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Organizational ethics is the ethics of an organization, and it is how an organization ethically responds to an internal or external stimulus. Organizational ethics is interdependent with the organizational culture. Although, it is akin to both organizational behavior (OB) and business ethics on the micro and macro levels, organizational ethics is neither OB, nor is it solely business ethics (which includes corporate governance and corporate ethics). Organizational ethics express the values of an organization to its employees and/or other entities irrespective of governmental and/or regulatory laws.
The Foreign Corrupt Practices Act (FCPA) restricts the United States business firms from engaging in bribery and other illegal practices internationally. There are laws that have the same type of prohibition for European companies. These laws create a disadvantage competitively for both European and U.S. firms. Such laws are not a restricting element to organizations that have highly elevated ethical behavior as part of their values. Organizations that lack ethical practices as a mandatory basis of their business structure and corporate culture, have commonly been found to fail due to the absence of business ethics; Corporate downfalls including, but are not limited to, the recent Enron and WorldCom scandals, are two primary examples of unethical business practices concerning questionable accounting transactions.
Organizations focusing on encouraging ethical practices are commonly viewed with respect by employees, the community, and corresponding industries. Ethical business practices of organizations has resulted in a solid financial bottom-line. This has been seen through greater sales and increased revenue by companies retaining talented personnel and attracting newly skilled employees. More importantly, an ethical organization will have the ability to retain employees that are experienced and knowledgeable (generally referred to as human capital). This human capital results in less employee turnover, less training time for new employees, and greater output regarding services (or production of goods).
There are at least four elements that aim to create an ethical culture and behavior of employees within an organization. These elements are:
1) a written code of ethics and standards (ethical code)
2) ethics training for executives, managers, and employees
3) the availability of ethical situational advice (i.e. advice lines or offices)
4) confidential reporting systems
Organizations are consistantly striving for a better ethical atmosphere within the business climate and culture. Businesses must create an ethical business climate in order to develop an ethical organization. Otherwise saying, companies must focus on the ethics of employee's in order to create an ethical business. Employees must know the difference between what is acceptable and unacceptable in the workplace. These standards are found within the written code of ethics or may be referred to as the employee handbook. These standards are a written form of employee conduct and performance expectations. Employee handbooks also commonly include employee rules concerning expectations and consequences that follow misconduct. Handbooks normally will clearly state the rules, guidelines, and standards of an organization as well as possible rules, regulations, and laws that they are bound by; Many company handbooks will include laws regarding sexual harassment, Alcohol abuse alcohol, and drug/substance abuse.
For more information regarding situational ethical principles, refer to "Situational Ethics."
The intrinsic and extrinsic rewards of an ethical organization are bound to an organizations culture and ethics of the organization. Based upon the reliability and support structure of each of the four areas needed for ethical behavior, the organizational ethics will be evident throughout the organization. The organization including the employees, managers, suppliers, customers, and other entities, will receive intrinsic and extrinsic rewards. Actions of employees can range from whistle blowing (intrinsic) to the extraordinary actions of hourly employee purchasing all the recently produced peanut butter (as produced by his employer), that has no resale value due to mislabeled jars. This employee was aware that his employer (extrinsic) would reimburse him in full for purchasing the mislabeled peanut butter.
For more information regarding intrinsic and extrinsic motivation, see "Intrinsic and Extrinsic Motivation."
There are many theories and organizational studies that are coarsely related to “organizational ethics”, but "organizations" and "ethics" are wide and varied in application and scope. These theories and studies can range from individual(s), team(s), stakeholder, management, leadership, human resources, group(s) interaction(s), as well as, the psychological framework behind each area to include the distribution of job tasks within various types of organizations. As among these areas, the influence of leadership in any organization cannot go unexamined, because a clear understanding of the organization’s vision, goals (to include immediate and long-term strategic plans), and values. Leadership sets the tone for organizational management (strategic actions taken by an organization to create a positive image to both internal and external publics). In turn, leadership directly influences the organizational symbolism (which reflects the culture, the language of the members, any meaningful objects, representations, and/or how someone may act or think within an organization). The values and ideals within an organization are generally center upon “values for business” as the theoretical approach most leaders use to present to their "co-members" (which in truth maybe subordinates).
In fact, an examination of business reveals that most leaders approach the from the perspective of values for the business. Alongside presenting the vision, values, and goals of the organization, the leader should infuse empowerment and motivation to its members. Leaders using empowerment to motivate their subordinates, is based upon the view of: “Achieving organizational ownership of company values is a continuous process of communication, discussion, and debate throughout all areas of the organization”  as.
For more information about organization theory, refer to "Organizational Theory."
Whether it is a team, small group, or a large international entity, the ability for any organization to reason, act rationally, and respond ethically is paramount. Leaders must have the ability to recognize the needs and desires of members (or called “stakeholders” in some theories or models), and how they correspond to the organization. It is the stakeholder theory that implies that all stakeholders (or individuals) must be treated equally regardless of the fact that some individuals will contribute more than others to the organization.
Leaders who motivate others must present the goals of an organization to the stakeholders with respect to particular benefits of the stakeholders. Leaders must set aside individual (or personal) ambitions (along with any prejudice) in order to present these goals properly. Further, it is leadership that influences stakeholders towards ethical behavior for the organization. They must step behind a veil of ignorance and treat every stakeholder as a means with equal weight. Importantly, the leader (or stakeholder management) must possess the necessary skills and rank to ensure that each stakeholders voice is respected and heard within the organization to ensure that other voices are not expressing views (or needs as in respects to Maslow's Hierarchy of Needs). Therefore, stakeholder management must ensure an ethical system for their own management styles, personalities, systems, performances, plans, policies, strategies, productivity, openness, and even risk(s) within their cultures or industries.
The function of developing and implementing business ethics into an organization is difficult. Due to each organizations culture and atmosphere being different, there is no clear or specific way to implement a code of ethics to an existing business. The implementation should be performed to the entirety of the business including all areas of operations. If it is not implemented pragmatically and with caution for the needs, desires, and personalities (consider the Big Five personality traits) of the stakeholders, the culture, and the employees, then problems may arise. Although, a great deal of time may be required, stakeholder management should consider the Rational Decision-Making Model for implementation of various aspects, details, and standards of an ethical system to the stakeholders. If implantation has been performed successfully, then all stakeholders have accepted the newly designed ethics system for the organization.
Refer to the following theories and models for more information: