Silva & Opatha, 2015 PDF

Proceedings of 12th International Conference on Business Management
http://ssrn.com/link/12th-ICBM-2015.html
7th and 8th December 2015 | Colombo, Sri Lanka
Role of ethical orientation of HRM in establishing an

ethical organizational culture:
A literature review and implications
De Silva N.G.V.A., (viruli2@gmail.com)

University of Sri Jayewardenepura, Sri Lanka.
Opatha, H.H.D.N.P., (hopatha@yahoo.com)

University of Sri Jayewardenepura, Sri Lanka.
Abstract
Growing unethical behavior of employees in business organizations and its negative impact
on the organization, economy and the society has become a global concern over the past two
decades. Hence Growing unethical behavior of employees in business organizations and its
negative impact on the organization, making employees more ethical to create an ethical
organizational context and its positive impact on the organization, economy and society have
received growing scholarly attention in the business and organizational ethics literature.
Creating and sustaining an Ethical Organizational Culture (EOC) is a crucial strategic goal
for any business organization. Despite its significance in the present corporate environment,
empirical investigations on EOC and the contribution of Human Resource Management
(HRM) in creating and sustaining an EOC are limited. This paper reviews relevant
theoretical and empirical findings of research work in literature from Business Ethics, HR,
management, and organization studies fields, in the link EOC and HRM over the past three
decades. The main objective of the study is to explore the role of Ethical Orientation of HRM
(EOHRM) in making employees more ethical, in order to create and sustain an EOC. The
paper discusses this role under four key HRM dimensions: Acquire, develop, retain and
motivate ethical employees, in order to create an EOC. Working definitions for the main
constructs in the study, EOHRM and EOC were developed by the authors. Systematic review
method recommended by Tranfield et al. (2003) with an archival method, was used for
reviewing of literature. This paper has a significant utility for future research.
Key words: Ethics, Ethical orientation of HRM, Ethical organizational culture

JEL Classification: O15
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Faculty of Management Studies and Commerce
University of Sri Jayewardenepura
Gangodawilla, Nugegoda
E-Mail: icbm@sjp.ac.lk
WEB: www.icbmusjp.org, mgt.sjp.ac.lk
Electronic copy available at: http://ssrn.com/abstract=2699792

Introduction
Unethical behavior of employees challenges the ethical nature of business organizations,
drawing immediate attention for more theoretical and empirical research on organizational
ethics. For more than 30 years researchers have tried to understand why employees behave
unethically at work (Kish-Gephart et al., 2010, cited in Debode et al., 2013). To establish an
ethical organizational culture, organizations should have an ethical workforce in them.
Acquiring, maintaining and retaining ethical employees in the organization is a major
challenge for any organization. Who would face this challenge in the organization? Opatha
(2009) defined HRM as “the efficient and effective utilization of human resources to achieve
goals of an organization” ( p.7). Lado and Wilson (1994) suggested, HRM is a set of unique
activities, functions and processes that are aimed at attracting, directing and maintaining an
organization's human resources. In order to have an ethical workforce, there is a serious need
to acquire, maintain and retain ethical employees in organizations; hence, HRM has a critical
role to play in this task. The objective of this paper is to explore the role of Ethical
Orientation of HRM (EOHRM) in creating, developing, retaining and motivating an ethical
workforce in an organization, in order to establish an Ethical Organizational Culture (EOC).
Hence, in this paper the authors explore a distinct side of HRM, or the EOHRM, which is a
new concept in the subject area. Further, the paper discusses how EOHRM is directed to
overcome the above unethical challenges, in order to establish an EOC. The article provides
working definitions for the main variables in the study, EOC and EOHRM, which would be
helpful to the reader to grasp the core of this article.
Literature Review
Why it is important to establish an Ethical Organizational Culture?
How 'Ethical' is the employees in your organization? Does your organization have an ethical
identity, or in other words, a unique EOC? Unethical behavior of employees in business
organizations have been an increased global concern over the past several years. Enhanced
media attention had exposed many incidents of abuses, scandals, frauds and corruption in the
business environment (Bartels et al., 1998). Meyer (2004) stated that, many studies in
professional ethics had identified ethical problems as resulting from ethical ignorance, ethical
failure or evil intent, and there is no doubt about the business organizations should commit to
create an ethical organizational environment. Hence, understanding the ethical context of an
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organization to address the above unethical issues has become crucial in the business world,
and this need has been highlighted in many recent research papers (Palomina and Martinez,
2011; Debode et al., 2013; Arulrajah, 2015). However, despite increased attention on
business ethics and ethical mechanisms implemented in business establishments to prevent
unethical issues, moral lapses and high impact scandals continue to happen globally (e.g.,
Banesto, Enron, WorldCom, Arthur Anderson, Health South Corp, Countrywide, etc.).
Unethical business activities and frauds have been identified as a growing concern in many
countries throughout the world, in both developed and developing countries (Antonakas et
al., 2014).
Ethical nature of the Sri Lankan business environment is of no exception to the above
global scenario. Local media have highlighted many incidents of corruption and ethical
lapses in business activities over the past two decades. Wide public awareness has been
focused through strong media attention on the unethical behavior of management and
employees of business organizations over this period. Downfall of the Pramuka Bank,
scandal of Sakviti Group (The Sunday Times, Oct. 26, 2008), Golden Key Company issue and
collapse of the solid Ceylinco Group are few examples from the local business context. The
reports highlighted that the said organizations have failed to operate in line with the ethical
codes and practices that governed the behavior of the institutions. Such incidents challenged
the ethical nature of the organizations, and brought to light the unethical behavior of Board of
Directors, Management and employees of the said institutions.
The review of business ethics literature revealed that, the ethical organizational context is
represented primarily by two constructs: ethical climate and ethical culture (Trevino and
Weaver, 2003), and at times they have been used interchangeably by scholars. However,
according to Key (1999), the concepts 'ethical work climate' and 'ethical work culture' have
both been used to describe aspects of ethical practices in organizations. Victor and Cullen
(1987; 1988), pioneers who empirically explored the ethical aspect of the organizational
context, had defined ethical climate as 'those aspects that determine what constitutes ethical
conduct', and ethical culture as 'those aspects that stimulate ethical conduct'. Arulrajah
(2015) suggested, both concepts, ethical organizational culture and ethical climate are
necessary to guide employees to behave ethically in order to achieve organizational goals and
objectives. Further, Ardichvili et al. (2010) argued that, ethical behavior in business
organizations is a function of both, individual characteristics and contextual factors. Two key
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influencers of the contextual factors identified are: (i) organizational culture (Meyers 2004;
Trevino and Nelson, 2004) and (ii) clearly communicated ethics guidelines or codes of ethics
(Trevino et al., 1999).
What is the role of HRM in acquiring, maintaining and retaining an ethical workforce, in
order to establish an EOC? Debates related to unethical behavior of employees in business
organizations and the role of HRM in making them more ethical has become prominent in
Human Resource Development (HRD) literature in recent years (Ardichvili and Jondle,
2009). Making employees more ethical, and its positive impact on EOC, organizational
performance and sustainability have increased the number of research in organizational ethics
and HRM.
The significance of the role of HRM functions and practices in creating and sustaining an
ethical organizational culture and climate, has been stressed by several researchers over the
past three decades (Trevino, 1986 ; Victor and Cullen, 1987:1988; Trevino et al., 1998;
Bartels et al., 1998; Key, 1999; Winstanely and Woodall, 2000; Trevino and Weaver, 2003;
Meyers, 2004; Wright and Snell, 2005; Kaptein, 2008:2009; Ardichvili et al., 2008;
Ardichvili and Jondle, 2009; Foote and Rouna, 2008; Arnaud, 2010; Palomono and Martinez,
2011; Thite, 2013; Parboteeaha et al., 2014; Kangas et al., 2014, Arulrajah, 2015). Findings
of the above empirical studies have highlighted many theoretical and empirical research gaps
in the link, HRM and ethical organizational context. Palomino and Martinez (2011) suggested
that, it is timely to draw leading academicians' and professionals' attention to re-think, what is
being done and what new things could be done in the future, to generate, maintain and retain
an ethical workforce in business organizations, to address the ever increasing ethical issues in
the corporate world.
For over three decades researchers have been trying to understand why employees behave
unethically. Through review of business ethics-related publications in the past 15 years,
researchers (Foote and Ruona, 2008) identified frameworks for the institutionalization of
ethics, and discussed implications for Human Resource Development (HRD). Discussions of
issues connected with ethical or unethical behavior of employees in business organizations,
have been highlighted in HRD literature in recent years (Ardichvili and Jondle, 2009).
However, despite the increased scholarly attention on investigating unethical behavior of
employees and corruption in business organizations, only a few empirical research have been
conducted to investigate the relationship of HRM and ethical business culture (Ardichvili and
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Jondle, 2009). Many researchers have stressed over time the importance of the role of HRM
in creating and sustaining an ethical context in organizations, but clarity is needed in how
functional dimensions of HRM can play an dynamic role in this process (Arulrajah, 2015).
Hence, the main objective of this paper is to identify the role of EOHRM in creating and
sustaining an EOC.
Problem Statement and research gaps identified

Many scholars agree that HRM plays a vital role in promoting ethics in an organization
(Arulrajah, 2015). Ability of HRM to influence ethical behavior is highly dependent on the
status of the functions within the organization (Foote, 2001). However, the role of HRM with
regards to ethics is still unclear (Maxwell and Beattie, 2004). HRD or HRM can play a pro-
active role in embedding ethics and values into HR philosophy, policies and procedures of an
organization, but studies on ethics in HRM and HRD are still limited (Thite, 2013). The
HRM functions (recruitment and selection; training and development; performance appraisal;
pay and reward management and employee relations) can play an instrumental role in
creating an ethical culture and climate in the organization (Parboteeaha et al., 2014).
However, the existing literature does not indicate how ethics, ethical culture and ethical
climate have actually been managed through functional dimensions of HRM, hence, clarity is
needed in how functional dimensions of HRM can play an active role in this process
(Arulrajah, 2015). Therefore, the review identified a research gap in the above literature.
Further, no previous study had defined, or conceptualized the construct EOHRM or examined
its role in creating and sustaining an EOC. More specifically, no previous theoretical or
empirical research had explored the relationship between the link: 'EOHRM-EOC'. Above
theoretical and empirical gaps in HRM and Business Ethics research have created a
significant void in the academic and professional knowledge.
The Problem Statement of the study is:

What is the role of Ethical Orientation of Human Resource Management (EOHRM) in creating
and sustaining an Ethical Organizational Culture (EOC) ?
All HR practices have an ethical foundation, and HR deals with the practical consequences of
human behavior (Johnson, 2003). The entire concept of HRM is devoid of morality (Hart,
1993). These strong ethical appreciations of HRM lay a solid foundation to this study. Many
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researchers had stressed over time, the importance of HRM in creating and sustaining an
ethical culture and climate in organizations (Smith and Carroll, 1984; Hosmer, 1987; Wiley,
1998; Wright and Snell, 2005; Thite, 2013; Parboteeaha et al., 2014, as cited in Arulrajah,
2015). Thus, exploring the role of HRM in promoting ethics in an organization is an
emerging research topic, due to the heavy influence that HRM practices are thought to have
on employees. Scholars recognized, hence, all areas of HRM policies and practices must have
an ethical perspective (Winstanely and Woodall, 2000).
The ability of HRM to influence ethical behavior is highly dependent on the status of the
functions within the organization (Foote, 2001). According to Maxwell and Beattie (2004),
the role of HRM with regard to ethics is not clear. Hence, suggested, it can be considered in
two dimensions. That is, i) ethics of the functions of HRM itself and ii) ethics of the HRM
activities. The HR function has grown substantially over the past few decades. There are
different views about the nature of HRM and the existing variety of HR practices adopted by
various organizations (Boselie et al., 2005, as cited in Arulrajah, 2015). However, there are
different scholarly views on this. For example, as Shen and Edwards (2006) argued, key
practices of HRM are: recruitment and selection; training and development; performance
management; pay and reward management and employee relations. Some researchers argue,
efforts to promote ethics are basically oriented to using and developing explicit, written
formal mechanisms, together with other instruments (Palomino and Martinez, 2011), merely
recognized as a 'window-dressing'. Further, scholars recognized, HR functions can play a
vital role in embedding ethics into HR philosophy, policies and procedures (Thite, 2013).
Furthermore, HRM can contribute to create and sustain ethics, ethical culture and ethical
climate by embedding ethical orientation in each and every functional dimension of HRM in
organizations (Arulrajah, 2015). However, literature revealed that, to date, very few
researchers have explored the influential power of HRM practices on promoting ethics and
virtues among employees in organizations (Palomino and Martinez, 2011).
Methodology
In order to develop a comprehensive understanding of the key variables of the review topic,
EORM and EOC, a systematic review was performed on the existent literature from ethics,
business ethics, culture, organization culture and HRM area. The archival method,
recommended by Tranfield et al., (2003), was used as the most suitable method for this study.
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This method enabled to build up a reliable knowledge base in the review theme. The
literature review started with a general search of articles, conference proceedings, edited book
chapters etc. published in several key online databases such as, JSTORE, Springer link,
Science Direct, Wiley online Library, SAGE research, Taylor & Francis online, and Emerald.
Initially, various combinations and variations of key words and search terms from the above
topic: ethics, culture, organizational culture, ethical organizational culture, role of HRM,
functions of HRM, and business ethics were used in the search. Most of the literatures were
selected from leading journals such as Journal of Business Ethics, Business Ethics Quarterly,
Business Ethics: European Review, Academy of Management Journal, Academy of
Management Review, Human Resource Development Quarterly, Human Resource
Development International, and Human Resource Development Review. Reading through the
abstracts of about 50 - 60 articles and book chapters on the topic, authors selected about 25
articles and few edited book chapters directly relevant to the topic, which were studied in
detail.
Ethical Orientation of HRM and Ethical Organizational Culture

What is Ethical Orientation of HRM (EOHRM)? The above systematic review revealed that
EOHRM has not been discussed or defined as a concept or as a topic in the existent literature.
Further, only a few research articles have been published in the link ‘HRM and EOC’, but no
mention of the concept EOHRM in these studies. Hence, the EOHRM is appeared to be a
novel concept or topic in the HR field. In order to understand ‘what is EOHRM?’ and
develop a working definition for EOHRM for this study, first it is important to understand
and define, ‘what are ethics?’ and ‘what is an organizational culture?’. Through a systematic
literature review, definitions of ‘ethics’ and ‘organizational culture’ given by previous
scholars were identified. Based on this understanding, authors constructed working
definitions of ‘ethics’ and ‘organizational culture’ for this study as follows.
What are Ethics?

The theme of this article recognizes that there is an ‘ethical dimension to HRM.’ Boxall et al.
(2007) argue, in addition to the role of HRM in supporting commercial outcomes, it exists to
serve organizational needs for social justice. This means, in addition to its role in supporting
the organizations strategic and commercial objectives, HRM should exercise social
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responsibility or should be concerned about the well-being of employees, and should act
ethically towards the needs of its employees and the community. Thus, to understand the
ethical aspect of HRM, it is necessary to first understand the nature and principles of ethics or
‘what are ethics?’ The literature review identified, dictionaries and previous researchers have
defined ethics in several ways, focusing on different angles. A summary of few definitions is
as follows (Table 1):
Table 1: Definitions of Ethics
Source Definition of 'Ethics'
The Compact Oxford Dictionary, Ethics is defined as being ‘related to morals, treating of moral
as stated in Armstrong (2012) questions’ and ethical is defined as ‘relating to morality’.
The Oxford Dictionary Ethics is a branch of knowledge that deals with moral
principles (singular). Moral principles govern a person's or
group's behavior or the conducting of an activity (Plural).
Collins English Dictionary Ethics is the philosophical study of the moral values of human
conduct and of the rules and principles that ought to govern it
(singular).
Ethics are social, religious, or civil code of behavior considered
correct, especially that of a particular group, profession, or
individual (plural).
Beauchamp and Bowie Ethics is concerned with matters of right and wrong, and hence,
(1983), as stated in Armstrong involves moral judgments.
(2012)
Byars (1992), as stated in Opatha Ethics are principles of conduct that govern the decision
(2010) making and behavior of an individual or group.
Petrick and Quinn (1997) Ethics is the study of individual and collective moral
awareness, judgment, character, and conduct.
Hamlin et al. (2001), as stated in Ethics is concerned with rules and regulations or principles that
Armstrong (2012) help us to distinguish right and wrong.
Clegg et al. (2007), as cited in Ethics is the social organizing of morality. Hence, simply,
Armstrong (2012) ethics could be described as being about behavior, while
morality is about beliefs.
Carroll and Buchholtz (2008), as Ethics is the discipline that deals with what is good and bad,
cited in Ardichvili and Jondle and it can be considered as a set of moral principles or values.
(2009)
Opatha (2009) Ethics are moral beliefs and rules or obligations with regard to
right and wrong
Armstrong, (2012) Ethics is concerned with making decisions and judgments

about what is the right course of action to take.
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Above definitions of ‘ethics’ include the common word ‘moral’ in many different forms,
namely, moral principles, moral values, moral judgments, moral beliefs, morality etc. The
Compact Oxford Dictionary defined the word moral as ‘of or pertaining to the distinction
between right and wrong’. Further, it defined ‘morality’ as ‘having moral qualities or
endowments’. The Oxford Advanced Learner's Dictionary (2001, p. 826) defined, ‘morality’
as “the principles concerning the distinction between right and wrong or good and bad
behavior of individual or groups”. Hence, morality denotes human conduct and values, and
ethics refers to the study of those areas. By this definition, ‘morals’ and ‘moral’ refer to the
conduct itself, while ‘ethics’ and ‘ethical’ signifies the study of moral conduct or the code of
conduct one follows. However, in everyday dialect the words ‘ethical’ and ‘moral’ are used
interchangeably, to term people considered ‘good’ and actions considered ‘right’. And use the
words ‘unethical’ and ‘immoral’ interchangeably, to describe ‘bad’ people and ‘wrong’
actions.
The scholarly definitions in Table 1 specify that, ‘ethics’ is connected to the ‘right and
wrong’, or ‘good and bad’ behavior of individual or groups. Thus, ethics is linked with
morality or the principles concerning the distinction between ‘right and wrong’ or ‘good and
bad’ behavior of individuals or groups. Further, ethics and morality are sometimes treated as
being the same, but as cited in Armstrong (2012), Beauchamp and Bowie (1983) suggested
that, the two words are different. Accordingly, “whereas morality is a social institution with
a history and code of learnable rules, ethical theory refers to the philosophical study of the
nature of ethical principles, decisions and problems” (p. 100). Hence, Armstrong (2012)
argued that, ethics is concerned with matters of ‘right and wrong’ and therefore, involves
moral judgments. In other words, ethics is concerned with making decisions and judgments
about what is the right course of action to take. Further stated that, even if the two concepts,
ethics and morality, are two different concepts, they are closely linked and often used
interchangeably in discussions with ‘right and wrong’ and ‘good and bad’ behavior of
individual or groups. With the above understanding, the authors developed a working
definition of ‘ethics’ for this study as follows:
The working definition of ethics for this study is:

"Ethics are the principles about right and wrong or good and bad behavior of individuals
or groups".
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What is Culture?
To understand what an 'Organizational Culture' is, it is important to know the meaning of
'culture' first. Previous scholars have defined ‘culture’ in many different ways. Hofstede
(1980), a well-known researcher for his pioneering research on cross-cultural groups and
organizations, has identified ‘culture’ as societies that are identifiable by a system of shared
norms and values. In other words, it is a set of beliefs, norms and practices that is shared by
the individuals in a group or organization. Further, Hofstede (1980) had given an interesting,
simple definition to culture: ‘It is the unwritten rules of the social game.’
Hence, literature review identified several definitions for culture, as follows (Table 2):
Table 2 : Definitions of Culture

Source Definition
The Oxford Dictionary Culture is the attitudes and behavior characteristic of a
particular social group.
Oxford Dictionary of Sociology Culture is a general term for the symbolic and learned aspects
of human society.
Collins English Dictionary Culture is the total of the inherited ideas, beliefs, values, and
knowledge, which constitute the shared bases of social action.
The Oxford Advanced Learner’s Define Culture in two forms:

Dictionary Way of life: the customs and beliefs, art and social organization
of particular country or group.
Beliefs and attitudes: the beliefs and attitudes about the people
in a particular group or organization.
Hofstede (1980) Culture is the unwritten rules of the social game.

Societies that are identifiable by a system of shared norms and
values, or the collective programming of the mind,
distinguishing the members of one group or category of people
from another. The category can refer to nations, religions
within or across nations, ethnicities, occupations, organizations,
or the gender.
Key (1999) Culture is shared beliefs of an organization's members.
Sekaran and Bougie (2010) Culture is shared values, behaviors, and ways of thinking of
people in a society.
The above definitions indicate that, the word ‘culture’ has been defined in many different
forms. To highlight a few, ‘culture’ is the characteristics and knowledge of a particular group
of people, defined by everything from language, religion, cuisine, social habits, music and
arts; 'culture' is related to people in a particular society, civilization, social group etc. in
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different categories such as nations, religions within or across nations, ethnicities,

occupations, organizations, or the gender; 'culture' is the inherited ideas, beliefs, shared
values, attitudes and behavior characteristics of people in the above particular categories.
Further, The Center for Advanced Research on Language Acquisition defined culture as,
shared patterns of behaviors and interactions, cognitive constructs and understanding that are
learned by socialization. Hence, it can be seen as the growth of a group identity fostered by
social patterns unique to the group. With the above understanding, the authors developed a
working definition of ‘culture’ for this study. The working definition of 'culture' for this
study is:
"Culture is the inherited, total shared values, norms, beliefs, attitudes and behaviors of
people in a particular society or civilization, which constitute the shared bases of their
social action".
What is an Organizational Culture (OC)?

With the understanding of the word ‘culture’, authors reviewed the literature for previous
definitions of the concept ‘organizational culture (OC)’, in order to develop a working
definition of OC for this study. As cited in Nelson and Quick (1997), Schein (1985) have
defined OC as a pattern of basic assumptions that are considered valid and that are taught to
new members as the way to perceive, think, and feel in the organization. In other words, OC
is a particular unique arrangement, which consists of basic assumptions considered as valid,
which new employees are required to learn and follow, as the way of perceiving, thinking and
feeling. Key (1999) defined culture as shared beliefs of an organization’s members.
Adapting from Argyris and Schon (1978), Nelson and Quick (1997) claimed that, values
which the employees of the organization appreciate and consider as vital, are of two types : i)
espoused values which are said to be valued by the employees of the organization and ii)
enacted values, which are reflected in the individual employees’ actual behavior.
Accordingly, degree of difference between the above two types of values in an organization
reflects the level of morality within the employees of the organization.
George and Jones, (2005) argued that, OC is the set of shared values, beliefs, and norms
that influence the way employees think, feel, and behave towards each other, within and
outside the organization. Further state, values are what employees of the organization
appreciate and consider important, and they are segregated into two types of values: (i)
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terminal values or desired ends states, or outcomes that employees seek to achieve (e.g.,
excellence, profitability, high quality etc.) and (ii) instrumental values or types of behavior
that employees practice to reach terminal values (e.g., being helpful, working hard, respecting
traditions and authority etc.). Further, Greenberg and Baron (2007) suggested that, OC is a
cognitive framework that consists of attitudes, values, behavioral norms, and expectations
shared by the members of a particular organization.
As cited in Kiniki and Williams (2008), according to Schein (1985), OC is sometimes
called as 'corporate culture', and it is a system of shared beliefs and values that develops
within an organization and guides the behavior of its members. Based on this argument,
Kinicki and Williams (2008) suggested, organizational culture is the social glue that binds
members of the organization together. Further, they compared the 'culture' of an organization
to the 'personality' of a human being, as it is unique in nature with regard to the individual,
whether it is a human being or an organization. Ardichvili and Jondle, (2009) noted that,
corporate culture is often described as one of the main determinants of ethical or unethical
behavior in business organizations. Further, Schein (2010) argued that, OC is a pattern of
shared basic assumptions that the group learned as it solved its problems of external
adaptation and internal integration, that has worked well enough to be considered valid. Also
suggested, these could be taught to new members as the correct way to perceive, think, and
feel in relation to those problems.
Thus, OC has been defined in many different ways as follows (Table 3):
Table 3: Definitions of Organizational Culture

Source Organizational Culture (OC)
The Collins Birmingham OC is a particular society or civilization, especially one
University English Language considered in relation to its ideas, its arts, or its ways of life.
Dictionary
Schwartz and Davis (1981), as OC is a pattern of beliefs and expectations shared by
cited in Deshpande and Webster, organization members.
Jr.(1989)
Schein (1985), as cited in Nelson OC is a pattern of basic assumptions that are considered valid
and Quick (1997) and that are taught to new members as the way to perceive,
think, and feel in the organization.
Key (1999) OC is shared beliefs of an organization's members.
Schein (2006) OC consists of three common elements: artifacts, espoused

beliefs and values, and underlying assumptions.
George and Jones (2005) OC is a set of shared values, beliefs, and norms that influence
the way employees think, feel, and behave towards each other,
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within and outside the organization.
Greenberg and Baron (2007) OC is a cognitive framework that consists of attitudes, values,
behavioral norms, and expectations shared by the members of
a particular organization.
Schein (2010) OC is a pattern of shared basic assumptions that the group

learned as it solved its problems of external adaptation and
internal integration.
Literature review identified that, there is no particular standard definition for OC. But,
there is a common understanding among scholars that OC is ‘a set of values, beliefs, and
norms or expectations unique to a particular group of people in the organization, which are
shared by the members of the organization and be guided by them for their behavior'. Based
on this understanding, the authors developed a working definition for OC. The working
definition of OC for this study is:
“Organizational Culture is a particular set of beliefs, norms and values shared by the
members in a certain organization, and be guided by them for their behavior”.
What is an Ethical Organizational Culture (EOC) ?

Initially, EOC has been identified as a potential element in organizational success (Peter and
Waterman, 1982; Schein, 1985). EOC has become a popular research area among scholars
over the past three decades, mainly due to the nature of its influence on how ethical decisions
are made, and the pressure to adapt ones behavior to OC may lead to unethical behavior
(Baucus, 1989). By definition, culture is the shared beliefs of an organization's members.
Therefore, EOC would be reflected in the beliefs about the ethics of an organization, which
are shared by its members (Trevino, 1990, cited in Key, 1999). Ardichvili and Jondle (2009)
defined EOC as a subset of organizational culture, signifying a multidimensional interplay
among several formal and informal systems of behavior control that are capable of promoting
ethical or unethical behavior. Thus, EOC represents shared norms and beliefs about ethics
within an organization. Further, EOC has been defined as, those aspects of the organizational
context that encourages ethical conduct in the organization (Trevino and Weaver, 2003).
EOC had received growing attention in the business and organizational ethics literature over
the past several years, but it is still underdeveloped in research (Kangas, et al., 2014). This is
mainly due to the limited number of instruments available to measure the existence of ethical
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virtues in an organization (Kaptein, 2008; Treviño et al., 1998, as cited in Kangas, et al.,
2014) and lack of empirical evidence available with regard to the validity of these
instruments (Huhtala, et al., 2011; Kaptein, 2008; Key, 1999; Treviño et al., 1998).
Conceptualization and Operationalization of the construct EOC, has been based on many
different theories. The very first testable construct of the EOC was developed by Trevino et
al. (1998). They used a 14-item instrument to measure four dimensions of EOC: (i) sanctions
for ethical and unethical conduct; (ii) role modeling of top management; (iii) implementation
of an ethics code; (iv) whether ethical behavior is the norm of the organization. However, due
to the small set of items (14) in the instrument, this measure was not feasible. Trevino et al.
(1998) called for refinement of their EOC scale, but until Kapetin (2008) developed an
empirically validated, 58-item, multi-dimensional model named Corporate Ethical Virtues
model (CEV model) to measure EOC, no empirical study had been conducted in response to
their call. Kaptein (2008) developed the CEV model based on Solomon’s virtue-based theory
of business ethics, which holds that individual business people and business organizations
should possess certain characteristics called virtues, to excel in morality (Kapetin, 2008).
CEV model with 58 items, distinguishes between eight dimensions of EOC: (i) clarity, (ii)
congruency of supervisors, (iii) congruency of senior management; (iv) feasibility; (v)
supportability; (vi) transparency; (vii) discussability and (viii) sanctionability. Further, as
cited in Kaptein (2008), Collier (1995) and Kaptein (1998) argued, virtuousness of an
organization can be determined by the degree to which the organizational culture encourages
its employees to behave ethically and avoid them performing unethically. In a latter study,
Kaptein (2009) incorporated experiences, presumptions, and expectations to the CEV model,
to emphasize how the organization prevents unethical behavior and promotes ethicality.
Debode, et al. (2013), assessed the EOC and refined the 58-item CEV model (Kaptein, 2008),
by introducing a shorter version with 32 items in the scale. The shorter model was named
‘Corporate Ethical Virtues Model Scale-Short Form’ (CEVMS-SF). Debode, et al. (2013)
called for future researchers to replicate their study, to further refinement of the shorter model
(CEVMS-SF). Further, in a recent research Ardichvili et.al. (2008) identified five clusters
attributed to general characteristics of the EOC: (i) mission and value-driven, (ii) stakeholder
balance, (iii) leadership effectiveness, (iv) process integrity, and (v) long-term perspective.
These five clusters were proposed as a foundation of a comprehensive model that can be
14
used, to influence operational practices in creating and sustaining an ethical organizational

culture.
The above definitions of EOC and discussions recognized that, EOC is a critical part of
the organizational culture, and it had been conceptualized in several ways, based on different
theories. It consists of moral beliefs and rules, which are utilized to govern how employees
are supposed to behave, when dealing with various parties inside and outside the
organization, when making decisions individually and collectively. Further, EOC is a
cognitive framework consisting of ethical beliefs and rules according to which individuals of
the organization behave. Based on the above understanding, authors developed a working
definition for EOC.
The working definition of EOC for this study is:
'Ethical Organizational Culture is a particular set of beliefs, norms and values shared by the
employees in a certain organization about, right and wrong acts of behavior of the individuals or
groups in the organization'.
As already discussed, the theme of this article is that ‘there is an ethical dimension to
HRM, thus what is the role of EOHRM in establishing an EOC? Further, Armstrong (2012
p.100) emphasized that, “the ethical concepts of deontology, utilitarianism, stakeholder
theory and discourse theory, provide frameworks that can be used to evaluate HRM policies
and practices. Hence, the authors focused on this angle to further conceptualize the concept
EOC. Further, decision making is to choose a course of action from many possible options
available, in order to achieve a goal or to solve a certain issue. “Decision making is
inevitable throughout your life (Opatha, 2010: p. 123).” Decisions we make could be good or
bad, or right or wrong, depending on the circumstances and the facts available at that time.
When discussing about EOC one cannot ignore ‘what is an ‘ethical decision?’ When there is
an ethical issue, we are faced with a ethical decision making or an ethical dilemma. Jones
(1991) argue, ethical decision is one that is morally acceptable to the larger community. He
also noted, where a person’s freely performed actions harm or benefit others, a moral issue
may present, and the actor or decision maker must make choices, since the action or decision
have consequences for others. As Clegg et al. (2007) stated, ethical decisions occur out of
dilemmas and they cannot be managed in advance through rules. DuBrin (2000) suggested,
five focuses in order to see whether your decision is ethical or not. Namely: utilitarianism,
15
deontological perspective, character of the person, disclosure and reversibility. In addition

Opatha (2010) suggested two more focuses, that is: happiness and the most virtuous person-
in-belief.
Based on the above working definition of EOC and understanding of ethical decision
making, the authors conceptualized the variable of EOC as a one-dimension construct named
‘Philosophical Ethical Rules’. This single dimension of EOC is discussed below under five
ethical frame works, which would be considered as the five elements under the above
dimension: Philosophical Ethical Rules.
1. Utilitarianism
When attempting to decide what is right or wrong, it is important to focus on the
consequences of the decision, that is to count the net balance of good consequences over bad
consequences (Opatha, 2010). If the decision is harmless or does not hurt anyone, it is
considered to be ethical as per this focus that is philosophically referred to as ‘utilitarianism’
or ‘teleological approach’ (p.124). Hence, utilitarianism is the belief that actions are justified
when they result in the greatest good to the greatest number (Armstrong, 2012). Further, the
actions should be judged in terms of their consequences, or in other words, ‘the end justifies
the means’ (p.101).
Thus, the Utilitarianism focus emphasized that:

• Decision makers consider whether the decision has more good consequences.
• Decision makers consider whether the decision is harmless or hurt anyone or
not
• Decision makers consider whether the decision hurts majority of people.
• Decision makers consider whether the decision does greatest good to the
greatest number of people.
2. Deontological perspective
Another focus of making decisions is to examine one’s duties or principles in making the
decision (Opatha, 2010). This focus is named the ‘deontological perspective’, which is based
on universal principles such as, honesty, fairness, privacy, safety and respect for persons and
property. These principles are more important than the consequences of the decision or action
16
from the above perspective (p.124). Further, according to Deontological theory, some actions
are right or wrong irrespective of their consequences (Armstrong, 2012). This theory is also
associated with Kant’s view, which comprises of two main proposals: i) that one should
follow the principle that what is right for one person is right for everyone, and thus, you must
do to others as you would be done by and ii) that you should respect all people and treat
them as ends in themselves, not as the means to an end (p. 100).
Hence, according to the Deontological perspective:

• Decision makers consider whether the decision involves respect for persons
and property.
• Decision makers consider whether the decision violates any rule or regulation
of the organization.
• Decision makers consider whether the decision made is an honest opinion.
• Decision makers consider whether the decision made is fair by the people.
• Decision makers consider whether the decision made is safe by the people.
3. Characteristics of the decision maker

This focus of decision making is on the ‘character’ of the person who makes the decision or
action (Opatha, 2010). In this context, character or the moral constitution of the person means
good personal character. If you possess a good personal character, and genuine motivation
and intentions, you are said to be ethically behaved, admired and respected by others (p. 124).
Further, literature review identified some characteristics or traits of the decision maker,
namely: cognitive moral development (Kohlberg, 1969); ego strength (Trevino, 1986) and
Knowledge or values (Ferell and Gresham, 1985), which influence the process of making
employees more ethical in an organization.
Based on the above characteristics/traits the:
• Decision makers are honest and possess integrity.
• Decision makers are genuinely motivated to behave ethically.
• Decision makers are knowledgeable or know what they are supposed to do
legally and morally.
• Decision makers possess a strong ego or self-esteem to make ethical decisions.
• Decision makers possess a strong self-confidence to behave ethically.
17
• Decision makers are persons with values

• Decision makers are persons of self-discipline.
4. Disclosure
Disclosure is another principle to be considered when making ethical decisions. If the
decision makers feel comfortable (not feeling shame, upset, and fear), when the decision and
its details are exposed to the public/others concerned, the decision is likely to be ethical
(Opatha, 2010). Further, when the decisions are revealed to anyone if the decision makers can
be proud and happy about their decisions, the decisions are likely to be ethical. Ethical
decisions make decision makers worthy of respect and admiration.
Based on the above focus:
• Decision makers feel comfortable about the decisions they made.
• Decision makers are proud of the decisions they made.
• Decision makers feel happy about the decisions they made.
5. Reversibility
Principle of reversibility is another focus considered in ethical decision making (DuBrin,
2000). According, if the decision maker is comfortable and confident enough to tell its own
child or close relative to make the same decision he had made in a similar ethical dilemma,
then the decision is likely to be considered ethical.
• Decision makers would tell their children to make the same decisions they
make.
• Decision makers would want others to make the same decisions for
themselves.
Ethical Orientation of HRM (EOHRM)

The objective of this article is to explore the role of EOHRM, in creating and sustaining an
EOC. The literature review identified that, EOHRM is a new concept and there are no
dictionary or scholarly definitions available in literature. Hence, authors attempted to
construct a working definition for EOHRM, based on the understandings of what ethics are
and what an EOC is, which has been already discussed above. EOHRM is ‘the extent to
which HRM functions are directed to acquire, maintain and motivate employees who are
18
ethical’. Based on the above understanding, authors developed a working definition for
EOHRM. The working definition of EOHRM for this study is:
“EOHRM is the extent to which HRM functions are directed to generate, maintain, retain
and motivate an ethical employee force for the organization”.
According to the above working definition, EOHRM is defined as the extent to which
HRM functions incorporate ethical matters so as to make employees ethical. It is the extent to
which ethics are incorporated into HR functions in order to acquire, develop, retain and
motivate an ethical workforce. Hence, it involves functional incorporation of ethics, as
discussed in detail below.
‘Acquiring’ involves job analysis, recruitment, selection, and induction. ‘Developing’
involves performance evaluation and training. ‘Retaining’ involves management of
employee promotions, discipline management, and grievance management. ‘Motivating’
involves incentives management and welfare management. Acquiring employees, developing
employees, retaining employees, and motivating employees are considered as dimensions of
HRM in the act of operationalization of EOHRM. Thus, respective elements under each
dimension are:
Acquiring
1. Job analysis
2. Recruitment
3. Selection
4. Induction
Developing
1. Performance evaluation
2. Training
Retaining
1. Management of promotions
2. Discipline management
3. Grievance management
Motivating
1. Incentives management
2. Welfare management
19
Table 5: Ways of making employees ethical under respective HRM functions:

Elements of HRM Function Ways of making employees ethical
EOHRM
Acquiring Job Analysis • To include ethical dimension as a duty in Job
Description.
• To include ethical competencies as a special
component in Job Specification.
Recruitment • To include ethics-related criteria in the

recruitment messages.
• To communicate the employer’s concern about
ethics through recruitment efforts.
Selection • To select applicants who are sufficiently aware

of ethics to fill job vacancies.
• To select applicants who have been ethical as
citizens under their private life domain.
Induction • To make new employees familiar with ethics and

organizational efforts in making employees
ethical.
• To develop induction programs showing ethical
behavior of current employees.
Developing Performance • To evaluate employee’s job performance

Evaluation according to ethics-related criteria.
• To include a separate component for progress on
ethicality in the performance feedback interview.
Training • To impart right knowledge and skills about

ethics (societal, professional and individual
ethics etc.) to each employee through a training
program exclusively designed for making
ethical.
• To do training needs analyses to identify training
needs of employees in respect of ethics.
Retaining Management of • To consider ethicality of the employee as a main

Employee criterion for giving promotions.
Promotions • To appoint members who are highly ethical to
promotion committees.
Discipline • To formulate and publish rules of conduct

Management relating to ethics.
• To develop a progressive disciplinary system to
punish employees who violate the rules with
regard to right and wrong.
Grievance • To allow whistle-blowing.
Management • To appoint an ethics officer to deal with claims
of unethical behavior.
Motivation Incentives • To give financial incentives to employees for

Management their ethical performance of job.
• To give non-financial incentives such as praises
and recognitions to employees for their ethical
20
behavior.
Welfare • To provide certain welfare services such as time

Management off services, advances & loans, transport services
etc., to only those who are ethical.
Conclusion
The objective of this article was to explore the role of Ethical Orientation of HRM (EOHRM) in
creating, developing, retaining and motivating an ethical workforce in an organization, in
order to establish an Ethical Organizational Culture (EOC). Hence, a distinct side of the
HRM termed EOHRM, which is a new concept in HRM, was explored. The paper discussed
how EOHRM is directed to overcome the above unethical challenges, through the HRM
functions. The authors constructed working definitions for the main variables in the study,
EOC and EOHRM. According to the working definition, EOHRM is defined as ‘the extent to
which HRM functions incorporate ethical matters so as to make employees ethical’. Thus,
EOHRM is the extent to which ethics are incorporated into HR functions in order to acquire,
develop, retain and motivate an ethical workforce. The role of EOHRM was discussed under
HRM functions based on four dimensions, namely: Acquire - Job analysis, Recruitment,
Selection and Induction; Develop - Performance evaluation, Training; Retain- Management
of promotions, Discipline management and Grievance management and Motivate -
Incentives management and Welfare management, in order to establish an EOC. This article
has a significant utility for future research.
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Proceedings of 12th International Conference on Business Management

Role of ethical orientation of HRM in establishing an

De Silva N.G.V.A., (viruli2@gmail.com)

Opatha, H.H.D.N.P., (hopatha@yahoo.com)

Key words: Ethics, Ethical orientation of HRM, Ethical organizational culture

Electronic copy available at: http://ssrn.com/abstract=2699792

Electronic copy available at: http://ssrn.com/abstract=2699792

Electronic copy available at: http://ssrn.com/abstract=2699792

Problem Statement and research gaps identified

The Problem Statement of the study is:

Ethical Orientation of HRM and Ethical Organizational Culture

What are Ethics?

Armstrong, (2012) Ethics is concerned with making decisions and judgments

The working definition of ethics for this study is:

Table 2 : Definitions of Culture

The Oxford Advanced Learner’s Define Culture in two forms:

Hofstede (1980) Culture is the unwritten rules of the social game.

Key (1999) Culture is shared beliefs of an organization's members.

different categories such as nations, religions within or across nations, ethnicities,

What is an Organizational Culture (OC)?

Table 3: Definitions of Organizational Culture

Key (1999) OC is shared beliefs of an organization's members.

Schein (2006) OC consists of three common elements: artifacts, espoused

within and outside the organization.

Schein (2010) OC is a pattern of shared basic assumptions that the group

What is an Ethical Organizational Culture (EOC) ?

used, to influence operational practices in creating and sustaining an ethical organizational

The working definition of EOC for this study is:

deontological perspective, character of the person, disclosure and reversibility. In addition

Thus, the Utilitarianism focus emphasized that:

Hence, according to the Deontological perspective:

3. Characteristics of the decision maker

• Decision makers are persons with values

Ethical Orientation of HRM (EOHRM)

Table 5: Ways of making employees ethical under respective HRM functions:

Recruitment • To include ethics-related criteria in the

Selection • To select applicants who are sufficiently aware

Induction • To make new employees familiar with ethics and

Developing Performance • To evaluate employee’s job performance

Training • To impart right knowledge and skills about

Retaining Management of • To consider ethicality of the employee as a main

Discipline • To formulate and publish rules of conduct

Motivation Incentives • To give financial incentives to employees for

Welfare • To provide certain welfare services such as time

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