Journal of Business Ethics Ó Springer 2010 DOI 10.1007/s10551-010-0524-z Organizational Ethics, Individual Ethics, B. Elango Karen Paul and Ethical Intentions in International Sumit K. Kundu Decision-Making Shishir K. Paudel ABSTRACT. This study explores the impact of both effective, means of formal social control, the costs of individual ethics (IE) and organizational ethics (OE) on damaged reputation, and reduced asset value when ethical intention (EI). Ethical intention, or the individ- ethical transgressions come to light (Monks, 2002). ual’s intention to engage in ethical behavior, is useful as a Failure to maintain an appropriate ethical culture and dependent variable because it relates to behavior which to provide employees with appropriate models of can be an expression of values, but also is influenced by ethical behavior can have a high cost for the cor- organizational and societal variables. The focus is on EI in poration (Monks and Minow, 1989). The ethical international business decision-making, since the inter- national context provides great latitude in making ethical climate is most effective when organizational decisions. Results demonstrate that both IE and OE members are internally motivated to behave ethi- influence EI. Ethical congruence is also discussed as a cally. Since effective corporate governance is positive influence. Younger managers are more influ- enhanced by concordance between organizational enced by OE than older managers. The findings call for and individual ethics (IE), it is important to under- creating governance mechanisms to enhance ethical stand the elements that produce this congruence. congruence, thereby increasing the likelihood of man- Since both organizational-level variables and indi- agers making ethical choices in organizational decision- vidual-level variables influence ethical decision- making. making, research findings based on studies that focus on one level to the exclusion of the other need to be KEY WORDS: organizational ethics, individual ethics, supplemented by studies that consider both types of business ethics, ethical intentions, ethical congruence, corporate governance, international decision-making variables. This study contributes to the business ethics liter- ature in several ways. The emphasis is on ethical decision-making in international business, an area of considerable contemporary interest (Bird et al., 2009; Introduction DeGeorge, 1993; Donaldson, 1989; Donaldson and Dunfee, 1999). Whereas much business ethics Corporate governance refers to the ‘‘system by research focuses on values and ethical judgments, this which companies are directed and controlled’’ study follows the example of Valentine and Ritten- (Cadbury, 1992). One of the goals of corporate burg (2004), focusing on ethical intentions (EI). By governance is to create a set of internal mechanisms adapting existing vignettes to explicitly represent to ensure sound managerial decisions are made, international scenarios, this study provides an instru- considering the rights and responsibilities of various ment that can be used to investigate international stakeholders, together with the ethical norms and business ethics. While observations of actual behaviors standards of the firm. Creating and maintaining a would be ideal, verbal assessments of EI are a close positive ethical climate has been recognized as an measure, falling between the level of values, attitudes, important aspect of corporate governance, reducing and moral judgments and the level of actual behavior. the costs associated with more intrusive, possibly less In addition, the study furthers the understanding of B. Elango et al. business ethics by studying organizational ethics (OE) or higher value congruence, were more likely to and IE at the same time rather than separately, as is the make higher level ethical decisions than managers in case in many previous studies. The current study organizations with less consistent sets of values. In a demonstrates the effect of both organizational and subsequent article derived from the dissertation, individual ethics on EI and their combined effect, Liedtka made the point, ‘‘clearly, the organizational moderated by some demographic variables. Finally, value system plays a critical role in setting the stage these research findings can be used to support the upon which the ethical dilemmas that their managers development of business ethics practices in organiza- face are played out’’ (Liedtka, 1989). Liedtka tions to enhance effective corporate governance. contrasted two organizations, one with a ‘‘rich, multi- This article consists of five sections, including this dimensional value system’’ and the other which she introduction. The next section presents the theo- characterized as ‘‘strictly utilitarian’’ (1989, p. 808), retical overview and is followed by a section pro- analyzing several different sources of value conflict: viding the research model and hypotheses conflict within the organization’s values, conflict development. The following section presents the within the individual’s values, conflict between the research methodology and the results of the study. individual’s values and the organization’s values, and The final section discusses the study findings, conflict both within and between the individual’s directions for future research, and the limitations of values and the organization’s values (1989, p. 812). the study, and then concludes with the managerial Liedtka used the term ‘‘value congruence’’ to implications of the study. refer to the internal consistency of values within the organization and also to refer to the internal con- sistency of values held by the individual. An Theoretical overview important part of her argument was the greater the degree of value congruence within the organization, Values form an important basis for ethical behavior. the more influential the organization’s values were in Values may be assessed on both the individual and shaping the responses of individuals to ethical the organizational levels. The correspondence dilemmas. Additionally, the more congruent the between an individual’s values and the values of an values of an individual, the more influential those organization can be called ‘‘person-organizational values were in shaping those same responses. In fit’’ or ‘‘congruence.’’ In her dissertation, Liedtka other words, when an organization had contradic- interviewed managers in two organizations, asking tory or ill-defined values, or when an individual had them to identify both personal and organizational contradictory or ill-defined values, those values were values and then to describe the use of these values in relatively less effective in providing guidance for resolving ethical dilemmas they faced. Liedtka ethical decision-making. (1988) used the term ‘‘value congruence’’ to refer to Posner and Schmidt (1993) also used the concept of the degree of internal consistency expressed by value congruence to interpret results of a large-scale interview subjects to characterize their own values, survey. They used the concept of value congruence to and to refer to the degree that the managers viewed capture the degree to which ‘‘consonant values’’ their organizations as having values that were characterized individuals, or characterized organiza- themselves internally consistent within the organi- tions (as reported by the same individuals), but not to zation. Her emphasis was on the resolution of value characterize the relationship between individuals and conflict, conflict either internal to the manager or their organizations. Their conclusion was that value conflict between the managers and the organization. congruence for individuals and value congruence for Managers with high value congruence resolved organizations were both positively associated with ethical conflicts at a higher ethical level than man- ethical decision-making, but that the more significant agers who expressed less value congruence, i.e., less influence was individual value congruence. Adkins internally consistent values. Organizations, as per- et al. (1996) examined value congruence among ceived by the same managers, also displayed more co-workers, concluding that positive work outcomes consistent or less consistent sets of values. Managers such as job satisfaction and attendance were associ- in organizations with more consistent sets of values, ated with value congruence, especially among International Decision-Making lower-ranking employees and when the work re- organizational context. They attempted to distin- quired cooperation. guish organizational climate from culture, suggesting An interesting question is the degree to which that organizational climate relates more to ‘‘how value congruence in the organization or in the things are done,’’ whereas organizational culture individual influences the actual behavioral choices relates more to ‘‘underlying assumptions’’ … ‘‘at a those individuals make when confronting ethical higher level of abstraction’’ (Kuenzi and Schminke, dilemmas. The studies cited above demonstrate an 2009, p. 638). This distinction is useful for consid- association between value congruence and ethical eration of ethical climate research. The focus of decision-making. Yet individuals with similar values ethical climate research has similarly been on ‘‘how can make different behavioral choices in ethical things are done’’ when ethical decision-making decision-making due to different cultural or orga- occurs, as distinct from ethical culture, which relates nizational factors.