Public Integrity

ISSN: 1099-9922 (Print) 1558-0989 (Online) Journal homepage: https://www.tandfonline.com/loi/mpin20

Effects of Ethics and Performance Management on

Organizational Performance in the Public Sector

Odkhuu Khaltar & M. Jae Moon

To cite this article: Odkhuu Khaltar & M. Jae Moon (2019): Effects of Ethics and Performance
Management on Organizational Performance in the Public Sector, Public Integrity, DOI:
10.1080/10999922.2019.1615163

To link to this article: https://doi.org/10.1080/10999922.2019.1615163

Published online: 01 Jul 2019.

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Public Integrity, 0: 1–23, 2019
# 2019 American Society for Public Administration
ISSN: 1099-9922 print/1558-0989 online
DOI: 10.1080/10999922.2019.1615163

Effects of Ethics and Performance Management on

Organizational Performance in the Public Sector
Odkhuu Khaltar and M. Jae Moon
Yonsei University

This study empirically tests the effects of ethics management, performance management, and
transformational leadership on organizational performance in Korean public organizations by
using Structural Equation Modeling (SEM) on data collected from 270 public employees. In
examining the relationships among ethics management; performance management; transform-
ational leadership; and organizational performance, this research also explores the mediating roles
of organizational commitment and ethical performance that contribute to organizational perform-
ance. Informal ethics management and transformational leadership are found to increase organ-
izational performance by reducing unethical behavior and improving organizational commitment
in public agencies.

Keywords: ethics management, ethical performance, Korea, organizational commitment,

organizational performance, performance management, transformational leadership

The improvement of public service has long been of interest to scholars as well as politicians.
A large body of literature shows that management plays an important role in organizational
performance (Boyne, 2004; Boyne & Walker, 2005; Meier & O’Toole, 2002). In order to
explore the link between organizational management and public service improvement, schol-
ars have measured the effects of managerial and internal organizational factors, such as per-
formance management; job satisfaction; leadership; organizational culture; and organizational
commitment (Brewer & Selden, 2000; Cho & Lee, 2012; Kim, 2004). However, although
managerial and organizational factors have been widely addressed, the effects on organiza-
tional performance of ethics management and unethical behavior within an organization are
rarely discussed. Unethical behavior has been identified as the most dangerous ill of modern
government due to its potential to threaten public confidence in government; waste resources;
decrease productivity; and weaken learning ability (Beeri, Dayan, Vigoda-Gadot, & Werner,
2013; Haines, 2004; Zajac & Al-Kazemi, 2000). The recent scandals of the Panama Papers
and corruption in the administration of Korean President Park Geun-Hye highlight a real
need for effective ethics management in the public sector.
Ethics management is defined as the advancement and maintenance of a strongly ethical
environment that pervades all activities in a public organization. It is a critical tool for

Correspondence should be sent to Dr. M. Jae Moon, Room 303 Dept. of Public Administration, Yonsei
University, Seoul, South Korea. E-mail: mjaemoon@gmail.com
2 KHALTAR AND MOON

improving organizational performance by helping to create organizational integrity; enhanc-

ing accountability; uniting stakeholders’ interests with the organization’s goals or values; and
building an environment that expands employees’ positive attitudes (Menzel, 2012; Pu
ce_ tait_e
& L€ams€a, 2008). Ethics management is an effective managerial control device that guides
right and wrong behavior within an organization, is characterized with formal and informal
strategy, and is designed to reduce unethical behavior within an organization.
A few studies have examined the effect of ethics on organizational performance in the
public sector (Berman & West, 1997; Bowman, 1990; Bruce, 1994; Burke & Black, 1990;
Hassan et al., 2014; Menzel, 1996). Their findings show that ethics management practices
are associated with the effort to decrease absenteeism and improve the organizational per-
formance dimensions of efficiency; effectiveness; teamwork; and customer-orientation. In
this regard, it is predictable that ethics management enhances organizational performance by
changing work-related attitudes, such as commitment and unethical behavior. Even though
scholars have made considerable efforts to understand ethics management in organizations in
recent years, empirical research is still in its early stage, and the effectiveness of ethics man-
agement systems is hard to determine due to the lack of access to highly sensitive informa-
tion that requires permission (Trevi~no & Weaver, 2003; Uhr, 2005). The purpose of this
research is to fill this gap by testing the effects of ethics management on ethical performance
and organizational commitment and their mediating effects on organizational performance.
Specifically, this article seeks to answer the questions: “Do ethics management, perform-
ance management, and transformational leadership directly enhance organizational perform-
ance?” and “Do ethics management, performance management, and transformational
leadership enhance organizational performance by increasing ethical performance and organ-
izational commitment?” This study aims to find the determinants of organizational perform-
ance and examine how they are associated with numerous factors, such as ethics
management, performance management, and transformational leadership.

THEORETICAL FRAMEWORK AND RESEARCH HYPOTHESES

In recent decades, organizational performance has been recognized as one of primary con-
cerns among public administration scholars and practitioners (Amirkhanyan, Meier, O’Toole,
Dakhwe, & Janzen, 2014; O’Toole & Meier, 2011; Radin, 2007; Selden & Sowa, 2004). The
complexity of measuring performance has been a long-standing issue in the field of public
administration (Andrews, Boyne, & Walker, 2011; Kelly & Swindell, 2002). Many scholars
compare organizational performance to a black box and define it primarily as organizational
efficiency. However, organizational performance in the public sector goes beyond this nar-
row dimension. Relevant performance-related standards include efficiency; effectiveness;
growth; resource acquisition; adaptation; customer satisfaction; and fairness. These various
aspects are typically divided into result-based and process-based performance categories.
While result-based performance includes productivity; effectiveness; efficiency; and customer
satisfaction; process-based performance includes growth, adaptiveness, and responsiveness
(Sowa, Selden, & Sandfort, 2004).
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 3

A multitude of factors of organizational performance has been tested in empirical studies.

Those factors can be categorized into four groups: (1) managerial factors; (2) internal organ-
izational factors; (3) individual factors; and (4) external factors. Managerial and internal
organizational factors include performance management; organizational culture; leadership;
organizational structure; red-tape; human resource management (HRM) practices; goal ambi-
guity; and ethics management (Boyne, 2003; Brewer & Selden, 2000; Chun & Rainey, 2005;
Moynihan & Pandey, 2010; Paarlberg & Lavigna, 2010; Pandey & Moynihan, 2005).
Individual factors include job satisfaction; attachment to the organization; public service
motivation (PSM); altruistic behavior; unethical behavior; and individual performance
(Brewer & Selden, 2000; Kim, 2004; Menzel, 2012). External factors emphasize network;
political support; customer support; and mass media (Amirkhanyan et al., 2014; Ingraham
et al., 2003; Moynihan & Pandey, 2004).
This study tests the influence of several individual, organizational, and managerial
variables on public organizational performance, including ethics management; performance
management; leadership; and the mediating effect of ethical performance and organiza-
tional commitment.

EFFECT OF ETHICS MANAGENENT ON ETHICAL PERFORMANCE,

ORGANIZATIONAL COMMITMENT, AND ORGANIZATIONAL PERFORMANCE

Ethics is the established standards and norms that direct the right and wrong behavior of an
individual or an organization (Menzel, 2012). Ethics management is the advancement and
maintenance of an ethical environment within an organization. The role of an ethics manage-
ment system is to help organizations create integrity, enhance accountability, and unite their
stakeholders’ interests through common goals or values by improving an organization’s eth-
ical standards (Pu
ce_ tait_e & L€ams€a, 2008). Ethics management tools can be categorized as
formal and informal. Formal ethics management tools include codes of conduct; mandatory
ethics training; ethics audits; and whistle-blower protection policy (Kaptein, 1998, 2011;
Pu
ce_ tait_e & L€ams€a, 2008). Informal ethics management emphasizes behavior-based strategies
that involve role modeling and positive reinforcement (Berman, West, & Cava, 1994), such
as ethical culture, ethical leadership, and ethical climate (Ferrell, LeClair, & Ferrell, 1998).
Formal ethics management systems are intended as a control device and often result in
ethical behavior of organization members. The code of ethics is a common tool that guides
employee’s behavior and creates ethical culture. The advantages of an ethical code for an
organization are that it defines and promotes a high level of ethical practices, reduces legal
costs, and offers the benefits that come from a good reputation (Erwin, 2011). Despite these
positive effects, few studies have empirically confirmed this relationship between a code of
ethics and outcomes. To fill this gap, Erwin (2011) analyzed the effects of the content and
quality of ethical codes on ethical performance and found that companies with a high quality
of ethical codes have higher ethical performance, a better reputation, and higher sustainabil-
ity. In a similar context, Weaver and Trevi~no (1999) found that employees’ perceived belief
in organizational fairness and awareness of ethics management policies were related to
4 KHALTAR AND MOON

increased prosocial and ethical behavior, including reduced unethical conduct and willingness
to be a whistle-blower.
The relationships between formal ethics programs and unethical behavior can be explained
by control theory, social identity theory, and social learning theory. According to social iden-
tity theory, a value-oriented ethics management system creates role definitions that empha-
size shared values that enhance ethical behavior (Weaver & Trevi~no, 1999). From the social
learning theory perspective, ethics programs can improve ethical behavior by focusing on
punishment and rewards. Some researchers have studied these relationships in the private
sector (Ferrell & Skinner, 1988; Kitson, 1996; Salmans, 1987; Yang, 2014).
Formal ethics management systems are positively related to organizational commitment.
Ethical codes keep organizations healthy and high performing (Menzel, 2012). From this per-
spective, formal ethics management practices influence organizational commitment by
improving awareness of justice and fairness for the organization; reducing cognitive disson-
ance; promoting trust in the organization; and reducing role ambiguity and role stress (Kim,
2007). Cho (2009) found that ethics management practices were positively associated with
overall organizational commitment. Thus, as organization members perceive ethics manage-
ment, have an emotional attachment to the organization, and remain with the organization, it
may be assumed that ethics management will increase organizational commitment.
Lastly, formal ethics management as a control device is associated with high organiza-
tional performance by improving employees’ work-related attitudes and preventing waste of
resources (Adler & Borys, 1996). Moreover, by providing a clear guide to act, formal ethics
management prevents work-related ethical conflict that jeopardizes productivity, job perform-
ance, and even organization financial performance (Burke & Black, 1990). In line with this,
we assume that formal ethics management will have a positive effect on organizational per-
formance and posit the following hypotheses:
Hypothesis 1a: A higher level of formal ethics management will be associated with a higher
level of organization’s ethical performance.

Hypothesis 1b: A higher level of formal ethics management will be associated with a higher
level of organizational commitment.
Hypothesis 1c: A higher level of formal ethics management will be associated with a higher
level of organizational performance.

Many business ethics studies have strongly emphasized ethical climate among the various
informal ethics management systems (Murphy, 1988). The ethical climate refers to a shared
perception that provides guidance on how to deal with ethical issues in an organization
(Martin & Cullen, 2006; Trevi~no, Butterfield, & McCabe, 1998; Vardi, 2001). There are five
types of climates: instrumental; caring; independence; rules; and law and code. The ethical
climate supports the carrying out of an organization’s procedures and policies and guides
members’ behavior by suggesting clear ways to overcome ethical issues. Hence, the ethical
climate not only affects individual decision making (Martin & Cullen, 2006; Peterson, 2002;
Vardi, 2001; Weber, Kurke, & Pentico, 2003), but also dictates the appropriate response to
ethical dilemmas (Bartels, Harrick, Martell, & Strickland, 1998). The effect of ethical climate
on unethical behavior has been explored mostly in business organizations (Kish-Gephart,
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 5

Harrison, & Trevi~no, 2010); few studies have been conducted in the context of public organi-
zations. Bartels and colleagues (1998) found that ethical climate was associated with a
reduced level of serious ethical violations as well as stronger organizational ability to suc-
cessfully handle ethical violations. Based on these findings, we can assume that informal eth-
ics management will reduce unethical behavior in an organization.
In particular, ethical climate can increase organizational commitment by improving
employees’ awareness of the fairness of the organization; reducing cognitive dissonance; pro-
moting trust in the organization; and reducing role stress (Kim, 2007). Plenty of studies on
private organizations have shown a variety of positive consequences of perceived ethical cli-
mate in both individual and organizational contexts (Cullen, Parboteeah, & Victor, 2003;
Martin & Cullen, 2006; O’Fallon & Butterfield, 2005; Vardi, 2001). Martin and Cullen
(2006) found through path analysis that a caring ethical climate was positively associated
with organizational commitment, while an instrumental ethical climate was negatively associ-
ated with organizational commitment. The findings of more limited studies on the public sec-
tor mostly support these results in the private-sector context. For instance, Kim (2007)
discovered that law-code, social responsibility and efficiency, and group interest climate
types were positively associated with organizational commitment in the public sector. Based
on these findings, we assume that informal ethics management systems will enhance organ-
izational commitment.
Like formal ethics management, informal ethics management as a control mechanism
enhances organizational performance by directing individuals’ behavior and organizational
resources toward achieving organizational goals. Menzel (1993a, 1993b, 1995) found that
informal ethics management was positively associated with organizational performance
dimensions, such as efficiency; effectiveness; excellence; quality; and teamwork. Parker and
colleagues (2003) argued that ethical climate as a type of informal ethics management was
directly associated with job attitude and indirectly associated with job performance. In line
with this, we assume that informal ethics management increases organizational performance
with the following hypotheses:
Hypothesis 2a: A higher level of informal ethics management will be associated with a higher
level of organization’s ethical performance.

Hypothesis 2b: A higher level of informal ethics management will be associated with a higher
level of organizational commitment.

Hypothesis 2c: A higher level of informal ethics management will be associated with a higher
level of organizational performance.

EFFECT OF PERFORMANCE MANAGEMENT ON ETHICAL PERFORMANCE,

ORGANIZATIONAL COMMITMENT, AND ORGANIZATIONAL PERFORMANCE

Performance management is widely used as tool for human resource or program manage-
ment. Performance management in human resource management, for example, can be defined
as a process of managing employee performance through goal setting; performance
6 KHALTAR AND MOON

measurement; performance appraisal; and rewards (Cho & Lee, 2012). It also refers to stra-
tegic planning, setting of expected objectives, and performance evaluation that contributes to
higher performance (Beeri, Uster, & Vigoda-Gadot, 2019). Moynihan (2008) conceptualized
performance management as the use of performance information collected through perform-
ance measurement and planning practices in the decision-making process, and suggested that
performance information is an effective tool that makes public officials more goal-oriented
and accountable (Moynihan & Pandey, 2010). Thus, performance management is anticipated
to improve organizational performance by enhancing individuals’ job performance as well as
employees’ accountability in an organization (Cho & Lee, 2012).
The relationship between performance management and unethical behavior can be
explained by the negative or positive effects of performance management (Deci, 1975;
Heneman, 1992). Performance management may weaken intrinsic motivation that inspires
ethical behavior by engendering an individualistic and egoistic organizational climate
(Gneezy & Rustichini, 2000). Performance management practices are negatively associated
with altruistic behavior in the workplace, intrinsic motivation, and ethical climate (Campbell,
Lee, & Im, 2016; Deckop, Mangel, & Cirka, 1999; Gneezy & Rustichini, 2000; Guerci,
Radaelli, Siletti, Cirella, & Shani, 2015). For example, Guerci and colleagues (2015) found
that performance management practices, such as a rewards and incentive system, were
expected to increase motivation but instead were positively related to an egoistic climate that
engenders self-interest. Schweitzer, Ordo~nez, and Douma (2004) found that individual goal-
setting motivated unethical behavior.
On the other hand, performance management as a control system encourages accountabil-
ity that controls and guides bureaucrat’s behavior particularly ethical behavior which is a
social act created in response to the stresses induced by accountability (Dubnick, 2003). In
this regard, performance management as an accountability enhancing system fosters ethical
behavior and reduces unethical conduct.1 In line with this, we assume that performance man-
agement increases ethical performance.
Performance management has been linked both theoretically and empirically to organiza-
tional commitment as a motivational tool, or in other words, the idea that good performance
will bring extrinsic rewards (Alutto, Hrebiniak, & Alonso, 1973; Newman & Sheikh, 2012a,
2012b; Rusbult, 1983). Moon (2000) found empirical evidence that performance-related prac-
tices, such as goal setting and pay-for-performance, improved organizational commitment.
Jung and Ritz (2014) showed that organizational commitment increases as leaders support
the goal and as goal difficulty increases. Gould-Williams (2003) examined the relationship
between human resource management and performance and found that practices related to
performance management had positive effects on trust, individual outcomes, and organiza-
tional performance. Based on this, we can assume that performance management as an
extrinsic motivation factor will increase organizational commitment.
Lastly, performance management increases organizational performance by directing
employees toward organizational goals and rewarding expectations for performance. This
relationship between performance management and organizational performance can be
explained by goal setting theory and expectation theory (Locke & Latham, 2002; Vroom,
1964). Measurable and well-defined goal-setting increases individuals’ contribution to organ-
izational goals, and measures of evaluation of individuals’ goal achievement allow for
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 7

feedback to help them improve. Links between performance and the expectation of agreed-
upon rewards motivates individuals to perform at a higher level. These theoretical arguments
as well as established links between performance management and organizational perform-
ance suggest that performance management will be an essential antecedent of organizational
performance. We propose the following hypotheses:
Hypothesis 3a: A higher level of performance management practices will be associated with a
higher level of ethical performance.

Hypothesis 3b: A higher level of performance management will be associated with a higher
level of organizational commitment.
Hypothesis 3c: A higher level of performance management will be associated with a higher
level of organizational performance.

Effect of Transformational Leadership on Ethical Performance, Organizational

Commitment, and Organizational Performance

Leadership is the process of influencing or guiding a group of people to contribute their

efforts toward achieving the goal of the organization. Transformational leadership is a
broadly studied leadership style, and many of its positive consequences are discussed in the
literature (Avolio, Zhu, Koh, & Bhatia, 2004; Clover, 1990; Marshall, Rosenbach, Deal, &
Peterson, 1992; Sparks & Schenk, 2001). Transformational leaders achieve these outcomes
by appealing to their followers; motivating them; fulfilling each employee’s emotional needs;
and intellectually inspiring them (Bass, 1990). This kind of leadership can empower ethical
behavior by encouraging ethical decision-making; emphasizing moral development and eth-
ical behavior; promoting trust and team building; and lowering risk for whistleblowers.
These leaders have solid moral standards and ideals, and lead their followers to commit to
the community interest rather than their own interests (Howell & Shamir 2005; Kark &
Shamir, 2002). Transformational leadership can promote ethical behavior through role mod-
eling and its social learning effect, and is associated with a higher level of integrity, greater
moral sense, and higher ethical conduct (Aronson, 2004; Bass & Steidlmeier, 1999; Brown
& Trevi~ no, 2006; Ng & Sears, 2012). Banerji and Krishnan (2000) found that transform-
ational leadership was also negatively related to unethical behavior, such as corruption, nepo-
tism, and bribery. Based on these findings, we can assume that transformational leadership
will be associated with organizational ethical performance.
Transformational leadership enhances both organizational commitment and organizational
performance by advancing a vision or encouraging organizational members to pursue the
vision (Howell & Avolio, 1993). Transformational leaders inspire organizational members to
emotionally engage with their organization by encouraging higher levels of intrinsic value
related to goal attainment (Shamir, Zakay, Breinin, & Popper, 1998); stimulating members to
think critically; inspiring loyalty; giving attention to followers’ personal growth; and devel-
oping innovative ways of working (Avolio, 1999; Bass & Avolio, 1994; Kim & Kim, 2015)
thus strengthening their organizational commitment (Walumbwa & Lawler, 2003). Thus, we
can assume that transformational leadership will increase organizational commitment.
8 KHALTAR AND MOON

Social interaction theorists and social cognitive theorists argue that employees are more
likely to contribute to the organizational goals and vision presented by their leaders when
they perceive their leaders more positively or develop trust in their leaders through social
interaction.
In support of this theory, Muterera (2012) reported that transformational leadership pre-
dicts organizational performance more than transactional leadership does. We propose:
Hypothesis 4a: A higher level of transformational leadership will be associated with a higher
level of organization’s ethical performance.
Hypothesis 4b: A higher level of transformational leadership will be associated with a higher
level of organizational commitment.

Hypothesis 4c: A higher level of transformational leadership will be associated with a higher
level of organizational performance.

Effects of Ethical Performance and Organizational Commitment on Organizational

Performance

Ethical performance entails meeting corporate codes of ethics or ethical standards (Brooks,
1989). Thus, an ethical performance assessment evaluates behaviors or results of organiza-
tional members in comparison to the appropriate ethical standard (Gatewood & Carroll,
1991). Gatewood and Carroll (1991) suggested an integrated conceptual framework to evalu-
ate organizational ethical performance. The framework measures ethical performance, often
specified in existing social law and in organizational and professional code of ethics. In this
study, we conceptualize ethical performance as (non-)compliance with the ethical norms of
organizational members.
Unethical behaviors have negative consequences for the organization; its network ties
with stakeholders; similar organizations; and employees (Greve, Palmer, & Pozner, 2010).
These behaviors can bring changes in the organization through waste of resources due to
increased transaction costs to respond to ethical failure; decreased growth; lost effectiveness;
and reduced learning ability (Zajac & Al-Kazemi, 2000). As proposed by the rational-choice
reputation theory (Alexander, 1999; Podolny, 2010) and the sociological-status theory per-
spective, unethical behavior can reduce resource flows coming from outside by hurting rela-
tionships with various stakeholders outside the organization (Greve et al., 2010) and
damaging similar organizations in the same way. Lastly, unethical behavior can cause an
identity crisis for the organization’s employees and members, which may be harmful to indi-
vidual performance.
Organizational commitment often refers to the relative extent of member's emotional
attachment, connections, and identification with a particular organization. It consists of three
sub-dimensions: (1) strong acceptance of the organization’s goal; (2) eagerness to devote
substantial effort to the organization; and (3) willingness to stay with the organization (Porter
et al., 1974). These three components of organizational commitment can be identified as
affective, normative, and continuance commitments. There is a reciprocal relationship
between organizational commitment and organizational performance. Highly committed
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 9

FIGURE 1 Theoretical model.

employees tend to show their ability to contribute to achieving organizational goals

(Appelbaum et al., 2000; Mowday et al., 1982) and perform a variety of supererogatory roles
in an organization (O’Reilly & Chatman, 1986; Weng et al., 2010). Previous theoretical and
empirical studies suggest that organizational commitment is positively associated with indi-
vidual and organizational outcomes such as goal-oriented behaviors or citizenship behavior
at work (Meyer & Allen, 1991); and organizational performance (Kim, 2004; Tsui et al.,
2013; Vandenabeele, 2009; Wright et al., 2012). Thus, we can assume that organizational
commitment will increase organizational performance. We posit the following:
Hypothesis 5: A higher level of ethical performance will be associated with a higher level of
organizational performance.
Hypothesis 6: A higher level of organizational commitment will be associated with a higher
level of organizational performance.
Figure 1 shows our hypothesized theoretical model for this research. Based on the previ-
ously discussed organizational performance determinants, this study tests managerial factors
(ethics management, performance management, and transformational leadership), an individ-
ual factor (organizational commitment), and an organizational factor (ethical performance).

RESEARCH METHODOLOGY

Data

This research uses data from the Public Administration and Governance Survey for Asia
Pacific Countries, which was conducted to examine public servants’ perceptions of ethical
and managerial issues in selected countries. The survey asked public servants numerous ques-
tions regarding workplace-related matters, such as demographics; organizational commit-
ment; openness; perception of leaders; workplace unethical behavior; ethics management
systems; organizational performance; and so forth. The survey items can be expected to
10 KHALTAR AND MOON

reflect organizational performance. These features make the data suitable to test our hypothe-
ses. The sample consists of 270 Korean public officers in administrative jobs in central gov-
ernment agencies. The average tenure of respondents in their positions was 14.1 years, with
half of the respondents (50.2%) identified as holding supervisory and managerial positions.
Most of the respondents had a bachelor’s degree or higher degree (69.6%), and the majority
consisted of men (71.1%).

Measurements and Methodology

Table 1 presents the survey items that were used to measure all latent and observed variables
in the model. All items, except formal ethical management and ethical performance, were
measured by using a Likert rating scale from 1 (strongly agree) to 7 (strongly disagree).
Formal ethical management was measured as a dummy variable. Ethical performance was
measured using a rating scale from 1 (never) to 7 (always). In the analysis, all Likert scale
variables were reversely coded for the convenience of interpretation of the statistical results.
Organizational performance questions consisted of productivity and service quality of
public organizations, including organizational productivity, customer orientation, and service
excellence. Chun and Rainey (2005) developed items across four organizational performance
dimensions, which were further validated by Lee, Cho, and Kim (2009). These items are
widely accepted subjective performance measures and have already been used many times in
previous performance research (Brewer, 2005; Brewer & Selden, 2000; Moynihan & Pandey,
2007). Cronbach’s a for the measurement was 0.68.
Formal ethics management was measured by three items asking respondents to indicate
their perception of the formal ethics management program, such as whether their agencies
have a whistleblower protection law, code of ethics, and ethics training programs, which are
part of formal ethics management tools. Conceptualized by Weaver, Trevi~no, and Cochran
(1999), Weber and Wasieleski (2013), Brumback (1991), and Proenca (2004), these were
code of ethics, ethics training, and hotline system. Cronbach’s a for the measurement
was 0.63.
Informal ethics management was measured with four items about organizational ethical
climate. For the purpose of this study, organizational ethical climate is considered as an
informal ethical management system (Berman et al, 1994; Kaptein, 2011; Menzel, 2012).
The items were adapted from Trevi~no et al., 1998 and address caring; independence; rules;
and law-codes climates. One item was taken from each of four subscales. Cronbach’s a for
the measurement was 0.84.
Performance management consists of three items about the strategy of performance meas-
urement, performance expectation, and strategic planning in the workplace. Similar items
have been used many times in previous performance management research in order to test
the effects of performance management on organizational performance, public officials’
work-related attitude or behavior, and citizens’ satisfaction and trust in government (Beeri
et al., 2019; Cho & Lee, 2012; Poister, Pasha, & Edwards, 2013). Cronbach’s a for the meas-
urement was 0.73.
Transformational leadership was measured by House’s (1998) scale, which is the scale
most frequently employed in measuring transformational leadership. It consists of six items
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 11

TABLE 1
Variables and Survey Questions

Variables Survey questions

Organizational
performance (a ¼ 0.68)
Formal ethics management
(a ¼ 0.63)
Informal ethics
management (a ¼ 0.84)
Performance
management (a ¼ 0.73)
Transformational
leadership (a ¼ 0.93)
Ethical
performance (a ¼ 0.90)
Organizational
commitment (a ¼ 0.74)
Organizational productivity is high.
We have a strong customer orientation.
We have an excellent civil service system.
There is a whistleblower protection law.
My department has a code of ethics or standard of conduct.
My department has mandatory ethics training.
Following laws or codes of ethics are a major consideration when making
decisions.
People are guided by a sense of right and wrong.
Compliance with rules and procedures is taken seriously.
Decisions and actions are based on what’s best for everyone.
We use performance measurements.
Managers set high performance expectations for employees.
We regularly use strategic planning.
Senior managers often take initiative for developing new programs and
policies. (intellectual stimulation)
Senior managers display exemplary leadership. (role-modeling)
Senior managers ensure that the agency responds well to new problems and
changes in society. (intellectual stimulation)
Senior managers often promote more effective ways of working.
(intellectual stimulation)
Senior managers speak to citizens and elected officials to generate support
for our agency’s mission or programs (vision).
Senior managers have a clear strategic vision for our agency.
Someone misused confidential information.
Someone was discriminated against in a personnel decision.
Funds were inappropriately taken from my organization.
People misrepresented how many hours they worked.
A supervisor was abusive or intimidating toward others.
Someone took credit for another’s work.
Someone engaged in an action that was a conflict of interest.
Large-scale campaign contributors received favorable treatment.
Someone in my department received or gave a bribe or payoff.
I expect to be working here for many years.
I ensure that my work outcomes will last for many years.
Works is a principal source of my happiness.
I enjoy working with others in my department.

adopted from four transformational leadership sub-items (showing vision; becoming influen-
cer; inspiring and developing intellectual curiosity) that are similar to the three transform-
ational leadership components (inspirational motivation, idealized influence, and intellectual
stimulation (Wright et al., 2012). Cronbach’s a for the measurement was 0.93.
Ethical performance was measured by nine items that indicate occurrences of unethical
behavior within an organization, such as corruption; bribery; discrimination; fraud; conflict
of interest; side activities; and so forth. Items developed by Huberts, Pijl, and Steen (1999),
12 KHALTAR AND MOON

TABLE 2
Descriptive Statistics

Variable M SD Min Max

Organizational performance 4.79 1.02 2 7
Ethical performance 5.29 0.96 2 7
Organizational commitment 5.17 0.80 2 7
Ethics management
Formal 5.13 1.83 1 7
Informal 5.30 0.88 1 7
Performance management 5.40 0.73 3 7
Transformational leadership 4.88 0.99 1 7

and validated by Huberts (2018) and Kaptein, Huberts, Avelino, and Lasthuizen (2005) con-
ceptualized unethical conduct/behavior or integrity violations within public sector organiza-
tions. In this study, ethical performance is measured through unethical conduct/behavior or
integrity violations. Cronbach’s a for the measurement was 0.90.
Organizational commitment was measured using four items from Meyer, Allen, and Smith
(1993) addressing affective commitment, normative commitment, and continuance commit-
ment. Cronbach’s a for the measurement was 0.74.
This research tests the relationships among managerial factors; individual factors; organ-
izational factors; and organizational performance. To test the proposed hypothetical model,
we used structural equation modeling (SEM). SEM is a widely used statistical methodology
that tests multivariate relations among latent variables or indirect effects between them
(Byrne, 2013).

RESULTS

Descriptive Statistics

Descriptive statistics and correlation analysis are summarized in Tables 2 and 3. Table 2
presents the descriptive statistics of all variables. For descriptive statistics, organizational per-
formance indicators based on a 7-point Likert-type scale, the mean value of perceived per-
formance was 4.79. The mean value of ethical performance was 5.29; organizational
commitment was 5.17; informal ethics management was 5.30; and performance management
was 5.40. Formal ethics management was measured on a dummy scale, but was reindexed on
a 7-point Likert scale for a comparison of mean value; its mean value was 5.13.
Table 3 shows the correlations among the variables. As anticipated, organizational per-
formance is positively associated with ethics management; performance management; trans-
formational leadership; ethical performance; and organizational commitment. Ethics
management, performance management, and transformational leadership appear to be posi-
tively associated with ethical performance, organizational commitment, and organizational
performance.
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 13

TABLE 3
Correlation Analysis

Variable 1 2 3 4 5 6
Ethics management
Formal 1
Informal 0.237 1
Performance management 0.311 0.482 1
Transformational leadership 0.225 0.450 0.447 1
Ethical performance 0.145 0.415 0.272 0.429 1
Organizational commitment 0.307 0.423 0.426 0.433 0.315 1
Organizational performance 0.238 0.452 0.505 0.531 0.356 0.444 1

Notes: The numbers are standardized coefficients. p < 0.05; p < 0.01.

TABLE 4
Model Fit for SEM

Model v2 df (v2/df) RMSEA SRMR CFI TLI

Criteria p > 0.05 <2 <0.06 <0.08 >0.9 >0.9
CFA 732.849 (p ¼ 0.0) 418 1.753 0.053 0.058 0.930 0.917
SEM 736.659 (p ¼ 0.0) 419 1.758 0.053 0.059 0.929 0.916

Notes: SEM: structural equation model; CFA: confirmatory factor analysis; RMSEA: root mean squared error
of approximation; SRMR: standardized root mean squared residual; CFI: comparative fit index; TLI: Tucker-
Lewis index.

SEM Analysis

We used the IBM SPSS Amos 21 statistical package to test the model. SEM analysis was
conducted by using the two-step approach to test model fit and the research hypotheses as
suggested by Anderson and Gerbing (1988). In addition, to test the significance of indirect
effects, a bootstrapping method with 2,000 resamples and 90% confidence intervals was con-
ducted. First, we estimated the measurement model via confirmatory factor analysis (CFA)
and then tested the SEM. CFA was conducted to test whether the data fit the proposed meas-
urement model. Through the given model fit indices under the CFA, we are able to know the
latent variable’s reliability and validity. Even though several model fit alternatives exist,
Kline (2010) recommended the results of the v2 test; root mean squared error of approxima-
tion (RMSEA); standardized root mean squared residual (SRMR); comparative fit index
(CFI); and Tucker-Lewis index (TLI). As shown in Table 4, our CFA shows a satisfactory fit
for the model (v2/df ¼ 1.753; RMSEA ¼ 0.053; SRMR ¼ 0.058; CFI ¼ 0.930; TLI ¼
0.917). Widely acceptable and good model fit indices are CFI near or greater than 0.95;
SRMR less than 0.08; RMSEA less than 0.06; and relative v2 (v2/df) less than 2 (Bentler,
1990; Hu & Bentler, 1999; Kline, 1998). Standardized item loadings ranged from 0.49 to
0.87 for the CFA.
Figure 2 shows the results of the hypothesis tests in graphic form. Hypotheses 1a, 1b, and
1c proposed that formal ethics management would be positively associated with ethical
14 KHALTAR AND MOON

FIGURE 2 SEM analysis result.

Notes: The numbers in the figure are standardized coefficients.
Path was identified as follows: significant path. Insignificant path.
p < 0.05, p < 0.01

performance, organizational commitment, and organizational performance. These hypotheses

were not supported at a significant level.
Hypotheses 2a, 2b, and 2c proposed that informal ethics management would be positively
associated with ethical performance, organizational commitment, and organizational perform-
ance. These hypotheses were partially supported: informal ethics management was found to
have a significant effect on ethical performance (b ¼ 0.343, p < 0.01) and organizational
commitment (b ¼ 0.203, p < 0.05), but not on organizational performance.
Hypotheses 3a, 3b, and 3c proposed that performance management would be positively
associated with ethical performance, organizational commitment, and organizational perform-
ance. These hypotheses were partially supported: performance management was found to
have a significant effect on organizational commitment (b ¼ 0.247, p < 0.01) and organiza-
tional performance (b ¼ 0.231, p < 0.05), but not on ethical performance.
Hypotheses 4a, 4 b, and 4c proposed that transformational leadership would be positively
associated with ethical performance, organizational commitment, and organizational perform-
ance. These hypotheses were supported: performance management had a significant effect on
ethical performance (b ¼ 0.322, p < 0.01), organizational commitment (b ¼ 0.206, p < 0.01),
and organizational performance (b ¼ 0.370, p < 0.01).
Hypothesis 5 proposed that ethical performance would be positively associated with
organizational performance. This hypothesis was supported: ethical performance was found
to have a significant effect on organizational performance (b ¼ 0.176, p < 0.05).
Hypothesis 6 proposed that organizational commitment would be positively associated
with organizational performance. This hypothesis was supported: organizational commitment
was found to have a significant effect on organizational performance (b ¼ 0.182, p < 0.05).
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 15

TABLE 5
Total Effects

Effect FEM IEM PM TL

OP
Direct effect 0.028 (p ¼ 0.988) 0.102 (p ¼ 0.272) 0.302 (p ¼ 0.043) 0.311 (p ¼ 0.01)
Indirect effect 0.123 (p ¼ 0.285) 0.077 (p ¼ 0.019) 0.049 (p ¼ 0.195) 0.079 (p ¼ 0.023)
Total effect 0.094 (p ¼ 0.767) 0.179 (p ¼ 0.044) 0.351 (p ¼ 0.022) 0.390 (p ¼ 0.01)

Notes: The numbers in the figure are unstandardized coefficients. FEM: formal ethics management; IEM: infor-
mal ethics management; PM: performance management; TL: transformational leadership; OP: organizational
performance.
p < .05; p < .01.

The results of bootstrapping analysis are summarized in Table 5. This analysis was
conducted to examine the indirect effects of the exogenous variables and shows that only
informal ethics management and transformational leadership had a significant positive
indirect effect on organizational performance via ethical performance and organizational
commitment in public organizations; informal ethics management (b ¼ 0.077, p < 0.05)
and transformational leadership (b ¼ 0.079, p < 0.05) were found to be significant
determinants of organizational performance via ethical performance and organizational com-
mitment. The standardized indirect effect of informal ethics management was
[(0.343)(0.176)] þ [(0.203)(0.182)] ¼ 0.097, and transformational leadership’s indirect effect
was [(0.322)(0.176)] þ [(0.206)(0.182)] ¼ 0.094. The 90% confidence interval of ethics man-
agement ranged from 0.025 to 0.156, whereas the confidence interval of transformational
leadership ranged from 0.024 to 0.165.

DISCUSSION AND CONCLUSIONS

This research examined numerous important factors that affect organizational performance.
Our analysis of survey results showed that informal ethics management and transformational
leadership improve organizational performance by reducing unethical behavior within an
organization and increasing organizational commitment, while performance management dir-
ectly improves organizational performance. As mechanisms to increase an organization’s eth-
ical performance, two antecedents (informal ethics management and transformational
leadership) directly contribute to improve organizational performance. Likewise, as mecha-
nisms to increase organizational commitment, three antecedents (informal ethics manage-
ment, performance management, and transformational leadership) are directly associated with
organizational performance. Our combined SEM outcomes suggest that generally, informal
ethics management and transformational leadership are associated with organizational per-
formance by improving organizational ethical performance and organizational commitment
within the organization.
The contributions of the present study are that it explicates the indirect effects of ethics
management, performance management, and transformational leadership on organizational
performance. The findings have a number of practical implications. First, it is clear that
16 KHALTAR AND MOON

managers who want to increase organizational performance through encouraging ethical per-
formance and organizational commitment need to enhance the ethical climate and display
transformational leadership rather than just adopt formal ethics programs or engage in per-
formance management.
Second, informal ethics management is an antecedent not only of reduced unethical
behavior in an organization but also of increased organizational commitment and organiza-
tional performance. This suggests that informal ethics management could be an effective way
to improve individual and organizational outcomes by preventing destructive attitudes and
motivating employees to become more goal-oriented toward organizational goals.
Third, results indicate that transformational leadership is an important factor in organiza-
tional commitment as well as an organization’s ethical performance. Thus, to increase an
organization’s ethical performance, leaders need to do more than just put formal ethics pro-
grams in place. They must display transformational leadership by being ethical role models
themselves, enforcing ethical decision making, bringing up ethical dilemmas for discussion,
and removing potential whistleblowers’ fears. Formal ethics management tends to be more
compliance-based, while informal ethics management tends to be more value-oriented and to
emphasize organizational learning and shared values within an organization. From this per-
spective, value-oriented ethics management systems are more effective than compliance-ori-
ented programs (Trevi~no, Weaver, Gibson, & Toffler, 1999). Our findings support this result
by identifying the positive effects of informal ethical management and transformational lead-
ership on ethical performance.
Lastly, the results of this study show that ethical performance as well as organizational
commitment within an organization affects organizational performance, which suggests the
significance of practice of ethics management in public organizations not only for ethical per-
formance but also for organizational performance.
This research has some limitations. This study used subjective performance measurements
based on survey data, which suggests a potential common method bias in the study. Despite
this potential limitation, it should be also noted that a balanced view on common source bias
is also needed in public administration studies like in psychology and management fields
(George & Pandey, 2017; Pandey, 2017). There is also an argument against assessing ethical
performance through self-reported surveys (Gatewood & Carroll, 1991). However, the advan-
tage of surveys is in their efficiency, confidentiality, and comparability and that they allow
the analysis of results using advanced statistical methods (Kaptein et al., 2005).
We recognize that the future should continue to address the relationship between ethics
and organizational performance as well as that of performance management and ethics man-
agement with methodological triangulation. More comparative studies also need to be pur-
sued to compare differences and similarities in those relationships among different countries
where different ethical climates are found.

NOTE

1. It should be noted that the emphasis on performance and competition often lead to cheating and unethical
behaviors (Bohte & Meier, 2000), which is different from performance management where accountability
is embedded.
 ETHICAL RESPONSIBILITY OF PUBLIC ADMINISTRATORS 17

FUNDING

This work was supported by the Ministry of Education of the Republic of Korea and the
National Research Foundation of Korea (NRF-2017S1A3A2067636).

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