conceptual model of corporate moral development

A Conceptual Model of Corporate Moral DevelopmentAuthor(s): R. Eric Reidenbach and Donald P. RobinSource: Journal of Business Ethics, Vol. 10, No. 4 (Apr., 1991), pp. 273-284Published by: SpringerStable URL: http://www.jstor.org/stable/25058230 .Accessed: 16/09/2013 07:44

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A Conceptual Model of Corporate R Eric Reidenbach Moral Development Donald P. Robin

ABSTRACT: The conceptual model presented in this article

argues that corporations exhibit specific behaviors that signal their true level of moral development. Accordingly, the authors identify five levels of moral development and discuss the dynamics that move corporations from one level to

another. Examples of corporate behavior which are indica

tive of specific stages of moral development are offered.

The recent and continuing revelations concerning the ethical

wrongdoing of corporate America have occasioned a studied examination of the dynamics of ethical decision

making in business. Several note

worthy effors, particularly those by Trevino (1986) and Ferrell and Gresham (1985), have attempted to

model the ethical decision making process in organi

zations.

The Trevino model relies heavily on the idea that an integral part of the ethical decision making process involves the individual's stage of moral

development interacting with, among other factors, the organization's culture. It is this complex admix ture of individual moral development and corporate culture which leads to the proposition that, just as individuals can be classified into a stage of moral

development, so too can organizations. In other

words, corporations can be classified according to

R. Eric Reidenbach is Professor of Marketing and Director of the Center for Business Development and Research at the University

of Southern Mississippi. He has written extensively on business and

marketing ethics.

Donald P. Robin, Professor of Business Ethics and Professor of Marketing at the University of Southern Mississippi, is coauthor with R. Eric Reidenbach of two recent books on business ethics with Prentice-Hall. He is a frequent lecturer

on business ethics

and is the author of several articles on the subject.

their particular stage of moral development. Such a

typology is useful for better understanding the

dynamics that contribute to ethical decision making.

The role of corporate culture in moral

development

The moral development of a corporation is deter mined by the organization's culture and, in recipro cal fashion, helps define that culture. In essence, it is the organization's culture that undergoes moral

development. Among the array of definitions of corporate

culture are those that focus on the shared values and beliefs of

organizational members (e.g., Sathe, 1985; Deal and Kennedy, 1982), specifically, beliefs about what works within an

organization, and values about

preferred end states and the instrumental approaches used to reach them. Among the constellation of beliefs and values that comprise an organization's culture are those that speak to its beliefs and values about what is

right and what is wrong. This is the focus of this article.

The principal sources for cultural beliefs and values are from (1) individual organizational mem bers, especially top management (e.g., Schein, 1983;

Wiener, 1988), and (2) the reinforcing effect of the organization's success in problem solving and

achieving objectives (e.g., Schwartz and Davis, 1981; Sathe, 1985). Central to this latter source is the organization's selection of a mission from which the

more specific objectives and reward systems flow.

One mission of profit-making organizations is economic. However, society, with increasing concern and concomitant pressures, is also demanding that

they achieve certain social goals. The moral develop ment of a corporation can be classified according to

Journal of Business Ethics 10: 273-284, 1991. ? 1991 Kluwer Academic Publishers. Printed in the Netherlands.


274 R. E. Reidenbach and D. P. Robin

the degree to which this required social mission is

recognized and blended with the economic mission. Several studies and articles have focused on the

importance of the organization's culture in deter

mining the morality of corporate activities (Robin and Residenbach, 1987; Trevino, 1986; Hoffman,

1986). Of particular relevance is the work of Victor and Cullen (1988) which measures work climate.

Work climates are defined as "perceptions that are

psychologically meaningful molar descriptions that

people can agree characterize a system's practice and

procedures" (Schneider, 1975). The ethical climate questionnaire is designed to measure the ethical dimensions of

organizational culture. These items,

developed within the limited research context of four firms, measure five ethical climate dimensions characterized as caring, law and order, rules, instru

mental, and independence. The

recognition that culture is an important determinant in ethical decision

making has accept ance outside academic management circles. When asked about Drexel Burnham Lambert's recent

guilty plea and the reasons behind it, Edward

Markey, U. S. Representative (D. Mass.) replied that there was a solid foundation of criminal activity behind their success. And when asked if this crimin

ality was pervasive in the financial industry during this time, Markey responded, "there was definitely a

culture that tolerated it" (Wall Street Journal (1988) p. Bl).

An overview of the model

The model of organizational moral development is a

conceptual model built by the study of a large number of cases of organizations and their actions in

response to a diverse number of situations. The

classificatory variables include management philoso phy and attitudes, the evidence of ethical values

manifested in their cultures, and the existence and

proliferation of organizational cultural ethics and artifacts (i.e., codes, ombudsmen, reward systems). By observing the organization's actions, the researcher can deduce differences in the moral development of

organizations among the sample of cases. These differences form the hierarchical stages in the model. Evidence involving specific cases supporting the classification schema is provided.

Five stages comprise the model. Each stage is

given a label based upon the types of behavior or

organizations that are classified within that stage. This produced the following classificatory schemata: the amoral

organization; the legalistic organization; the responsive organization; the emergent ethical

organization; and the ethical organization. The model is depicted in Figure 1.

BALANCEO CONCERN

Fig. 1. A model of corporate moral development.

The model is inspired by the work on individual moral development by Kohlberg (1964, 1976). How ever, direct application of Kohlberg's work is not

possible. Organizations simply do not develop in the same manner and under the same circumstances as

individuals. As was mentioned earlier, individual moral development does contribute to the moral

development of an organization but is not deter minant.

There are several propositions which make the model operational:

Proposition 1: Not all organizations pass through all

stages of moral development. Just as not all indi viduals reach level six of Kohlberg's model, not all

corporations are destined to be ethical organizations. The ultimate moral development destination of a

corporation is a function of several factors including top management, the founders of the organization and their values, environmental factors (threats and opportunities), the organization's history and mis sion, and its industry, to name a few (Robin and

Reidenbach, 1987).


Corporate Moral Development Model 275

Proposition 2: An organization can begin its life in

any stage of moral development. Again, the deter

mining factors are similar to those mentioned in

proposition 1. The key to the beginning point is an overt

management decision conditioned by a num

ber of situated factors.

Proposition 3: Most organizations in stage one do not leave stage one. Amoral organizations, by their very

nature and oportunistic philosophy produce a cul ture that cannot adapt to the values and rules of

society. Thus amoral organizations are either forced to cease

operations or, relatively quickly run their life cycles. These organizations that do evolve past stage one do so at the cost of significant structural and cultural

change.

Proposition 4: An organization comprised of multiple departments, divisions, or SBUs can occupy different

stages of moral development at the same time. That

is, one operating area of the organization could be classified in stage one while other areas could be located in stage three. This multiple classification is

based on subcultural differences within the organi zation. Each subculture will have embraced, to

greater or lesser extents, the formal culture. In those cases where the formal culture dominates all operat ing areas, a multiple classification is unlikely. How ever, when the individual subcultures dominate an

organization, multiple classifications are possible.

Proposition 5: Corporate moral development does not have to be a continuous process. Individual corpora tions can

skip stages. New management or mergers and acquisitions can impose new cultures on an

organization. These new cultures may be radically different from the previous culture with respect to their ethical content impelling an organization to a

higher stage of moral development.

Proposition 6: Organizations at one stage of moral

development can regress to lower stages. Regression typically occurs because the concern for economic values is not adequately counterbalanced by the concern for moral values. In times of

organizational stress the pursuit of economic values may win out

regardless of the morality of those values. In addi

tion, new management or mergers and acquisitions can also provide an impetus for regression.

Proposition 7: There is no time dimension associated

to the moral development of an organization. Some

organizations will stay in a particular stage longer than others. Again, the length of stay in a particular stage will be a function of those factors cited in

proposition 1.

Proposition 8: Two organizations can be in the same

stage but one may be more advanced. Thus, it is

possible that a corporation which is classified as a

legalistic corporation may also manifest certain char acteristics of a responsive corporation. This is a

function of the dynamics of moral development.

The stages of organizational moral

development

Stage one ? the amoral organization

The Amoral Organization has a culture that is earmarked by a "winning at any cost" attitude.

Typical of organizations in this stage of moral

development is a culture that is unmanaged with

respect to ethical concerns. Productivity and profit ability are the dominant values found in the culture.

Concern for ethics, if it exists at all, is usually on an

after-the-fact basis when the organization has been

caught in some wrongdoing. At this point the con cern for ethics, if at all evidenced, becomes more of a

cynical justification or a post hoc rationalization of behavior strictly for damage control purposes. Com

mon to most management philosophies is that being

caught in an unethical situation is considered as a cost of doing business. This culture is shaped by a

strong belief in Adam Smith's invisible hand and the notion that the only social responsibility of business is to make a profit. Unlike Friedman's original contention, that responsibility is seldom conditioned

by the caveat of a need for law and ethic.

Top management rules by power and authority and employees respond by acquiescing to that

authority and power through a reward system which

supports a "go along" type of behavior. Obedience is valued and rewarded. Disobedience, on a moral

basis, is punishable typically by expulsion from the

organization. There is little concern for the em

ployees other than for their value as an economic unit of production.

The ethical culture of a stage one organization can be summed up in the ideas that "they'll never



know," "everybody does it," "we won't get caught," and "there's no way anyone will ever find out." Rules can be broken if there is an advantage in breaking them. If we are not caught, then who is to say it's unethical?

At the basis of this culture is the philosophical position that business is not subject to the same rules that individuals are and that owners are the most

important stakeholders. In essence, belief in a value less business environment produces a valueless busi

ness.

FRS ? A Portrait of the Amoral Corporationl Film

Recovery Systems, previously located in Elk Grove

Village, Illinois, exhibited many of the characteristics of an amoral organization. The company was organ ized to extract silver from old x-ray film which utilized a chemical process involving cyanide. Be cause of the potentially acute toxicity of the process, the safety of the workers should have been a princi pal concern.

On February 10, 1983, Stefan Golab, a worker at FRS became weak and nauseated. He was

working near a foaming vat of hydrogen cyanide. Fellow

employees helped him outside and urged him to

breathe deeply in the cold fresh air. At that point, Mr. Golab became unconscious and did not respond

to efforts to revive him. He was rushed to a nearby hospital where he was declared dead on arrival. Cause of death ? cyanide toxicity.

The investigation of this case reveals a company that is typical of stage 1 organizations. Inspectors from the Cook County Department of Environ

mental Control had previously cited the plant for 17 violations that were labeled as

"gross violations" and were ordered to be rectified immediately. Typical of these violations was a lack of a cyanide antidote,

legible warning signs, a respirator, and other safety equipment that was judged to be mandatory for a company engaged in this type of work. The plant itself, which was described as a "drab, one-story structure" contained 140 vats of foaming hydrogen cyanide among which the workers performed the extraction process. Testimony of many of the work ers indicated that nausea, nose bleeds, and rashes

were commonplace. That same testimony revealed

that employees were ordered to remove the skull and cross bones signs from the containers of cyanide and that the owners of FRS had flatly refused to buy

what was described as routine safety equipment. In

addition, many of the employees who worked around the vats were illegal immigrants from

Mexico and Poland (as was the case of Mr. Golab) and did not speak English well. This hiring practice

was adopted, according to the testimony of a book

keeper, because illegal aliens would be less apt to

complain. The response of FRS to the investigation involved

laying off workers and closing down the plant in

mid-1983. The investigation, and ultimate criminal

prosecution of three FRS executives centered around the question "Can two legitimate corporations form a third (FRS), set it up to engage in a reckless and

dangerous activity, ignore legal requirements ? and

get off scot-free?" Prosecutors referred to the FRS case as "novel" but qualified it by saying "It's an old

story of poor, uneducated people being exploited by people who were more educated, more privileged, and more

wealthy." This is a company whose formal culture valued

productivity and profits. Costs, especially those that were

morally justifiable in caring for employees, were not incurred. To do so would have reduced the

profitability of the company. Management operated on the basis that "we won't get caught" and "it's ok to break rules as long as we profit from it." Their

regard for individuals is readily apparent in their

hiring practices and their treatment of their employ ees. Internally, employees were to obey rules which

emphasized productivity and failure to do so meant

dismissal and even perhaps prosecution as an illegal alien.

Stage two ? the legalistic corporation

Stage 2 is the legalistic corporation so named because of the preoccupation the corporation exhibits for

compliance with the letter of the law as opposed to

the spirit of the law. Organizations in this stage exhibit a higher level of moral development than

organizations in stage 1 because stage 2 cultures dictate obedience to laws, codes, and regulations, a

value missing in the cultures of stage 1 organizations. Corporate values flow from the rules of the state, and that is why management is principally con

cerned with adhering to the legality of an action rather than the

morality of the action. "If it's legal,



it's ok and if we're not sure, have the lawyers check it out" typifies the operating dictum of stage 2 organiz ations. More than just a desire to obey society's laws

? they take an internal lawlike approach themselves. The corporate legal staff operates as a check

against wrongdoing as interpreted by legal statute. In

this culture, law equates with justice and there is no difference between what is legal and what is right and just. The ethics of an action, if considered at all, is generally considered on a post hoc basis.

Codes of Conduct reflect this legalistic thinking. A 1989 article on codes of ethics clustered codes into

three categories (Robin et ai, 1989). The largest cluster was one characterized by a "Don't do any

thing unlawful or improper that will harm the

organization," suggesting the pervasiveness of this

ethos. Cressy and Moore (1983) further suggest that most codes give the appearance of being legalistic documents. It is perhaps not surprising that two of

the largest tobacco companies, R. J. Reynolds and

Philip Morris, have legalistic codes of conduct. These codes are very concerned with, and limited to, unlawful or improper behavior.

The principal emphasis is still on profitability but the difference between stage 2 and stage 1 organiza

tions is that the latter is concerned with the legality of the profits, not necessarily the morality of them.

Owners are still the principal stakeholders.

Contrary to the "win-at-all-cost" attitude under

lying organizational behavior in stage 1, stage 2

organizations adhere to a notion of reciprocity. That

is, compliance with the law will produce good results. By extension then, stage 2 organizations are followers and not social leaders. Society can expect, for the most part, organizations that adhere to the law but do little as far as operating in their own

enlightened self interest is concerned.

Ford motor of 1973 ? a portrait of the legalistic corporation2

While the notorious Pinto case has been dissected from numerous vantage points, far less attention has been focused on the defense that Ford Motor used in its behalf during the Elkhart, Indiana trial in 1980. In its defense can be seen many of the characteristics of an

organization in stage 2 of its moral development. It is important to point out that the Ford Motor

Company of 1973 and not the Ford Motor Company of 1988, is cited as an example.

The trial focused on Ford's culpability in the

death of three teenagers who were struck from behind in their 1973 Pinto. The gas tank of the Pinto

erupted, burst into flames, resulting in the burning death of the three teenagers. A criminal homicide indictment was brought against Ford on the grounds that the auto company had engaged in "plain, con scious and

unjustifiable disregard of harm that might result (from its actions) and the disregard involves a substantial deviation from acceptable standards of conduct."

In its defense, Ford's attorney, James F. Neal, argued that the Pinto met all federal, state, and local

government standards concerning auto fuel systems. This

compliance, Ford's attorney further argued, was

comparable to other subcompacts produced in 1973. He continued by saying that Ford did everything to recall the Pinto as quickly as possible as soon as the

NHTSA (National Highway Traffic Safety Administra tion) ordered it to (emphasis added).

Mark Dowie, then General Manager for Mother

Jones, claimed that the Pinto was involved in 500 burn deaths and that burning Pintos had become such an embarrassment to Ford that J. Walter

Thompson, the ad agency that handled the Pinto,

dropped a line from its radio spot that said, "Pinto leaves you with that warm feeling." Michael Hoffman raises an interesting and certainly relevant point in

light of the mounting evidence of the Pinto's defec tive fuel system when he asks, "Even though Ford violated no federal safety standards or laws, should it have made the Pinto safer in terms of rear-end

collisions, especially regarding the placement of the

gas tank?" In Ford's lack of response to this question and their steadfast refusal to recall their product voluntarily can be seen as one of the inhibiting effects of stage 2 behavior. Because of its preoccupa tion with compliance to laws and regulations, cultural values focusing on what is right rather than on what is legal are either nonexistent or under

developed. As a consequence, the organization does

only what it is required to do rather than what it should do. This is symptomatic of the legalistic

organization.

Moreover, Ford's concern for the size of the bottom line rather than the

morality of the bottom line is evidenced in their cost-benefit analysis con tained in a report entitled "Fatalities Associated with

Crash Induced Fuel Leakage and Fires." The $11 cost per car for the improvement designed to prevent gas



tank ruptures was not cost effective. Ford estimated that benefits would run to $49.5 million, while the costs associated with the improvement would total

$137 million. Stage 2 organizations, like their coun

terparts in stage 1, maintain a preeminent concern

for profitability, especially when it involves a trade off with doing what is right.

Stage three ? the responsive corporation

Unlike their legalistic counterparts in stage 2,

responsive corporations begin to evolve cultures that contain values other than productivity and a sense of

legality. Responsive organizations begin to strike a

balance between profits and doing right. However,

doing right is still more of an expediency rather than an end unto itself. Social pressures are such that these

stage 3 corporations must respond to those pressures or face censure or worse. The managements of these

corporations are more sensitive to the demands of

society than the managements in the previous stages.

Managements begin to recognize that the organiza tion's role exceeds a purely economic one and that it

has certain social duties and obligations. Codes of ethics take on greater importance and

their focus begins to reflect a greater societal orientation. As an example, consider the codes of ethics of the Bank of Boston, which are typical of

stage 3 organizations. Among the codes include

standards, values, and prescriptions concerning integrity, confidentiality, quality, compliance, con

flict of interest, objectivity, personal finances, decency, and accountability. The standard concern

ing social responsibility reads, "Seek opportunities to

participate and, if possible, to play a leadership role in

addressing issues of concern to the communities we serve." The major part of the codes, however, is

still designed to identify behaviors that will bring potential harm to the Bank of Boston (e.g., compli ance, conflict of interest, personal finances, con

fidentiality). In that sense they are internally directed. Concern for ethical conduct is evidenced in the

accountability statement which reads, "Report ques tionable, unethical, or illegal activity to your manager

without delay" (Bank of Boston). It is interesting to

point out that these codes were published at about the same time that the Bank of Boston pleaded

guilty to charges of money laundering.

Studies indicate that about 75% of all U. S. firms have codes of conduct. Those same studies also indicate that the most common items mentioned in the codes are conflict of interest provisions, political contributions, use of insider information, illegal payments, bribery and kickbacks, improper relation

ships, proprietary information, use of corporate assets, gifts and favors, and unrecorded or falsely recorded funds or transactions, most of which, like their stage 2 counterparts, have an internal focus

designed to protect the organization (Raelin, 1987, p. 177; Robin etal. 1989).

Concern for other stakeholders begins to manifest itself as managements being to realize the import ance of employees and the community in which they operate. Again, this nascent concern is not motive ated by a sense of doing right for right's sake, but rather as a recognition of the organization's greater social role.

Movement from stage 2 to stage 3 is often initiated by outside events. Some potentially damag ing occurrence to the organization or other organiz ations may happen forcing the organization to react

by countering with some apparent ethical response. The intention is to sway opinion of different state holders by doing good. A "do what we gave to do, not because it's

right but because it's expedient" dominates the responsive organization's ethical

system.

P & G reacts to the Rely Tampon problem. The reaction that Proctor 8c Gamble made to the Rely Tampon problem is indicative of an organization that has de

veloped a stage 3 responsive level of morality. It is

decidedly different from the type of thinking and actions one finds in the stage 2 legalistic type of

organization. P & G management made an enlight ened decision to act in the best interests, not only of

themselves, but also with respect to a number of different publics.

In the summer of 1980, Proctor & Gamble was first made aware, by the Centers for Disease Control, that there

might be a possible linkage between the incidence of toxic shock syndrome and the use of

tampons. No indication existed that there was any

linkage between toxic shock and the specific use of P & G's Rely product. During this same period of time, P & G began an investigation into the

alleged linkage. Initial information indicated no rela



tionship between toxic shock syndrome and tampon usage.

On September 15, 1980, the Centers for Disease Control informed P & G that in their study of 42 cases of toxic shock syndrome, 71% of the women

were Rely users. This put P & G management in the

position of deciding to defend their brand against what P & G scientists consdered rather sketchy evidence. On September 18, 1980, three days after the study results were announced, P & G made their decision to withdraw the product from the market and to halt production of Rely Tampons. The

decision, according to Edward G. Harness, chairman and chief executive of P & G, hinged on the

dilemma, "We didn't know enough about toxic shock to act, and yet, we knew too much not to act."

(Gatewood and Carroll, 1981, p. 12) P & G had begun pulling 400,000 cases of their

product. Under an agreement with the FDA, P & G was absolved of any violation of federal law or

liability for product defect. However, the remarkable

aspect of the response was yet to come. P & G

bought back all unused products, including $10 million in free promotional samples. Moreover, they voluntarily pledged research assistance to the Cen ters for Disease Control for the study of toxic shock and

agreed to finance and initiate an educational

campaign about the disease. The educational cam

paign was remarkable in both the speed and the

scope of information dissemination. P & G management recognized the longer term

value of making this type of response. Although 20

years of research and marketing expenditures were tied up in what would ultimately be a significant loss, their action demonstrates a greater balance between profits and ethics than would be seen in earlier stages of corporate moral development.

Cynics might respond that P & G did this out of economic reasons. In part, that is probably true. Yet, unlike Ford whose sole interests were economic, P & G

recognized that their long term economic well

being was inextricably intertwined with the morality of their decision. This is the hallmark of the respon sive

organization.

Stage three is a pivotal point in the moral

development of most corporations. It is a learning stage wherein managements test the efficacy of

socially responsive behavior and begin to understand the economic value of moral behavior. This attitude,

however, moves the organization beyond a strictly legalistic focus and, in some cases, has the effect of

making the organization a social pioneer. Still, it must be emphasized that cultures of stage three

corporations are dominated by a reactive mentality, not a proactive mentality.

Stage four ? the emergent ethical organization

The emergent ethical organization is one in which

management actively seeks a greater balance be tween profits and ethics. There is an overt effort to

manage the organization's culture to produce the desired ethical climate. This

change in the culture involves a

recognition of a social contract between the business and society. Management approaches problem solving with an awareness of the ethical

consequence of an action as well as its potential profitability.

One of the more visible manifestations of stage 4

organizations is the proliferation of "ethics vehicles"

throughout the organization. Codes of conduct become more

externally oriented and become living documents instead of lofty ideals to be read once and then put away or highly limited rules that are

designed primarily to protect the organization. In

addition, and typical of stage 4 corporations, is that

handbooks, policy statements, committees, ombuds men, and ethics program directors begin to reinforce

the existence of codes. This signals stronger manage

ment commitment to ethical behavior. For

example, at Boeing, an emergent ethical

corporation, greater CEO involvement in ethics, and line management involvement in ethics training programs are two aspects of their cultural concern for

morality. In addition, their ethics committee

reports to the board and management has installed a toll-free number for

employees to report ethical violations.

General Mills has developed guidelines for deal ing with vendors, competitors, and customers.

Recruiting focuses on the hiring of individuals that share the same cultural values and an emphasis on

open decision making hallmark their concern for ethical behavior.

While responsive corporations begin to develop ethical mechanisms to increase the probability of



ethical behavior, these organizations are not yet fully comfortable with their implementation. Organiza tional actions are still characterized by ad hoc

attempts to develop and instill organizational values. These attempts often lack direction in both the selection of the values and their implementation.

Top management recognizes the importance and value of this type of behavior but lacks the experi ence and expertise to make it work effectively.

Examples of emergent ethical organizations A growing number of organizations can be classified as the

emergent ethical. Boeing and General Mills were cited earlier for their ethical efforts. Boeing's pro grams have been in place since 1964 but the mere existence of ethical programs does not insure that the emergent ethical organization will behave ethi

cally. In 1984, a unit of Boeing was cited for illegally using inside information to secure a government contract, a case of regression.

Often cited for unethical behavior, General

Dynamics has an extensive ethics program. A publi cation by the giant defense contractor asks 10

questions about the program. These questions in clude:

1. Who is my Ethics Program Director? 2. How can the Ethics Director help me? 3. How can I contact my Ethics Director? 4. Do I need my supervisor's permission to talk

with the Ethics Director? 5. How does the ethics hotline work? 6. How do I know what General Dynamics' ethics

standards really are? 7. What is my responsibility if I become aware of

someone who is violating the standards? 8. What happens if I violate the standards? 9. How does the ethics program apply to me?

10. What should I do if I am directed to do some

thing that I believe is a violation of company standards?

The publication goes on to answer each question. For example, in response to the question concerning how an employee contacts the Ethics Director, General Dynamics has created a hotline complete with answering machine. In addition, the Ethics Director can be reached by mail, EMOS, or by direct contact.

Does the system work? Not perfectly. General

Dynamics has recently (1988) been indicted on further

charges of defense contractor fraud. The

process has been revised at General Dynamics to include a

"squeal clause" which is designed to both reward and protect employees who report on co

workers who have broken company standards. Consider the following excerpts from Sara Lee's

codes which recognize the importance of balancing

profits and ethics:

Business has a role beyond the generation of profits. By investing their good will, time, and money, companies can ? and should ? serve as

catalysts in helping deal with

significant social issues.

Perhaps one of the best examples of the emergent ethical corporation is that of Johnson & Johnson. Johnson & Johnson is an advanced stage 4 corpora tion as

suggested both by their CREDO and their actions in the wake of the Tylenol tamperings. First consider the CREDO.

The CREDO represents a strong balance between ethical concern and profitability. However, what

really signals Johnson & Johnson as an advanced

stage 4 corporation is found in the response of one of their senior executives who was asked about the decision concerning the massive recall of Tylenol products. "We never really thought we had much of a choice in the matter of the recall. Our Code of Conduct (CREDO) was such a way of life in the firm that our

employees, including me, would have been scandalized had we taken another course (emphasis added). We never

seriously considered avoiding the costly re call." (William and Murphy, 1988).

What can be seen in all of these examples is a

management that is wrestling with a growing realization that the corporation must develop a

mechanism to balance the organization's concern for

profits and ethics. Some attempts are clumsy, some

work, some don't. What is important is that there is

among stage 4 organizations a shift in the culture, one that gives increasing emphasis to the morality of the bottom line.

Stage five ? the ethical organization

The final stage of organizational moral development is the ethical organization. We know of no examples of

organizations which have reached this level of

development.



Exhibit 1

Johnson & Johnson's Corporate Credo

OUR CREDO

We believe our first responsibility is to the doctors, nurses and patients,

to mothers and all others who use our products and services.

In meeting their needs everything

we do

must be of high quality. We must

constantly strive to reduce our costs

in order to maintain reasonable prices. Customers' orders must be serviced promptly and accurately.

Our suppliers and distributors must have an opportunity

to make a fair profit.

We are responsible to

our employees,

the men and women who work with us

throughout the world.

Everyone must be considered as an individual.

We must respect their dignity and recognize their merit.

They must have a sense of security in their jobs.

Compensation must be fair and adequate and

working conditions clean, orderly and safe.

Employees must feel free to make suggestions and

complaints. There must be

equal opportunity for employment,

development and advancement for those qualified. We must provide competent management,

and their actions must be just and ethical.

We are responsible

to the communities in which we live

and work and to the world community as well.

We must be good citizens ?

support good works

and charities and bear our fair share of taxes.

We must encourage civic improvements and better health and education.

We must maintain in good order

the property we are privileged to use,

protecting the environment and natural resources.

Our final responsibility is to our stockholders.

Business must make a sound profit. We must

experiment with new ideas.

Research must be carried on, innovative programs developed and mistakes paid for.

New equipment must be purchased, new facilities provided

and new products launched.

Reserves must be created to provide for adverse times.

When we operate according to these principles,

the stockholders should realize a fair return.

Johnson & Johnson

Stage five behavior is characterized by an organi zation-wide acceptance of a common set of ethical values that permeates the organization's culture. These core values guide the everyday behavior of an individual's actions. Decisions are made based on the inherent justness and fairness of the decision as well as the profitability of the decision. In this sense there is a balance between concerns for profits and ethics.

Employees are rewarded for walking away from actions in which the ethical position of the organiza tion would be compromised.

At the heart of this organization is a planning system much like the one described by Robin and

Reidenbach (1987, 1989). The concept of a parallel planning system wherein ideas and concepts from the normative moral philosophies are used in the

analysis of potential organizational activities. An

example of parallel planning is seen in the deliberation made Sir Adrian Cadbury's grandfather (Cadbury, 1987). Sir Adrian's grandfather, then CEO of Cadbury's was confronted with a profitable pro position that he found morally repugnant. It con cerned a contract to furnish English soldiers in the

Boer War with a Christmas tin of chocolates. He was

opposed to the war on moral grounds but was

cognizant of the economic repercussions to his

employees that refusal of the contract would bring as well as the morale impact on the soldiers. His decision involved producing the chocolate at cost so that his

employees were compensated, the soldiers received the chocolate, but Sir Adrian personally did not profit from a situation he found unethical.

In implementing the parallel planning system, the

organization may be viewed as a family with certain ethical family values that guide decision making.

These core values can be translated into ethical action statements such as:

Treat customers with respect, concern, and honesty, the

way you yourself would want to be treated or the way

you would want your family treated.

Make and market products you would feel comfortable and safe having your

own family use.

Treat the environment as though it were your own

property (Robin & Reidenbach, 1987, p. 55).

What makes an ethical organization work is the

support of a culture that has a strong sense of moral

duty and obligation inherent within it. This culture



TABLE I A

summary of the moral development of corporations

Stage in Moral

Development

Management Attitude

and Approach

Ethical Aspects of

Corporate Culture Corporate Ethics Artifacts

Defining Corporate Behavior

Stage I The Amoral

Organization

Get away with all you can; It's ethical as long

as

we're not caught; Ethical

violations, when caught, arc a cost of doing business

Outlaw culture; Live

hard and fast; Damn the risks; Get what you can

and get out

No meaningful code of ethics or other

documentation; No set

of values other than

greed

Film Recovery Systems;

Numerous Penny Stock Companies

Stage II The Legalistic Organization

Stage III The Responsive Organization

Stage IV The Emerging Ethical

Organization

Play within the legal rules; Fight changes that effect your economic

outcome; Use damage control through public relations when social

problems occur; A

reactive concern for

damage to organizations from social problems

Management understands

the value of not acting

solely on a

legal basis, even though they believe

they could win; Manage ment still has a reactive

mentality; A growing balance between profits and ethics, although basic

premise, still may be a

cynical "ethics pays";

Management begins to

test and learn from more

responsive actions

First stage to exhibit an

active concern for ethical

outcomes; "We want to

do the 'right' thing"; Top

management values

become organizational

values; Ethical perception has focus but lacks or

ganization and long term

planning; Ethics manage ment is characterized by

successes and failures

If it's legal, it's OK; Work the gray areas;

Protect loopholes and

don't give ground without a fight; Economic performance dominates evaluations

and rewards

There is a growing concern for other

corporate stakeholders

other than owners;

Culture begins to embrace a more

"responsible citizen"

attitude

The Code of Ethics, if it Ford Pinto

Ethical values become

part of culture; These core values provide

guidance in some

situations but questions exist in others; A

culture that is less

reactive and more

proactive to social

problems when they

exists, is an internal

document; "Don't do

anything to harm the

organization"; "Be a

good corporate citizen"

Codes are more

externally oriented and

reflect a concern for

other publics; Other ethics vehicles are

undeveloped

Codes of Ethics become action documents; Code

items reflect the core

values of the organiza

tion; Handbooks, policy statements, committees,

ombudsmen are

sometimes used

Firestone 500

Nestle Infant Formula

R. J. Reynolds

Philip Morris

P & G (Rely Tampons) Abbott Labs

Borden

Boeing

General Mills

Johnson & Johnson (Tylenol)

General Dynamics

Caterpillar

Levi Strauss



Table I (Continued)

Stage in Moral

Development

Management Attitude

and Approach

Ethical Aspects of

Corporate Culture Corporate Ethics

Artifacts Defining Corporate Behavior

Stage V The Ethical

Organization

A balanced concern for

ethical and economic

outcomes; Ethical analysis is a fully integrated partner in developing both the mission and

strategic plan; SWOT

analysis is used to

anticipate problems and

analyze alternative

outcomes

A total ethical profile, with carefully selected core values which

reflect that profile, directs the culture;

Corporate culture is

planned and managed to be ethical; Hiring, training, firing and

rewarding all reflect the ethical profile

Documents focus on

the ethical profile and core values; All phases of

organizational documents reflect them

has been designed and managed by top management to produce the work climate necessary to support an assurance of the balance between profitability and ethics. Reward systems are developed which support individuals who make the

"right" decision, even at the expense of profitability. Sanction systems exist to

penalize and correct the behavior of those making a

wrong decision. Ethics training is an ongoing con cern of the stage five organization, which integrates technical training with a focus on the morality of the

job. Hiring practices emphasize not only the aptitude and skill of the potential employee but also how that

employee is likely to behave in moments of stress. An

organizational mentor program exists with the

purpose of providing work and moral guidance for the new employee. This parallel system wherein

profits and ethics go hand-in-hand is the hallmark of the ethical organization.

The principal difference between stage four and

stage five organizations is seen in the commitment that the organization makes to ethical behavior.

Stage four organizations have not fully planned for and integrated ethical values throughout their cul ture. Instead, they rely on mechanisms to guide ethical behavior. There is still an imbalance between the goals of profitability and ethics so that in times of stress, it is not uncommon to see the pursuit of

profitability produce unethical behavior. It is here where an organization in stage four, in spite of the ethics vehicles existent in an organization, can

regress to an earlier stage of moral development.

This is unlikely to occur in the stage five organiza

tion. The ethical emphasis in the culture of the

organization is so strong that the individual is not

placed in a dilemma in which he or she must choose the correct action. The correct action is always the

just and fair action. Of course, organizations will make mistakes in their planning. However, these

mistakes, once identified, will be corrected so that the final outcome corresponds to an ethical out come.

Some concluding comments

Organizations are struggling with their records of ethical behavior. This struggling is indicative of

moral growth where in organizations move from one level of moral development to another.

This conceptual model of organizational moral

development identifies five stages of growth. Table 1 summarizes the salient features of this development process. Not all organizations will evolve to the

highest stage. And, not all organizations begin at

stage 1. It is our opinion that most organizations are

currently in the legalistic and responsive stages of moral development. More and more organizations, however, are beginning to manifest the characteris tics of stage four organizations. Corporate emphasis on profitability still far outweighs concern for ethics.

Moreover, many managements have not yet learned that corporate cultures can be managed to produce



the desired ethical behaviors. What we are seeing are

cultures that are unmanaged, and when unmanaged, evolve in their own directions, usually in the direc tion pointed out by the reward system. Thus, cultures devoid of ethical concerns or in which

ethical values are absent, will normally grow in the direction of productivity and profitability, two

values typically embraced by management. While the conceptual model presented in this

article requires confirmation and possible respecif ication, it represents a start in the study of the

dynamics of corporate moral development. Further

study is sure to provide a clearer view of the process

by which organizations change and develop their own moral characters.

Notes

1 Abstracted from McClory, R.: 1986, 'Murder on the Shop Floor', Across the Board (June), pp. 29?32. 2 Abstracted from Hoffman, W. M.: 1984, The Ford Pinto', in W. M. Hoffman and J. Mills Moore (eds.), Business Ethics (McGraw-Hill Book Co., New York).

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Center for Business Development and Research, University of Southern Missippi,

Hattiesberg, MS 39406-5094, U.SA.

Department of Marketing, University of Southern Mississippi,

Hattiesberg, MS 39406-5094, U.SA.


Article Contentsp. [273]p. 274p. 275p. 276p. 277p. 278p. 279p. 280p. 281p. 282p. 283p. 284

Issue Table of ContentsJournal of Business Ethics, Vol. 10, No. 4 (Apr., 1991), pp. 243-322The DePaul University Workshop on Marketing EthicsA Realist View of Marketing Ethics [pp. 243-244]Marketing Ethics: Some Dimensions of the Challenge [pp. 245-248]Danger Signs of Unethical Behavior: How to Determine If Your Firm Is at Ethical Risk [pp. 249-253]

Book ReviewReview: untitled [pp. 254, 272, 294]

The DePaul University Workshop on Marketing EthicsRemarks on Marketing Ethics [pp. 255-258]Fostering Ethical Marketing Decisions [pp. 259-271]A Conceptual Model of Corporate Moral Development [pp. 273-284]Exploring the Structure of Ethical Attributions as a Component of the Consumer Decision Model: The Vicarious versus Personal Perspective [pp. 285-293]

The Business Ethics of Pharmacists: Conflicts Practices and Beliefs [pp. 295-301]Book ReviewReview: untitled [pp. 302, 316, 322]

Egoistic and Ethical Orientations of University Students toward Work-Related Decisions [pp. 303-310]An Issue in Corporate Social Responsibility: An Experiential Approach to Establish the Value of Human Life [pp. 311-315]Matt Goldspan's Trilogy [pp. 317-321]

conceptual model of corporate moral development

Documents

business development

levels of moral development

professor of business

journal of business

marketing ethics

ethical decision making

dynamics of ethical

role of corporate culture