Organizational Culture

Chapter 8 states three learning outcomes, reproduced below since they map directly onto the chapter's own three major sections (8.1, 8.2, and 8.3).

1. Examine how organizational culture drives ethical behavior.
2. Analyze best practices for developing an ethical culture.
3. Evaluate the eight criteria required for an effective ethics and compliance program.

On January 5, 2024, a door panel blew off an Alaska Airlines Boeing 737 shortly after takeoff from Portland International Airport. A 12-year-old passenger seated a few rows from the hole described a loud boom followed by "a lot of air blowing around, freezing cold air" (Haworth, 2024, para. 4). The National Transportation Safety Board found that bolts securing the door panel had broken loose, and other airlines subsequently discovered loose bolts or missing washers on their own Boeing aircraft (D. Lee, 2024). FAA investigations found noncompliance with safety and quality protocols at Boeing, calling the company's culture itself into question.

Boeing employees had raised safety concerns before the incident, to no avail — managers were focused on cost savings and sales (Tully, 2024). This was not new: after two 737 MAX crashes in 2018 and 2019, internal communications made public through the investigations showed "the very culture at Boeing appears to be broken, with some senior employees having little regard for regulators, customers and even co-workers" (Gelles, 2020, p. 1). Engineers working on the 787 said they wouldn't want their own families to fly on the plane; managers were proud of convincing the FAA not to require pilot training for a new system; one employee wrote, "I honestly don't trust many people at Boeing" (Gelles, 2020, p. 1). Business press and academics traced the shift in Boeing's once-reputable engineering culture to business decisions made over the prior decade (Bohannon, 2024; Chary, 2024; Saporito, 2024).

The chapter uses Boeing to make its opening claim: culture matters in business. A healthy culture lets employees live their values and perform without fear of retaliation; a dysfunctional culture leads to poor decisions, lower performance, and greater risk of ethical misconduct scandals (Gebler, 2012). Chapter 1 defined ethical culture as the degree to which an organization is committed to ethical responsibilities, with expectations for appropriate behavior from employees and suppliers. Chapter 7 covered ethical leadership's role in building that culture — a strong ethical culture makes appropriate behavior a priority through leadership, fair policies, open discussion of ethics, and incentives for ethical behavior (Treviño et al., 1999), and typically includes a formal ethics program with a code of conduct, ethics training, and reporting mechanisms.

Culture vs. Climate — a Distinction Worth Memorizing

Ethical culture denotes the values, norms, and artifacts of an organization. Ethical climate is different: it refers to employees' shared perceptions of "ethically appropriate behavior and knowledge of procedural steps to address an ethical issue" (Kuntz et al., 2013, p. 319) — the collective personality of the organization, made up of employees' ethical attitudes, views, and decision-making processes. Leaders who promote a benevolent, principled ethical climate are more successful at making ethics permeate the whole organization.

Every organization with employees has a culture — sometimes called corporate culture or company culture — that drives employee behavior. Culture can be described simply as "how we do things around here" (Gebler, 2012, p. 7). More formally, organizational culture is "the pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with the norms for behavior in the organization" (Deshpande & Webster, 1989, p. 4). The culture of an organization consists of shared basic values, behavioral norms, and visible artifacts that guide behavior and decision making (Homburg & Pflesser, 2000); shared meaning of these values and norms sends "signals to people about how to act and feel" (Chatman & O'Reilly, 2016, p. 205).

Shared Basic Values — Espoused vs. Taken for Granted

Shared basic values are the basic assumptions about desirable ends and means that a group has invented, discovered, or developed, that have worked well enough to be considered valid, and are therefore taught to new members. Schein (1984) splits an organization's shared values into two kinds: (a) overt, espoused values, and (b) values that are taken for granted. Bourne and Jenkins (2013) extend this into four distinct forms of organizational values: espoused and aspirational values represent intended values, while attributed and shared values are the ones actually embedded in the organization.

Espoused values are the values a company states it strives to follow. When employees observe behavior actually matching those stated values, espoused values produce a strong ethical culture (Craft, 2018). FedEx's values — "take care of each other, commit to do good, own outstanding, drive business results, and create what's next" (FedEx, 2024, p. 10) — reflect the company's history and its founders' influence. Ecolab's CEO frames it similarly: "For a century, we've grown the business by working together with diverse perspectives, doing what's right, what's fair and what's honest" (Ecolab USA Inc., 2023b, p. i), alongside values of deliver results, challenge ourselves, make a difference, work together, and safety first.

Values that are taken for granted are espoused values that, over time, have transformed into underlying assumptions about how things really happen in the organization — covering its relationship to the environment, how to interact with others, whether to trust others, and how to define truth. United Airlines states core values of Safety, Caring, Dependability, and Efficiency, but its code of conduct centers integrity: "we are all required to be fair, honest and ethical when making decisions that impact United" (United Airlines, 2023, p. 5).

Norms and Artifacts

Norms are expectations of desirable behavior found in the policies and procedures that guide organizational decisions and actions — companies express norms as principles for acceptable behavior. (Chapter 1 defines principles as the rules or standards that inform actions and thinking.) Google's code of conduct names five guiding principles: commitment, care and respect, transparency, fairness and consistency, and accountability (Alphabet Inc., 2022). Stated principles represent a company's preferred behaviors, not necessarily the informal norms most employees actually follow — Boeing's safety and quality failures would have been prevented had the company genuinely acted on its own stated standard to "Lead on safety, quality, integrity and sustainability" and "make safety our top priority, strive for first-time quality, hold ourselves to the highest ethical standards" (Boeing, 2024).

Artifacts are tangible expressions of shared values and norms: a company's architecture, technology, manner of dress, rituals, documents, and stories (Schein, 1984). Stories, in particular, bring values to life — successful cultural change often traces to a leader sharing an authentic, personal, memorable story that touches employees (Barney et al., 2023). Social media postings are an increasingly common artifact; Madsen and Johansen (2019) describe a Danish bank that used an internal social network so employees could raise concerns or reflections about company culture, helping the bank identify and respond to deviations from its stated values. As more work becomes remote or hybrid, sustaining culture requires deliberately modeling and reinforcing ethical values to counteract employees' isolation from the social network of a physical office (Arena et al., 2023).

An ethical culture that drives appropriate employee behavior is valuable well beyond regulatory compliance. Chapter 4 established the compliance link; this section adds three more benefits: a strong ethical culture creates greater organizational commitment, stronger job satisfaction, and higher performance, while also incentivizing employee behavior, aligning informal culture with formal policy, and helping attract and retain talent.

Complying With Regulations

Following the accounting scandals of the early 2000s, the U.S. Securities and Exchange Commission equated a strong ethical culture with good governance. The 2004 amendment of the FSGO requires companies to "promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law" (United States Sentencing Commission, 2023, p. 525); companies that commit to honesty and integrity can avoid monetary fines and sanctions. Other countries impose similar requirements: the UK's Companies Act 2006 requires boards to encourage a culture considering the long-term consequences of the business on employees, suppliers, consumers, and the environment (Casson, 2013), though many European nations still focus more on technical director/management responsibilities than behavioral standards. The OECD Guidelines for Multinational Enterprises stress an ethical culture built on strong corporate governance (OECD, 2023c), and Belgium's GUBERNA directors' association advises that "a director participates in the development and promotion of a culture of honesty" (Casson, 2013, p. 25).

Increasing Ethical Behavior

There is a proven link between an organization's ethical culture and pressure toward ethical behavior in the workplace. Studies show a culture supporting ethical values generates higher perceptions of honesty, lower pressure to act unethically, lower observed misconduct, and higher reporting of misconduct (Basran, 2012; Basran & Webley, 2012). The Ethics Resource Center's (2023b) global study found that in a strong ethical culture, employees followed organizational values, were better prepared to handle risk, felt safe reporting violations, and observed less misconduct — Ethisphere's (2023a) Ethical Culture Report reports the same pattern.

Aligning the Informal Culture of Groups

Ethical companies align the informal culture guiding employee behavior with the formal components of an ethical culture. Chapter 1 defined informal culture as the mechanism by which employees "learn the 'true values' of the organization" (Bazerman & Tenbrunsel, 2011a, p. 117) through stories, observations, and experience — which may conflict with the organization's stated values. Formal components are structures, policies, decision-making processes, and ethics training. Because informal culture reflects how things are really done, employees trust it more than written standards, giving it greater actual influence over behavior.

Financial and time pressure is a major force pushing informal norms away from formal ethical standards. Svanberg and Öhman's (2013, 2016) studies of Swedish auditors found that time and budget pressure led auditors to deviate from formal procedure: accepting weak client explanations, signing off on a required audit step without completing the work (or without noting the omission), and shifting time to nonchargeable areas of the audit or to another client (Dharmasiri et al., 2022). Auditors accepted this because they believed it would not be detected or punished — shifting time had become an informal industry norm (Svanberg & Öhman, 2013). Treviño et al. (1999) found that employees' perception that the company consistently follows its formal codes, policies, and procedures is the single strongest factor preventing unethical informal norms from taking hold — an ethical culture is what allows formal elements to actually become part of the everyday informal culture (Treviño & Brown, 2004).

Attracting a Talented Workforce

Company culture shapes how employees describe their workplace, understand the business, and see themselves as part of it (Hansen, 2011). A moral misalignment occurs when an employee perceives an ethical or moral gap between how the company operates and how they believe it should operate — often becoming the trigger to leave (J. Smith, 2013). Employees are less likely to leave when an organization's values support ethical labor practices and respect for employees (Stewart et al., 2011). A reputation for an unethical culture can also deter prospective employees (Behrend, Baker, & Thompson, 2009): Japanese conglomerate Recruit Holdings suffered a reputational crisis after a 1980s financial scandal, with employees' own families embarrassed by the association, but the company rebuilt trust by including employees in building the company and treating them fairly (Sucher & Gupta, 2023) — proof that a strong ethical culture is central to attracting the talent a business needs to succeed.

Employees — current and prospective — should weigh an organization's ethical culture to avoid moral misalignment, but measuring the strength of that culture is genuinely difficult. As Chapter 7's Enron example showed (inspirational quotes printed on telephone notepads), ethical commitment is much more than a plaque on the wall or a motivational CEO speech; underlying ethical assumptions are rarely explicit.

Companies can assess ethical culture through surveys built on Ethisphere's (2023b) eight pillars, which cluster around three core questions: (a) do employees know what constitutes ethical behavior, (b) do employees know how to get help or ask questions, and (c) do employees trust the organization enough to report violations.

Ethical culture strength may also depend on organizational characteristics. Ownership structure appears to matter in the United States — family-managed companies show a greater ethical focus than nonfamily businesses, often integrating religion into a values-based culture (Astrachan et al., 2020; Blodgett et al., 2011) — but this pattern does not necessarily generalize internationally. A study of large U.S. and BRIC-country companies found the United States, India, and Brazil have more favorable ethical cultures than China and Russia (Ardichvili, Jondle, Kowske, et al., 2012). In China, the socialist political structure mandates that state-owned enterprises provide employee housing, pensions, and healthcare as an ethical responsibility, and foreign-owned enterprises there often focus their ethics programs on the Chinese government's own social development goals to gain market legitimacy (Y. Chen & Touve, 2011); Gao (2009) found no actual difference in ethical focus and performance between state-owned and foreign companies in China.

To avoid ethical misconduct disasters, management should regularly examine the informal character of the organization and the underlying assumptions shaping its ethical culture — regulatory compliance alone will not prevent financial and reputational damage. Useful measurements include observable negative actions (arrests or terminations for noncompliance and misconduct), reports of unethical actions (employee, customer, or supplier complaints), HR processes (360-degree evaluations, exit interviews), employee surveys, focus groups, and interviews. Developing an ethical culture is a continual process requiring constant care and attention, not a one-time initiative.

Developing an ethical culture depends on how well an organization's mission, values, and standards of conduct align with one another. The chapter ties this directly to strategic management, which proceeds through four phases: (1) definition of vision, mission, and objectives; (2) analysis of the internal and external environments; (3) development of strategies; and (4) implementation and control of outcomes (Laasch & Conaway, 2015).

Laasch and Conaway (2015) link these phases directly to responsible business, stressing the need for "a vision, mission, and strategic objectives aiming at the creation of a well-balanced triple bottom line of stakeholder value, and moral excellence" (p. 158). For the implementation and control phase, they recommend Kaplan and Norton's (1996) balanced scorecard approach, which pushes company objectives beyond pure financial goals to include learning and growth, internal business processes, and customers.

Gebler's Three Elements of an Ethical Culture

David Gebler (2012), a recognized thought leader in values-based ethics and culture risk management, builds on this strategic-management foundation with an integrative model showing how three elements of culture align with values to create an ethical culture (the chapter's Figure 8.1): vision/mission/goals, principles and beliefs, and standards of behavior. Companies with strong ethical cultures show commitment to organizational purpose and organizational values; a culture of integrity forms when formal policies align with the company's mission and goals, and a culture of accountability and transparency forms when actions reflect its principles and beliefs. All three elements are equally important — the sections below cover each in turn.

Element 1: Vision, Mission, and Goals

The foundation of organizational culture is the company's vision, mission, and goals. The vision statement expresses the kind of organization the company strives to become — a clear vision drives high performance. As Nan S. Russell put it: "Control the vision, not the process. If you can help others see what you need from them, you'll be more likely to get it. People want a clear vision of what's expected so they can successfully achieve it" (Jacobs, 2013). Hamel and Prahalad (1989) describe a vision that sustains "attention on the essence of winning, motivating people by communicating the value of the target" (p. 64) as a demonstration of the firm's strategic intent.

The mission statement clarifies the essence of why the organization exists, defining its purpose and goals; both vision and mission must be meaningful and concrete enough that employees know how to act on them, and articulating them to align with company values is a job for ethical leaders. Esper and Boies (2013) note that "strong leaders are adept at finding the right message and packaging it in a way that is adapted for different groups of employees and other stakeholders so that each can see a link between the vision and their own values and self-concept. This, in turn, should lead to greater commitment toward the vision" (p. 352).

Milliman et al. (2012) recommend framing vision and mission statements in terms of social benefit or purpose, which boosts employees' intrinsic motivation and strengthens the organization's image with external stakeholders. Companies that communicate strategic intent — the long-term goals of management, reflecting core premises about the firm's purpose to its stakeholders (Fitzsimmons et al., 2022) — earn stronger employee commitment. The Kraft Heinz Company's purpose, "Let's Make Life Delicious," is explained as "an inspiring call to action — our reason to exist … we help feed the world — and we do it deliciously" (Kraft Heinz Company, 2024b, para. 2), tied to a vision "to sustainably grow by delighting more consumers globally" (para. 3) and leadership principles under the acronym WIN — Work as a Team, Inspire Excellence, and Navigate Our Future.

Collins and Porras (1995) describe a visionary company's mission statement as communicating three components: (a) core values the firm is committed to, (b) the firm's core purpose, and (c) visionary goals the firm will pursue to fulfill its mission — goals being the concrete company objectives such as new-market expansion, growth targets, and profit targets. PepsiCo ties its mission, "Create More Smiles with Every Sip and Every Bite," to the decision "To Be the Global Leader in Convenient Foods and Beverages by Winning with pep+" (PepsiCo, 2023, p. 7), with detailed goals across Faster, Stronger, and Better categories covering product/market expansion, cost, technology, diversity, and social/environmental impact.

As Chapter 7 stressed, leaders must reinforce that meeting financial goals never justifies unethical behavior. PepsiCo's code of conduct addresses this directly: "you must never allow the pursuit of ambitious business goals to cause you to lose sight of the ethical aspects of decision-making" (PepsiCo, 2023, p. 7). General Electric long warned that "integrity must never be compromised to make the number" (Heineman, 2008, p. 31), a message its energy spinoff GE Vernova continues: "Do not bypass quality controls or take shortcuts that could compromise the quality, safety, or regulatory compliance of GE Vernova products and services" (GE Vernova, 2024, p. 16). Vision, mission, and goals must align with a company's values, principles, and beliefs to achieve real employee engagement and commitment.

A company's principles and beliefs tell stakeholders what the company stands for and why it is in business. Chapter 1 established that values and principles guide employees as they address ethical business issues. Core corporate values serve as the cultural cornerstones guiding company conduct (Lencioni, 2002) — though not all core values relate to ethics, since many businesses emphasize innovation, performance, and profit instead. Responsible companies tie their principles to values such as integrity, transparency, accountability, and fairness.

FedEx aligns its values and principles around a single Purple Promise — "I will make every FedEx experience outstanding" (FedEx, 2024, p. 6) — describing its culture as "built on our belief that our shared values and principled behavior will reinforce our ability to meet and exceed our strategic goals" (FedEx, 2024, p. 10), expressed through five cultural values: taking care of each other, driving business results, committing to do good, owning outstanding, and creating what's next.

Standards of behavior are a fundamental component of organizational culture. An ethical culture requires employees to have clear expectations for handling ethical issues and making responsible decisions; standards include rules, guidelines, policies, and procedures. But having standards is not sufficient by itself: even though Target implemented state-of-the-art data security measures, employees still failed to follow procedures when data breaches were reported. A healthy company has standards that align with its mission and values — expense-reporting policy is the chapter's example, since most companies have strict rules on gifts, entertainment, tips, and mileage, yet sales or customer-satisfaction pressure can still push employees to violate integrity, honesty, and transparency.

Formal statements conveying an organization's expectations for integrity make up its code of conduct — organizations use varied names for this document (code of business principles, code of ethics, "the way we work," employee guidelines), and a written code is an effective tool for guiding behavior and a core part of the formal ethics program.

An Ethical Culture During Crises

Economic or financial pressure increases the willingness to condone unethical practices, changing an organization's culture under stress. Managers were under severe strain about the viability of hotels and retail establishments during the initial COVID-19 shutdown (Diduch et al., 2020), and pandemic-driven business disruption and financial/safety pressure led to greater workplace harassment and discrimination (Ethics Resource Center, 2023a; Ethisphere, 2023a). Companies with a healthy, values-based ethical culture are more likely to manage such crises well. As Karen Doyne of Burson-Marsteller put it: "Crisis is a test of character. People will want to know if you lived up to your values" (Ethics Resource Center, 2011, p. 7).

The chapter poses three questions alongside the Wyndham case: how do Wyndham's published values and mission reflect an ethical culture; what other beliefs and principles (beyond integrity and accountability) contribute to a healthy culture; and how might a prospective employee research a company's actual employee perceptions of culture before accepting an offer. Wyndham's takeaway is that an ethical culture grounded in values, principles, and standards measurably increases an organization's capacity to withstand adverse business conditions — employees and customers alike perceive consistent integrity, transparency, inclusivity, and respect.

An organizational ethics program (or business ethics program) is the tool owners and managers use to inspire, encourage, and support responsible business conduct by designing structures and systems that guide and support employees and agents. It should account for the firm's actual context and culture to identify the specific challenges to acting appropriately and to develop responsible ways of meeting them, and functions as part of the organization's broader compliance initiative to mitigate the risk of illegal conduct. An ethics program can "ensure and sustain integrity in the organization's performance and its reputation as a responsible business" (Ethics & Compliance Initiative, 2016b, p. 11).

The Ethics & Compliance Initiative's (2016b) Blue Ribbon Commission Report identifies five qualities of a high-quality ethics and compliance program, which the chapter maps onto the eight FSGO criteria covered below.

1. Principle 1: Ethics and compliance are central to business strategy.
2. Principle 2: Ethics and compliance risks are identified, owned, managed, and mitigated.
3. Principle 3: Leaders at all levels across the organization build and sustain a culture of integrity.
4. Principle 4: The organization encourages, protects, and values the reporting of concerns and suspected wrongdoing.
5. Principle 5: The organization takes action and holds itself accountable when wrongdoing occurs.

These principles correspond to the criteria for an effective ethics and compliance program under the FSGO, first introduced in Chapter 4. The chapter walks through eight elements: program oversight and management, delegation of substantial authority, standards and procedures, training and communication, monitoring and reporting, disciplinary procedures and incentives, response to critical issues, and periodic risk assessment (the chapter's Figure 8.2).

The first requirement is program oversight and management — ensuring senior management and the board of directors pay adequate attention to both the formal and informal ethical culture. As Chapter 1 established, top management's commitment to stressing ethics programs is the single most important factor in encouraging ethical behavior and creating an ethical culture. The ethics and compliance program should complement and support the company's strategic objectives, echoing Chapter 7's emphasis on ethical leadership.

Many companies establish a dedicated department led by a chief ethics officer, chief compliance officer, or similar title. Ethics and compliance professionals build trust — among employees and external stakeholders alike — that the company will act with integrity. In the United States, the board of directors has a legal obligation to oversee an organization's ethics and compliance, and the 2004 and 2010 FSGO amendments encourage giving the chief ethics and compliance officer direct access to the board.

Smaller organizations face a different reality: ethical cultures develop differently in smaller, family-owned companies than in large publicly listed corporations, where ethical values connect directly to the founder's own values and ethical issues are managed on a more individualized basis. A small or medium enterprise may lack the resources to fund a full ethics program, and is unlikely to hire a dedicated ethics professional since its staff are typically generalists with flexible, multiple roles — instead, the owner-manager personally sets the tone at the top rather than delegating that role to a CEO.

Alongside program oversight, the FSGO requires investigating individuals with substantial authority in the company. The FSGO's definition is deliberately broad:

This broad definition recognizes that top executives are not the only ones who commit occupational misconduct. The Association of Certified Fraud Examiners (2024) reports that nearly half of occupational fraud is instigated by individuals in accounting, operations, sales, purchasing, and executive/upper management. Companies can incur fines for misconduct by just a few employees or consultants — for example, Alcoa was fined for an overseas manager and independent consultant who bribed Bahraini officials to secure business with a government-owned aluminum plant (ElBoghdady, 2014); banks in an interest-rate manipulation scandal similarly claimed only a small number of individual employees had acted against company values and policy (Mock & Enrich, 2013).

The FSGO requires an effective program to "use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities" (United States Sentencing Commission, 2023, p. 526) — reasonable efforts meaning background checks, interviews, and personality assessments. Comprehensive prehire screening of managers and employees making high-risk decisions helps companies avoid hiring people predisposed to misconduct and find employees who genuinely fit an ethical culture.

Ongoing vigilance matters too: organizations should periodically review individuals with substantial authority for symptoms of misconduct. The Association of Certified Fraud Examiners (2024) found 84% of fraud perpetrators displayed at least one behavioral red flag — the most common being living beyond one's means (39% of cases), financial difficulties (27%), unusually close association with vendors or customers (20%), excessive control over shared duties (13%), bullying or intimidation (11%), and a "wheeler-dealer" attitude involving "shrewd or unscrupulous behavior" (p. 68). Slightly more than half of perpetrators had experienced an HR-related trigger — fear of job loss, poor performance evaluation, or denial of a raise or promotion.

The Bad Apple Theory — and Why It's Incomplete

Removing individuals prone to misconduct reflects the bad apple theory, which holds that corporate crime results from one individual who is inherently immoral, greedy, or manipulative (Treviño & Brown, 2004) — the theory behind news images of executives like Bernie Madoff, Ken Lay, and Fabrice Tourre in "perp walks." But this theory fails to account for the systemic breakdowns that typically enable misconduct. As Treviño and Brown (2004) argue, most employees are followers, and much "unethical behavior in business is supported by the context in which it occurs — either through direct reinforcement of unethical behavior or through benign neglect" (p. 72). An ethical culture backed by a real ethics program, not just the removal of a few bad actors, is what actually guides employees toward appropriate conduct.

Clear standards and procedures for acceptable behavior form the foundation of an organizational ethics program. To foster an ethical culture and mitigate risk, companies must make their behavioral expectations explicit — a comprehensive code of ethics sets the bar for how a corporation handles all of its operations, and the strength of that code can determine whether the company avoids an ethical misconduct disaster.

Policies and procedures, however, can be overvalued as a tool: without educating the workforce or providing real enforcement mechanisms, employees are more likely to ignore or bypass them. Multinational companies face the added challenge of communicating standards so employees worldwide can accept and follow them — genuinely embedding standards and procedures throughout the business is itself a demonstration of ethical culture.

The chapter poses three questions alongside Clarios: why is a code of conduct important for building an ethical culture; what is the benefit — inside and outside the company — of seeking third-party certification of an ethics culture; and how can an organization address the challenge of conveying ethical standards to a genuinely global workforce.

There are no fixed, one-size-fits-all requirements for standards and procedures — a code of conduct reflects an organization's own culture, experience, and identity. A company with unskilled line workers, for instance, may need to communicate standards in simpler language than a highly technical company would, and the code should focus on the specific high-risk issues relevant to that industry and company.

Training and communication embed ethical standards throughout the organization and help build a culture of integrity. The FSGO requires that "the organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures … by conducting effective training programs and otherwise disseminating information appropriate to such individuals' respective roles and responsibilities" (United States Sentencing Commission, 2023, p. 526) — note that both training and communication are explicitly required, not just one or the other.

Open communication and relevant training encourage an ethical culture; Ecolab's leadership, for example, explicitly emphasizes cross-departmental communication and cooperation (Milliman et al., 2012). Ethics training must be relevant to its audience while staying consistent with the organization's values, principles, and standards — not every employee needs to know every policy, but each needs training on the specific risks that could arise in their own work and where to get help resolving an ethical dilemma.

An indication of ethical culture strength is how comfortable employees are reporting misconduct without fear of retaliation — the very problem Clarios found at its overseas facility. Employees become reluctant to share bad news if the culture punishes people for raising it. Recognizing the need for continuous monitoring of ethical climate, the FSGO recommend organizations:

1. Ensure that the organization's compliance and ethics program is followed, including monitoring and auditing to detect criminal conduct;
2. Evaluate periodically the effectiveness of the organization's compliance and ethics program; and
3. Have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization's employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation (United States Sentencing Commission, 2023, pp. 526–527).

Evaluating an organizational ethics program requires answering three questions about culture: are controls in place to detect deviance from policy and procedure; is the organization actually acting according to its own ethical standards; and are employees comfortable speaking up about potential or observed misconduct?

Meaningful metrics must be quantifiable and account for the organization's characteristics and industry environment. The most common metric — the number of misconduct reports to the ethics department — is genuinely ambiguous to interpret. A rise in reports could mean employees are getting better at identifying ethical issues, or simply more willing to report them — both of which suggest an effective program. Alternatively, a rise could signal a weakening ethical culture, with more employees actually violating standards. Lockheed Martin demonstrated a successful training rollout by showing a shift in the nature of ethics-department calls: officers were fielding more calls for guidance rather than reports of violations, reinforcing the training's vocabulary and technique to resolve issues before they escalated (Gonzalez-Padron et al., 2012).

Employee perceptions of fairness and consistency in enforcing policy are central to establishing an ethical culture. Disciplining rule violators sends a strong message: it "reinforces standards, upholds the value of conformity to shared norms, and maintains the perception that the organization is a just place where wrongdoers are held accountable for their actions" (Treviño et al., 1999, p. 139). Cullen and Victor (1993) suggest measuring perceived enforcement by asking employees to rate the truth of four statements:

• It is very important to strictly follow the company's rules and procedures.
• Everyone is expected to stick to company rules and procedures.
• Successful people in this company go by the book.
• Successful people in this company strictly obey the company policies.

The FSGO requires that "the organization's compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct" (United States Sentencing Commission, 2023, p. 527). The FSGO's original language emphasized discipline over incentives, but companies increasingly reward employees who exemplify ethical standards, recognizing that incentives shape ethical behavior (C. X. Chen & Sandino, 2012; Tenbrunsel, 1998). Epley and Kumar (2019) note that more than money can incentivize ethics — supervisor or public praise, charitable donations funded by cost savings from responsible behavior, or contests recognizing acts of kindness all work too.

An effective ethics and compliance program must respond appropriately to critical issues — investigating, remediating, and disclosing reports of misconduct. This builds on the previous two elements (monitoring/reporting and consistent enforcement). Establishing and communicating clear investigation guidelines ensures predictability, consistency, and employee confidence in the process. The FSGO requires that "after criminal conduct has been detected, the organization shall take reasonable steps to respond appropriately to the criminal conduct and to prevent further similar criminal conduct, including making any necessary modifications to the organization's compliance and ethics program" (United States Sentencing Commission, 2023, p. 527).

Once aware of misconduct, a company must determine whether the action warrants criminal prosecution — most investigations concern unethical behavior inconsistent with the code of conduct and do not require legal action (Ethics & Compliance Officer Association Foundation, 2008). If prosecution is warranted, the company should inform the appropriate government authority before commencing its own regulatory investigation; failing to do so can bring fines and penalties. Investigations themselves can create tension between employees and management that weakens ethical culture — the FSGO does not mandate an internal investigation process, but companies generally find that handling misconduct internally before it escalates helps mitigate the risk of illegal behavior.

The final criterion for an organizational ethics program is conducting periodic risk assessments. Risk is "the possibility that an event will occur and adversely affect the achievement objectives" (Committee of Sponsoring Organizations of the Treadway Commission, 2013, p. 4); risk assessment is a systematic process for identifying and evaluating events that could affect a company's objectives, and forms the basis of enterprise risk management — "the process of aligning competitive strategy with the mechanisms that identify, aggregate, mitigate, avoid, and transfer risk" (LRN, 2007, p. 2).

Identifying risk is part of the strategic management process's environmental analysis phase. The FSGO recommend that a company "periodically assess the risk of criminal conduct" and modify its ethics program as needed (United States Sentencing Commission, 2023, p. 527). The Committee of Sponsoring Organizations of the Treadway Commission's internal-controls framework (referenced in Chapters 1 and 4) treats risk assessment as part of providing assurance of legal and regulatory compliance.

A periodic risk assessment yields valuable information for maintaining ethical culture, including how effective the current ethics and compliance program actually is. Regularly reviewing the internal and external environment lets an organization accommodate legal and regulatory changes as well as business changes like mergers or new business models. The assessment should prioritize risks by likelihood of occurrence and seriousness of impact, evaluate why each risk occurs, and identify how to reduce it — producing an action plan to mitigate the highest-priority risks.

Chapter 8 ends with six critical thinking and discussion questions, each paired below with a concise model answer grounded in the chapter's content.

1. What is the difference between the ethical culture and the ethical climate of a company? How are they interrelated?

Ethical culture denotes an organization's actual shared values, norms, and artifacts; ethical climate is employees' shared perception of "ethically appropriate behavior and knowledge of procedural steps to address an ethical issue" (Kuntz et al., 2013, p. 319). They are interrelated because climate is essentially how employees experience and interpret the culture — a strong ethical culture with poor communication can still produce a weak ethical climate if employees don't perceive that ethics are truly valued, which is why leaders promoting a benevolent, principled climate are more successful at making the underlying culture actually permeate the organization.

2. How would you convince an organization to invest in an ethical culture? Develop a proposal for management to develop an ethical culture.

A persuasive proposal leads with the four documented benefits: FSGO compliance (avoiding fines and sanctions), increased ethical behavior and reduced misconduct (Basran & Webley, 2012), alignment of informal and formal culture that reduces unethical drift under pressure (Treviño et al., 1999), and stronger talent attraction and retention (Stewart et al., 2011). The proposal should follow Gebler's (2012) three-element model — align vision/mission/goals, principles/beliefs, and standards of behavior — and recommend concrete first steps: a documented code of conduct, role-specific training, a confidential reporting channel, and periodic culture-strength surveys using Ethisphere's eight pillars.

3. Assess the ethical culture of an organization where you currently work or would like to work. Consider how to discern the values, norms, and artifacts of the organization.

A strong answer applies Schein's (1984) framework directly: identify the organization's espoused values (from its code of conduct or public statements) versus its taken-for-granted values (what actually happens day to day), the norms embedded in its policies and procedures, and its artifacts (rituals, documents, stories, office design, dress code). The assessment should also weigh Ethisphere's eight pillars — whether employees know what ethical behavior looks like, know where to get help, and trust the organization enough to report concerns — rather than relying solely on the organization's own marketing materials.

4. Review Ethisphere Institute's most recent list of the World's Most Ethical Companies. Which companies do you recognize? What companies are not there that you would expect to see? Review some of the listed companies' websites to see if the Ethisphere certified label appears.

This question requires visiting worldsmostethicalcompanies.com directly, so the specific companies will vary by year and by the student's own expectations. A strong answer notes that Wyndham and Clarios — both covered in this chapter as recent honorees — prominently display the Ethisphere seal, and reflects on why a familiar large company (one the student expected to see) might be absent — a plausible reason being a recent scandal, an incomplete or unsuccessful application, or genuine gaps in program structure, training, or misconduct investigation (35% of the total award criteria).

5. Look up the vision and mission statement of a company of your choice and rewrite it by integrating responsible business considerations. Then rewrite the strategic goals based on the new mission statement.

The chapter's models to follow are Kraft Heinz ("Let's Make Life Delicious") and PepsiCo ("Create More Smiles with Every Sip and Every Bite"), both of which frame their mission around social benefit per Milliman et al.'s (2012) recommendation. A strong rewrite explicitly names a stakeholder group beyond shareholders (employees, communities, the environment) and follows Collins and Porras's (1995) three components — core values, core purpose, and visionary goals — then derives strategic goals (market expansion, cost, sustainability) that visibly trace back to the rewritten mission rather than contradicting it.

6. How can an organizational ethics program be effective in guiding the informal culture to support ethical behaviors? Relate the criteria for an organizational ethics program (Figure 8.2) to the elements of an ethical culture in Figure 8.1.

Treviño et al. (1999) found that employees' perception of consistent adherence to formal codes and procedures is what prevents unethical informal norms from taking hold — so a program only shifts informal culture when employees actually see it enforced, not merely published. Mapping the two figures: program oversight and management supports the vision/mission/goals element by ensuring leadership commitment to strategic ethical objectives; standards and procedures operationalize principles and beliefs into a written code; and training/communication, monitoring/reporting, disciplinary procedures, response to critical issues, and risk assessment all operationalize standards of behavior by making expectations concrete, consistently enforced, and continuously reassessed — closing the loop the chapter opened with the reminder that the ethical culture and the ethics program are symbiotic, not separate initiatives.

Every key term listed at the end of Chapter 8, defined in one line each using the chapter's own usage, in the order they appear in the chapter's Key Terms list.

A single table capturing the chapter's core distinctions, its measurement tools, its three-element model for developing culture, and its eight-element ethics program framework.