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A Conceptual Model of Corporate

Moral Development

ABSTRACT: The conceptual model presented in this article

argues that corporations exhibit specificbehaviors 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 indicative 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 noteworthy effors, particularly those by Trevino (1986)
and Ferrell and Gresham (1985), have attempted to
model the ethical decision making process in organizations.
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 admixture 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

Centerfor Business Development and Research at the University
of Southern Mississippi. He has written extensively on business
and marketingethics.
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 severaIarticleson the subject.

.Journal ofBusiness Ethics 1O:273--284, 1991.

1991 KluwerAcademic Publishers.Printed in the Netherlands.

R. Eric Reidenbach
Donald P. Robin

their particular stage of moral development. Such a

typology is useful for better understanding the
dynamics that contribute to ethical decision making.

T h e role of corporate culture in moral

The moral development of a corporation is determined by the organizafon's culture and, in reciprocal fashion, helps define that culture. In essence, it is
the organization's culture that undergoes moral
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 members, 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 development of a corporation can be classified according to


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 determining the morality of corporate actvities (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, instrumental, and independence.
The recognition that culture is an important
determinant in ethical decision making has acceptance 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 criminality was pervasive in the financial industry during
this time, Markey responded, "there was definitely a
culture that tolerated it" (Wall StreetJournal (1988) p.

An overview o f the m o d e l
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 philosophy 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.

Fig. 1. A modelof corporatemoral development.

The model is inspired by the work on individual
moral development by Kohlberg (1964, 1976). However, 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, individua:l
moral development does contribute to the monll
development of an organization but is not determinant.
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 individuals 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 mission, and its industry, to name a few (Robin and
Reidenbach, 1987).

Corporate Moral Development Model

Proposition 2: An organization can begin its life in
any stage of moral development. Again, the determining factors are similar to those mentioned in
proposition 1. The key to the beginning point is an
overt management decision conditioned by a number 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 culture 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 organization. Each subculture will have embraced, to
greater or lesser extents, the formal culture. In those
cases where the formal culture dominates all operating areas, a multiple classification is unlikely. However, 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 corporations 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 addition, 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 advaficed. Thus, it is
possible that a corporation which is classified as a
legalistic corporation may also manifest certain characteristics of a responsive corporation. This is a
function of the dynamics of moral development.

T h e stages of organizational moral


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 profitability 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 concern for ethics, if at all evidenced, becomes more of a
cynical justification or a post hoc rationalization of
behavior strictly for damage control purposes. Common 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 employees 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


R. E. Reidenbach and D. P. Robin

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
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 valueless business environment produces a valueless business.
FRS - A Portrait of the Amoral Corporation ~ Film
Recovery Systems, previously located in Elk Grove
Village, Illinois, exhibited many of the characteristics
of an amoral organization. The company was organized to extract silver from old x-ray film which
utilized a chemical process involving cyanide. Because of the potentially acute toxicity of the process,
the safety of the workers should have been a principal 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 Environmental 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 workers 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 bookkeeper, because illegal aliens would be less apt to
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 recHess 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 employees. Internally, employees were to obey rules which
emphasized productivity and failure to do so meant
dismissal and even perhaps prosecution as an illegal

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 concerned with adhering to the legality of an action
rather than the morality of the action. "If it's legal,

Corporate Moral Development Model

it's ok and if we're not sure, have the lawyers check it

out" typifies the operating dictum of stage 2 organizations. 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 al., 1989). The largest
cluster was one characterized by a "Don't do anything 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 organizations 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 underlying 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 corporation 2
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, conscious and unjustifiable disregard of harm that might
result (from its actions) and the disregard involves a
substantial deviation from acceptable standards of
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
N H T S A (National Highway Traffic Safety Administration) 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 defective 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 preoccupation with compliance to laws and regulations,
cultural values focusing on what is right rather than
on what is legal are either nonexistent or underdeveloped. 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
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 contained 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


R. E. Reidenbach and D. P. Robin

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 counterparts in stage 1, maintain a preeminent concern
for profitability, especially when it involves a tradeoffwith 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 organization'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, conflict of interest, objectivity, personal finances,
decency, and accountability. The standard concerning 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., compliance, conflict of interest, personal finances, confidentiality). In that sense they are internally directed.
Concern for ethical conduct is evidenced in the
accountability statement which reads, "Report questionable, 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 relationships, 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 et al. 1989).
Concern for other stakeholders begins to manifest
itself as managements being to realize the importance of employees and the community in which they
operate. Again, this nascent concern is not motiveated 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 damaging occurrence to the organization or other organizations may happen forcing the organization to react
by countering with some apparent ethical response.
The intention is to sway opinion of different stateholders 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
P & G reacts to the Rely Tampon problem. The reaction
that Proctor & Gamble made to the Rely Tampon
problem is indicative of an organization that has developed 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 enlightened 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-

Corporate Moral Development Model

tionship between toxic shock syndrome and tampon
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 Centers for Disease Control for the study of toxic shock
and agreed to finance and initiate an educational
campaign about the disease. The educational campaign 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 wellbeing was inextricably intertwined with the morality
of their decision. This is the hallmark of the responsive 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.

Stagefour- the emergentethicalorganization

The emergent ethical organization is one in which
management actively seeks a greater balance between 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
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, ombudsmen, and ethics program directors begin to reinforce
the existence of codes. This signals stronger management 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
General Mills has developed guidelines for dealing 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


R. E. Reidenbach and D. P. Robin

ethical behavior, these organizations are not yet fully

comfortable with their implementation. Organizational 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 experience 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 programs have been in place since 1964 but the mere
existence of ethical programs does not insure that
the emergent ethical organization will behave ethically. 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 publication by the giant defense contractor asks 10
questions about the program. These questions include:
I 0.

W h o is my Ethics Program Director?

How can the Ethics Director help me?
How can I contact my Ethics Director?
Do I need my supervisor's permission to talk
with the Ethics Director?
How does the ethics hotline work?
How do I know what General Dynamics' ethics
standards really are?
What is my responsibility if I become aware of
someone who is violating the standards?
What happens ifI violate the standards?
How does the ethics program apply to me?
What should I do if I am directed to do something that I believe is a violation of company

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
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 coworkers 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 corporation 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 thefirm that
our employees, including me, would have been scandalized
had we taken another course (emphasis added). We
never seriously considered avoiding the costly recall." (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.

Stagefive - 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

CorporateMoral DevelopmentModel
Exhibit 1
Johnson & Johnson's Corporate 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 organization-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 organization would be compromised.
At the heart of this organization is a planning
system m u c h 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 proposition that he found morally repugnant. It concerned a contract to furnish English soldiers in the
Boer W a r 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).
W h a t 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

R. E. Reidenbach and D. P. Robin


A summary of the moral development of corporations
Stage in Moral

Management Attitude
and Approach

Ethical Aspects of
Corporate Culture

Corporate Ethics

Defining Corporate

Stage I
The Amoral

Get away with all you

can; It's ethical as long as
we're not caught; Ethical
violations, when caught,
are a cost of doing

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

Film Recovery Systems;

Stage II
The Legalistic

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

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

The Code of Ethics, if it

exists, is an internal
document; "Don't do
anything to harm the
organization"; "Be a
good corporate citizen"

Management understands
the value of not acting
solely on a legal basis,
even though they believe
they could win; Management 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

There is a growing
concern for other
corporate stakeholders
other than owners;
Culture begins to
embrace a more
"responsible citizen"

Codes are more

externally oriented and
reflect a concern for
other publics; Other
ethics vehicles are

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 organization and long term
planning; Ethics management is characterized by
successes and failures

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

Codes of Ethics become

action documents; Code
items reflect tile core
values of the organization; Handbooks, policy
statements, committees,
ombudsmen are
sometimes used

Stage III
The Responsive

Stage IV
The Emerging


Numerous Penny
Stock Companies

Ford Pinto
Firestone 500
Nestle Infant Formula
R.J. Reynolds
Philip Morris

P & G (Rely Tampons)

Abbott Labs

General Mills
Johnson & Johnson

General Dynamics
Levi Strauss

CorporateMoral DevelopmentModel


Table I (Continued)
Stage in Moral

Management Attitude
and Approach

Ethical Aspects of
Corporate Culture

Corporate Ethics

Defining Corporate

Stage V
The Ethical

A balanced concern for

ethical and economic

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


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

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 concern 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 culture. 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 organization. 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 outcome.

Some concluding c o m m e n t s
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 characteristics 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


R. E. Reidenbach and D. P. Robin

the desired ethical behaviors. W h a t we are seeing are

cultures that are unmanaged, and when unmanaged,
evolve in their own directions, usually in the direction 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 respecification, 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.

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Centerfor Business Development and Research,

University of Southern Missippi,
Hattiesberg, MS 39406-5094,
Department of Marketing,
University of Southern Mississippi,
Hattiesberg, MS 39406-5094,