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1 December 2014 CFA Institute Journal Review

The Influence of Business School’s Ethical Climate on Students’ Unethical Behavior (Digest Summary)

  1. Marc L. Ross, CFA

A climate that promotes ethical behavior helps reduce the likelihood of improper conduct. The authors investigate the role of business schools in fostering the value of doing right.

What’s Inside?

Through empirical research, the authors investigate the role of an ethical climate in predicting unethical behavior. A positive moral environment in the educational setting of a business school helps promote proper conduct and lessens individuals’ propensity to engage in acts of questionable judgment.

How Is This Research Useful to Practitioners?

As incubators of future leaders in business who serve as senior managers and directors, business schools have a large role in shaping not only the cornerstone of a business education but also the ethical values that will serve as a guide and moral compass for leadership. The authors consider the positive role that business schools can play in shaping ethical behavior in light of the continued existence of unethical behavior (in the form of corruption, conflicts of interest, and manipulation) that still exists in the business world. They present the scenario of a business school that experiences numerous instances of unethical conduct. The fictitious institution lacks a high-minded ethical culture, which causes bad behaviors to become commonplace. It is a model of what could go wrong.

The authors define an ethical climate as one that reflects the values and practices of an organization related to moral behavior and attitude. They offer three hypotheses. First, ethical climate negatively correlates with unethical behavior. Moral identity moderates unethical behavior as does institutional identity, and the extent to which people identify themselves as moral governs their conduct. Second, higher moral identity results in a more ethical climate that relates negatively to unethical conduct. The more that membership in a specific social group fosters positive social identity, the more its members will desire to reflect positively on that group or institution through moral actions. Third, institutional identity can motivate socially desirable behavior and reduce unethical conduct.

The authors’ research contributes to the literature through the discussion of how an ethical environment supports ethical values and behaviors. They demonstrate the importance of the moral and institutional identity of the individual in fostering an ethical culture. There are practical implications to their work. Business schools could instill an ethical culture and mindset consistently, which could start with the admissions process by giving greater consideration to those students with a strong moral compass. The existence of a strong ethical culture could reinforce students’ identity with the institution both when they are in school and as alumni.

Business educators, policymakers, and regulators should find the authors’ conclusions worthy of further study because the desired outcomes could make everyone’s life better and ideally result in a business environment more favorable to ethical commerce.

How Did the Authors Conduct This Research?

The authors use a mixed method two-wave research approach to test their hypotheses. They interview a random group of students and staff from an internationally credited business school in Hong Kong. Supporting and refining the scope of their interview is a review of various policy manuals and regulations of the school. Collection of the completed survey data occurs in two stages over a three-month period to minimize the effect of memory and common method variance bias. Additionally, the collection process enhances the strength of the findings because it gathers data on predictors and outcomes separately.

Robust scales and metrics rank responses to questions along a five-point scale from “strongly disagree” to “strongly agree.” Items measured include subjects’ responses to such variables as ethical climate, moral identity, institutional identity, and unethical behaviors.

The results support the authors’ hypotheses. Variance inflation factor scores to test the regression models for multicollinearity are low. Regression analysis outcomes support the negative correlation of ethical climate with unethical behavior as does slope analysis to interpret the relationship between ethical climate and unethical behavior as a function of moral and institutional identity.

Abstractor’s Viewpoint

Ethics are the binding thread that runs through an organization. To the extent that an organization’s moral code displays significant gaps or lacks widespread adherence, that organization may well damage its reputation, perhaps irrevocably. A company can spend a lifetime building something great but can ruin itself very quickly if it fails to model and follow ethical principles. Often a firm fails to grasp the bigger picture. Outright misconduct was widespread during the recent financial crisis and so were decisions of questionable propriety, even if they were not illegal. The authors propose a return to the core values of ethical behavior. The outcome of their research would suggest that the most powerful solutions are often the simplest. Leadership can generate good ethics that pervade business organizations, and the proper ethical education of women and men provides the foundation for behavior within organizations.

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