Moral Development Model 283

Tahle I (Continued)

Stage in Moral Management Attitude Ethical Aspects of Corporate Ethics Defining Corporate
Development and Approach Corporate Culture Artifacts Behavior

Stage V A balanced concern for A total ethical profile. Documents focus on

The Ethical ethical and economic with carefully selected the ethical profile and
Oi^anization outcomes; Ethical analysis core values which core values; All phases
is a fully integrated reflect that profile. of organizational
partner in developing directs the culture; documents reflect them
both the mission and Corporate culture is
strategic plan; SWOT planned and managed
analysis is used to to be ethical; Hiring,
anticipate problems and training, firing and
analyze altemative rewarding all reflect the
outcomes ethical profile

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 con-
cem 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 cul-
ture. 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 organiza-
tion. 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 out-
come.
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 characteris-
tics 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
 284 R. E. Reidenbach and D. P. Robin
the desired etbical behaviors. What we are seeing are
cultures that are unmanaged, and when unmanaged,
evolve in their own directions, usually in the direc-
tion 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 respecif-
ication, 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.
Notes
' 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).
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University ofSouthern Missippi,
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Department of Marketing,
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