Ethical Climate Public Sector Organisation

Social Enterprise Journal
Ethical climate in nonprofit and government sectors: the case of Japan

Rosario Laratta
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Ethical climate
Ethical climate in nonprofit and
government sectors: the case
of Japan
225
Rosario Laratta
Graduate School of Humanities and Sociology, The University of Tokyo,
Tokyo, Japan
Abstract
Purpose – This is a study of ethical climates in nonprofit and government sectors in Japan, the aim of
which is to determine the extent to which similarities (and differences) exist in ethical climate
dimensions, what drives the differences and what are the implications for the sectors in this country.
Design/methodology/approach – Using survey data and structural equation modeling
techniques, the factors structure equivalence and measurement invariance of ethical climates in the
two sectors were tested. The original sample was made by 1,012 participants (500 public officials and
512 nonprofit executive directors). Due to some missing values, a net sample of 441 questionnaires (for
nonprofit) and 321 questionnaires (for government) were used for the final analysis.
Findings – Results of this study indicate that there was a significant overlap in shared perception of
all ethical climates in the two sectors. There should be an effort to continue building on these
commonalities so as to provide an effective framework to build trusting relationships between the
two sectors.
Practical implications – This study provides important insights that would allow policy makers in
government to better understand the implications of using nonprofit partners to deliver services. It
would also provide a theoretical and empirical starting point from which government-nonprofits
relationships in Japan can be better understood.
Originality/value – This was the first time that such a type of research was conducted in Japanese
nonprofit and government sectors. Furthermore, among all the empirical studies on ethical climate,
this is based on one of the largest sample of respondents in both sectors.
Keywords Ethics, Non-profit organizations, Government, Japan
Paper type Research paper
Introduction
The crucial role assumed by nonprofit organizations (NPOs) in the provision of public
services makes it essential that their ethical orientations are understood by both
government, as their major source of funding, and the community at large as taxpayers
and beneficiaries. Accordingly, governmental regulation and oversight of NPOs have
grown substantially during the last decade in an effort to maximize accountability to the
public (Austin, 2003; Hodgson, 2004), a tightening of control which has often been
considered to be to their disadvantage (Evers, 2004; Paton, 2003). Indeed, some writers
suggest the major problem for NPOs is the scramble for services contracts, which also
produces “mission drift” (Young and Denize, 2008). It is also argued that governments are
reluctant to enter into contractual relationships with NPOs because of the attendant high Social Enterprise Journal
Vol. 6 No. 3, 2010
monitoring costs (Malloy and Agarwal, 2008). The pressure for accountability, from the pp. 225-249
nonprofit side, and high monitoring costs, from the government side, make any kind of q Emerald Group Publishing Limited
1750-8614
partnership between these two sectors difficult to establish and to maintain (Gazley and DOI 10.1108/17508611011088823
SEJ Brudney, 2007). However, there are solutions to this problem. Brown and Troutt (2004), for
6,3 example, report that when organizations share similar ethical values they are more willing
to enter into less rigid and more value-based relationships whose efficacy tends to be
longer lasting. In order to sustain long-term relationship, both sides should be driven by
philosophy and ethical values that go beyond merely providing efficient solutions to
societal problems (Brown and Troutt, 2004). For the government-nonprofit service
226 delivery arrangement to evolve into a long-term relationship, it is well-advised that
governments plan performance contracts with NPOs after fully understanding
intersectoral ethical climates (Malloy and Agarwal, 2008).
The concept of ethical climate is a powerful one. According to Sims (1992, p. 509):
The ethical climate of an organization is the shared set of understandings about what correct
behavior is and how ethical issues will be handled. This climate sets the tone for decision
making at all levels and in all circumstances.

Scholars such as Victor and Cullen (1987) and, more recently, Vidaver-Cohen (1998)
have suggested that ethical climate in organizations influences the moral conduct of
their membership and especially that of their boards of directors. One of the most
interesting definitions of ethical climate has been given by Malloy and Agarwal (2003,
p. 39) who described it as “the informal interpreter and judge of an individual’s
organizational behavior [. . .] a catalyst, or at least a potentially forceful moderator of
an individual’s organizational behavior”. What then can measures of ethical climate
tell us about government-nonprofit relational fit and their policy implications for
service delivery? Successful relationships between the two sectors are most often built
on trust and as such governments have been advised to choose to contract and partner
with nonprofits because they are less likely to behave in opportunistic fashion usually
associated with for-profit organizations. This view though must be held with some
caution as even within the context of non-distribution, nonprofits are subject to forms
of opportunism that are unique to their particular context (Gazley and Brudney, 2007).
Many nonprofits are not held as accountable as their government or for-profit
counterparts due to the fragmentation “between the community-at-large, the fiduciary
board, the funding source, and management” (Gardner, 1987, pp. 7-8). However,
research in this field generally suggests that nonprofits are less prone to opportunism
than private sector firms. Therefore, the costs of monitoring contracts with private
sector are often prohibitive and thus a motivation to use NPOs (Prager, 1994). If these
costs can be reduced even further due to congruence in ethical climates, then it can
make NPOs even more attractive partners for government.
Theoretical framework
The vast majority of the research that has been conducted in ethical climates is based
upon the theoretical framework which was developed by Victor and Cullen in the late
1980s in order to study the perception of ethical orientation in for-profit organizations.
Victor and Cullen (1987, 1988) developed a framework for measuring the perception
of ethical orientation in organizations by combining the theoretical constructs of ethical
theory and locus of analysis. Three ethical theories form the basis of Victor and
Cullen’s (1987, 1988) model. They include egoism (hedonism), benevolence
(utilitarianism), and principled (deontology) ethical grounding. It is interesting to
note that these three ethical theories conceptually and philosophically overlap
significantly with the three generally accepted dimensions of trust, namely, ability Ethical climate
(i.e. skills and competencies), benevolence (i.e. non-egocentric motive), and integrity
(i.e. personal and moral principles) (Mayer et al., 1995).
Theoretical constructs of ethical theory

.
The first theory is egoism. Egoism represents organizational behavior that
attempts to avoid punishment and seeks reward for the individual and the 227
organization. This often leads to a climate in which the primary goal is
individual and organizational efficiency and success in terms of productivity and
cost effectiveness.
.
The second theory is benevolence. This approach describes organizational
behavior that seeks the greatest goodness or pleasure and the least pain for the
members as a whole. The benevolence theory aims at fostering friendship,

interpersonal relationship, group cohesion, and public good.
.
The final theory in this framework is termed principle. Unlike the previous two
teleological-based theories, this approach places emphasis not on the happiness
or pleasure of the individual or group, but rather its focus is upon abstract
impersonal rules of conduct. These rules manifest themselves in the form of
personal morality, organizational rules and procedures, and legal and
professional codes of conduct.
Locus of analysis
This construct contains three different reference points for an individual’s decision
making. These three perspectives include individual, local, and cosmopolitan viewpoints:
(1) Decisions made at the individual locus are ideographical in nature and based
upon personal inclinations or well-considered existential convictions.
(2) The local referent is the immediate work group or the firm generally as well as the
individual’s community of significant others. Norms, values, and behaviors
derived from this immediate work or social community are internalized or at least
generally operationalized by the individual actor. The local locus is indicative of
decisions made as a function of the will or the pressure of the group.
(3) Finally, cosmopolitan decisions are made as a result of their perceived
universality as opposed to what is good for the individual or the group. At this
level, behavior is shaped by normative systems that have the potential to
operate within the organization but are generated and maintained externally
(e.g. professional codes of ethics as opposed to firm-specific behavioral norms).
The outcome of the juxtaposition of these loci of analyses and three ethical theories is a
nine-cell climate matrix (Table I).
While these nine cells exist theoretically in Victor and Cullen’s framework, however,
empirically, fewer climate types present themselves. For example, in the vast majority
of studies conducted in the for-profit sector (including Victor’s and Cullen’s original
study), five climate types seem to reoccur (Barnett and Schubert, 2002; DeConnick and
Lewis, 1997; Peterson, 2002; Vardi, 2001; Victor and Cullen, 1988). While some research
identifies similar ethical climates in the nonprofit sector (Deshpande, 1996a, b), other
studies demonstrate notable variations (Agarwal and Malloy, 1999; Brower and
SEJ Shrader, 2000). For example, the study conducted by Agarwal and Malloy (1999)
6,3 reveals that the nonprofit sector has a more discriminating perception of benevolent
and caring climate as opposed to the justice-oriented “law and code” climate.
With this typology in mind Victor and Cullen developed an ethical climate
questionnaire (ECQ) with each question answered by the respondents scoring on a
six-point scale ranging from “completely false” to “completely true.” Agarwal and
228 Malloy (1999) applied this research tool to an NPO and discovered that not all the
ethical climate types were replicable. In particular, they found that, in the NPO, there
were no significant ethical climate perceptions based on the “local or organizational
locus” of analysis (Agarwal and Malloy, 1999). They also found that, in the NPO, there
was a general trend toward a “caring climate of benevolence”, including individual
caring – in which the primary concern of members is the well-being of others, and the
tendency among them is to do what is best for the service users rather than the general
public, and social caring – in which the primary concern of members is the well-being
of the community or society at large (social responsibility), and the tendency among
them is to do what is right for the public as a whole (Malloy and Agarwal, 2001;
Parboteeah and Cullen, 2003). Following their findings, Agarwal and Malloy rebuilt
Victor and Cullen’s matrix showing how it differs between for profit and nonprofit
(Table II).
On the basis of their discovery in 1999, Malloy and Agarwal proposed two factors
which may influence the perception of ethical climate in a NPO: individual-specific
factors (relating to the individual locus) and significant-other factors (relating to the
cosmopolitan locus). In particular, they identified “educational level” as being one of
the individual-specific factors which may influence the ethical perception of an NPO
Locus of analysis/ethical criterion Individual Local Cosmopolitan
Egoism Self-interest Organizational interest Efficiency

Benevolence Friendship Team interest Social responsibility
Table I. Principle Personal morality Organizational rules Rules and law
The ethical climate and procedures
typology (For-profit
organizations) Source: Victor and Cullen (1988)
Locus of analysis/ethical
criterion Individual Local Cosmopolitan
Egoism Self-interest – –
(machiavellianism)
Benevolence Friendship (individual – Social responsibility (social caring)
caring)
Principle Personal morality – Rules and law (formal policy and
Table II. (independence) procedures)
The ethical climate
typology (NPOs) Source: Agarwal and Malloy (1999)
more than other factors; on the other hand, among the significant-other factors, they Ethical climate
identified the presence and frequency of dilemmas dealing with volunteers as that
feature, among others, which might influence the perception of ethical climate in a
nonprofit context (Malloy and Agarwal, 2001, pp. 44-9). However, because their
investigation was based on an NPO, it did not show how the matrix may change from
one kind of organization to another, and from one country to another. Later in 2008,
Agarwal and Malloy conducted another study in two Canadian provinces in which 229
they tried to understand how ethical climate changes between nonprofits and
governments, but again it lacks the cross-national comparative dimension.
The purpose of my study is to investigate ethical climates in government and NPOs
in Japan, where the relationship between these two sectors has been recognized as close
and long lasting (Hirata, 2002; Estevez-Abe, 2003; Ritu, 2008), to determine the extent
to which similarities (and differences) exist in ethical climate dimensions, what drives
the differences and what are the implications for the sectors in this country. This study
provides a theoretical and empirical starting point from which government and NPOs
can explore their own ethical orientations and their potential commonalities and
differences. The outcome of this study would be a deeper awareness of ethical
perceptions of each sector and an enhanced sense of trust during intersectoral
negotiations. The study would also provide important insights that would allow policy
makers in government to better understand the implications of using nonprofit
partners to deliver services.
Methodology
The instrument for this study was based upon the ethical work climate questionnaire
developed by Victor and Cullen (1987, 1988). This includes 36 items. Against the
background of this review, we developed our own version of the ECQ. This ECQ was
developed for distribution in four nonprofit executive directors and four government
officials in Chiba prefecture. When developing our own version of the ECQ, we tried to
follow the Victor and Cullen ECQ-version as much as possible. For example, the
instructions for the respondents were almost literally translated from Victor and Cullen
(1988, p. 110).
However, we did have to make a number of important modifications to the original
ECQ:
(1) Victor and Cullen’s (1988, p. 112) items typically refer to “company” (e.g. “ In
this company, people are expected to follow their own personal and moral
beliefs.”). In our questionnaire we replaced “company,” not by “organization,”
but by a specific description of the (part of the) organization the questions were
about. As mentioned above, the ECQ is analyzed at the organizational level and
the actual organizations we researched are “nonprofits and government
departments.” Yet, because the government departments were typically part of
a larger organization, it would not be self-evident for the survey-respondents to
understand what is meant by “our organization”. Hence, to avoid interpretation
problems, the survey explicitly indicated the name of the organization, i.e. the
organizational level at which the climate was to be measured.
(2) Quite a number of specific items were changed and a few were entirely replaced
because were considered by those eight people who took part in our piloting
study as too much repetitive or very ambiguous questions.
SEJ (3) Some items were left out because they were too similar to other items.
6,3 (4) And perhaps, most important, these adapted items were translated in Japanese.
In this process, we faced some problems of interpretation and translation so we
sort of tried to find an interpretation of items which differed as less as possible
from the original meanings, though in a way that was as much as possible
understandable by respondents in the Japanese cultural context.
230
Operationalization of the variable
Based upon empirical and theoretical evidence of the correlation and co-existence of
climate dimensions, the factors were assumed to be non-orthogonal and we decided to
apply the explanatory factor analysis (EFA[1]) using principal axis factoring and utilizing
the oblique rotation method. At the start, this methodological change appeared to be
contradictory to Victor and Cullen’s original strategy of adopting the principal

components analysis (PCA[2]), but they were shown to have done the right thing because
Bartlett’s test of sphericity and the Kaiser-Meyer-Olkin measure of sampling adequacy
indicated that it was appropriate for the data in question to adapt the EFA. The resulting
analysis yielded ten factors but only eight factors eigenvalues greater than unity and these
were selected. The eight factors were then reported in the following matrix.
Ethical climate scale

(1) F1: Self-interest:
.
(1) In X, people protect their own interest above other considerations.
.
(2) In X, people are mostly concerned about what is best for themselves.
.
(3) In X, people are mostly out for themselves.
(2) F2: Organizational interest:
.
(4) People here are expected to do anything to further the financial interests
and the position of X.
.
(5) People here consider it to be important that citizens find X better than
other organizations that perform similar tasks.
.
(6) People here are solely concerned with the financial interests and the
image of X.
(3) F3: Efficiency:
.
(7) In X, each person is expected, above all, to work in a cost-reductive way.
.
(8) The cheapest way is always the right way, in X.
(4) F4: Friendship:
.
(9) Good interpersonal contacts (both with colleagues and with outsiders)
are considered to be very important in X.
.
(10) In X, our major concern is always what is best for the other person
(whether he or she is a colleague or not).
.
(11) What is best for each individual (whether citizen or colleague) is the
primary concern in X.
.
(12) It is expected that each individual (both colleague and outsider) is cared
for when making decisions here.
(5) F5: Team interest: Ethical climate
. (13) The most important concern is the good of all the people in X.
.
(14) People in X view team spirit as important.
.
(15) A good and broad cooperation among all colleagues is considered to be
very important in X.
(6) F6: Stakeholder orientation: 231
.
(16) It is expected here that you will always do what is right for the citizens
with whom you deal.
.
(17) People in X have a strong sense of responsibility to the citizens they deal
with.
.
(18) People in X are actively concerned about the citizens they have direct
contact with.
.
(19) The effect of decisions on the citizens with whom we directly deal is a
primary concern in X.
(7) F7: Personal morality:
.
(20) There is no room for one’s own professional ethics or personal morals in X.
.
(21) In X, people are expected to follow their personal moral beliefs and their
own professional ethics.
. (22) The most important consideration in X is each employee’s personal
sense of right and wrong.
(8) F8: Rules and law:
.
(23) It is very important to follow strictly X’s rules and procedures here.
.
(24) The first consideration is whether a decision violates any law.
.
(25) People are expected to comply with the law and public interest over and
above other considerations.
.
(26) In X, people are expected to strictly follow legal and professional standards.
In our study, ethical climate was measured using these eight climate types we
identified. Each item or climate description was measured using a six-point Likert
scale, “completely false” (A ¼ 2 3), “mostly false” (B ¼ 2 2), “somewhat false”
(C ¼ 2 1), “somewhat true” (D ¼ 1), “mostly true” (E ¼ 2), or “completely true”
(F ¼ 3). Therefore, a high score shows the presence and a low score the absence of a
climate. We made clear at the top of this set of questions that our objective was to
discover, through respondents’ answers, not how they (the respondents) would like the
climate to be, but how the climate of their organization actually was (at the time when
the questionnaire was being completed).
At the end of our survey, we chose a strictly confirmatory factor analysis[3] which,
as has been pointed out by DeCoster (1998, p. 7), has “the main objective of determining
the ability of a predefined factor model to fit an observed set of data”. Floyd and
Widaman (1995) suggested that EFA is most appropriate in the initial stage of model
development whereas confirmatory factor analysis provides a more powerful tool in
the second stage of research when a model has already been established. By using
structural equation modeling goodness-of-fit tests (LISREL)[4] we were able to
SEJ determine if the pattern of variances and covariances (correlations) in the data was
consistent with the structural model specified by our EFA. Through the LISREL, we
6,3 obtained the inter-correlation matrix which shows the covariances among the
constructs. Then we fitted the model to the data and by using the most common
model-fitting procedure, named “maximum likelihood estimation”, with which we
obtained the estimates of factor loadings that were free to vary. The reliability of each
232 item used in the survey was then assessed by Cronbach’s a which is a coefficient of
reliability (or internal consistency). It can be written as a function of the number of test
items and the average inter-correlation among the items. The following formula is the
one used to calculate the standardized Cronbach’s a:
N · r
a5
1 1 ðN 2 1Þ · r
where N represents the number of items and r is the average inter-item correlation
among the items.
Data collection
The study was conducted between August 2009 and January 2010. At first,we did a pilot
study on a sample of eight organizations outside Tokyo, in Chiba prefecture, involving
four nonprofits and four government officials. As a result of the pilot study, and
subsequent EFA, we arrived to construct the final Japanese questionnaire of 26 items,
much shorter then the original one but which was still inclusive of all the dimensions we
wanted to test in first place (i.e. self-interest, organizational interest, efficiency, friendship,
team interest, stakeholder orientation, personal morality, and rules and laws).
We contacted first by phone and then by mail 1,012 potential respondents:
.
A total of 500 local government officials selected among these ten municipal
local governments: Shinjuku Kuyakusho (50 officials), Itabashi kuyakusho
(50 officials), Adachi Kuyakusho (50 officials), Kitaku Kuyakusho (50 officials),
Chiyoda kuyakusho (50 officials), Bunkyo kuyakusho (50 officials), Suginami
Kuyakusho (50 officials), Toshima Kuyakusho (50 officials), Nakano Kuyakusho
(50 officials), and Setagaya Kuyakusho (50 officials).
.
A total of 512 NPOs selected among these types of organizations as follow (and
we included all 23 districts of Tokyo and also the special cities as well): Shakai
Fukushi Hojin (250), Tokutei Hi Eiri Katsudo Hojin (NPO) (162), Iryo’ Hojin (50),
Shukyo’ Hojin (20), Tokushu Hojin (20), and Gakko’ Hojin (10).
All participants received a self-addressed stamped envelope, the survey instrument (ECQ,
Victor and Cullen, 1987, 1988), and a cover letter explaining the purpose of the study.
We requested access from the senior administration for the initial mailing. Surveys were
distributed as part of the internal mail system and were not to be distributed by
supervisors personally in order to avoid any perceived coercion to respond. While mail
surveys are known for the low-response rate, it offers a high degree of perceived
anonymity, which is an important consideration here given the nature of this study.
Respondents characteristics
In the nonprofit sample, 456 questionnaires were filled and returned. In the government
sample, 345 questionnaires were filled and returned. Owing to some missing values,
a net sample of 441 questionnaires (for nonprofit) and 321 questionnaires (for Ethical climate
government) were used for the final analysis.
While we were unable to identify the characteristics of respondents in the government
sector, we were able to do so for respondents in the nonprofit sector as follows.
Responding nonprofit executive directors. The biggest group of nonprofits that
responded to the survey were Tokutei Hi Eiri Katsudo Hojin (i.e. newly incorporated
NPOs) followed by Shakai Fukushi Hojin (i.e. the traditional partner of the state, 233
nonprofits often directed by retired bureaucrats). However, we found no significant
differences in ethical climate perceptions between these two groups of respondents.
The vast majority of respondents were aged 51 or over, and men significantly
outnumbered women. Over half of those surveyed had been executive directors for
ten years or longer while those who were in that position for the first time consisted
mainly of retired public servants (bureaucrats). Almost half of the respondents had had
experience of working in the non-profit sector before taking their current position.
Many executive directors held university degrees.
Responding NPOs. Responding NPOs were almost all either small groups or large
organizations, the latter being in the majority with over 80 stable users of service each.
For most of them, fluctuation in membership over a one-year period was negligible
and these organizations also maintained a corresponding stability in the number of
service users in the same period. Most had budgets of more than 10 millions yen a
year, and nearly half of these declared operating costs of over a 20 millions per year.
The majority (84.1 percent) were formed after 1980 and 21.1 percent were less than
five years old.
Presentation of the results

Tables III and IV show the 26-item scale with the percentage responses gathered,
respectively, from respondents surveyed in nonprofit and government sectors. For each
factor representing an ethical climate type in the scale we reported the relative
intensity, which was assessed through the calculation of means. These relative
intensities were then ranked in two groups: “low” and “high”. The basic rule of thumb
for this distribution is twofold: the five ethical climate types should be distributed
somewhat equally over the two groups surveyed; and the types are distributed on the
basis of their ranked relative intensity. This was assessed through the following
statistical formula:
X
I ec A ij *V j
where I is the relative intensity of an ethical climate type, A is the mean, V is the ideal
value given to each of the six points on the Likert scale, i indicates the row position,
and j indicates the column position. As can be seen in the formula presented above, we
gave to the six-point Likert scale the following values: “completely false” (2 3), “mostly
false” (2 2), “somewhat false” (2 1), “somewhat true” (1), “mostly true” (2), and
“completely true” (3), thus the two categories could be easily recognized by the
negative or positive sign of each relative intensity. Furthermore, ethical climate types
marked by a low rank (a negative relative intensity value) indicate that they were
absent in the perception of the respondents. On the other hand, high-rank factors
(represented by positive relative intensities values) highlight the presence of these
ethical climates among the executive directors surveyed.
6,3
SEJ
234
Table III.
relative intensities
their means and their
percentage responses,
Ethical climate scale with
Completely false Mostly false Somewhat false Somewhat true Mostly true Completely true Total
F1: Self-interest
Question 1 (%) 45.56 33.33 15.56 4.44 1.11 0.00 100
Question 2 (%) 21.11 22.22 22.22 27.78 6.67 0.00 100
Question 3 (%) 4.44 11.11 11.11 36.67 32.22 4.44 100
Mean 23.704 22.222 16.296 22.963 13.333 1.481 100.000
Relative intensity 20.71 20.44 2 0.16 0.23 0.27 0.04 2 0.77
F2: Organizational interest
Question 4 (%) 1.11 12.22 7.78 31.11 34.44 13.33 100
Question 5 (%) 6.67 18.89 13.33 35.56 18.89 6.67 100
Question 6 (%) 28.89 40.00 24.44 5.56 0.00 1.11 100
Mean 12.222 23.704 15.185 24.074 17.778 7.037 100.000
F3: Efficiency
Question 7 (%) 11.11 21.11 22.22 24.44 15.56 5.56 100
Question 8 (%) 31.11 34.44 22.22 10.00 2.22 0.00 100
Mean 21.111 27.778 22.222 17.222 8.889 2.778 100.000
F4: Friendship
Question 9 (%) 4.44 4.44 4.44 28.89 45.56 12.22 100
Question 10 (%) 2.22 3.33 4.44 30.00 45.56 14.44 100
Question 11 (%) 2.22 3.33 2.22 31.11 42.22 18.89 100
Question 12 (%) 0.00 4.44 8.89 37.78 38.89 10.00 100
Mean 2.222 3.889 5.000 31.944 43.056 13.889 100.000
Relative intensity 20.07 20.08 2 0.05 0.32 0.86 0.42 1.40
F5: Team interest
Question 13 (%) 1.11 8.89 14.44 45.56 25.56 4.44 100
Question 14 (%) 0.00 5.56 6.67 40.00 41.11 6.67 100
Question 15 (%) 0.00 2.22 3.33 26.67 52.22 15.56 100
Mean 0.370 5.556 8.148 37.407 39.630 8.889 100.000
(continued)
F6: Stakeholder orientation

Question 16 (%) 0.00 2.22 1.11 27.78 48.89 20.00 100
Question 17 (%) 0.00 1.11 3.33 26.67 47.78 21.11 100
Question 18 (%) 0.00 4.44 1.11 22.22 51.11 21.11 100
Question 19 (%) 0.00 6.67 5.56 33.33 44.44 10.00 100
Mean 0.000 3.611 2.778 27.500 48.056 18.056 100.000
F7: Personal morality
Question 20 (%) 38.89 31.11 21.11 6.67 2.22 0.00 100
Question 21 (%) 2.22 2.22 6.67 22.22 42.22 24.44 100
Question 22 (%) 5.56 30.00 31.11 16.67 13.33 3.33 100
Mean 15.556 21.111 19.630 15.185 19.259 9.259 100.000
F8: Rules and law
Question 23 (%) 0.00 5.56 11.11 33.33 40.00 10.00 100
Question 24 (%) 3.33 12.22 21.11 25.56 27.78 10.00 100
Question 25 (%) 1.11 2.22 7.78 33.33 35.56 20.00 100
Question 26 (%) 1.11 4.44 3.33 27.78 41.11 22.22 100
Mean 1.389 6.111 10.833 30.000 36.111 15.556 100.000
Note: Nonprofit sector sample
Ethical climate
Table III.
235
6,3
SEJ
236
Table IV.
relative intensities
their means and their
percentage responses,
Ethical climate scale with
F1: Self-interest
Question 1 (%) 33.33 38.89 18.89 6.67 2.22 0.00 100
Question 2 (%) 32.22 11.11 31.11 16.67 8.89 0.00 100
Question 3 (%) 2.22 15.56 13.33 46.67 22.22 0.00 100
Mean 22.593 21.852 21.111 23.333 11.111 0.000 100.000
F2: Organizational interest
Question 4 (%) 4.44 8.89 5.56 33.33 16.67 31.11 100
Question 5 (%) 2.22 23.33 6.67 23.33 31.11 13.33 100
Question 6 (%) 44.44 25.56 30.00 0.00 0.00 0.00 100
Mean 17.037 19.259 14.074 18.889 15.926 14.815 100.000
F3: Efficiency
Question 7 (%) 5.56 23.33 26.67 11.11 28.89 4.44 100
Question 8 (%) 16.67 48.89 17.78 16.67 0.00 0.00 100
Mean 11.111 36.111 22.222 13.889 14.444 2.222 100.000
F4: Friendship
Question 9 (%) 2.22 8.89 20.00 22.22 34.44 12.22 100
Question 10 (%) 5.56 0.00 13.33 21.11 22.22 37.78 100
Question 11 (%) 0.00 0.00 1.11 46.67 26.67 25.56 100
Question 12 (%) 0.00 0.00 2.22 43.33 33.33 21.11 100
Mean 1.944 2.222 9.167 33.333 29.167 24.167 100.000
F5: Team interest
Question 13 (%) 10.00 12.22 3.33 22.22 25.56 26.67 100
Question 14 (%) 5.56 10.00 10.00 16.67 33.33 24.44 100
Question 15 (%) 2.22 0.00 7.78 22.22 36.67 31.11 100
Mean 5.926 7.407 7.037 20.370 31.852 27.407 100.000
(continued)
F6: Stakeholder orientation

Question 16 (%) 0.00 0.00 0.00 21.11 55.56 23.33 100
Question 17 (%) 0.00 0.00 0.00 48.89 22.22 28.89 100
Question 18 (%) 0.00 0.00 0.00 28.89 30.00 41.11 100
Question 19 (%) 0.00 1.11 0.00 33.33 22.22 43.33 100
Mean 0.000 0.278 0.000 33.056 32.500 34.167 100.000
Relative intensity 0.00 20.01 0.00 0.33 0.65 1.03 2.00
F7:Personal morality
Question 20 (%) 16.67 53.33 30.00 0.00 0.00 0.00 100
Question 21 (%) 23.33 36.67 22.22 6.67 7.78 3.33 100
Question 22 (%) 10.00 42.22 38.89 4.44 4.44 0.00 100
Mean 16.667 44.074 30.370 3.704 4.074 1.111 100.000
F8: Rules and law
Question 23 (%) 1.11 0.00 2.22 33.33 43.33 20.00 100
Question 24 (%) 1.11 0.00 0.00 33.33 35.56 30.00 100
Question 25 (%) 1.11 2.22 7.78 33.33 35.56 20.00 100
Question 26 (%) 0.00 0.00 1.11 22.22 34.44 42.22 100
Mean 0.833 0.556 2.778 30.556 37.222 28.056 100.000
Note: Government sector sample
Ethical climate
237
Table IV.
SEJ Tables III and IV show the ethical climate scale with percentage responses, their means
6,3 and their relative intensities in the two sectors.
The Table V shows the relative intensities of the five ethical climate types in
comparative perspective.
Discussion
238 The ethical climate matrix in the Japanese context shows a number of similarities
between nonprofit executive directors and government officials. In the author’s view,
this provides a valid explanation for the way in which the relationship between NPOs
and government should be perceived in Japan (Laratta, 2009b, d) and therefore
dismantle some of the past arguments which supported the idea that nonprofits in
Japan are mostly co-opted by the government sector. Both government and nonprofit
sectors perceive universal laws and rules as necessary. This similarity in cosmopolitan
climates may influence the manner in which services are delivered. For example, an
NPO could make decisions that meet the perceived needs of the users and at the same
time showing a strict adherence to governmental policy. This similarity is
philosophically interesting, as it appears to converge the government’s ethics of
justice (Kant and Kohlberg) with the nonprofit’s ethics of caring (Gilligan, 1982).
As expected, the government sector perceived social caring (i.e. “stakeholder orientation”)
and “rules and law” as very existing climate. Government, in theory and practice, is
bureaucratic in nature and as such relies on universal rules as its means of operation to
set policy and to deliver services (Hodgkinson, 1996). What we found in this study
is that nonprofits in Japan also tend to perceive it in the same way. Interestingly, in this
global context the government chooses to accentuate process (law and code), but it does
not accentuate also outcome (efficiency). This contrasts the perspective termed rule
utilitarianism, advocates that the rules that ought to be followed are ones that lead to
the greatest good for the greatest number (or the greatest efficiency). One might also
argue that this particular dual purpose represents the reverse of the post-conventional
level of the justice orientation promoted by both Kant (1785/1983) and Kohlberg (1969).
As with the government officials, the nonprofit executives also places greatest concern
with social caring (i.e. “stakeholder orientation”). This similarity is also of practical
concern as the global rules with which the government operates may be seen by the
nonprofit sector in the same way (i.e. in favor of the social wellness). This surely bodes
well for government-nonprofit collaboration where a common acceptance of
Nonprofit sector Government sector

Factors Relative intensity Classification Relative intensity Classification
F1: Self-interest 20.77 Low 20.88 Low

F2: Organizational interest 20.18 Low 20.09 Low
F3: Efficiency 20.98 Low 20.77 Low
F4: Friendship 1.40 High 1.45 High
Table V. F5: Team interest 1.23 High 1.27 High
Ranked relative F6: Stakeholder orientation 1.68 High 2.00 High
intensities of the eight F7: Personal morality 20.27 Low 21.53 Low
ethical climate types in F8: Rules and law 1.22 High 1.82 High
nonprofit and
government sectors Source: Analysis of Survey Data
benevolence and trusting relationships based upon the other’s interests (Mayer et al., Ethical climate
1995) pervades these two organizational types. Both sectors identified personal
morality climate as being absent. Personal morality promotes behavior that is
existential and post-conventional in nature (Kohlberg, 1969). Individuals are
encouraged to examine decisions authentically and take responsibility for all
outcomes. They are perceived to be creative and the product of their creativity is
respected by the organization. Trust is based upon the belief that others will abide by 239
their principles and thus the need for direct supervision is reduced and independence is
enhanced (Inkpen and Li, 1999). While these climate could be perceived as not
welcoming by many in both sectors, the extent to which an individual interprets
“personal morality” may be some cause for concern for governmental service
downloading (i.e. quality control). In other words, to what extent do organizations wish
employees to have the freedom to “free wheel” as opposed to follow policy?
Interestingly, neither sector acknowledged self-interest as existing. In contrast,

however, this has not been the case in much of the “for-profit” literature where the
climate of “self-interest” is promoted (Peterson, 2002; Victor and Cullen, 1987). Ethical
climates do not diverge also at the local or organizational level (i.e. organizational team
or team interest). This can help to create a potential collaboration climate in
expectation between the sectors as both government and nonprofit sectors’ emphasis at
this level is upon process rather than outcome. Both sectors perceived efficiency as a
climate not existing in their organizations. Respondents in both sectors consider social
caring as their mandate, but not for this they perceive the need to be achieved with the
greatest efficiency. Actually, efficiency is often associated with the for-profit sector.
Indeed, respondents in both sectors also identified the absence of a self-interest ethical
climate type which is commonly associated with the for-profit.
Implications
It is generally assumed that an important factor prompting governments to engage in
public services contracts with nonprofits is the belief that the ethical and value
orientations which they both share will generate reductions in monitoring costs.
However, the notion of the existence of such similarities in ethical climate has never been
systematically examined in order to substantiating it. This study, for the first time can
demonstrate to the Japanese Government that NPOs would make better partners for
government because they share similar ethical values and especially because nonprofits
are less likely as the government to behave in an opportunistic manner.
The results of this research indicate that governments would be wise to reduce
accountability demands on and exercise less caution in their arrangements with the
nonprofit sector. Indeed, our findings concerning the nonprofit executives’ lack of
identification with the ego became even more remarkable when associated with other
findings of our research which showed that there were strong perceptions of belonging
to either individual caring (i.e. friendship) or social caring (i.e. stakeholder orientation)
climate types in both groups of respondents. Indeed, their primary concern was the
well-being of others, and the tendency among them was to do what was best for the
users of the services (individual responsibility) and the community at large (social
responsibility). These findings proved to be consistent with the extant literature
(Agarwal and Malloy, 1999; Brower and Shrader, 2000; Deshpande, 1996a, b;
Rasmussen et al., 2003) whose research produced almost identical conclusions.
SEJ One aspect which emerges clearly from Laratta (2009c) is that in Japan Government
6,3 accountability demands on nonprofits are very numerous. This means that
government at present is spending great amount of money in implementing those
mechanisms of control. However, this findings show that the government is wasting
money in this way, because it is monitoring (and perhaps too much) types of behavior
in the nonprofit sector that are perfectly consistent with the objectives of government.
240 Freedom from controls is an asset if governments hope to have the nonprofit sector be
the innovator and incubator of new ideas and practices. Governments might well even
ignore certain types of behavior, including behavior they would not have tolerated in
the past in the name of maintaining and improving trust, and also increasing the
proper spirit of innovation. But with the findings of this study, government in Japan
has not to worry even about that because nonprofit sector ethical climate is perfectly
consistent with government.
What governments need to do is recognize the similarity of ethical climates with the
nonprofit sector and avoid to destroy the varied and effective incentives for
performance that already exists. Yet because there are similarities in ethical climate, it
does not follow that governments should in any sense avoid increasing its contracting
activities with the nonprofit sector. In fact, engaging in contracts that provide more
room for independent and discretionary behavior with the nonprofit sector coincides
with the growing body of evidence which suggests that democratic regimes tend to
operate more effectively when they foster strong networks of interdependence
producing more deliberation, civility, and trust (Putnam, 2000). Thus, nonprofit
networks, which are growing by the choices made by politicians, public servants, and
other social actors, are seen as being capable of enhancing social capital and with it the
quality of governance in society precisely because they require trust between the
parties.
Pragmatically, if one is aware of the heightened awareness of a particular trust
dimension, it would be logical to place greater emphasis on it in the early stages of
negotiation. For example, if a nonprofit is bidding for a government contract, it would
be prudent to emphasize stakeholder orientation as it appears to be the strongest
common element for trust in the government climate of social caring as well as in the
nonprofit.
Conclusion
Based on empirical findings, results of this study indicate that there was a significant
overlap in shared perception of all ethical climates in the two sectors. There should be
an effort to continue building on these commonalities so as to provide an effective
framework to build trusting relationships between the two sectors.
As with any research, this study is not without limitations. Owing to pragmatic
constraints, this study was limited to a large sample of nonprofit and government
managers in Tokyo. A broader sample that incorporates nonprofit and government
nationally and globally would be valuable for future research, especially cross-national
comparative researches. Despite this, the outcomes of this study give a deeper
awareness of ethical perceptions of each sector and an enhanced sense of trust during
inter-sectoral negotiations. This study provides important insights that can allow
policy makers in government to better understand the implications of using nonprofit
partners to deliver services. It also provides a theoretical and empirical basis from
which government – NPOs relationships in Japan can be better understood. In this Ethical climate
regard, it is worth to elaborate on one comment a nonprofit executive interviewed
reported at the end of the filled questionnaire:
Since the money which government entrusts to us comes from the taxpayer, i.e. the
community at large, why should they bear more responsibility to the community than those
who, having no moral convictions, reject all responsibility for the same community, i.e.
nonprofit agency users? Does the community at large not have the right to refuse to pay taxes 241
for this purpose? The solution is to cooperate with government in educating the community
so they understand that the authority of government to levy taxes is based not on the agency
users’ right but on the well-being of the community at large which is embodied in that right
(Translated from Japanese).
The author views this way of thinking very philosophical and practical at the same time.
In order to accurately interpret this view, he revised Hegel and his Philosophy of Right.
One of the claims in Hegel’s Philosophy of Right is that, beyond the subjective “certainty”
on the part of social members that their social world constitutes “a home”, that world
must in truth be a home, which means that it must enable its members to realize their true
essence. Hegel’s most original intuition is embodied exactly in the claim that, if an
individual is to be able to accept the demands of morality, which implies undertaking
duties and disregarding one’s own good for the good of others, social institutions and
their ethical norms must incorporate consideration of human well-being. In other words,
a duty must be the source of a particular sense of satisfaction for the individual who
undertakes it. In this respect, Hegel claims that “well-being is not a good without right.
Similarly, right is not a good without well-being” (PR:130).
The main concern of Japanese nonprofit executives is reflected in this claim. Their
perception of closeness to the community was expressed as follows: if each tax payer
(i.e. community member) is to be able to accept paying taxes and making personal
financial contributions for the good of others (i.e. NPOs’ users), social institutions must
take the tax-payers’ well-being into consideration.
In the author’s opinion, what nonprofit executives believed is that their
organizations performed the essential role of mediator between the government and
the community at large. This function included educating community members to the
realization that fulfilling a duty for the good of others is a primary requirement for
the achievement of their own subjective freedom. Until community members recognize
the connection between the right of the state to impose duties on them and the personal
satisfaction which derives from fulfilling those duties, their subjective freedom cannot
be fully realized and therefore:
[. . .] the essence of the modern state, which is that the universal end of the whole should be
linked with the complete freedom of particularity and the well-being of individuals, cannot be
preserved in the principle of subjectivity itself (PR: 260).
However, as it was argued somewhere else (Laratta, 2009a), we should not
underestimate the importance of Japanese culture which is very much influenced,
either directly or indirectly, by a the philosophy of confucianism which the author
discovered to be very similar to the Hegelian philosophy. A crucial aspect of this
philosophy is that it is directed exactly towards discouraging people from developing
their own individuality which could be in this research associated to the absence of
“personal morality climate”; rather, whatever relates to the benefit of the group is
SEJ deemed as the priority, beyond any individual interests (i.e. the stakeholder
6,3 orientation). The philosophy of Confucianism has made Japanese society value
collectivism highly where people of all ages are encouraged not to celebrate their
uniqueness; moreover, when conflict occurs, people are encouraged to abandon their
personal concerns and emotions for the sake of the harmony and benefit of the group.
The main speculation here is that the sense of closeness to the community (i.e. high
242 stakeholder-orientation ethical climate), which it was found to strongly determine the
way in which both government and nonprofit sectors approach social caring, may have
derived from this social-cultural tradition.
Notes
1. Explanations of what EFA is all about are given in note number 3 below. “The first difference
between EFA and PCA is that the direction of influence is reversed: EFA assumes that the
measured responses are based on the underlying factors while in PCA the principal
components are based on the measured responses. The second difference is that EFA assumes
that the variance in the measured variables can be decomposed into that accounted for by
common factors and that accounted for by unique factors. The principal components are
defined simply as linear combinations of the measurements, and so will contain both common
and unique variance” (DeCoster, 1998). Oblique rotation method is explained in note 3 below.
2. “The purpose of PCA is to derive a relatively small number of components that can account
for the variability found in a relatively large number of measures. This procedure, called
data reduction, is typically performed when a researcher does not want to include all of the
original measures in analyses but still wants to work with the information that they contain.
Differences between EFA and PCA arise from the fact that the two are based on different
models” (DeCoster, 1998). Orthogonal rotation method is explained in note 3 below.
3. EFA attempts to discover the nature of the constructs influencing a set of responses. While,
CFA tests whether a specified set of constructs is influencing responses in a predicted way.
But what are the main objectives of an EFA compared to those of a CFA?
“The primary objectives of an EFA are to determine: the number of common factors
influencing a set of measures; and the strength of the relationship between each factor and
each observed measure.
Some common uses of EFA are to: identify the nature of the constructs underlying
responses in a specific content area; determine what sets of items “hang together” in a
questionnaire; demonstrate the dimensionality of a measurement scale. Researchers often
wish to develop scales that respond to a single characteristic; determine what features are
most important when classifying a group of items; and generate factor scores representing
values of the underlying constructs for use in other analyses.
The primary objective of a CFA is to determine the ability of a predefined factor model to
fit an observed set of data.
Some common uses of CFA are to: establish the validity of a single factor model; compare
the ability of two different models to account for the same set of data; test the significance of
a specific factor loading; test the relationship between two or more factor loadings; test
whether a set of factors are correlated or uncorrelated; and assess the convergent and
discriminant validity of a set of measures” (DeCoster, 1998).
The next important question which is worth to ask is: how do we perform those two types
of factor analysis?
“There are seven basic steps to performing an EFA: (1) Collect measurements. You need
to measure your variables on the same (or matched) experimental units. (2) Obtain the
correlation matrix. You need to obtain the correlations (or covariances) between each of your
variables. (3) Select the number of factors for inclusion. Sometimes you have a specific
hypothesis that will determine the number factors you will include, while other times you Ethical climate
simply want your final model to account for as much of the covariance in your data with as
few factors as possible. If you have k measures, then you can at most extract k factors. There
are a number of methods to determine the optimal number of factors by examining your
data. The Kaiser criterion states that you should use a number of factors equal to the number
of the eigenvalues of the correlation matrix that are greater than one. The scree test states
that you should plot the eigenvalues of the correlation matrix in descending order, and then
use a number of factors equal to the number of eigenvalues that occur prior to the last major 243
drop in eigenvalue magnitude. (4) Extract your initial set of factors. You must submit your
correlations or covariances into a computer program to extract your factors. This step is too
complex to reasonably be done by hand. There are a number of different extraction methods,
including maximum likelihood, principal component, and principal axis extraction. The best
method is generally maximum likelihood extraction, unless you seriously lack multivariate
normality in your measures. (5) Rotate your factors to a final solution. For any given set of
correlations and number of factors, there are actually an infinite number of ways that you
can define your factors and still account for the same amount of covariance in your
measures. Some of these definitions, however, are easier to interpret theoretically than
others. By rotating your factors you attempt to end a factor solution that is equal to that
obtained in the initial extraction but which has the simplest interpretation. There are many
different types of rotation, but they all try make your factors each highly responsive to a
small subset of your items (as opposed to being moderately responsive to a broad set). There
are two major categories of rotations, orthogonal rotations, which produce uncorrelated
factors, and oblique rotations, which produce correlated factors. The best orthogonal
rotation is widely believed to be Varimax. Oblique rotations are less distinguishable, with
the three most commonly used being Direct Quartimin, Promax, and Harris-Kaiser
Orthoblique. (6) Interpret your factor structure. Each of your measures will be linearly
related to each of your factors. The strength of this relationship is contained in the respective
factor loading, produced by your rotation. This loading can be interpreted as a standardized
regression coefficient, regressing the factor on the measures. You define a factor by
considering the possible theoretical constructs that could be responsible for the observed
pattern of positive and negative loadings. To ease interpretation you have the option of
multiplying all of the loadings for a given factor by -1. This essentially reverses the scale of
the factor, allowing you, for example, to turn an “unfriendliness” factor into a “friendliness”
factor. (7) Construct factor scores for further analysis. If you wish to perform additional
analyses using the factors as variables you will need to construct factor scores. The score for
a given factor is a linear combination of all of the measures, weighted by the corresponding
factor loading. Sometimes factor scores are idealized, assigning a value of 1 to strongly
positive loadings, a value of -1 to strongly negative loadings, and a value of 0 to intermediate
loadings. These factor scores can then be used in analyses just like any other variable,
although you should remember that they will be strongly collinear with the measures used to
generate them. While, there are six basic steps to performing an CFA: (1) Define the factor
model. The first thing you need to do is to precisely define the model you wish to test.
This involves selecting the number of factors, and defining the nature of the loadings
between the factors and the measures. These loadings can be fixed at zero, fixed at another
constant value, allowed to vary freely, or be allowed to vary under specified constraints
(such as being equal to another loading in the model). (2) Collect measurements. You need to
measure your variables on the same (or matched) experimental units. (3) Obtain the
correlation matrix. You need to obtain the correlations (or covariances) between each of your
variables. (4) Fit the model to the data. You will need to choose a method to obtain the
estimates of factor loadings that were free to vary. The most common model-fitting
procedure is Maximum likelihood estimation, which should probably be used unless your
measures seriously lack multivariate normality. In this case you might wish to try using
SEJ asymptotically distribution free estimation. (5) Evaluate model adequacy. When the factor
model is fit to the data, the factor loadings are chosen to minimize the discrepancy between
6,3 the correlation matrix implied by the model and the actual observed matrix. The amount of
discrepancy after the best parameters are chosen can be used as a measure of how consistent
the model is with the data. The most commonly used test of model adequacy is the Â2
goodness-of-fit test. The null hypothesis for this test is that the model adequately accounts
for the data, while the alternative is that there is a significant amount of discrepancy.
244 Unfortunately, this test is highly sensitive to the size of your sample, such that tests
involving large samples will generally lead to a rejection of the null hypothesis, even when
the factor model is appropriate. Other statistics such as the Tucker-Lewis index, compare the
fit of the proposed model to that of a “null model.” These statistics have been shown to be
much less sensitive to sample size. (6) Compare with other models. If you want to compare
two models, one of which is a reduced form of the other, you can just examine the difference
between their Â2 statistics, which will also have an approximately Â2 distribution. Almost
all tests of individual factor loadings can be made as comparisons of full and reduced factor
models. In cases where you are not examining full and reduced models you can compare the
Root mean square error of approximation, which is an estimate of discrepancy per degree of
freedom in the model. (DeCoster, 1998). However, performing both types of factor analysis is
made much easier by using some software packages: CFA can be performed in SAS using
proc calis, by using the software package AMOS produced by SPSS, or, what I found easier,
by using LISREL. While, EFA can be performed in SAS using proc factor.
4. See “what is LISREL all about” in INTRODUCING LISREL written by Diamantopoulos and
Siguaw (2000).
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249
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Rosario Laratta can be contacted at: rosariolaratta@hotmail.com
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making at all levels and in all circumstances.

Theoretical constructs of ethical theory

members as a whole. The benevolence theory aims at fostering friendship,

Locus of analysis/ethical criterion Individual Local Cosmopolitan

Egoism Self-interest Organizational interest Efficiency

contradictory to Victor and Cullen’s original strategy of adopting the principal

Ethical climate scale

Presentation of the results

F6: Stakeholder orientation

F6: Stakeholder orientation

Nonprofit sector Government sector

F1: Self-interest 20.77 Low 20.88 Low

Interestingly, neither sector acknowledged self-interest as existing. In contrast,

Evaluation, Vol. 19 No. 3, pp. 367-79.

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