What is your organization’s Ethical Climate? What is Ethical Climate and why is it important?

John Theiring’s PSY 533 Ethics and Leadership Blog

UNIT 05 / LESSON 13: Ethical Climate

What is your organization’s Ethical Climate? What is Ethical Climate and why is it important?




An Organization’s ethical climate is the focus on the ethics of decision making and actions.   Ethical climate is a component of organizational climate which is the reactions of organizational members to the values and beliefs of that make up organizational culture (Bass, 1990, Kozlowski & Doherty, 1989).   Organization climate is important because it can be a driver and indicator of job performance, psychological wellbeing and withdrawal of individuals in an organization (Carr, Schmidt, Ford, & DeShon, 2003).   Organization and Ethical climate are important because these conditions will impact the behavior, motivation and effectiveness of the workforce. These forces if positive and supportive can strengthen and increase morale and productivity, but when caustic and destructive, can cause withdrawal, dysfunctional and unwanted behaviors.


As defined by Ostroff in 1993, organization climate has three primary components;

Affective: Concerns for interpersonal/social relationships in the workplace

Cognitive: Concerns for one’s relationship with the work itself

Instrumental: Concerns for integration of people and tasks for getting the job done


If your organization’s management strives to promote and support these components of organization climate and culture, the employees will have increased communication, satisfaction, cooperation which will lead to better overall performance (Cohen & Bailey, 1997).

One of the components of an organization’s climate, is its ethical climate. Ethical climate is focused on the ethical aspects of decision making and actions of members of an organization.   Ethics provides the values and morals that an individual, organization or society finds desirable or appropriate (Northhouse, 2015).   As leaders of an organization have the power to influence others, their ethical leadership in instrumental in establishing and reinforcing organization values.   These values promoted by the leadership have a significant impact on the values exhibited by the organization (Carlson & Perrewe, 1995; Schminke, Ambrose, & Noel, 1997; Trevino, 1986).   As a result, leaders play a major role in establishing the ethical climate of the organization.   It is important and the responsibility of leaders to help individuals realize their values and needs to help them rise to a higher level of ethical functioning (Ciulla, 1998).



Knowing the importance of the ethical climate of an organization/individual, how do you determine the type/level of ethical climate of your organization/leaders?   One approach is to use the method of Victor and Cullen (1987) which creates a matrix of two dimensions.   The first dimension is the ethical criteria which is the standard for moral reasoning of a person and is based upon three ethical criteria.

Egoism: Doing what is best for oneself

Benevolence: Doing what is good

Principle: Finding a standard to adhere to


The second dimension is called locus of analysis and is the perspective for judgement that a person users (Penn State, 2016).   As with the first dimension, there are three categories.

Individual: Looking from the perspective of oneself

Local: Looking from the perspective of those who are directly involved/affected

Cosmopolitan: Looking from the perspective of society as a whole.


By combining ethical criteria and loci of analysis you produce a 3×3 matrix of 9 potential ethical climates.






If I then apply the characteristics of my current organization and leadership, I find the ethical criteria which best fits is benevolence and the loci of analysis is cosmopolitan because the company mission and values of the leadership is to do good things for the benefit of the world.   Based upon those characteristics, my organization and leadership ethical climate would be ‘Social Responsibility’.   The organization and leadership led by example and promote cooperation, open communication, mutual respect and an overall environment that is fair and safe.   There is a high degree of satisfaction and commitment by employees and for the past 5 years has been ranked as a top company to work at.

In contrast, the previous company I worked for had an ethical criteria of self-interest and a loci of analysis of local locus.   The company and management were driven by the bottom line of sales and profit so it is fitting that based on the Victor and Cullen (1988) matrix the company ethical climate was ‘Company Profit’.     The leadership was focused on doing whatever they had to do in order to make their numbers and were willing to blame and sacrifice others to do so.   The culture was one of fear and unhealthy competition with people stealing and sabotaging other people’s sales opportunities.   This climate led to a 20% annual turnover rate and dysfunctional problems such as people stealing and breaking company resources.   This was not enjoyable organization to work for and the ethical climate resulted in looking for new employment opportunities.

There are multiple ways to determine or attempt to measure a leader or organization’s ethical climate such as the holistic theory by Arnaud (2010).   I this approach individual and group/societal components are combined for a more holistic look.   This approach has four dimensions that require a higher degree of assessment before determining an ethical climate.   The Arnaud model is more specific, harder to use and more time-consuming than the Victor and Cullen model.

It doesn’t matter what approach you use to determine the ethical climate of a leader or organization, or what label you give it, I think most reasonable people instinctively are able to detect if a leader or organization is ethical or unethical.     Because of the influence of leaders on their followers, the leader’s behaviors and values are going to set the tone and direction for the entire company (Penn State, 2016).   As an organization can have layers of leaders and management, to help diffuse the impact of a single leader, an organization can help define and enforce its ethical climate by creating, socializing and enforcing a code of ethics.   This can then help with some of the potential bad/inappropriate decisions by individuals by providing guidelines for decision making and behavior.   If your organization does not have a code of ethics, begin by referencing existing codes of ethics such as the APA (American Psychological Association) code of ethics.






American Psychological Association. (2002). Ethical principles of psychologists and code of conduct (Amended February 20, 2010). American Psychologist, 57, 1060-1073.

Arnaud, A. (2010). Conceptualizing and measuring ethical work climate: Development and validation of the ethical climate index. Business & Society, 49(2), 345-358.

Bass, B. M. (1990). Bass and Stogdill’s handbook of leadership. New York: Free Press

Carlson, D.S., & Perrewe, P.L. (1995). Institutionalization of organization ethics through transformational leadership. Journal of Business Ethics, 14(10), 829-838.

Carr, J. Z., Schmidt, A. M., Ford, J. K., & DeShon, R. P. (2003). Climate perceptions matter: A meta-anlytic path analysis relating to molar climate, cognitive and affective states, and individual level work outcomes. Journal of Applied Psychology, 88(4), 605-619.

Ciulla, J.B. (1998). Ethics, the heart of leadership. Westport, CT: Greenwood.

Cohen, S., & Bailey, D. (1997). What makes teams work: Group effectiveness research from the shop floor to the executive suite. Journal of Management, 23, 239-290.

Kozlowski, S. W. J., & Doherty, M. L. (1989). Integration of climate and leadership: Examination of a neglected issue. Journal of Applied Psychology, 74, 546-553.

Levy, P. E. (2013). Industrial organizational psychology: Understanding the workplace. New York: Worth.

Lowman, R. L. (Ed.). (2006). Part VI: Billing and marketing issues. In The ethical practice of psychology in organizations (cases 48-51). Washington, DC: American Psychological Association

Myers, D. G. (2013). Psychology: In modules. New York: Worth.

Northouse, P. G. (2015). Leadership ethics. In Leadership: Theory and practice. Washington, DC: SAGE.

Penn State University, (2016). PSY 533 Lesson L13: Ethical Climate https://psu.instructure.com/courses/1775390/pages/l13

Schminke, M., Ambrose, M.L, & Noel, T.W. (1997). The effect of ethical frameworks on perceptions of organization justice. Academy of Management Journal, 40(5), 1190-1207.

Victor, B., & Cullen, J. B. (1987). A theory and measure of ethical climate in organizations. Research in Corporate Social Performance and Policy, 9, 51-71.

Victor, B., & Cullen, J. B. (1988). The organizational bases of ethical work climates. Administrative Science Quarterly, 33, 101-125.



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