The Leadership Quarterly 12 (2001) 197 ± 217

An organizational climate regarding ethics:

the outcome of leader values and the practices that
reflect them
Marcus W. Dicksona,*, D. Brent Smithb, Michael W. Grojeanc, Mark Ehrhartd
a
Psychology Department, Wayne State University, 71 West Warren Street, Detroit, MI 48202, USA
b
Department of Organizational Behavior, School of Industrial and Labor Relations, Cornell University,
Ithaca, NY 14853, USA
c
The Pentagon, 300 Army, Washington, DC 20310-0300, USA
d
Psychology Department, University of Maryland, College Park, MD 20742, USA

Abstract

In this article, we argue that the organizational climate regarding ethics Ð the shared perception of
what is ethically correct behavior and how ethical issues should be handled within an organization Ð
is an outgrowth of the personal values and motives of organizational founders and other early
organizational leaders. We begin by arguing that one common label for the climate regarding ethics
construct Ð ``ethical climate'' Ð is inappropriate. We also argue that climate regarding ethics has an
impact on organizational outcomes, including organizational outcomes that do not have explicit ethical
components. We propose that this impact largely occurs through the mediating mechanisms of
organizational cohesion and morale. We conclude by discussing the variety of antecedents and
outcomes related to climate regarding ethics. D 2001 Elsevier Science Inc. All rights reserved.

1. Introduction

As recently as the 1960s, a commonly held view of management was that it included both
an efficiency component and a moral/ethical component (Cullen, Victor, & Stephens, 1989).
Managers were seen as not only responsible for the financial success of their organizations,

* Corresponding author. Tel.: +1-313-577-0753; fax: +1-313-577-7636.

E-mail address: mdickson@sun.science.wayne.edu (M.W. Dickson).

1048-9843/01/$ ± see front matter D 2001 Elsevier Science Inc. All rights reserved.
PII: S 1 0 4 8 - 9 8 4 3 ( 0 1 ) 0 0 0 6 9 - 8
198 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

but also for instilling moral values and ethical standards in their subordinates (e.g., Mautz &
Sharaf, 1961). Indeed, in his classic text The Functions of the Executive, Chester Barnard
(1938) felt compelled to emphasize the balance between these two foci of leadership when he
noted, ``To suppose that leadership, that the moral elements, are the only important or
significant general factor in organization is as erroneous as to suppose that structure and
process of Cooperation without leadership are sufficient'' (p. 259, emphasis added). In recent
years, however, the moral/ethical component of management has largely been abandoned
(e.g., Francis, 1990; Shaub, Finn, & Munter, 1993), with managers seeing their primary Ð or
only Ð obligation to be ensuring organizational productivity (Cohen, 1995).
However, some organizations have consistently maintained a focus on the importance of
ethical behavior among organizational leaders and subordinates. Take, for instance, the US
Army. Although it could be argued that the US Army is somewhat atypical, it does share
many characteristics with traditional hierarchical, command-and-control organizations. The
US Army has consistently maintained its focus on the importance of ethical conduct both in
and of itself and for the secondary benefits of promoting unit cohesion and morale (Smidt,
1998; US Army, 1990, 1998). However, even given this longstanding emphasis on individual
and collective ethical behavior and on the explicit selection and development of leaders who
embody these values, the Army has historically and recently experienced severe lapses of
ethical behavior at all ranks in the organization. If this is the case, how can organizations that
have not historically focused on instilling specific personal ethics and values in their members
hope to ensure appropriate behavior by their members?
Recent authors (e.g., Blanchard & O'Connor, 1997; Donnithorne, 1993; Kanungo &
Mendonca, 1996; Petrick & Quinn, 1997; Srivastva & Associates, 1988, and others) have
begun to address this question, refocusing attention on the importance of managerial ethics.
Perhaps these writings foretell the beginning of a new cycle of attention to organizational
ethics. We applaud this resurgence of interest, and hope to advance the development of
contemporary theory in this arena by addressing several issues that have not been addressed
in other contemporary writing on ethics in organizations.
Specifically, we intend to address (1) the antecedents of an organizational climate related to
ethics and (2) a proposed explanation for the process by which an organizational climate
related to ethics impacts important organizational outcomes. We propose that organizations
can best ensure that their members approach ethical situations in ways the organizations
desire by intentionally establishing a strong organizational ``climate regarding ethics.'' We
argue that this will most likely and efficiently occur when organizational founders and
subsequent leaders explicitly attend to their own values, determine the values that they wish
to instill in organizational members, and make strategic organizational decisions that will
facilitate the development of shared perceptions of appropriate ethical behavior.
We begin by defining the general topic of organizational climate, and then turn to the
specific case of climate regarding ethics. We focus on the role of leader values in the creation
of a climate regarding ethics, and on the congruence between the values enacted in the
organization and the values of the potential organization member in determining who joins
the organization. We then present a model of antecedents and consequences (desirable and
undesirable) of a climate regarding ethics. We conclude by highlighting ways in which
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 199

organizations can establish climates regarding ethics in line with the values of the organiza-
tional leaders. Throughout the article, we will draw on a wide range of psychological and
organizational theories as the bases for our assertions.

2. Organizational climate

Organizational climate has a long history in social sciences research (e.g., Argyris, 1957;
Dieterly & Schneider, 1972; Fleishman, 1953; Joyce & Slocum, 1984; Lewin, Lippitt, &
White, 1939; Litwin & Stringer, 1968). Among the most commonly accepted definitions of
organizational climate is that proposed by Schneider (1975): organizational climate comprises
perceptions that are ``psychologically meaningful molar [environmental] descriptions that
people can agree characterize a system's practices and procedures'' (p. 474).
The climate construct was initially developed to help explain meaningful aspects of
people's psychological environments. If, as Lewin et al. (1939) argued in the well-known
equation B = f( P,E), behavior is jointly determined by characteristics of the person and of the
environment, then researchers needed a means of explaining environmental variation. Climate
served this purpose. Thus, climate does not represent individuals' idiosyncratic descriptions
of organizational characteristics. Rather, for climate to be a meaningful construct at an
organizational level of analysis, there must be shared perceptions of these organizational
characteristics. Only when there is perceptual agreement does an organizational climate
objectively exist. In other words, organizational climate is not an assessment of what
organizational members believe the organization should be like, but rather is an assessment
of the shared perception of what the organization actually is like. Indeed, research suggests
that organization members can clearly distinguish between what is and what they would like
(Luthar, DiBattista, & Gautschi, 1997).
It is also important to note that organizations have multiple climates, with different climates
being associated with different aspects of the organization's functioning (Schneider, 1975)
When the climate construct first emerged, researchers attempted to develop general measures of
climate based upon the immediate aspects of an individual's work environment (e.g., super-
vision, work group characteristics, and job or task characteristics). However, general measures
of climate subsumed measures of leadership, group interaction and cohesion, and job
satisfaction, leading some to question the uniqueness and utility of the construct (e.g., Ott,
1989). To escape this redundancy, researchers strategically focused the construct on the
particular types of climates that can emerge in an organization. For example, organizational
climates for safety (Zohar, 1980, 2000), customer service (Schneider & Bowen, 1995;
Schneider, Parkington, & Buxton, 1980), and innovation (Abbey & Dickson, 1983) are among
the types of climates that have been identified and examined in recent years. In this article, we
are primarily interested in climates regarding ethics and how they emerge in organizations.
One important, but often overlooked, implication of this standard definition of climate is
that climate is defined locally. In other words, the climate of an organization is what the people
inside the organization say it is, rather than what people outside the organization say or think it
is, or wish it would be. This has been a central tenet of the climate construct since Litwin and
200 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

Stringer first presented a set of six dimensions of climate based on member perceptions at a
conference in 1966 (appearing in press in 1968; see Reichers & Schneider, 1990, for further
discussion of the development of the climate concept). Clearly, there may be influences from
the larger society on the development of a given climate in a given organization, as when a
climate for diversity forms following an organization's adoption of an affirmative action
policy. For example, Western observers could look at two organizations Ð one where women
comprise 5% of management positions and the other where women comprise 50% of
management positions Ð and see clear distinctions. To the members of those organizations,
however, those proportions could both represent a climate for diversity, depending on the
larger societal setting (Dickson, Aditya, & Chhokar, 2000). Thus, climate is determined by the
organizational members' shared perceptions of the policies, practices, and procedures that are
rewarded, supported, and expected in that organization (Reichers & Schneider, 1990).
It is also important to note that organizational climates vary in both strength and direction
(Schneider, Salvaggio, & Subirats, 2000). Climate strength depends on the degree of
agreement among the members of the organization about the climate. As Schneider et al.
(2000) note, there must be at least a certain level of agreement to declare that a climate
actually exists (often operationalized as an rwg of .70 or greater). Even so, there is still
significant variation in agreement levels possible beyond that required to declare the existence
of a climate, and this issue of variance/agreement is an important, and often overlooked,
issue. Climate direction, on the other hand, refers to whether the members of the organization
share a perception that a high or low level of the variable in question is appropriate. Thus, for
example, the employees in an organization with a monopoly on its products or services may
share a strong perception that going out of their way to satisfy customer desires is
counterproductive and not rewarded compared to simply racking up more sales, and thus
the climate for service would be strong and negative.
Lastly, we should note that there is much overlap between the constructs of organizational
climate and culture. Although the two constructs developed from distinctly differently
disciplines and are based on substantially different assumptions (Reichers & Schneider,
1990), they both attempt to explain the process by which formal and informal rules developed
to guide and govern behavior in organizations. Denison (1996) aptly noted that the recent
emergence of survey-based, quantitative culture research (see Ashkanasy, Broadfoot, &
Falkus, 2000, for examples) has further blurred the distinction between organizational climate
and culture. As we move to a discussion of the climate regarding ethics, these lines become
even less distinctive.

2.1. Climate development

Given that climates represent people's perceptions of relatively objective organizational

characteristics (e.g., policies, practices, and procedures), how do specific climates emerge in
an organization? Schneider and Reichers (1983) attribute the development of climates to three
sources: common exposure of organizational members to the same objective structural
characteristics; attraction, selection, and attrition of organizational members, resulting in a
homogeneous set of members; and social (symbolic) interaction leading to shared under-
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 201

standings/meanings among organizational members. We would like to build on this model by

offering a sequence that we believe explains the emergence of climates, in general, and the
climate regarding ethics, in particular. The components of this model are not new, and our
thinking is heavily influenced by the work of organizational scientists like Schein (1992),
Schneider (1987), and Schneider, Goldstein, and Smith (1995), and personality psychologists
like Buss (1992).
Climate formation begins with the founder of an organization. The founder and early
leaders bring to the organization their individual values, and these values play a primary role
in determining an organizations strategy, structure, climate, and culture. (We here use the term
``values'' broadly, incorporating both the dispositional sense in which values are seen as most
akin to personal motives (Hogan & Hogan, 1996), and also the more traditional sense in
which values are seen as related to personal ethics and morals.)1
Several studies exist in support of the importance of the founder in establishing organiza-
tional structures, culture, and climates. For example, Kimberly's (1980) case study of the
founding of a medical school showed that the founding dean had a clear and significant
impact on the unique goals, structures, processes, and culture of the school. Schein (1992)
presents three separate cases supporting this process. His cases suggest that founders choose
subordinates with similar basic assumptions about organizing, and with similar personality
and demographic characteristics. Schein notes, ``So over the course of its first decade, the
organization tended to hire and keep only those kinds of people who fitted the assumptions
[of the founder] and were willing to live in the system even though it might at times be
frustrating'' (p. 224). Additionally, Miller and DroÈge (1986) have shown that the personalities
of CEOs are related to the form of the structures in their organizations and Giberson and
Resick (2001) have shown congruence between CEO personality. Finally, Schein (1992, p.
227) notes that ``In the early life of any new organization one can see many examples of how
partners or co-founders who do not think alike end up in conflict and that results in some
people leaving, thus creating a more homogeneous climate for those who remain.''
Schneider et al. (1995) argue that the development of an organization is in fact analogous
to a projective personality measure (e.g., the TAT). Faced with an ambiguous context and
little external guidance, the top managers/founders make decisions regarding process and
structure that are consistent with their values and personality. Buss (1992) would likely agree,
based on his argument that that it is a basic human process to attempt to manipulate the
environment to achieve personality ± environment congruence. The development of an
organization can thus be seen as the enactment of these values and the manipulation or
creation of an environment that maintains a consonance with individual personality. Thus,
early organizational leaders make decisions about organizational structure and organizational

1
Schwartz provides a useful definition of values in that they are desirable goals that cross situations, vary in
importance, and serve as a guiding influence in a person's life. Schwartz (1994) further identifies four implicit
concepts embedded in this definition, ``(1) they serve the interests of some social entity, (2) they can motivate
action Ð giving it direction and emotional intensity, (3) they function as standards for judging and justifying
action, and (4) they are acquired both through socialization to dominant group values and through the unique
learning experiences of individuals'' (p. 21).
202 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

policies, practices, and procedures that are congruent with and follow naturally from their
own personal sense of what is right and wrong, as well as their personality characteristics.
Further, James (1998) suggests that values are important perceptual filters. People frame
external events in terms of their personal values and motives. For example, a person with
strong achievement orientation will likely see competitive forces at play in many circum-
stances. In other words, values not only play a role in founders' and top leaders' decisions
regarding structure and processes that will be put in place in a fledgling organization, but they
also affect people's interpretation of external events. The leader is likely to choose an initial
cadre of associates that share his/her vision for the organization, and these people are
consequently likely to share the values of the founder. That is, they are likely to interpret
external events similarly and agree with basic decisions regarding structure and process. Put
differently, initial organization members are likely to perceive the work world from similar
``frames,'' with some people interpreting the world in terms of symbols, some in terms of
power and politics, some in terms of structure, etc. (Bolman & Deal, 1992). Of course, over
time the direct impact of the founder and initial leaders decreases, especially as the
organization goes through turnover among top leaders and experiences major shifts in the
marketplace, merges with or acquires other organizations, and/or experiences other discon-
tinuous changes (e.g., Schein, 1992).
As the organization grows over time, these initial decisions made by early leaders form
the basis for the nascent organization's climate and culture. As climate and culture develop,
the organization develops a reputation based on the values and goals that are embodied in the
climate and culture. This reputation serves as the catalyst for what Schneider (1987) referred
to as the Attraction±Selection±Attrition (ASA) model, the natural outcome of which is
restricted range within organizations on a variety of personal variables, including personality
and values. The ASA model developed from the recognition that people are not randomly
assigned to organizations Ð they actively choose the organizations to which they wish to
belong and for whom they wish to work, and similar people are presumed to choose to
belong to a given organization (Kristof, 1996). This idea is explicated in detail by Schneider
(1987) and Schneider et al. (1995).
According to the ASA model, people are attracted to (and therefore attempt to join)
organizations in which they believe they would ``fit'' (e.g., Judge & Cable, 1997). In other
words, an assessment of the degree to which one's own values and personality would mesh
well with the values and tasks of the organization determines whether or not a person chooses
to apply, and accept an offer from, to a given organization. This process is the ``Attraction''
component of the model, and the first reduction in the range of personalities and values in an
organization occurs here. The organization then does its own assessment of the people who
apply, and invites those who are believed likely to ``fit'' to join the organization. This is the
``Selection'' component of the model, and the second wave of range restriction in personality
and values occurs here. Finally, those who do join an organization and find that they were
wrong Ð that the fit is poor Ð are likely to leave the organization to find another place where
the fit would be better. This is ``Attrition'' and the third wave of range restriction occurs here.
As a result of this process, organizations become more homogeneous on individual level
variables (Schneider, Smith, Taylor, & Fleenor, 1998).
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 203

In other words, organization members tend to be similar to each other, to experience the
same events, and to interpret those events in similar ways, because they interact with each
other in deciphering the events' meanings. Thus, they experience the organization in similar
ways and their reports of characteristic system practices and procedures will generally be
similar. We propose that the degree of this homogeneity impacts the strength of shared
perceptions of the organization's climate. Note that at the organization's founding, the
founder is primarily focused on Selection first (i.e., the founder invites others to join his/her
new and previously unknown organization), while in later organizational life the Attraction
component comes first (i.e., the organization is known to others, who make an assessment of
potential fit based on organizational reputation before deciding whether or not to apply to
that organization).
As organizational members interact in an organization they tend to develop a common
language and understanding of important organizational symbols. That is, interaction further
refines the rough homogeneity that began with the ASA model. This concept, that through
interaction common meaning and understandings develop, is at the core of symbolic
interactionism and social constructionist thought (cf. Berger & Luckmann, 1967).

3. Climate regarding ethics

The world of organizational ethics is often quite murky, without clear guidance as to how
one is expected to behave when ethical issues emerge. Jackall's (1988) book Moral Mazes:
The World of Corporate Managers, provides a detailed look inside the day to day decision
making processes of organizational leaders, noting how often senior executives avoid giving
clear guidance to subordinates on how to handle moral/ethical problems. In some cases,
Jackall argues, senior executives behave this way in order to give themselves cover in case
anyone ever questions the actions of their subordinates Ð the executives can then claim never
to have told the subordinates to do whatever was done. In such an environment, lower level
managers are most likely to try to protect themselves in any way possible, and to not be
responsible for any ethical decisions, or at least not to get caught.
We believe that what Jackall (1988) describes are cases in which either (1) the organiza-
tional climate as it relates to ethical issues is weak Ð there is no clearly defined and
consistently reinforced process or structure to provide guidance when confronted with an
ethical problem or (2) the climate is in fact strong, but it is a climate of self-preservation rather
a climate about ethics. In neither case does top management make a clear statement, backed
up by practice and rewards, about how organization members should address ethical issues
that arise, or even how to determine whether an issue has ethical components. In other words,
there is no strong organizational climate regarding ethics in the organization. It is this aspect
of organizational climate to which we now turn.
Let us first clarify our choice of terms, and define those terms. There has been a substantial
amount of literature on the topic of ``ethical climate,'' primarily driven by Victor and Cullen's
(1987) initial work on the topic. They define ethical climate as ``the shared perception of what
is ethically correct behavior and how ethical issues should be handled'' within an organ-
204 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

ization (pp. 51±52), and state that ethical climate ``helps to determine (1) which issues
organization members consider to be ethically pertinent and (2) what criteria they use to
understand, weigh, and resolve these issues'' (Cullen et al., 1989, p. 51). To place this topic
more clearly in line with other forms of climate (cf. Schneider, 1987), ethical climate can be
defined as ``the policies, practices, and procedures in an organization that are rewarded,
supported, and expected regarding ethics.'' In other words, ethical climate is not focused on
``what is right or wrong'' but rather focuses on the things that organization members perceive
the organization to see as ethical. We agree with this definition and description.
However, the phrase ``ethical climate'' itself has proven problematic, for two main reasons.
First, when most people see the phrase ``ethical climate,'' one aspect of their interpretation is
generally ``a climate for behaviors that are generally seen as ethical in the larger society.''
However, as discussed earlier, climate is of necessity defined locally, and an organization
could easily have a climate in which the things seen as ethical within the organization would
not be seen as ethical in the broader society. Thus, confusion about what precisely is meant
can develop. Second, a common interpretation of the phrase ``ethical climate'' is that it refers
to ``a strong climate for ethical behavior.'' However, it is quite common for there to be little
agreement around ethical issues within an organization (i.e., a weak climate), and thus, more
confusion can develop. We have therefore chosen to use the term ``climate regarding ethics''
to avoid the confusion arising from describing the climate in question as ``ethical.'' None-
theless, we do adopt the definition presented by Victor and Cullen (1987), and place our work
within the well-developed framework of literature that has developed on ethical climate.2
To date, the literature on what we now call climate regarding ethics has not had a large
impact on the broader study of organizational behavior, or on the study of the effects of
leaders and their values on organizations. We believe that this is not indicative of the potential
usefulness of the concept for aiding in understanding leadership and organizational function-
ing, but rather is a function of the development of the concept. Much of the initial work on the
climate regarding ethics was done by Victor and Cullen (1987, 1988), including the
development of the Ethical Climate Questionnaire (Victor & Cullen, 1987), which appears
to be the most widely used measure of the climate regarding ethics. Additionally, much if not
most of the literature to date on the climate regarding ethics has been published in a single
journal, the Journal of Business Ethics. We believe that, as the concept of the climate
regarding ethics becomes better known through publication in a wider range of outlets, and as
measurement of the construct is improved, the climate regarding ethics will come to be seen
as an important consequence of leader behavior, and as an important predictor of a range of
important organizational outcomes. While some theorists in this arena posit that the climate
regarding ethics should be related to organizational outcomes that have ethical components,
but not to organizational outcomes that have no ethical components, we will argue in
subsequent sections that the climate regarding ethics is likely to have some impact on

2
In this sense, we conceive of climate regarding ethics differently than do Nicotera and Cushman (1995), who
argue that there can be tremendous range in what is considered an ``ethical'' climate, but that to be ethical, it must
be seen by the larger society as ethical. Similarly, Kanungo and Conger (1993) and Kanungo and Mendonca
(1996) argue that altruism must be a central aspect of any ``ethical climate.''
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 205

organizational outcomes with no significant ethical components, primarily through the

mediating influences of morale and cohesion. Before addressing organizational outcomes,
however, we first turn to the antecedents of the climate regarding ethics.

3.1. Antecedents of the climate regarding ethics

While a relatively new research area, the climate regarding ethics has been found to have
several antecedents. Among other things, perceptions of the climate regarding ethics have
been shown to be affected by gender (Luthar et al., 1997), age (England, 1978), ethical
education (Luthar et al., 1997), personality traits (Nelson & Gilbertson, 1991), and organiza-
tional career stage (Barnett & Karson, 1989).
Victor and Cullen (1987), in their original work laying out the construct of ethical climate,
hypothesized that there are three primary antecedents to what we now call the climate
regarding ethics: social norms, organizational form, and firm-specific factors. We will briefly
address each of these in turn.

3.1.1. Social norms

Victor and Cullen (1988) note that social norms are an important aspect determining an
organization's climate regarding ethics Ð these norms provide a stimulus against which
organizational leaders and members react. In the majority of cases, the bulk of an
organization's ideas about ethical behavior is within the range of what the larger society
sees as ethical. In support of this argument, recent research (Jackson, 2000) suggests that
there are significant organizational level of analysis differences in the ethical decision-making
processes attributable to organizational country of origin (i.e., organizations subject to
different social norms).
There are, however, two related points that should not be overlooked here: (1) the climate
regarding ethics, like other forms of climate, is defined locally and (2) the aspects of climate
that are most salient are generally those that differ from the norm.
To address the first point, it is important when talking about the climate regarding ethics to
avoid the trap of thinking of it in terms of whether organizations behave in ways that the
larger society see as ethical. The climate regarding ethics is not whether organizations behave
in ways that society sees as ``right'' or ``wrong,'' but rather addresses the question of whether
people in organizations agree about what the organization sees as ethical, and what the
organization expects of members when they are confronted with ethical dilemmas. Thus, it is
entirely possible for organizations to have a strong climate regarding ethics Ð strong
agreement among members as to what is ethically correct behavior and how ethical issues
should be handled Ð which is contrary to the prevailing sense of ethics in the larger society.
Extreme examples of this abound. The Ku Klux Klan historically engaged in behaviors that
were broadly seen as beyond the ethical pale, but within the organization there was high
agreement about both the expectations of the organization, and about the moral rightness of
the behaviors (e.g., MacLean, 1995). The same can be said for terrorist organizations,
organized crime ``families,'' extreme animal rescue organizations (e.g., the Animal Liberation
Front), and a host of other such organizations.
206 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

This phenomenon is not limited to extreme organizations, however Ð the recent Microsoft
trial revealed patterns of organizational behavior that were seen as anticompetitive (and
therefore illegal and ``wrong'') by one segment of the population, most notably the US
government prosecutors, while those within Microsoft were adamant and nearly unanimous
in their assertions that the behaviors were entirely appropriate (United States v. Microsoft,
1999, Publicly Released Deposition Transcripts). Wal-Mart provides another example of
corporate behaviors which are seen by some outside the organization as unethical, leading to
community protests to prevent opening of Wal-Mart stores in order to ``preserve the
downtown community,'' which is seen as threatened by the opening of a superstore, as
shown in newspaper articles with headlines like ``UNC Students Protest Wal-Mart Stores''
and ``Sprawlbusters oppose Wal-Mart,'' while the organization clearly sees no ethical
dilemma present in expanding their market base. Thus, all of these may be examples of
organizations with strong climate regarding ethics, even though there may not be unanimity
in the larger society about the ethicality of their corporate actions.
More common, of course, are those cases in which the climate regarding ethics of an
organization is within the bounds of society's ethical prescriptions and proscriptions Ð
organizational founders create the initial organizational policies and practices that lead to the
creation of the organizational climate regarding ethics, and these founders grow up and
typically hold values that reflect the values of the larger society (Schein, 1992). Thus, the
climates regarding ethics do indeed emerge in larger social contexts and are likely to
generally reflect societal norms, though they need not always.
To address the second point above Ð that aspects of climate that are different from the
societal norms will be most salient and most strongly held Ð we turn again to the ASA model
(Schneider, 1987; Schneider et al., 1995). Remember that people attempt to join organizations
(i.e., are attracted) based on organizational reputation, among other things (such as industry
and location). The aspects of an organization's reputation that make a given individual want
to join that organization rather than another are those that differentiate that organization from
the other. Those hiring (i.e., selecting) new employees tend to choose those who will fit with
the organization, and again, this typically means those who will fit with the organization's
distinctive characteristics as opposed to those characteristics that the organization shares with
many other organizations. Finally, those who find that they do not fit with the organization
leave it, either voluntarily or involuntarily (i.e., experience attrition). As Schneider et al.
(1995) note, when people leave organizations because of a perceived lack of fit, they are
seeking better fit elsewhere. This is unlikely to be the case if the organizational characteristics
that caused the perceived lack of fit are characteristics widely shared with other organizations.
Thus, in climate regarding ethics terms, people who hold views about ethics that diverge
from the societal norm are likely to seek out organizations that they believe will accom-
modate their views. Organizations with climates regarding ethics that diverge from the
mainstream will attempt to bring in new members who will be comfortable with their climate,
and attempt to socialize new members into the ethical expectations of the organization. Those
who find that they cannot accommodate the ethical expectations of the organization leave to
find other organizations. At each of these stages, the idiosyncrasies of the organization's
climate regarding ethics are attended to and are salient, and it is these aspects of the climate
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 207

rather than the aspects that are widely shared with other organizations that come to define the
climate regarding ethics. Again, examples of this abound, with the unique ethical policies and
practices of, for example, Ben & Jerry's Homemade being far better known than those aspects
that are common to all ice cream manufacturers.

3.1.2. Organizational form

Victor and Cullen (1988) note that organizational form is an important antecedent of the
organizational climate regarding ethics. This argument builds on the work of Burns and
Stalker (1961) who proposed what has become the most commonly used approach to
organizational form Ð the distinction between mechanistic and organic organizations. In
short, the machine metaphor is generally used to describe an organization that is highly
bureaucratic, in which rules and policies primarily govern behavior, and where limits of
responsibility are clearly defined. The organism metaphor, on the other hand, describes an
organization in which roles and responsibilities are more fluid and overlapping and less
defined, decision-making authority is held at lower levels in the hierarchy, and the
organization as a whole is more fluid and dynamic.
The origin of Victor and Cullen's (1988) argument about organizational form affecting
climate regarding ethics is Burns and Stalker's (1961) argument that cooperation among
organization members has different bases depending on the form of the organization. They
argue that, in mechanistic organizations, people are able to work together effectively because
they all know and agree on what the rules are and what people do, and it is thus not necessary
for members to agree on the overall goals or values of the organization. In organic
organizations, however, the rules are much less clear, and there are likely to be few widely
agreed-upon ``appropriate'' behaviors, because individual organization members are more
free to resolve problems in the way they see fit. Burns and Stalker go on to suggest that
members of organic organizations are still able to function together effectively because they
agree on the overall goals and values of the organization, even without agreeing on the rules
and behaviors.
Following this logic, it makes sense that organizational form would affect all aspects of
climate, including the climate regarding ethics, because of the greater clarity of and emphasis
on rules in mechanistic organizations compared to organic organizations. Indeed, recent
research by Dickson (1998) suggests that the extent to which an organization is mechanistic
or organic does in fact predict the strength of the organization's climate. To date, however,
there does not appear to be published research specifically testing the relationship between
organizational form and content or strength of the organizational climate regarding ethics.

3.1.3. Firm-specific factors

There are a great many firm-specific factors that could affect the organizational climate
regarding ethics. For example, some industries are highly regulated with high levels of legal
oversight of individual behavior being routine (e.g., utilities, especially nuclear power,
airlines, etc.), while other industries are regulated to a much lesser degree (e.g., retail sales).
Organizational history can have a large impact, through the development of cultural myths
and stories about how previous ethical problems were handled (Deal & Kennedy, 1982;
208 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

Denison, 1996; Schein, 1992). Corporate profit margin, share price and trend, long-term
versus short-term stock goals, compensation system, and market share all could also have
impact on the climate regarding ethics, through the increased pressure for ``results at any
cost'' these factors can place on organizational members (e.g., Jackall, 1988; Srivastva &
Associates, 1988).

3.1.4. Organizational leadership

Of the factors seen as impacting perceptions of the climate regarding ethics, however, we
believe the most important to be from the category of firm-specific factors, and that
specifically the critical determinant of the climate regarding ethics is leader behavior. This
has been implicit throughout the development of our arguments thus far, but to be more
specific, we believe that this process occurs through several mechanisms. The leader serves as
a role model for his or her subordinates about the type of behaviors that are seen as ethically
acceptable and how ethical problems and questions should be addressed (e.g., Nielsen, 1989).
Additionally, the leader provides cues about what is ethical by explicitly rewarding and
punishing certain behaviors (e.g., Hegarty & Sims, 1978, 1979; Trevino, 1986). The founder/
leader determines, through the development of initial organizational policies and practices,
the form of the organization (Burns & Stalker, 1961). Further, recent work by Brief, Dietz,
Cohen, Pugh, and Vaslow (2000) suggests that people with views that could lead to unethical
behavior (in this case, who hold modern racist views) are more likely to act in unethical ways
(in this case, to discriminate against minorities) when a legitimate authority figure (i.e., an
organizational leader) provides a business justification for the behavior. In other words,
leaders may bring out or suppress the tendencies of organizational members to behave in an
ethical or unethical fashion. Thus, we see various forms of leader behavior as the primary
antecedent of the climate regarding ethics, and as being ``first causes'' for some of the other
categories of antecedents identified by Victor and Cullen (1988). As noted above regarding
climate in general, the influence of these founders and initial leaders on climate regarding
ethics can fade over time as the organization faces novel ethical situations, is rewarded or
penalized for behavior in ethical situations, or simply as time passes and generations give way
to new generations and thus new generational standards of behavior.

3.2. Internalization of the climate regarding ethics

Thus far, we have presented the creation of the climate regarding ethics as following a
sequence in which: (1) organizational founders choose other early leaders in part based on the
congruence of these other people with the values of the founder; (2) these early leaders enact
policies and practices that are congruent with their own deeply held values, and hire other
employees who they believe will ``fit'' with those values; and (3) organization members come
to understand and act on the expectations of the organization in regards to ethical behavior, in
much the same fashion as they would for any other form of organizational climate.
However, we believe that the climate regarding ethics is a special case of organizational
climate, because it incorporates a moral/ethical component that is not necessarily a part of
other types of organizational climate. One may share an understanding of organizationally
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 209

expected safety behaviors without believing that it is inherently ``wrong'' to neglect those
expectations, for example, but a shared understanding of what an organization expects
ethically is more likely to be internalized over time in terms of self-evident right and wrong
(Schein, 1992). Thus, we propose a fourth step to the process: when the perceptions of
organizational policies, practices, and procedures that are rewarded, supported, and expected
relevant to ethics are widely shared by the members of an organization (representing a strong
climate), they come to be adopted as personal values, and to develop a moral imperative. In
other words, the behaviors naturally resulting from the climate come to be seen as simply
``the right thing to do'' rather than ``the thing we are expected to do.''
Schein (1992), addressing the impact of people's basic underlying assumptions (values),
notes that they become charged with strong emotional force. He argues that behavior that is
contrary to these basic assumptions is considered invalid, if it is considered at all, and threats
to those underlying assumptions are often not at first understood, and then are sharply
resisted. Hanges, Lord, and Dickson (2000), Lord, Brown, and Harvey (in press), and Lord,
Brown, Harvey, and Hall (1999) describe a similar process from an information-processing
perspective when they describe the creation of ``chronic schemas.'' Thus, we believe that in
situations in which there is a strong climate regarding ethics, the individual internalization
and adoption of the organization's ethical prescriptions and proscriptions is highly likely. This
process may be further heightened by explicit attempts by the organization to treat desired
behaviors as if they were the only morally acceptable alternatives. Examples of this that we
have witnessed recently include signs that read ``Wear your hardhat Ð it's the right thing to
do'' (at a construction site) and ``Unfriendly eyes are watching; it's your DUTY to safeguard
information'' (on a military base).

3.2.1. Climate internalization in stable versus unstable environments

Interestingly, when environmental conditions are stable and predictable, organizations
may have least need for members to internalize and ``buy into'' the climate regarding ethics,
as long as they enact the appropriate behaviors at the appropriate times. Indeed, research
suggests that when people know the ethical rules and expectations, they tend to follow the
rules and meet the expectations regardless of whether they agree completely with them
(e.g., Arlow & Ulrich, 1980; Baumhart, 1961; Brenner & Molander, 1977; Vitell &
Festervand, 1987). When conditions are stable and assumptions about how things ``should''
be done are unchallenged, however, is the time when internalization seems most likely to
occur, because there is little reason to question the rightness of these values and ample
opportunity to observe the practices growing from the values functioning in effective ways
(e.g., Schein, 1992).
Conversely, when environmental conditions are not stable or predictable and organization
members find themselves in novel circumstances, there may be no precedent on which to rely
in making ethical decisions, and organization members may find themselves forced to make
decisions based on their own personal ethical code. It is in this case that organizations would
most want employees to have internalized a desired set of ethical values, so that the decisions
employees make in these novel situations mesh with the values of the organization. Corporate
ethics training programs may thus be most useful when conditions are stable, in preparation
210 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

for less stable times ahead. Of course, ethics training programs that are not backed up by
visible leader behaviors that are consistent with the training will achieve little.

3.2.2. Ethical training programs

To return briefly to our earlier example, the US Army has long recognized the importance
of individual ethical decision-making as an organizational foundation block, and has recently
increased its focus on instilling these core values. As described above, these efforts to instill
Army values often occur during early portions of solders' Army careers, before they are
placed in ethically ambiguous positions at foreign postings or in combat. For example, basic
combat training has been expanded by a week to further inculcate ethical values in new
recruits, and the Army's primary manual on leadership has been rewritten to more strongly
emphasize core Army values. These actions and others reflect the assumption that ethical
decisions will be made appropriately and ethical behavior will be enacted by all Army
personnel, from officers through to privates, regardless of the situation (Smidt, 1998).
While there is rarely this degree of emphasis on individual ethical behavior in other
organizations, training programs for corporations in individual ethics have very recently
sprung up at several colleges and universities, and many organizations are developing their
own corporate ethics programs, as well. When the former Lockheed was fined US$24.8
million in 1995 for conspiracy to commit bribery and records falsification, for example, they
began to develop an internal ethics program, which has continued since their merger with
Martin Marietta to become Lockheed Martin. The program is annually refined and updated,
with 1997's version being ``The Ethics Challenge,'' an interactive board game in which
Dilbert and Dogbert help team members wrestle with a variety of ethical problems (Baker,
1997). The most recent version of the Ethics Challenge focuses on trust building among
employees (Dougherty, 1999). Many organizations are following suit, with a variety of ethical
training programs designed to establish strong climates regarding ethics.

3.3. Organizational outcomes of a strong climate regarding ethics

The organizations described above seek to establish strong climates regarding ethics, in
some cases to help avoid further lawsuits (e.g., Lockheed Martin) and in some cases simply
because ethical behavior is seen as valuable in and of itself (e.g., the Army). Many theorists
and leaders believe that the climate regarding ethics also has an impact on important
organizational outcomes. For example, General Wickham (1996) recently noted that ``A
strong ethical environment increases unit readiness and success in peace and war by
providing the foundation for the climate in which the unit can develop cohesion, moral
force and ascendancy, and individual and unit strength. By giving and sustaining this
strength, an ethical environment is a combat multiplier'' (p. 77). General Wickham's
statement also identifies a specific pathway by which the climate regarding ethics may have
its effect Ð through enhanced cohesion and unit strength. He emphasizes this point in clear
organizational outcome terms by noting that ``Unit cohesion is a force multiplier in
combat'' (p. 77).
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 211

Donaldson and Davis (1991) have further argued that managing ethical values in the
workplace has several positive organizational outcomes, including the legitimization of
managerial actions, improvement of trust in relationships between individuals and groups,
enhancement of consistency in standards and qualities of products, and development of
greater awareness of the impact of the values and messages sent by organizational leadership.
While we are not aware of research to date empirically testing the relationship between
strength of the climate regarding ethics and organizational effectiveness, we believe that such
a relationship is highly likely.
We thus propose that there are beneficial outcomes at both individual and organizational
levels, and that they can occur even in the absence of the internalization of core organiza-
tional values (albeit to a lesser degree). Specifically, we argue that: (1) The climate
regarding ethics affects individual-level performance outcomes and (2) the climate regarding
ethics affects cohesion and morale, and cohesion and morale both affect group- and
individual-level outcomes.

3.3.1. The climate regarding ethics affects individual-level performance outcomes

While several researchers have been quite adamant in stating that the climate regarding
ethics should only influence outcomes involving ethical behavior (e.g., Victor & Cullen,
1988; Wimbush & Shepard, 1994), there is indirect evidence that this may not be the case.
The climate regarding ethics may be related to follower perceptions of organizational justice
(Nicotera & Cushman, 1995) as well as to expectations of treatment for unethical behavior
(Mudrack, 1993). This may impact the followers' perception of both procedural and
distributive justice within the organization. The small but growing body of literature
investigating citizenship performance (formerly contextual performance) resounds with
support that such perceptions of fairness and justice are inextricably linked to contextual
in- and extra-role performance (e.g., Aquino, 1995; Podsakoff & MacKenzie, 1994; Williams
& Anderson, 1992).
This linkage is also thought to be mediated by the followers' trust in the leader
(Konovsky & Pugh, 1994). For example, citizenship performance has been identified by
the Army as critical to unit effectiveness, though falling outside technical proficiency or
task performance (Borman, Motowidlo, Rose & Hanser, 1985). Thus, in keeping with the
findings and arguments of other prior ethical climate researchers, we do not propose that the
climate regarding ethics will have a direct impact on individual-level performance outcomes
that do not have an ethical component. We do, however, propose that the climate regarding
ethics will have a direct effect on the extra-role behaviors identified above, and (as
discussed in more detail below) we also propose that the climate regarding ethics will have
indirect effects on individual-level outcomes through the mediating mechanisms of cohesion
and morale.

3.3.2. The climate regarding ethics affects cohesion and morale, which affects group and
individual outcomes
When ethical expectations are clear and the acceptable and desirable approaches to
ethical dilemmas are well known, the level of cohesion within an organization or unit is
212 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

hypothesized to be high. Previous research suggests that role stress and role ambiguity lead
to reduced morale, and the conflicting demands that arise when ethical expectations are not
clear are a key component of stress and reduced organizational commitment (Babin, Boles,
& Robin, 2000; Schwepker, Ferrell, & Ingram, 1997). To the extent that these stresses are
reduced because ethical expectations are clear, unit cohesion and morale are expected to
be high.
Much organizational research suggests that organizational commitment is related to
important organizational outcomes (e.g., Koh, Steers, & Terborg, 1995; MacKenzie,
Podsakoff, & Fetter, 1993; Shore & Wayne, 1993). While job satisfaction, which can be
construed as individual-level morale, has been shown repeatedly to not have a direct
relationship with productivity (Borman & Motowidlo, 1997; Katzell, Thompson, & Guzzo,
1992), there is some recent research specifically addressing unit-level morale and cohesion
as predictors of individual and organizational effectiveness (see Griffith, 1997; Zaccaro,
Gualtieri, & Minionis, 1995; Zaccaro & McCoy, 1988). Therefore, the climate regarding
ethics should have an effect on such outcomes as job satisfaction and organizational
commitment, in addition to job ambiguity and conflict, through the mediating mechanism of
morale and cohesion.

4. Conclusions and future directions

We have argued that the organizational climate regarding ethics has important con-
sequences for organizations, including legitimization of managerial actions, improved trust,
consistency in standards and qualities of products, and greater awareness of the impact of
organizational leadership, and that some of these outcomes are mediated through organiza-
tional morale and cohesion. We have further argued that the organizational climate
regarding ethics is initially established by organizational founders and other early leaders.
It is maintained and modified over time by the behaviors of organizational leaders as they
are seen, perceived, and interpreted by followers. To the extent that the climate regarding
ethics is clear and shared (possibly due to training, explicit policies, role modeling, and
other mechanisms we have described), the characteristics of the climate regarding ethics
will come to be internalized by organization members, and the prescriptions of the climate
regarding ethics will be seen as simply ``right.'' Behaviors counter to the shared climate
regarding ethics will be less psychologically available, because of the development of
chronic schemas and deeply held assumptions. Thus, attending from the earliest days of an
organization's existence to issues of climate regarding ethics can have significant impact on
a wide range of variables related to positive organizational functioning.
To date, there remain several open areas of inquiry. One that we see as most critical
is the identification of the specific mechanism(s) that impact the responses of followers
to ethically ambiguous situations. While there is theory to support the importance of
leader role modeling, for example, does role modeling tell a person what to do when
facing a novel ethical dilemma to the same degree that it provides guidance in facing
familiar ethical dilemmas? Are explicit corporate ethics policies and ethics boards as
 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217 213

effective as their proponents argue? Or do personal individual motives and values

account for the most variance in these situations? Some research even suggests that
societal culture also plays a role in the degree to which the organizational climate
regarding ethics is institutionalized within the organization's members (e.g., Jackson,
2000; Jose, 1997; Lin, 1999). To date, there is little research evidence with which to
answer this question.
There is also little understanding of the extent to which ethical standards adopted
and internalized by employees at work carry over into other life domains. Jackall
(1988), in his book Moral Mazes, quotes an unnamed former vice-president of a large
firm, saying ``What is right in the corporation is not what is right in a man's home or
in his church. What is right in the corporation is what the guy above you wants from
you'' (p. 6). While this statement does highlight and support our argument for the
importance of leadership in the establishment of a climate regarding ethics, it does raise
the question of whether these ethical principles develop into chronic schema that are
easily accessible regardless of the setting, or whether they are situation- and context-
specific in their influence on behavior. Research in this regard would be beneficial in
better understanding the processes by which the climate regarding ethics achieves its
level of strength.
There are also only a very few studies incorporating multiple levels of analysis. Corporate
policies are organization-level variables, but leadership can be active at several lower levels
of analysis, from the corporate division to the dyad (see Dansereau & Yammarino, 1998, for
several examples). For example, Zohar (2000) has demonstrated that variation in behavior at
the level of the individual supervisor Ð the group climate level of analysis Ð affects safety
behaviors, and it is plausible that this would hold true for other aspects of climate, as well.
Research is critically needed in this regard.
Finally, there is little extant research on the development of subclimates regarding ethics
within organizations, though what research there is clearly indicates that different divisions or
units within organizations are likely to develop different climates. Weber (1995) found that
the degree of difference in the climate regarding ethics between organizational units depended
on how ``insulated'' the employees in that department were, with technical core employees
having a more individual or local climate, while boundary-spanning employees had more of a
cosmopolitan ethical climate.
It is important for us to note, in conclusion, that we do not intend to advocate one
particular ethical code as the ``true'' code, or even the most effective code. We recognize
that different organizations in different industries in different cultures at different times
face different challenges, and thus the components of an effective climate regarding
ethics will vary from organization to organization. In so saying, we again point to the
importance of organizational leaders attending to their own personal values, their desired
ethical standards in their organization, and the situations likely to face their organizations.
Only when the desired climate regarding ethics is congruent with the actions of the
leaders and relevant to the daily work lives of the followers will it become widely
shared, and eventually internalized by the people who make up the organization and do
its daily work.
214 M.W. Dickson et al. / The Leadership Quarterly 12 (2001) 197±217

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