Organizational Ethics

Organizational ethics is the ethics of a company, and it is how a company reacts to an internal or external stimuli. Organizational ethics and organizational culture are inextricably linked. Although it applies to both organizational behavior and industrial and organizational psychology, as well as business ethics on the micro and macro levels, organizational ethics is neither organizational behavior nor industrial and organizational psychology (which includes corporate governance and corporate ethics). Organizational ethics expresses an organization’s beliefs to its workers and/or other entities, regardless of governmental and/or regulatory rules.

A company’s ethical culture drives its conduct. A business with a lax culture, in which there are few if any ethical standards and no leadership commitment to upholding ethical values, is susceptible to ethical misbehavior.

Conversely, a company with a vital ethical culture is likely to do the right thing consistently because its employees are initiated to high ethical expectations and its leaders are committed to enforcing ethical standards rooted in strong institutional values.

A company’s core values form the touchstone for its ethical conduct. These values guide employees in day-to-day decision-making and business operations. Established organizational values can help individuals, from senior managers to front-line workers, determine what to do in circumstances requiring ethical judgment where no clear rule for how to proceed pertains.


In business, an ethics code or rules of conduct are effective for foreseeable situations. However, they are of little or no help in unforeseen ones. When workers find themselves in unplanned situations, facing tough ethical decisions for which they did not prepare, they must rely on their organization’s values-based principles to navigate the “uncharted territory.”

As a practical matter, no company can promulgate rules covering every possible situation its employees might encounter. Therefore, an organization should base its ethics management on its core values, which apply in all cases and circumstances, rather than on a set of rules.

The Role of Leadership

Leadership in business ethics starts with its top managers. For a company to achieve a sustainable ethical culture, its senior management must set the example and lead the way.

Business leaders are responsible for setting the ethical tone. They establish the general ethical climate through what they say and do day to day. For a company’s code of ethics to be effective and to have credibility, those in leadership positions must demonstrate their commitment to it. They must be seen living and managing by the code. Senior management must avoid creating the perception that it operates “above the rules.”

Human Resources

The role of human resources (or human capital) in creating a climate where “doing the right thing” is expected cannot be understated. This involves hiring the right people, providing them with training, and practicing consistent values-based leadership.

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Review Checkpoint

To test your understanding of the content presented

1. True or False?

Employees can rely on their organization’s ethics code for guidance in navigating uncharted ethical territory.Choose only one answer below.

a. True

b. False

Correct. This is a false statement. Employees will need to rely on the values of the organization when confronting uncharted ethical territory. Ethics codes are often inadequate guides for novel ethical dilemmas.

2. True or False?

Senior management is responsible for setting the ethical tone in the organization.Choose only one answer below.

a. True

Correct. This is a true statement. Senior management is responsible for setting the ethical tone in the organization.

b. False

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