Reidenbach and Robin's Five Stages of Corporate Ethical Development

Creating a More Ethical Organization

Reidenbach and Robin's Five Stages of Corporate Ethical Development - Creating a More Ethical Organi

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A company should be able to uphold high ethical standards and still make a profit.

Sam's organization imports and markets fashion clothing, and he's just learned that an overseas supplier is employing school-age children in its factories.

When Sam raises the issue, his boss tells him not to worry about it. She says that the company is competing in a narrow-margin industry, and it needs to source its supplies cost effectively. Unless there's a problem, this should be seen as business as usual.

Plenty of organizations are like Sam's – they prioritize profits over people, and growth over ethics.

However, other companies recognize that they can make a healthy profit while also reflecting higher ethical values. These values can include responsibilities to the environment and to communities, as well as to employees.

Organizations can go through observable stages as they become more ethical. In this article, we'll outline what these stages are. We'll also explain how you can identify the stage your organization is currently at, and we'll look at what needs to happen within your organization for it to move to a higher level.

About the Model

R. Eric Reidenbach and Donald Robin developed a conceptual model of corporate moral development, and published it in the Journal of Business Ethics in 1991.

The model outlines five stages that organizations go through as they become more ethical:

Stage 1 – The amoral organization.
Stage 2 – The legalistic organization.
Stage 3 – The responsive organization.
Stage 4 – The emergent ethical organization.
Stage 5 – The ethical organization.

Organizations move through these stages as their leaders increasingly show a concern for ethics alongside a concern with profit. By stage 5, leaders value these two drivers equally.

Note 1:

Reidenbach and Robin noted that not all organizations move through all stages as they become more ethical, and that some organization may skip stages altogether.

They also commented that an organization made up of different business units could be in several stages simultaneously.

The speed and spread of change depends on the organization's management, industry, and history. Indeed, according to the researchers, some organizations never move beyond the early stages.

Note 2:

Some management writers argue that companies should focus only on making a profit for shareholders, just as long as they stay within the law. Others believe that companies should make the world a better place by their existence.

It's up to us, as informed individuals, to decide which type of company we buy from – and work for.

The Five Stages of Corporate Ethical Development

Let's look at each stage in detail. This will help you identify which stage your own organization is at, and what needs to happen for it to progress to a higher stage.

Stage 1: The Amoral Organization

Amoral organizations have given little – if any – thought as to how their actions affect the world at large. Leaders of these organizations may take the view that unethical behavior is "the cost of doing business," and they may only address ethical considerations if something goes wrong.

Look for these signs to decide whether your organization is in the amoral stage:

  • Profits and growth come before people and ethics.
  • Leaders rule with power and authority, and they promote employees for obedience and for maintaining the status quo.
  • Leaders view people as units of production. They give little thought to workers' physical, mental, or emotional well-being.
  • The organization may break rules to boost profits.

Actions to Move From Stage 1

Look at how you can give people higher priority. Start by building a culture of safety to improve their well-being.

Then, identify smaller ways of introducing more ethical practices. For example, imagine that you want your organization to produce less waste. You could provide recycling bins, supply ceramic coffee cups instead of plastic ones, and reduce food packaging in the cafeteria.

Tip:

Read our article on green management for more ideas on how to make your organization environmentally friendly.

Stage 2: The Legalistic Organization

Organizations in the legalistic stage are preoccupied with following the laws and regulations that relate to their industry. Furthermore, they focus on complying with the letter of the law, rather than its spirit.

These organizations have corporate values, and perhaps even a mission and vision statement. However, they often do the bare minimum needed to comply with the law.

You may see the following signs if your organization is in the legalistic stage:

  • Managers are concerned with the legal rather than the moral ramifications of their decisions.
  • There are many rules and codes of conduct.

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Actions to Move From Stage 2

If your organization is at stage 2, then it's starting to show a concern for making the right choices. However, leaders need to make sure that these include ethical and moral decisions.

Look at other organizations in your industry. What are your competitors doing to meet legal obligations, and address social and moral issues? How can you replicate these within your organization?

Then look at your organizational structure. Bureaucratic organizations often have a complex chain of command, and this can encourage strict adherence to laws and rules. Explore how you could move to a less formal hierarchy – this may encourage people to question the status quo, and to discuss alternatives more openly.

Tip:

Wide-scale organizational change takes time, and you're likely to need a detailed change management strategy.

Use tools such as the The Change Curve, Lewin's Change Management Model, and Kotter's 8-Step Change Model to plan successful change.

Depending on the nature of your business or industry, it may be appropriate to keep aspects of a legalistic culture, especially when health and safety is a concern, when risk management is important, or if your industry needs to follow strict codes of conduct. However, you can still make ethical decisions in a legalistic culture.

Stage 3: The Responsive Organization

Responsive organizations have started to balance legality and productivity with ethics. They feel social pressure to act in the best interest of the public and the environment, and they respond to this. However, this is more for expediency than because they believe that they are "doing the right thing."

Look for these signs to assess whether your organization is in stage 3:

  • The organization shows some concern for its social duties and responsibilities. Management sometimes makes decisions with wider social interests at heart.
  • As well as codes of conduct, there are codes of ethics. These define ethical and moral issues such as conflicts of interest, bribery, corporate values, confidentiality concerns, product quality and safety, personal accountability, and political contributions.
  • Leaders react ethically to situations. However, they usually simply follow what other organizations have done.

Some stage 3 organizations can still have a strong internal interest. For example, codes of ethics might reflect a desire to protect the organization from harm, not to do what's right at all costs.

However, for most organizations, stage 3 is a pivotal point in development.

Actions to Move From Stage 3

Make the most of this turning point, and look for opportunities to discuss how to embed higher ethical standards within your organization.

Look at how you can help people make the right decisions. Could you offer a hotline, ethical committee, forum, or suggestion system to encourage them to seek guidance?

Finally, look at the organizations that your business is associated with. Are you happy with the ethical standards of your suppliers?

Stage 4: The Emergent Ethical Organization

Emerging organizations have started to experience a cultural shift, and leaders now take a proactive approach to ethical and moral issues.

You're likely to see the following if your organization is in stage 4:

  • Leaders are involved in ethics-related activities, such as CSR programs.
  • They encourage ethics and social responsibility within the corporate culture, and they lead by example.
  • Codes of conduct and ethics are "living documents," instead of ideals.
  • Employees are encouraged to make ethical decisions, and to report violations of the company's code of conduct.

Emergent ethical organizations have started to "walk the walk." Employees have picked up on this too, and they have started to take the initiative when it comes to personal responsibility and accountability.

Actions to Move From Stage 4

Reidenbach and Robin point out that, at the time of their research (1991), they could not identify any fully ethical organizations. So, if you want to move beyond stage 4, you have set yourself an ambitious goal!

However, the researchers point out that a key indicator of a fully ethical organization is the willingness of leaders to turn away business that conflicts with organizational values. Read our article on ethical leadership to learn how to start leading by example.

Stage 5: The Ethical Organization

Ethical organizations live and breathe their ethics and core values. They still care about profit, but they choose lines of business that allow them to make a good profit at the same time that they maintain high ethical standards.

Your organization has reached this stage when the following are true:

  • Ethical values and behavior have permeated the corporate culture.
  • The organization respects employees and leaders for walking away from actions that violate the culture, or their values.
  • Hiring, training, and compensation focus on core values and cultural fit.
  • By its actions, the organization encourages competitors to follow its ethical lead.

Key Points

Organizations can move through five stages as they align the need to make a profit with meeting ethical standards:

Stage 1 – The amoral organization.
Stage 2 – The legalistic organization.
Stage 3 – The responsive organization.
Stage 4 – The emergent ethical organization.
Stage 5 – The ethical organization.

The researchers who created the model could not, in 1991, find any organizations that had reached stage 5. They saw it as an ideal rather than a reality, but it's also a powerful inspiration for leaders who want their organizations to reflect the highest ethical standards.