The relationship between corporate ethical climate and stakeholder management

Abstract

The purpose of this dissertation is to integrate the ethics and strategic management literature by exploring the relationship between corporate ethical climate and firm-stakeholder relationships, exploring the research question of how ethical climate variables impact corporate social action towards various categories of stakeholders.

This study informs the ethical climate research stream by reassessing the reliability of a recently developed measure of corporate ethical climate, the Ethical Climate Index (ECI) (Arnaud, 2006). The ECI is based upon Rest’s (1986) theory of ethical decision-making. Rest suggests that ethical behavior results from a four step decision making process involving (1) moral sensitivity, (2) moral judgment, (3) moral motivation, and (4) moral character. The ECI raises these steps to the collective level to measure the organizational climate for ethical decision making and behavior. This study also extends the business ethics literature by empirically testing the impact of ethical climate on overall stakeholder management.

This study contributes to stakeholder literature seeking to explore and explain the nature of relationships between management and stakeholders, specifically in this case, how firm ethical climate relates to managerial behavior toward stakeholders. Stakeholder and corporate social performance research generally support the proposition that firms are more effective and can gain strategic benefits when they maintain positive relationships with stakeholders (Margolis & Walsh, 2003; Orlitzky, Schmidt, & Rynes, 2003). A recent stream of research attempts to identify factors that affect the nature of firm-stakeholder relationships, and explain how they do so. Recent theoretical literature suggests that corporate ethical culture can impact stakeholder salience (Jones, Felps, & Bigley, 2007). This study extends recent theoretical contributions and empirically explores the relationship between ethical climate and strengths and weaknesses in corporate social action toward stakeholders.

Following Mattingly and Berman (2006), a taxonomy of firm action toward stakeholders is divided into institutional and technical strengths and weaknesses, where the institutional environment is a source of normative expectations for a firm, and the technical environment is the source of resource exchanges. A structural equation model is used to test the relationship between ethical climate variables of collective moral sensitivity, collective moral judgment, collective moral motivation and collective moral character and these stakeholder categories. A significant positive relationship is found between collective moral sensitivity (in the form of moral awareness) and technical and institutional strengths in stakeholder relationships. These findings are discussed and managerial implications and directions for future research are also offered.