Received: 5 February 2018 Revised: 20 August 2019 Accepted: 23 August 2019

DOI: 10.1111/peps.12356

ORIGINAL ARTICLE

Creating an ethical organizational environment:

The relationship between ethical leadership,
ethical organizational climate, and unethical
behavior

Maribeth Kuenzi1 David M. Mayer2 Rebecca L. Greenbaum3

1 Management and Organizations Department,

Southern Methodist University, Dallas, Texas Abstract

2 Management and Organizations Area, The purpose of this research is to provide a richer lens on the ethical
University of Michigan, Ann Arbor, Michigan organizational environment by examining the relationship between
3 Human Resources Management Department,
ethical leadership and unit-level unethical behavior through ethi-
Rutgers University, Piscataway, New Jersey cal organizational climate (EOC), with collective moral identity as
a boundary condition. In testing our theoretical model, we first
Correspondence
Maribeth Kuenzi, Management and Organiza- develop and validate a measure of EOC to address concerns with
tions Department, Southern Methodist Univer- existing measures of ethical climate. Second, we examine the role of
sity, 6210 Bishop Boulevard, Dallas, TX 75275.
collective moral identity as a moderator of the relationship between
Email: mkuenzi@cox.smu.edu
EOC and unit unethical behavior. We discuss implications regarding
the importance of developing a more comprehensive conceptualiza-
tion of EOC.

KEYWORDS
collective moral identity, ethical climate, ethical leadership, organi-
zational climate, unethical behavior

Corporate indiscretion, wrongdoing, and corruption have recently been the subject of considerable media attention.
For example, in 2016, Wells Fargo fell from a position of high respectability to being labeled as one of the most
hated American companies due to exposure of their unethical business practices (Gujarathi & Barua, 2017; Stebbins
& Comen, 2017). The bank created millions of fictitious accounts and forced some of its customers to take out unnec-
essary auto insurance. How does a longstanding, large company adopt such insidious practices?
There is mounting evidence that, in addition to the personal characteristics of employees, cues in the organiza-
tional environment play an important role in determining unethical behavior (Kish-Gephart, Harrison, & Treviño, 2010;
Martin & Cullen, 2006; Newman, Round, Bhattacharya, & Roy, 2017). Organizations are composed of formal sys-
tems for recruitment and selection, orientation and training, policy and codes, reward and punishment, accountability
and responsibility, and decision-making systems (Treviño & Nelson, 2017). Each of these systems has specific ethical
policies, procedures, and practices. When these policies, procedures, and practices are consistent and shared among
employees in a unit or organization, they form perceptions of the unit’s or organization’s ethical climate (Reichers &
Schneider, 1990).

Personnel Psychology. 2020;73:43–71. wileyonlinelibrary.com/journal/peps 

c 2019 Wiley Periodicals, Inc. 43
44 KUENZI ET AL .

In the case of Wells Fargo’s ethical breach, the company relied on its ability to cross-sell more profitable products
to customers to increase profits. CEO John Strumpf had a mantra of “eight is great,” meaning employees sought to sell
eight Wells Fargo products to every customer (Stebbins & Comen, 2017). This mantra turned into sales goals employ-
ees could not meet and resulted in unethical behavior such as ordering credit cards for preapproved customers without
their consent and creating fraudulent checking and savings accounts. The scandal illustrates how perceptions of poli-
cies, procedures, and practices in formal systems could lead to an unethical organizational climate (EOC). For example,
practices related to a policy of selling eight products included selling unneeded products to customers and creating
accounts without customers’ authorization. In terms of reward systems, bonuses were tied to unrealistic sales goals,
which encouraged the use of unethical practices. Additionally, employees were punished with termination for challeng-
ing unethical practices. Initially, when the fraudulent practices were exposed, top management and other managers
were not held accountable for their role in the scandal. Although many things contributed to the problems of Wells
Fargo, one can see how an environment replete with unethical practices across multiple systems could foster unethical
behaviors. We are interested in examining a comprehensive assessment of employees’ perceptions of the ethical prac-
tices, policies, and procedures in organizations’ formal systems to understand how EOC forms and affects behaviors.
Researchers have been studying ethical climate for over 30 years. Although there is considerable interest and
research on the topic (i.e., more than 100 empirical articles from 2006 to 2016; Newman et al., 2017), much of
the research has been critiqued on theoretical, empirical, methodological, and operational grounds (see Arnaud &
Schminke, 2007; Mayer, Kuenzi, & Greenbaum, 2009; Newman et al., 2017 for reviews). We offer and promote a dif-
ferent way to operationalize and measure EOC by focusing on shared perceptions of ethical policies, practices, and
procedures1 in formal organizational systems.
Victor and Cullen originally defined ethical climate as “the shared perception of what is correct behavior, and how
ethical situations should be handled in an organization” (1987, p. 51). They used this definition to develop the ethical
climate questionnaire (ECQ), which is the most commonly used measure of ethical climate (Kish-Gephart et al., 2010).
However, according to Litwin and Stringer’s (1968) seminal work on organizational climate, climate is the filter through
which day-to-day practices are experienced by employees. Organizational practices are critical factors influencing the
development of organizational climate (Ostroff, Kinicki, & Tamkins, 2003). Unfortunately, the ECQ does not assess mul-
tiple practices. Rather, it focuses on how decisions are made. Decision-making is an important part of ethical climate,
but it has a narrow focus and is not inclusive of other practices within the formal organizational systems.
In this research, we seek to build on extant theory and research by contributing to the organizational ethics, organi-
zational climate, and moral identity literatures. First, related to the organizational ethics literature, we develop a com-
prehensive measure of EOC. We draw on an established theoretical framework that describes formal organizational
systems in the work environment (Treviño & Nelson, 2017) to examine perceptions of EOC in work units. This new con-
ceptualization addresses limitations of prior research on ethical climate by (a) defining and operationalizing our mea-
sure in line with accepted definitions of organizational climate, (b) drawing on an established unit- and organizational-
level framework of ethical context based on principles of management, (c) using multilevel confirmatory factor analyses
(MCFA) to establish construct validity, (d) collecting data at the unit level from multiple sources, (e) establishing con-
vergent and divergent validity by examining the relationship between EOC and related variables, (f) testing our con-
ceptual model while controlling for related constructs to demonstrate the incremental validity of our EOC measure,
and (g) examining a unit-level antecedent and consequence of EOC as well as a moderator of the relationship between
EOC and unit-level unethical behavior.
Second, we contribute to the organizational climate literature by developing a theoretically derived, psychomet-
rically sound measure to assess an organization’s ethical climate. The climate literature has struggled with how to
operationalize organizational climate constructs for methodological as well as theoretical reasons. There has been a
proliferation of organizational climate studies in the literature, but few of them are based on theories or frameworks
at the collective level (Kuenzi & Schminke, 2009). Our measure is one of the few climate measures to draw on specific
organizational-level theories, to operationalize the construct at the unit level, and to test a theoretical model at the
unit level.
KUENZI ET AL . 45

Third, we contribute to the moral identity literature (e.g., Aquino & Reed, 2002) by being among the first researchers
to theorize and measure collective moral identity as a contextual variable in work units, and to examine how it interacts
with EOC to affect employees’ unethical behavior. Moral identity, defined as a self-schema organized around a set of
moral traits (Aquino & Reed, 2002), is generally tested as an individual difference, but we examine collective moral
identity—the mean level of moral identity in a unit—as another aspect of the ethical organizational environment.
To be clear, scholars have conducted decades of empirical research on ethical climate, but many of the studies use
methods that do not meet modern standards for organizational climate research. Researchers can thus continue to
develop and increase confidence in the validity of research on EOC. In what follows, we define EOC, describe limita-
tions of prior empirical research and explain how to address the concerns, detail the basis of our new conceptualization
and measure, develop a collective moral identity construct, and discuss two main studies that support the convergent,
divergent, and predictive validity of our measure. We test a conceptual model linking ethical leadership to unit-level
unethical behavior through EOC, and explore the moderating role of collective moral identity.

1 THEORETICAL BACKGROUND

1.1 Ethical organizational context

Individuals vary in how they perceive and evaluate (un)ethical behavior (Kish-Gephart et al., 2010). Therefore, organi-
zations need to provide guidance to employees as to what constitutes appropriate workplace behavior. The organiza-
tion’s ethical context is one way to provide structure and guidance to employees. Researchers have studied the ethical
context of organizations for decades and the literature is replete with constructs such as ethical climate (e.g., Victor &
Cullen, 1987, 1988), ethical culture (e.g., Treviño, 1990; Treviño, Butterfield, & McCabe, 1998), and ethical infrastruc-
tures (Tenbrunsel, Smith-Crowe, & Umphress, 2003). The proliferation of constructs and measures to assess the ethical
context in organizations creates confusion and raises the question—do we need another measure of ethical context?
The two most widely studied ethical context constructs are ethical climate and ethical culture; however, there is
often misunderstanding regarding their distinctiveness. Both climate and culture refer to an organization’s ethical
environment and, although they have overlapping elements, they are distinct constructs (see Denison, 1996 and
reviews by Kuenzi & Schminke, 2009; Ostroff, Kinicki, & Muhammad, 2013; Schneider, Ehrhart, & Macey, 2011). Both
climate and culture are shared among employees and are used to help make sense of the work environment. They
also both develop through the interaction of organizational members. However, culture focuses on how the social
environment is created, while climate focuses on the way the environment is experienced by employees. Denison
(1996) highlights the differences between organizational culture and climate. He suggests that culture refers to the
deeper structure of organizations including values, beliefs, and assumptions held by employees. Culture may manifest
through organization-specific artifacts, myths, and symbols. As employees are socialized in the organization, shared
meaning develops through interactions with each other and the work environment. On the other hand, organizational
climate has more surface-level manifestations from a sense of ‘how things are done around here.’ Organizational
climate emerges from the values provided by top management that are implemented through policies, practices, and
procedures. When employees share perceptions of these policies, practices, and procedures, organizational climate
develops.
Treviño et al. (1998) conducted a study to “examine issues of convergence and divergence” between ethical culture
and climate. They developed a measure of ethical culture based on an early version of Treviño’s ethical culture frame-
work (1990) and compared it to ethical climate using Victor and Cullen’s (1987, 1988) ECQ measure. Treviño et al.
(1998) concluded that “the two constructs are measuring somewhat different, but strongly related dimensions of the
ethical context” (p. 447). A recent meta-analysis also found empirical evidence that ethical culture and ethical climate
are distinct constructs (Kish-Gephart et al., 2010). However, it is important to note that the majority of the literature
using the ECQ measures psychological ethical climate and not organizational ethical climate (Martin & Cullen, 2006).
46 KUENZI ET AL .

In their seminal study, Victor and Cullen (1987) point out that data need to be aggregated for a valid assessment of
organizational ethical climate.

1.2 Ethical organizational climate

An organization’s climate is one tool the organization can use to help employees make sense of the work environment,
by helping employees discern how to behave appropriately. Because climate is more tangible to employees and easier
to change than culture, our research focuses on EOC. Unfortunately, the most widely used measure of ethical climate,
the ECQ (Victor & Cullen, 1987, 1988), has been criticized for operationalization and measurement issues. As pioneers
of the field of ethics and climate, Victor and Cullen offered cutting-edge research when their ethical climate measure
was first introduced. Yet, over the past 30 years, the ethics, climate, and research methods literatures have developed
in such a way that the ECQ is no longer compatible with current research standards.
First, Victor and Cullen’s (1987) definition of ethical climate is inconsistent with the generally accepted definition of
organizational climate, which focuses on shared perceptions of policies, practices, and procedures that are rewarded,
supported, and encouraged with regard to “something” in organizations (e.g., safety, service, and innovation; Schnei-
der & Reichers, 1983). In contrast, Victor and Cullen’s original definition of ethical climate is “a shared perception of
what is correct behavior and how ethical issues should be handled” (1987, p. 52) and focuses on decision-making pro-
cesses in organizations. Second, Victor and Cullen (1987) relied on three types of moral reasoning (egoism, utilitarian-
ism, and deontology) and three loci of analyses (individual, local, and cosmopolitan) to arrive at nine types of ethical
climate. Although five ECQ climates (caring, laws and codes, rules, instrumental, and independence) are most com-
mon, the literature has produced over 20 variations using the ECQ (Arnaud, 2010). These variations suggest that the
ECQ is not robust. Third, even for the five most prevalent climate types, the items do not consistently load on their
intended factors. These inconsistencies have led to a proliferation of different measures to assess EOC (Smith, Thomp-
son, & Iacovou, 2009), with some measures representing different constructs than originally intended (Simha & Cullen,
2012). Finally, the majority of research using the ECQ has been conducted at the psychological climate level (i.e., an
individual’s perception of the psychological effect of the work environment on their own well-being) rather than the
organizational level (i.e., shared unit perceptions of the work environment) (Martin & Cullen, 2006). In fact, Cullen, Vic-
tor, and Bronson (1993) conclude that the ECQ is less stable when used as a measure of organizational climate rather
than psychological climate.
Meta-analyses demonstrate that ethical climate that is measured using variations of the ECQ is related to impor-
tant organizational outcomes. Martin and Cullen’s (2006) meta-analysis demonstrates that instrumental (combining
self-interest and company profit) and caring (combining friendship and team interest) climates are the strongest pre-
dictors of cognitive and affective states. Yet, neither of these climates is one of the original nine theorized by Victor and
Cullen (1987, 1988). The Kish-Gephart et al. (2010) meta-analysis also combines ethical climates, but the combinations
are different from Martin and Cullen’s (2006) combinations. Kish-Gephart et al. (2010) find that benevolent (combining
friendship and team interest) and principled (combining rules and laws and code) ethical climates are significant predic-
tors of unethical choices. They also propose dropping independence climates from the ethical climate framework due
to conceptual concerns related to individual versus group interests (Kish-Gephart et al., 2010). Neither meta-analysis
resolves the issue that different items were used to create the types of ethical climates.
We argue that the ECQ does not measure EOC as it is defined and operationalized today. Rather, the ECQ captures
individuals’ perceptions of the organizational principles used in ethical decision-making. Although ethical decision-
making is a component of EOC, the climate construct also includes a more encompassing set of practices that arise
from the organization’s formal systems (Treviño, 1990; Treviño & Nelson, 2017). Thus, to advance EOC research, it
is important to utilize a valid measure. We propose that a new operationalization of EOC is needed that (a) utilizes
organizational-level theory, (b) measures perceptions of policies, procedures, and practices related to ethics, (c) focuses
on shared perceptions at the unit level, (d) captures organizational ethical climate rather than psychological ethical cli-
mate, (e) demonstrates construct validity (i.e., convergent, divergent, and predictive validity) across multiple studies,
and (f) shows incremental validity over the ECQ and other related measures.
KUENZI ET AL . 47

1.3 A new operationalization of ethical organizational climate based on formal

organizational systems
The behavioral ethics literature provides several theoretical frameworks for understanding ethical context and ethi-
cal practices (e.g., Tenbrunsel et al., 2003; Treviño, 1990; Treviño & Nelson, 2017). Due to its relevance and compre-
hensiveness, we draw from Treviño and Nelson’s (2017) ethical culture framework of formal and informal systems of
organizations to propose a new operationalization of EOC. The Treviño and Nelson (2017) framework draws on an
understanding of culture to propose multiple formal and informal organizational systems. Treviño and Nelson (2017)
suggest that each of the formal systems has practices specifically related to ethics. When these systems and practices
consistently provide salient cues to employees, they result in shared perceptions of an EOC. These shared perceptions
of EOC then support ethical judgment and actions from employees (Treviño et al., 1998).
Organizational practices are actions or activities that are repeated and recognizable in organizations—they are
what organizations actually do rather than just what is touted (Johnson, Langley, Melin, & Whittington, 2007). Practices
focus on the day-to-day activities in organizations that lead to shared practical understandings. Practices also take into
account structural features of organizations as well as the importance of human agency (Feldman & Orlikowski, 2011).
Specifically, ethical practices represent the organization’s commitment to ethics and serve as a signal to employees
about the attitudes and behaviors that are valued regarding ethics. When these multiple practices are salient, employ-
ees form shared perceptions, which set the stage for employees’ perceptions of EOC (Stringer, 2002).
Treviño and Nelson’s (2017) formal systems include the following six systems: recruitment and selection, orien-
tation and training, policy and codes, reward and punishment, accountability and responsibility, and decision-making
systems.2 Together, these formal systems lead to ethical practices, which provide guidelines for employees regarding
acceptable ethical behaviors within the organization. Recruitment and selection reflects ethical practices that consider
a person’s ethical standards before entering the organization, as well as whether those personal standards match the
organization’s values. At the recruiting stage, organization representatives consider the applicant’s moral character
and make selection decisions based on the applicant’s espoused ethical values. Orientation and training systems reflect
ethical practices that socialize employees by communicating the organization’s values. During orientation, employ-
ees are exposed to potential ethical issues associated with the job. Employees are trained to handle ethical dilemmas
and apply their gained knowledge on the job. Policies and codes reflect ethical practices that highlight a code of con-
duct that represents employees’ actual behaviors. The code of ethics is strictly enforced and followed as opposed to
serving as ‘window dressing.’ Reward and punishment systems reflect ethical practices that focus on the consequences
for employees who engage in (un)ethical behavior. Employees who behave in an ethical manner receive positive feed-
back and are rewarded, whereas employees who violate ethical codes are appropriately disciplined. Accountability and
responsibility systems reflect ethical practices that emphasize the need for employees to take responsibility for their
unethical behavior, with structures in place to promote accountability and responsibility. Employees at all levels should
take responsibility for their unethical behavior and feel comfortable telling management if unethical behavior occurs.
Decision-making systems generate ethical practices related to ethical decision-making. Even during stressful times,
employees should discuss ethical concerns before making final decisions. Altogether, when the EOC is strong, these
multiple ethical practices ensure that the right employees are selected, are trained to achieve ethics-related goals,
receive rewards for their efforts regarding ethical matters, are monitored and influenced with respect to (un)ethical
behavior, and know how to make decisions consistent with ethical expectations.
In sum, we use employees’ shared perceptions of the ethical practices associated with the six formal systems of
organizations as the basis of our ethical organization climate measure. Perceptions of the practices that result from
these six formal systems are combined to create a higher order factor of EOC (i.e., a formative measure). To avoid fur-
ther confusion in the literature, it is important to note that Treviño et al. (1998) created a measure of ethical culture
from the formal organizational systems framework; however, it does not tap into all of the formal organizational sys-
tems. Schaubroeck et al. (2010) use this culture measure developed by Treviño et al. (1998) in a study that successfully
links ethical leadership at the unit level to lower level employee unethical behaviors and cognitions through ethical
48 KUENZI ET AL .

culture (as measured by the Treviño et al., 1998 culture measure). Our approach differs in that we (a) develop a more
comprehensive measure that assesses all of the formal organizational systems rather than just some of them, (b) focus
on employee perceptions of specific practices for each of the formal systems, and (c) use the ethical culture framework
as a way to explain how practices reflect the values of top management.

1.4 Relationship between ethical leadership and ethical organizational climate

It is important to understand factors that lead to an EOC, such as leadership. Ethical leadership is defined as “the
demonstration of normatively appropriate conduct through personal actions and interpersonal relationships, and
the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making”
(Brown, Treviño, & Harrison, 2005, p. 120). Ethical leadership has two components that influence employees: (a) the
moral person aspect, which includes demonstrating integrity, fairness, and a concern for others, and (b) the moral man-
ager aspect, which focuses on transactional efforts, such as using reward and punishment systems to communicate
appropriate ethical behavior to subordinates (Treviño, Hartman, & Brown, 2000). Social learning theory (SLT; Ban-
dura, 1977, 1986) explains how and why ethical leaders influence their followers. SLT suggests that employees learn
appropriate behaviors through role modeling and the use of rewards and punishments. Ethical leaders model appropri-
ate behavior, communicate ethical standards, and punish and reward employees based on ethical compliance. In turn,
leader actions contribute to employee perceptions of the policies, practices, and procedures leaders set, implement,
and enforce.
Zohar and Luria (2005) suggest that top managers set policies (e.g., strategic goals) and establish procedures (e.g.,
guidelines related to these goals). Supervisors interpret and filter broad strategies and policies through the implemen-
tation of practices. Practices then provide predictable and specific directions for employees to follow. Zohar and Luria
(2005) state, “The core meaning of climate relates, therefore, to socially construed indications of desired role behav-
ior, originating simultaneously from policy and procedural actions of top management and from supervisory actions
exhibited by shop-floor or frontline supervisors” (p. 616).
The process of interpreting and implementing practices stems from both the moral person (interpreting) and
moral manager (implementing) components of ethical leadership. Ethical leaders use transactional influence processes
such as setting standards, rewards and punishments, and aspects of performance appraisals to hold their employees
accountable for ethical conduct (Treviño, Brown, & Hartman, 2003). Additionally, an ethical leader’s moral characteris-
tics and behaviors are expected to shape the implementation of ethical practices. For example, when recruiting and hir-
ing new employees, ethical leaders are expected to hire employees with high moral standards. Because ethical leaders
believe in the active management of ethics (Brown & Mitchell, 2010), they are particularly likely to implement train-
ing and orientation practices to clarify the acceptability of several organizational behaviors. Ethical leaders are also
more likely to openly discuss business ethics or values with employees (Brown et al., 2005), which serves to clarify
policies and codes for employees. Further, ethical leaders are more likely to focus on the processes by which organi-
zational goals are obtained rather than just the final results (Greenbaum, Quade, & Bonner, 2015). Associated with
reward and punishment practices, ethical leaders are more intent on setting up systems that discipline employees who
violate ethical standards and reward individuals for ethical behavior and decisions (Ng & Feldman, 2015). Related to
accountability and responsibility practices, ethical leaders set an example of how to do things the right way in terms
of ethics and admit when they make mistakes (Brown et al., 2005). They are also more likely to set up the systems that
allow employees to question the ethical behaviors of others and to encourage employees to be accountable for their
own behaviors. Lastly, ethical leaders tend to make fair and balanced decisions (Xu, Loi, & Ngo, 2016) and encourage
employees to consider ‘what is the right thing to do’ when making decisions.
Previous research suggests that leaders influence the work environment and specifically climate perceptions
(Mayer, Kuenzi, & Greenbaum, 2010; Schneider et al., 2011; Stringer, 2002; Zohar & Luria, 2005). Based on the pri-
orities and behaviors of ethical leaders and their status as role models, the importance of ethics should be reflected
in the practices emphasized and implemented within the unit or organization. Unit leaders take direction from top
KUENZI ET AL . 49

management and seek to create multiple formal systems in the immediate work environment to ensure a consistent
organizational message to employees regarding ethical behavior expectations. Thus, we predict:

Hypothesis 1: Ethical leadership will be positively related to EOC.

1.5 Relationship between ethical organizational climate and unit unethical behavior
We suggest that EOC is negatively related to unit-level unethical behavior. Two theories, social information processing
theory (SIPT) and SLT, help explain why EOC is related to unit unethical behavior. These theories highlight how individ-
uals look to their social environment for cues about (in)appropriate behavior.
There are several tenets of SIPT (Salancik & Pfeffer, 1978) that apply to the organizational climate literature. First,
SIPT suggests that the individual’s social environment provides cues that can be used to characterize the work envi-
ronment. Second, the social environment provides information to individuals as to how they (and others) weigh the
importance of what they see in the work environment. Finally, the actions of others inform individuals’ thinking about
what behaviors are important, appropriate, and likely to be, or not to be, rewarded. SIPT thus suggests that individuals
use cues, such as shared perceptions of organizational climates from the work environment, to determine the desired
and appropriate ways to behave. In this case, EOC provides understanding and meaning as to what unit values and
types of behaviors are ethically acceptable. If there is a strong EOC, employees will be less likely to exhibit unethical
behaviors.
We also draw on SLT (Bandura, 1977). SLT maintains that when there are role models in the work environment, indi-
viduals will seek to emulate these role models. Often, role models are leaders, but employees in the unit can also be role
models (e.g., lateral influence). Research indicates that unit members not only serve as role models of ethical behavior
(Robinson & Bennett, 1997), but also provide rewards and punishments related to normative compliance (e.g., being
included in unit activities, being ostracized by the group, making positive or negative comments). Employees in work
units witness sanctions to others for inappropriate behaviors and rewards for positive behaviors. This contributes to
shared perceptions regarding the group’s ethical expectations. Employees will interpret observable actions as repre-
sentative of “the way things are done around here” regarding ethics and will then model similar behaviors.
If the unit’s organizational climate supports ethics (e.g., strong EOC), employees will regularly witness ethical con-
duct among coworkers and will seek to emulate those behaviors. If the EOC is strong, there will also be less pressure to
compromise the organization’s ethical standards to reach goals and objectives. Thus, as a result of social information
processing and role modeling, we expect EOC to be negatively related to the work unit’s unethical behavior. Therefore,
we predict:

Hypothesis 2: EOC will be negatively related to unit unethical behavior.

1.6 Mediating role of ethical organizational climate between ethical leadership

and unethical behavior
We hypothesized that ethical leadership is positively related to EOC and that EOC is negatively related to unit unethi-
cal behavior. Taken together, we predict that EOC mediates the relationship between ethical leadership and unethical
behavior. We draw on SIPT (Salancik & Pfeffer, 1978) to explain this mediating process. The social context makes ethi-
cal information more or less salient in the work environment, providing expectations regarding how individuals should
behave. A leader’s implementation of multiple organizational systems that are tied to ethical practices leads to shared
perceptions of an EOC. In turn, the EOC provides information to employees regarding ethically appropriate behavior as
they strive to maintain high ethical standards, resist pressure to compromise ethical standards, and obtain knowledge
about how to handle ethical situations. Climate perceptions inform employees about how the work unit operates and
how ethics should be handled with respect to pursuing organizational objectives (Reichers & Schneider, 1990). Indeed,
50 KUENZI ET AL .

past research demonstrates that organizational climate mediates the relationship between various forms of leadership
and unit-level outcomes (Kuenzi & Schminke, 2009).
In sum, ethical leaders interpret, implement, and enforce the practices that form employee perceptions of EOC.
These perceptions influence unit members to refrain from unethical behavior in the unit. Therefore, we predict:

Hypothesis 3: EOC will mediate the relationship between ethical leadership and unit unethical behavior.

1.7 Moderating role of collective moral identity

We expect the relationship between EOC and unit unethical behavior to be influenced by another aspect of the ethi-
cal organizational environment—collective moral identity. Specifically, we propose that work units with high collective
moral identity pay more attention to the EOC, which results in even less unit unethical behavior.
Moral identity is a self-conception organized around a set of moral traits (Aquino & Reed, 2002). Moral identity helps
people to arrive at moral judgments that then affect their ethical conduct. Individuals strive to engage in behaviors
that are consistent with their moral identities (Blasi, 1984). Indeed, research shows that individuals with high moral
identities are more likely to engage in morally “correct” behaviors and to refrain from unethical behaviors (Aquino,
Freeman, Reed, Lim, & Felps, 2009; Reynolds & Ceranic, 2007; Thorton & Rupp, 2016). Moral identity is recognized as
an important moderator of the effect of contextual variables on individual attitudes and behavior (Aquino, McFerran,
& Laven, 2011).
Typically, moral identity is studied as an individual difference. However, extant research suggests that people read
the cues of their environment to take on the accepted traits of the environment (e.g., Chan, 1998; Dragoni & Kuenzi,
2012; Park & DeShon, 2010; Porter, Webb, & Gogus, 2010). When members of a unit are exposed to the same cues, they
can develop shared perceptions regarding the importance of upholding moral traits, which is reflected by a collective
moral identity. Collective moral identity represents the extent to which employees in the work unit internalize moral
traits as central to their shared unit conception. Because of the importance of behavioral consistency to one’s identity
(Aquino & Reed, 2002), unit members typically respond to environmental cues in ways that are consistent with their
internalized, unit identities.
Collective moral identity is likely to develop because employees strive to adopt social identities to reduce uncer-
tainty (e.g., Hogg & Terry, 2000). One of the most pervasive features of organizations is the emergence of agreement
among unit members regarding attitudes, beliefs, and values (Mason, 2006). The tendency toward conformity is a nec-
essary feature if members are to define and maintain the group and work successfully toward goals (Kiesler & Kiesler,
1969). Values play an important role in the process. Distinct unit values serve to distinguish groups and provide a basis
for a unique group identity (Ashforth & Mael, 1989). Thus, unit values are central to social identity formation. Unit
members engage in a process known as depersonalization in which they view themselves as embodying the positive
traits of the prototypic group member (Stets & Burke, 2000). In adopting a prototypic set of group values (Ashforth
& Mael, 1989), individuals act in accordance with these values and match their own behavior to the standards of the
group (Stets & Burke, 2000; Terry & Hogg, 1996).
Goffman (1959) suggests that individuals are more attuned to meeting the expectations of the group than to their
own personal identities. Individual traits can be overruled by strong cues in the environment. In the case of moral iden-
tity, unit members strive to be consistent with the moral identity of the group. Leavitt, Zhu, and Aquino (2016) find that
individuals can be primed with subtle environmental cues that affect their ethical intentions. They suggest that cues in
the environment serve to activate different facets of the self, often without a person’s awareness (Leavitt et al., 2016).
Additionally, Aquino et al. (2009) find that individuals can be primed to adopt a moral identity. This research suggests
that environmental cues can prime all members of the group to adopt a collective moral identity.
Thorton and Rupp (2016) theorize that collective moral identity exists and their experiment manipulates collec-
tive identity; however, they suggest that future research should develop better operationalization of collective moral
identity. Chan (1998) argues that constructs and phenomena can exist at multiple levels within organizations and can
KUENZI ET AL . 51

“apply to individual-level attributes such as cognitive ability and styles, personality, mental representations, and behav-
ioral variables” (p. 237). Therefore, we use a direct consensus composition model to capture collective moral identity.
Employees’ moral identities are aggregated to the unit level based on within-group agreement. Collective moral iden-
tity is different from organizational ethical climate because collective moral identity captures cognitions related to
valued traits (i.e., moral traits) as opposed to perceptions regarding ethical policies, procedures, and practices.
Collins (2004) suggests that when individuals are in a group, they have a common focus, common mood, and a sense
of morality that is tied to the group. Over time, employees in the same unit can become alike in how they perceive
and respond to events in the environment. When moral identity is more central to the shared identity of the group,
individuals will be more sensitive to cues in the organizational context, such as EOC. In turn, units with high collective
moral identities will respond to the EOC with enhanced behavioral consistency by refraining from unethical behavior
(e.g., Aquino et al., 2009). Empirical evidence supports the idea that moral cues have the most consistent effects on
moral behaviors when moral identity is high rather than low (Aquino et al., 2009). Therefore, we expect the negative
relationship between EOC and unit unethical behavior to be stronger when units are high in collective moral identity.

Hypothesis 4: Collective moral identity will moderate the negative relationship between EOC and unit unethical behav-
ior such that that the relationship will be stronger when units are higher (rather than lower) on collective moral
identity.

2 OVERVIEW OF STUDIES

We conduct two main studies by developing and validating our new measure of EOC in Study 1 and testing our con-
ceptual model in Study 2.3 We follow Hinkin (1998) and Hinkin and Tracey’s (1999) recommendations for measure
development. In Study 1, Part A, we develop the items for the EOC measure. We then use factor analysis to help refine
and reduce the number of items in the EOC measure. In Part B, we test the content validity of the EOC measure by
examining the definitional correspondence of the EOC items (Colquitt, Sabey, Rodell, & Hill, 2019). In a supplemen-
tal analysis, Part C, we provide evidence that the EOC measure remains significant while controlling for the ECQ,
the ethical climate index (ECI; Arnaud, 2010), and overall justice climate (OJC; Ambrose & Schminke, 2009). We do
this by examining the predictive incremental validity of the EOC measure over the ECQ, ECI, and OJC through the
mediation part of our model. In Study 2, we build on the prior study by testing our complete model including collec-
tive moral identity as a moderator of the relationship between EOC and a second type of unethical behavior—unit
deviance.

3 STUDY 1

In Study 1, we establish an initial version of our measure by generating items that reflect the formal systems of an orga-
nization’s ethical practices and pilot testing these items. Because we draw on an established theoretical framework, we
use deductive scale development to generate items (Schwab, 1980). We use Treviño and Nelson’s (2017) theoretical
framework to develop items reflecting the formal organizational systems’ practices in the work environment. We fol-
low Hinkin (1998) and Hinkin and Tracey’s (1999) steps for measure development. The final items are in the Appendix.
In the development of the EOC measure, we also set out to address some of the methodological and data-related con-
cerns of the ECQ.
Finally, climate research has been theorized about and tested at different levels within the organization, such as
unit, department, and organization (e.g., Colquitt, Noe, & Jackson, 2002; Zohar, 2000; Zohar & Luria, 2005). According
to Kozlowski and Klein (2000), climate researchers need to be specific about the level at which they are theorizing. For
this study, we use the unit level and all assessment tools that reference the unit’s EOC. According to Zohar and Luria
52 KUENZI ET AL .

(2005), supervisors serve to interpret and filter broad strategies with the implementation of practices, and this is done
most often at the unit level. Because we are focusing on perceptions of ethical practices, it makes sense to examine
ethical climate at the unit level.

3.1 Part A: Item development and substantive validity

The EOC items reflect the formal components of Treviño and Nelson’s (2017) model. We first generated 51 items that
reflect ethical practices related to the six formal systems in organizations: recruitment and selection, orientation and
training, policy and codes, reward and punishment, accountability and responsibility, and decision-making systems.
Second, we examined the measure’s substantive validity, or the extent to which a measure is judged to be reflec-
tive of, or theoretically linked to, some construct of interest (Anderson & Gerbing, 1991). To do this, we employed an
item-sorting task (Anderson & Gerbing, 1991) to see if the items could be clearly identified as reflecting the six formal
organizational systems. In 2008, 11 trained doctoral students in management sorted the 51 items into the six organi-
zational systems and one general EOC category (if they thought the item was too broad for the systems categories).
In addition, they were asked to rate each item as to its relevance, clarity, and overall quality. Using a 75% substantive
agreement cutoff (Hinkin, 1998), 38 items were retained as they were written, and six were modified slightly for clari-
fication, totaling 44 items.4
Third, we assessed the factor structure of these 44 items to determine the psychometric properties of the mea-
sure and further refine the measure. We evaluated the factor structure of the new measure and reduced the 44 items
using exploratory factor analysis.5 There is a long-standing debate in the literature regarding whether confirmatory or
exploratory factor analysis is more appropriate (Hurley et al., 1997). Even though we have a theoretical foundation for
our factors, as this is in part a measure development study, we chose the more conservative route and conducted an
exploratory factor analysis and then followed up with confirmatory factor analyses using subsequent data sets.

3.2 Method

3.2.1 Sample and procedure

In 2008, we distributed surveys for Study 1, Part A to 545 members from 109 organizations in the southeast United
States operating in the technology, government, insurance, financial, food service, retail, manufacturing, and medical
sectors. Business administration students at a large southeastern university contacted each organization. Students
received extra credit for hand delivering one survey packet to each participating unit within an organization. The packet
contained five employee surveys and clear instructions regarding who should fill out the surveys. Each packet included
self-addressed stamped envelopes for the participants to send their completed surveys back to the researchers. The
respondents were informed that their responses would be kept confidential. A number of other researchers have used
similar snowball approaches when collecting data (Ambrose & Schminke, 2009; Mayer, Aquino, Greenbaum, & Kuenzi,
2012; Morgeson & Humphrey, 2006). Our study tried to reduce careless responders by piloting the survey, using work-
ing adults, examining surveys for participants who used response patterns when completing the survey, controlling for
social desirability, and conducting an even–odd consistency test (Meade & Craig, 2012).
We received a total of 358 usable responses (66%). Employees responding were 53.4% female, 56.1% Caucasian
(10.8% African-American and 17.0% Hispanic), and averaged 28.19 years of age (SD = 11.24) with 3.37 years of tenure
(SD = 4.50) in the organization and 2.64 years in the unit (SD = 3.10).

3.3 Results
Following Hinkin and Tracey (1999), we conducted an exploratory factor analysis with a principle components extrac-
tion and varimax rotation6 (Ford, MacCallum, & Tait, 1986) at the item-level using MPlus Version 8 (L.K. Muthén &
Muthén, 2017). The results revealed the items loaded onto a six-factor solution (see Table 1). Research indicates that
short measures reduce response bias caused by boredom and fatigue (Schriesheim & Eisenbach, 1990). Yet, more items
KUENZI ET AL . 53

TA B L E 1 Exploratory factor analysis for Study 1, Part A

Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6

(OT) (DM) (AR) (DM) (RS) (PC)
1. Ethical issues are taken into .04 .83 .10 .13 .13 .22
consideration when decisions are
made.
2. When decisions are made, we talk .20 .67 .14 .06 .23 .11
about whether something is the
“right thing to do.”
3. Employees consider ethical issues .14 .78 .16 .11 .14 .18
when making decisions even
during stressful times.
4. Ethics training is consistent with .21 .13 .79 .12 .26 .09
how employees actually perform
their jobs.
5. All employees are required to .25 .12 .81 .16 .10 .01
attend ethical training.
6. Ethical issues are discussed with .04 .19 .75 .06 .09 .33
new employees as part of their
initial orientation.
7. Employees strictly follow the .27 .25 .21 .22 .68 .01
written code of ethics.
8. The behaviors of employees are .09 .26 .09 .21 .74 .25
consistent with the company’s
ethical codes.
9. Employees follow established .22 .13 .21 .20 .70 .22
procedures to seek guidance
about business ethics issues.
10. An effort is made to search for .36 .16 .09 .12 .24 .70
applicants of a high moral
standard.
11. When we hire new employees we .30 .24 .16 .22 .03 .67
try to assess how they would
handle ethical situations.
12. In recruiting new employees, my .16 .29 .20 .16 .27 .69
department emphasizes the
importance of ethical behavior.
13. A good effort is made to measure .78 .11 .19 .18 .23 .24
and track ethical behaviors.
14. Employees receive positive .73 .12 .11 .14 .20 .29
feedback for making ethical
decisions.
15. Ethical behavior is evaluated as .77 .16 .24 .15 .09 .14
part of performance appraisals.
16. When unethical acts occur, .21 .18 .12 .81 .19 .08
employees take responsibility for
their actions.
17. Employees at all levels take .33 .16 .11 .81 .11 .12
responsibility for the outcomes of
their actions.
18. Employees question authority if −.06 −.03 .14 .66 .33 .28
an unethical behavior occurs.
OT = orientation and training; RP = reward and punishment systems; AR = accountability and responsibility; DM = decision-
making; RS = recruitment and selection; PC = policy and codes.
54 KUENZI ET AL .

allow for a more prescriptive use if needed. We retained the three items with the highest loadings and face validity that
still assessed the breadth of each of the organizational systems. We then further reduced the items to have a 6-item,
12-item, and 18-item measure (one, two, or three items per formal system) of the EOC (see the Appendix7 ).
Next, we assessed the degree of agreement by calculating the rwg statistic (George & James, 1993) for the six-item
EOC. The EOC rwg is .87, which provides evidence that there is strong agreement within units for our new measure. We
also assessed the reliability of the six-item EOC using Cronbach’s alpha (Cortina, 1993). The EOC met psychometric
standards, as the alpha is .78.

3.3.1 Multilevel confirmatory factor analysis

We used MCFA to test the fit of the overall model (Bagozzi, Yi, & Phillips, 1991). We used MCFA because it provides
evidence as to which items are reflective of the latent construct at the individual and unit levels of analysis (Dyer,
Hanges, & Hall, 2005). As the EOC is an organizational climate measure, it is important that it maintains its structure
at the group level. We utilized MPlus 8 for these analyses (Muthén & Muthén, 2017) and we followed Muthén’s (1994)
approach to conduct MCFA.
First, we examined whether it is appropriate to use multilevel analysis with the data by estimating the between
group variation for the observed variables in the model. To do this, we calculated intraclass correlation coefficients
(ICCs) to determine the extent of systematic variance for each indicator, using Muthén’s (1994) ICC, which is similar
to the ICC(1). ICC values less than .05 suggest that there may be little value in conducting multilevel modeling (Bliese,
2000). The ICC for Recruitment and Selection is .20, for Orientation and Training is .28, for Policies and Codes is .18, for
Reward and Punishment is .21, for Decision-Making is .17, and for Accountability is .29. Given the ICC values for this
study, there was sufficient between-group variation to justify the use of multilevel analysis of the EOC measure. We
conducted MCFA on the study variables to determine the validity of our EOC measure. We assessed the fit of a one-
factor model (𝜒 2 = 37.65, df = 18, 𝜒 2 /df = 2.09, RMSEA = .06, CFI = .94, TLI = .91, SRMRwithin = .04, SRMRbetween = .09)
and a three-factor model (𝜒 2 = 31.19, df = 12, 𝜒 2 /df = 2.60, RMSEA = .07, CFI = .95, TLI = .86, SRMRwithin = .03,
SRMRbetween = .08). The one-factor model demonstrated acceptable and better fit to the data than the three-factor
model (𝜒 2 difference = 6.46, df = 6, p < .001).

3.4 Part B: Content validity

In Study 1, Part B, we examine the definitional correspondence of the EOC items to test the degree to which the items
of the EOC reflect the EOC construct (Colquitt et al., 2019).

3.5 Method

3.5.1 Sample and procedure

In 2019, we recruited 170 participants through MTurk and paid them five dollars for their time. The participants were
working adults who were also classified as advanced MTurkers. The participants were provided the definition of EOC
and asked to rate how well the items of the EOC matched the definition (1 = extremely bad match to the definition to
7 = extremely good match to the definition).
Eight surveys were eliminated because they were incomplete, leaving 162 usable surveys (95.3%). We again fol-
low Meade and Craig’s (2012) recommendations to reduce careless responders. The respondents were 47.2% female,
77.8% were working full- versus part-time, 73.3% were Caucasian (18.0% Asian/Pacific Islander, 5.6% African Ameri-
can), and averaged 40.22 years of age (SD = 11.71).

3.6 Measures
We used the EOC items developed in Study 1, Part A, to assess organizational ethical climate.
KUENZI ET AL . 55

3.7 Results
Following the recommendations of Hinkin and Tracey (1999), we calculated the mean score for each of the items to
determine if they were a good match to the definition of EOC. The means for the items for the EOC ranged from 5.7 to
6.35 with a mean score of 6.03. These results indicated support that the items of the EOC represent the definition of
EOC.

3.8 Part C: Discriminant and predictive validity of the ethical organizational climate
measure
Finally, we conducted supplemental analyses to examine whether the EOC measure of organizational ethical climate
has predictive power beyond the ECQ, ECI, and OJC.

3.8.1 Sample and procedure

We collected data in 2008, using a similar procedure as in Study 1, Part A, except we also surveyed supervisors of
the unit. Business administration students at a large southeastern university contacted each organization. The stu-
dents received extra credit for hand delivering the surveys to five employees and their supervisor. The instructions
indicated that the five employees agreeing to participate in the study must be the subordinates of the supervisor who
also agreed to participate in the study. The surveys were coded such that surveys from the same units could be linked
together. Surveys were distributed to 254 units in 254 different organizations. A total of 557 usable responses (42.9%
of employees; 46.9% of supervisors) were received, leaving data for 133 units (e.g., with three or more respondents).
The average number of respondents per group was 5.6. Employees responding were 54.3% female, 62.2% Caucasian
(8.5% African American and 13.0% Hispanic), average 27.78 years of age (SD = 10.28) with 3.1 years of tenure in the
organization (SD = 4.11), and 2.53 years in the unit (SD = 3.49). Supervisor respondents were 39.5% female, 71.5%
Caucasian (3.1% African American and 10.0% Hispanic), average 35.43 years of age (SD = 10.91) with 7.42 years of
tenure in the organization (SD = 6.97), and 5.09 years in the unit (SD = 5.04).
Employee surveys contained instructions, demographic questions, the EOC, the three additional climate measures
(i.e., ECQ, ECI, and OJC), ethical leadership, and social desirability. Supervisor surveys contained instructions, demo-
graphic questions, social desirability, and a measure of unit unethical behavior.

3.9 Measures
We measured EOC as in Study 1, Part A (𝛼 = .83).

3.9.1 Ethical climate questionnaire

We included the 16-item short form of the ECQ (Schminke, Ambrose, & Neubaum, 2005) and participants rated the
items using a 5-point Likert scale (1 = strongly disagree; 5 = strongly agree).8 Sample items for the caring dimension
include, “what is best for everyone in the unit is the major consideration here” (𝛼 = .80), for the law and code dimension,
“the first consideration is whether a decision violates a law” (𝛼 = .86), for the rules dimension, “it is very important to
follow the company’s rules and procedures here” (𝛼 = .85), for the instrumental dimension, “people are mostly out for
themselves” (𝛼 = .88), and for the independence dimension, “people are guided by their own personal ethics” (𝛼 = .86).

3.9.2 Ethical climate index

Participants rated 18 items of the ECI as an alternative ethical climate measure, using a five-point Likert scale
(1 = strongly disagree; 5 = strongly agree) (Arnaud, 2010). The ECI is an ethical climate measure based on Rest’s (1984,
1986) four-component model of ethical decision-making and is composed of four dimensions: collective moral sensitiv-
ity, collective moral judgment, collective moral motivation, and collective moral character. A sample item for collective
56 KUENZI ET AL .

moral sensitivity is, “people in my department are aware of ethical issues” (𝛼 = .70), for collective moral judgment, “oth-
ers’ misfortunes do not usually disturb people in my department a great deal” (𝛼 = .77), for collective moral motivation,
“what is best for everyone in the department is a major consideration” (𝛼 = .89), and for collective moral character,
“people I work with would feel they have to help a peer even if that person was not a very helpful person” (𝛼 = .84).

3.9.3 Overall justice climate

Participants rated OJC using six items from Ambrose and Schminke’s (2009) OJC measure. Responses were made on
a five-point Likert scale (1 = strongly disagree; 5 = strongly agree). The measure includes items such as, “for the most
part, this department treats its employees fairly” and “in general, employees can count on this department to be fair”
(𝛼 = .85).

3.9.4 Ethical leadership

We measured ethical leadership using Brown et al.’s (2005) 10-item measure, using a five-point Likert scale (1 = strongly
disagree; 5 = strongly agree). Sample items include, “my unit manager discusses business ethics and values with employ-
ees,” and “my unit manager disciplines employees who violate ethical standards” (𝛼 = .95).

3.9.5 Unit unethical behavior

Unit supervisors rated their unit’s unethical behavior using Akaah’s (1996) 17-item unethical behavior measure.
Responses were made on a five-point Likert scale (1 = strongly disagree; 5 = strongly agree). Sample items include, “uses
company services for personal use” and “pilfers company materials and supplies” (𝛼 = .96).

3.9.6 Social desirability

We measured social desirability of employees and supervisors using the 10-item short-form Crowne–Marlowe mea-
sure (Strahan & Gerbasi, 1972) and a five-point Likert scale (1 = strongly disagree; 5 = strongly agree). Sample items
include, “I’m always willing to admit it when I make a mistake” and “at times I have really insisted on having things my
way” (manager 𝛼 = .68, unit social desirability 𝛼 = .81).

3.10 Results
Table 2 reports the correlations, means, and standard deviations of variables in Study 1, Part C.

3.10.1 Aggregation
We assessed the degree of agreement for the measures by calculating the rwg statistics (George & James, 1993). The
mean rwg statistics included the following: ethical leadership rwg = .94, EOC rwg = .90, ECQ-caring rwg = .82, ECQ-law
and code rwg = .89, ECQ-rules rwg = .85, ECQ-instrumental rwg = .75, ECQ-independence rwg = .79, OJC rwg = .88, ECI-
moral sensitivity rwg = .88, ECI-moral judgment rwg = .87, ECI-moral motivation rwg = .78, and ECI-moral character
rwg = .82. These results provided evidence of strong agreement within units for our new measure and the other climate
measures.

3.10.2 Convergent and discriminant validity

We conducted a series of CFAs using the EOC, the dimensions of the ECQ, OJC, and ethical leadership. We assessed
discriminant validity using a series of confirmatory factor analyses using MPlus Version 8. The tests assessed whether
our EOC measure could be distinguished from the ECQ, OJC, and ethical leadership.
Following Chen, Gully, and Eden (2001), we compared the fit of eight models: an eight-factor model (EOC, five ECQ
dimensions, OJC, and ethical leadership), a six-factor model (EOC and five ECQ dimensions), two 2-factor models (EOC
 KUENZI ET AL .

TA B L E 2 Means, standard deviations, and correlations for six-item EOC for Study 1, Part C

M SD 1 2 3 4 5 6 7 8 9 10 11 12 13 14
1. Ethical leadership 3.87 .49 (.95)
2. EOC 6-item 3.65 .46 .71 (.83)
3. Unit unethical behavior 2.44 1.11 −.17 −.24 (.96)
3. ECQ caring 3.55 .53 .69 .73 −.02 (.80)
4. ECQ law & code 3.78 .45 .64 .70 −.21 .62 (.86)
5. ECQ rules 3.79 .46 .65 .69 −.19 .63 .78 (.85)
6. ECQ instrumental 2.87 .73 .25 .15 −.23 .08 .22 .16 (.88)
7. ECQ independence 2.63 .55 −.12 −.16 −.07 −.24 −.07 −.12 .60 (.86)
8. Overall justice climate 3.66 .52 .58 .44 −.15 .37 .46 .49 .53 .19 (.85)
9. ECI sensitivity 3.36 .42 .43 .38 −.27 .36 .46 .32 .62 .26 .60 (.70)
10. ECI judgment 3.23 .49 .53 .45 −.21 .53 .46 .40 .64 .28 .53 .70 (.77)
11. ECI motivation 3.21 .28 .28 .39 .09 .36 .34 .30 −.07 −.10 .15 .18 .18 (.89)
12. ECI character 3.54 .51 .59 .64 −.10 .70 .58 .59 .08 −.23 .30 .39 .47 .40 (.84)
13. Unit social desirability 3.39 .43 .27 .26 −.19 .16 .21 .20 .36 .14 .41 .51 .35 .09 .17 (.81)
14. Supervisor social desirability 3.35 .52 .22 .15 −.19 .13 .20 .22 .20 .03 .26 .33 .18 .04 .12 .37 (.68)

Note. N = 133 groups. Correlations greater than |.18| are significant at p < .05; those greater than |.21| are significant at p < .01; those greater than |.27| are significant at p < .001; Cronbach’s
𝛼s presented along the diagonal in parentheses.
EOC = ethical organizational climate; ECQ = ethical climate questionnaire; ECI = ethical climate index.
57
58 KUENZI ET AL .

TA B L E 3 Alternative model MCFA statistics for EOC, ECQ, ethical leadership, and OJC for Study 1, Part C

Hypothesized model X2 df X2 /df 𝚫 X2 RMSEA CFI TLI SRMR

EOC and ECQ Factors
Six-factor model (EOC, ECQ 617.04 194 3.13 .06 .92 .90 .05
care, ECQ law, ECQ rules,
ECQ ind, and ECQ inst on
separate factors)
One-factor model (EOC, ECQ 2,191.46 209 10.49 1,574.42 (df = 15) .13 .62 .58 .11
care, ECQ law, ECQ rules,
ECQ ind, and ECQ inst on
one factor)
EOC and OJC
Two-factor model (EOC and 150.19 43 3.49 .07 .95 .94 .05
OJC on separate factors)
One-factor model (EOC and 690.62 54 12.79 540.4 (df = 11) .15 .77 .72 .10
OJC on one factor)
EOC and EL
Two-factor model (EOC and 434.20 103 4.21 .08 .93 .92 .05
EL on separate factors)
One-factor model (EOC and 648.51 104 6.24 214.31 (df = 1) .10 .88 .86 .06
EL on one factor)
EOC, ECQ Factors, OJC, and
EL
Eight-factor model (EOC, 1,819.41 601 3.03 .06 .90 .88 .05
ECQ care, ECQ law, ECQ
rules, ECQ ind, and ECQ
inst OJC, and EL on
separate factors)
One-factor model (EOC, ECQ 4,954.75 629 7.88 3,135.34 (df = 28) .11 .63 .61 .09
care, ECQ law, ECQ rules,
ECQ ind, and ECQ inst
OJC, and EL on one factor)
Note. n = 557.
EOC = ethical organizational climate; ECQ = ethical climate questionnaire; ECQ care = ECQ caring; ECQ law = ECQ laws
and codes; ECQ rules = ECQ rules; ECQ inst = ECQ instrumental; ECQ ind = ECQ independence; EL = ethical leadership;
OJC = overall justice climate.

and OJC; EOC and EL), and four 1-factor models (EOC, five ECQ dimensions, OJC, and EL loaded onto a single factor;
EOC and OJC as one factor; EOC and OJC as one factor; and EOC and EL as one factor). The results are provided in
Table 3. The CFA results provided evidence of discriminant validity of the EOC from other similar climate types.

3.10.3 Discriminant predictive validity

Next, we examined whether our new measure of EOC remained significant when the other climate measures were
entered into an equation to predict unit unethical behavior. Thus, we examined the extent to which the EOC medi-
ates the relationship between ethical leadership and unit unethical behavior (Hypotheses 1–3), while controlling for
the ECQ, ECI, and OJC. We followed the procedures outlined by Preacher, Rucker, and Hayes (2007) and used the
IBM SPSS macro developed by Hayes (2013) to test the model (PROCESS v2 16.3) using IBM SPSS 23. The results are
presented in Table 4. We found that ethical leadership was positively related to EOC (b = .20, SE = .08, p = .013), show-
ing support for Hypothesis 1. In addition, EOC was negatively related to unit unethical behavior (b = −1.02, SE = .36,
p = .005), supporting Hypothesis 2. To test the amount of influence, the mediator carries from the independent vari-
able to the dependent variable, and we conducted a test of the indirect effects. To directly test the indirect effect of
KUENZI ET AL . 59

TA B L E 4 Summary of regression analysis predicting unit unethical behavior for Study 1, Part C

EOC Unit unethical behavior

B (SE) 𝜷 p-value B (SE) 𝜷 p-value
Constant −.06 (.37) .00 .88 4.06 (1.42) .00 .01
Ethical leadership .20 (.08) .22 .01 −.08 (.32) −.04 .80
EOC −1.02 (.36) −.42 .01
ECQ care .26 (.08) .31 .00 .92 (.31) .44 .00
ECQ law .20 (.09) .19 .03 −.14 (.36) −.05 .71
ECQ rules .15 (.09) .15 .10 −.23 (.35) −.10 .52
ECQ instr .03 (.06) .05 .59 −.11 (.22) −.07 .63
ECQ ind −.01 (.06) −.01 .89 .14 (.23) .07 .54
ECIms −.02 (.10) −.02 .85 −.49 (.38) −.19 .20
ECImj −.07 (.09) −.07 .45 −.24 (.33) −.11 .47
ECImm .14 (.10) .08 .16 .76 (.37) .19 .04
ECImc .08 (.07) .09 .26 −.00 (.28) −.00 .99
OJC −.01 (.07) −.01 .87 .31 (.27) .15 .24
Social desirability-unit .11 (.07) .10 .11 −.02 (.26) −.01 .94
Social desirability-supervisor −.04 (.05) −.05 .41 −.18 (.19) −.09 .35
F = 20.56 p = .000 F = 2.46 p = .004
R2 = .69 R2 = .23
Indirect effect of ethical leadership on unit
unethical behavior Effect SE CI
−.20 .11 [−.49, −.04]

Note. N = 133 units.

B = unstandardized coefficients; SE = standard errors; 𝛽 = standardized coefficients; EOC = ethical organizational climate;
ECQ = ethical climate questionnaire; ECI = ethical climate instrument; OJC = overall justice climate.
Results are based on 5,000 bootstrap samples.

ethical leadership on unit unethical behavior through EOC, we used bootstrapping analysis (Preacher & Hayes, 2008).
The PROCESS macro generated 5,000 bootstrap samples and computed a 95% bias-corrected confidence interval (CI).
The indirect effect was significant for the relationships between ethical leadership and unit unethical behavior through
EOC because the CI did not include zero (b = −.20, SE = .11, 95% CI [−.49, −.04]). This provides support for Hypothesis
3, while controlling for other ethical climate measures.

4 STUDY 2

Study 1 provides content and discriminant validity support for the measure and predictive validity evidence, given
that we found support for part of our theoretical model while controlling for related constructs. In Study 2, we seek
to constructively replicate the Study 1 findings by using an alternative measure of employee unethical behavior—unit
deviance. In addition, we test a more complex model by examining collective moral identity as a boundary condition of
the relationship between EOC and unit unethical behavior.

4.1 Sample and procedure

We collected data in 2008, using a similar procedure as in Study 1, Part C, across a variety of industries. We received
878 usable responses (50.4% response rate), leaving data for 194 units. Employee respondents were 50.4% female,
60 KUENZI ET AL .

TA B L E 5 Means, standard deviations, and correlations for Study 2

M SD 1 2 3 4 5 6
1. Ethical leadership 3.72 0.51 (.95)
2. Ethical organizational climate 3.49 0.54 .66 (.82)
3. Collective moral identity 4.07 0.59 .27 .19 (.77)
4. Unit deviance 2.38 0.69 −.46 −.46 −.39 (.94)
5. Unit social desirability 3.33 0.37 .25 .14 .58 −.37 (.71)
6. Supervisor social desirability 3.39 0.59 .13 .06 .14 −.13 .29 (.77)

Note. N = 194 groups. Correlations greater than or equal to |.19| are significant at p < .01; those greater than |.25| are
significant at p < .001; Cronbach’s 𝛼s presented along the diagonal in parentheses.

57.9% Caucasian (11.2% African American and 14.4% Hispanic), average 29.67 years of age (SD = 11.74) with
3.91 years of tenure (SD = 5.26) in the organization, and 3.03 years in the unit (SD = 4.12). Supervisors responding were
41.6% female, 75.3% Caucasian (7.9% African American and 7.9% Hispanic), average 38.06 years of age (SD = 12.46)
with 8.46 years of tenure in the organization (SD = 7.80), and 6.0 years in the unit (SD = 6.62).
Employee surveys contained instructions, demographic questions (i.e., age, gender, education, unit tenure, and unit
size), and measures of ethical leadership, the new measure of EOC, and collective moral identity. Supervisor surveys
contained instructions, demographic questions, and a measure of unit deviance.

4.2 Measures
We measured ethical leadership (𝛼 = .95), EOC (𝛼 = .82), and unit and supervisor social desirability (𝛼 = .71, 𝛼 = .77,
respectively) as in Study 1, Part C.

4.2.1 Unit deviance

We measured the unethical behavior of unit employees using Bennett and Robinson’s (2000) 12-item organizational
deviance scale (ODS).9 We followed previous research and asked about deviance at the unit level (Brown & Treviño,
2006; Mayer et al., 2009). We used unit deviance as a proxy for unethical behaviors because deviance is similar to
unethical conduct in that it focuses on violations of normatively appropriate behaviors (Treviño et al., 2006). Supervi-
sors rated the extent to which unit employees, as a whole, engaged in various deviant behaviors within the past year on
a seven-point response format (1 = never, 2 = once, 3 = a few times, 4 = several times, 5 = monthly, 6 = weekly, 7 = daily).
Example behaviors include, “took property from work without permission” and “discussed confidential company infor-
mation with an unauthorized person” (𝛼 = .94).

4.2.2 Collective moral identity

We measured moral identity using Aquino and Reed’s (2002) five-item moral identity internalization measure. Partici-
pants were provided a list of nine characteristics and asked to respond to items such as, “it would make me feel good to
be a person who has these characteristics” and “being someone who has these characteristics is an important part of
who I am” (1 = strongly disagree; 5 = strongly agree) (𝛼 = .77).

5 RESULTS

Table 5 reports the correlations, means, and standard deviations of all variables used in Study 2.
KUENZI ET AL . 61

TA B L E 6 Summary of regression analysis predicting unit deviance Study 2

EOC Unit unethical behavior

B (SE) 𝜷 p-Value B (SE) 𝜷 p-Value
Constant −2.42 (.33) −.01 .00 4.26 (.67) .04 .00
Ethical leadership .70 (.06) .66 .00 −.24 (.16) −.18 .13
EOC −.33 (.12) −.26 .01
Collective moral identity −.22 (.10) −.19 .04
Collective moral identity × EOC −.40 (.16) −.19 .01
Social desirability unit −.02 (.05) −.03 .76 −.29 (.14) −.16 .03
Social desirability-supervisor −.05 (.09) −.02 .60 .00 (.08) .00 .98
F = 48.08 p = .000 F = 17.56 p = .000
R2 = .43 R2 = .36
Index of moderated mediation Effect SE CI
−.28 .11 [−.49, −.07]

Note. N = 194 units.

B = unstandardized coefficients; SE = standard errors; 𝛽 = standardized coefficients; EOC = ethical organizational climate.
Results are based on 5,000 bootstrap samples.

5.1 Aggregation
To determine whether unit-level aggregation is appropriate, we assessed the degree of agreement for ethical leader-
ship, EOC, and collective moral identity by calculating rwg statistics (George & James, 1993). The mean rwg statistics
included the following: ethical leadership rwg = .90, EOC rwg = .87, and moral identity rwg = .84.
These results provide evidence of strong agreement within units for all the measures.

5.2 Test of our conceptual model

We conducted confirmatory factor analysis using MPlus Version 8 to assess whether the variables were distinct from
each other. We assessed the fit of a three-factor model (𝜒 2 = 590.28, df = 186, 𝜒 2 /df = 3.17, RMSEA = .07, CFI = .92,
TLI = .91, SRMR = .05) and a one-factor model (𝜒 2 = 1522.70, df = 189, 𝜒 2 /df = 8.06, RMSEA = .13, CFI = .73, TLI = .70,
SRMR = .10). The three-factor model demonstrated acceptable and better fit to the data than the one-factor model
(𝜒 2 difference = 932.42, df = 3, p = .000).
In this study, we examined the extent to which ethical climate mediates the relationship between ethical leadership
and unit deviance (Hypotheses 1–3) and the moderating role of collective moral identity (Hypothesis 4). We followed
the procedures outlined by Preacher et al. (2007) and used the SPSS macro developed by Hayes (2013) to test the
model (PROCESS v2 16.3) using SPSS 23.
The results of the analysis are presented in Table 6. Ethical leadership is positively related to EOC (b = .70, SE = .06,
p = .000), supporting Hypothesis 1. In addition, EOC is negatively related to unit deviance (b = −.33, SE = .12, p = .007),
supporting Hypothesis 2.
We also predicted an interactive effect between collective moral identity and EOC on unit deviance (Hypothesis
4). The index of moderated mediation is significant for the relationships between ethical leadership and unit deviance
(b = −.28, SE = .11, 95% CI [−.49, −.07]). Following the recommendations of Aiken and West (1991), the variables were
mean centered before constructing interaction terms. Following Cohen and Cohen (1983), we plotted the interactions
by using collective moral identity at one standard deviation above and below the mean for high and low values, respec-
tively. The interaction is presented in Figure 1. We conducted a simple slopes analysis and found that the slope at one
SD above the mean was significant (b = −.57, t = −4.924, p = .000), but not at one SD below the mean (−.10, t = −.515,
62 KUENZI ET AL .

FIGURE 1 Ethical organizational climate and collective moral identity on unit unethical behavior Study 2

p = .607). The difference between the simple slopes at high and low moral identity is significant (.47, p = .00). This pro-
vides support for Hypothesis 4 that the relationship between EOC and unit deviance is stronger in units with higher
collective moral identity than those with lower collective moral identity.
Finally, Preacher et al. (2007) suggest that the conditional indirect effects should be examined. We did not hypoth-
esize this relationship, but in a supplementary analysis, we tested for the conditional indirect effect of collective moral
identity on the relationship between ethical leadership and unit deviance. The PROCESS macro (Hayes, 2013) used
bootstrapping to assess the magnitude of the indirect effect of ethical leadership on unit unethical behavior at differ-
ent values of moral identity. We found that the conditional indirect effects were significant at one standard deviation
above the mean for collective moral identify (indirect effect = −.07, SE = .11, 95% CI [−.28, .15]), but not one standard
deviation below the mean (indirect effect = −.40, SE = .10, 95% CI [−.61, −.20]). These results suggest that there is
a negative association between ethical leadership and unit deviance through EOC when moral identity is high (1 SD
above the mean).

6 DISCUSSION

The purpose of this research is to develop and test a comprehensive model linking ethical leadership to unit-level
unethical behavior through EOC. In addition, we examine a boundary condition (collective moral identity) of the rela-
tionship between EOC and unit-level unethical behavior. In Study 1, Part A, we develop items and provide factor-
analytic evidence for the distinctiveness of a new measure of EOC. In Study 1, Part B, we assess how well the items
of the EOC reflect the definition of EOC. In Study 1, Part C, we find convergent and divergent validity evidence for
our measure in comparing it to several other climate measures (i.e., ECQ, ECI, and OJC). We demonstrate predictive
validity evidence through finding support for the mediation part of our theoretical model, whereby ethical leadership
is related to unit-level unethical behavior through EOC while controlling for ECQ, ECI, and OJC. In Study 2, we con-
structively replicate Study 1, Part C’s findings using a different type of unethical behavior (i.e., unit deviance), and find
support for collective moral identity as a boundary condition of the relationship between EOC and unethical behavior.
In sum, we provide support for a more comprehensive conceptualization of EOC and use of our new EOC measure.

6.1 Theoretical implications

The present research provides a number of implications for theory. The most commonly used conceptualization and
measure of ethical climate (i.e., ECQ; Victor & Cullen, 1988) draws on philosophical and sociological theories related
KUENZI ET AL . 63

to moral decision-making. However, this construct has produced a number of theoretical and methodological inconsis-
tencies (e.g., Cullen et al., 1993), with concerns raised about the relevance of specific types of ethical climates (Kish-
Gephart et al., 2010), and extant research producing substantial variations in the use of this measure (Arnaud, 2010).
Additionally, the ECQ provides a rather narrow focus on decision-making, even though EOC results from perceptions
of policies, procedures, and practices that stem from multiple organizational systems. Furthermore, the ECQ is often
paired with individual-level theories, rather than unit-level theories. To overcome these limitations, our research draws
on Treviño and Nelson’s (2017) model of formal organizational ethical systems, as well as theory and research on orga-
nizational climates as unit-level, rather than individual-level, phenomena. In this respect, our measure captures per-
ceptions of organizational practices related to multiple organizational ethical systems, thus providing a more compre-
hensive measure of EOC.
Importantly, our research demonstrates that EOC mediates the relationship between ethical leadership and unit-
level unethical behavior even when controlling for several related constructs. In this respect, Study 1, Part C, demon-
strates that our measure of EOC is significantly, negatively related to unethical behavior after controlling for the most
commonly used measures of ethical climate, the ECQ and ECI, as well as OJC. Demonstrating incremental validity of
the EOC provides a more rigorous test of our conceptual model and demonstrates the practical relevance of introduc-
ing our measure to the literature.
We also examine a novel construct in the organizational context, collective moral identity, and find that high collec-
tive moral identity moderates the relationship between EOC and unethical behavior in organizations. While Thorton
and Rupp (2016) manipulate collective moral identity, we show evidence of the importance of moral identity at the unit
level utilizing a field study in which we measure collective moral identity. Indeed, we find that the negative relation-
ship between EOC and unit unethical behavior is stronger in units with higher collective moral identity than those with
lower collective moral identity.
Theoretically, our findings suggest that groups do indeed develop a common understanding of shared, unit-level
traits, which then affect the group’s environmental interpretations and subsequent behaviors. Work units that collec-
tively internalize the importance of kindness, compassion, helpfulness, and generosity will be particularly responsive
to environmental cues, such as EOC, which reinforce these traits, and thus they will be more likely to display behavioral
consistency (e.g., by refraining from engaging in unethical behavior).
We also contribute to the organizational practices literature by demonstrating that, in addition to studying actual
practices, there is value to studying perceptions of the organization’s practices. Researchers have studied actual prac-
tices such as strategy (e.g., Whittington, 2006), technology and learning (e.g., Orlikowski, 2002), and human resources
(HR; e.g., Huselid, 1995). Rather than studying actual practices, we demonstrate that perceptions of organizational
practices inform organizational climates. By doing so, we contribute to the broader climate literature by examining a
range of organizational systems that produce practices culminating in shared perceptions of EOC, which then discour-
age unit-level unethical behavior. Practically, our research does more than highlights the importance of business ethics,
or the need to assess the organization’s ethical landscape. We provide an EOC measure that points to a range of prac-
tices the organization can enforce to develop a highly ethical climate. Most organizations involved in ethical scandals
have a code of conduct and tout the importance of ethics, but unethical behavior prevails because something is missing
in these environments. Our research provides a recipe for determining what is missing in the environment. As noted
by Johnson et al. (2007), “People and what they do have gone missing…. In fact we know that strategies are rarely the
result of one-off decisions, but rather the outcomes of quite complex processes” (p. 5). Our research illustrates that
when employees perceive that formal organizational systems include multiple consistent ethics-related policies, pro-
cedures, and practices, their shared perceptions give rise to EOCs.
Finally, we add to the growing climate literature more broadly. In a review of the climate literature, Kuenzi and
Schminke (2009) provided suggestions for future research. We begin to address several of their recommendations by
presenting a theoretical basis for EOC research and by explaining how these climates form. First, we draw on a theo-
retical framework that allows us to measure EOC utilizing the preferred definition of climate, which references shared
perceptions of policies, practices, and procedures. Importantly, rather than examining EOC as the “conditions that likely
64 KUENZI ET AL .

set the stage for ethical action” (Kuenzi & Schminke, 2009, p. 70), as is done with the ECQ, our measure highlights
the importance of perceptions of contextual factors (i.e., policies, procedures, and practices) that give way to a shared
understanding of “the way things are done around here.” We also examine moral identity as a collective construct that
represents the unit’s shared commitment to upholding moral traits such as kindness, justice, and hard work (Aquino
& Reed, 2002). Finally, Kuenzi and Schminke (2009) stress the importance of examining multiple climates in the same
model. By controlling for several climates, we demonstrate that the EOC is indeed measuring something unique and
different. Perhaps, more importantly, our research demonstrates the strengths of this approach as our comprehensive
EOC measure negatively predicts unit unethical behavior above and beyond related constructs.

6.2 Practical implications

Our research provides several practical implications. First, our EOC measure (perhaps especially the longer versions
found in the Appendix) can be used as a diagnostic tool to assess an organization’s ethical environment. Utilizing our
measure, organizations can assess their strengths and weaknesses in terms of formulating practices that contribute to
a strong EOC. For example, an organization may discover that their HR practices (e.g., recruitment, selection, orientat-
ing, and training) support ethical decision-making and behavior; yet, employees may not be held accountable, and may
not be reprimanded, for engaging in unethical behavior. In such cases, organizations should continue to promote ethical
HR practices, but also take steps to align their reward and punishment systems with strong ethical expectations, thus
generating a stronger, more impactful EOC. Changes in ethical practices that are consistently followed are expected to
contribute to a stronger ethical climate that results in changes in (un)ethical conduct.
Second, organizations can use our measure as a diagnostic tool that connects EOC to unethical behavior. If an orga-
nization discovers that one facet of EOC is low, managers can try to improve it and then track, over time, whether their
changes resulted in a higher EOC that diminishes unethical behavior. Our research demonstrates that EOC is nega-
tively related to unethical behavior, which is particularly important, given that unethical behavior can result in organi-
zational lawsuits (Goldman, Gutek, Stein, & Lewis, 2006) and lost profits (Detert, Treviño, Burris, & Andiappen, 2007).
Thus, practically speaking, organizations may want to consider ways to improve their EOC to keep unethical behavior
in check.

6.3 Strengths, limitations, and future directions

Despite the strengths of our research, some limitations should be noted that would provide fruitful opportunities for
future research. One limitation is that the data are cross-sectional. Although we provide theory for the causal direction
of the conceptual model, we are unable to make causal inferences due to the cross-sectional research design. The fit
of the model was significantly worse when the model was tested in the reverse order, but the cross-sectional data do
not allow us to draw causal conclusions. Future research that examines the effects of our measure using a longitudinal
study design would help address this limitation.
A second limitation is that we collected all data using a similar methodology, including units from a variety of orga-
nizations. The fact that we find support for our new measure and conceptual model across a variety of organizations
and industries speaks to the robustness of the findings, but future research that replicates and extends these findings
in a single organization and/or uses a method other than referral sampling would help bolster our findings. Student-
recruited samples, in our case referral sampling, are sometimes criticized in the literature. However, the meta-analysis
by Wheeler, Shanine, Leon, and Whitman (2013) indicates that results from student-recruited samples are not sub-
stantially different from nonstudent recruited samples; the few differences that exist in their study are not practically
significant.
A third limitation is that we focused on one type of outcome—unethical behavior. Given our conceptual grounds for
examining the relationships between ethical leadership, EOC, and unethical behavior, we deemed unethical behavior as
a particularly important outcome. While we examine two types of unethical behavior (unit unethical behavior and unit
KUENZI ET AL . 65

deviance), future research that examines additional dependent variables, such as whistle-blowing, prosocial behav-
ior, motivation, or performance, would be interesting. Further, examining the effects of ethical leadership and EOC on
objective outcomes (e.g., stealing based on company records) would be a nice extension of the reports we obtained.
It would also be useful to examine cross-level effects by assessing individual-level outcomes. We know that leaders
play an important role in a more top-down approach; however, it would be interesting to see if there could also be
bottom-up processes in play (Pinto, Leana, & Pil, 2008). Litwin and Stringer (1968) include a feedback loop between
top-down and bottom-up processes in their model and future research should explore this avenue. This would also
allow for an examination of the mechanisms that lead to the formation of EOC perceptions.
Treviño and Nelson’s (2017) framework of ethical culture describes both formal and informal organizational sys-
tems, but we only measure formal systems. The informal systems are related to culture, whereas the formal systems
are related to climate. The informal systems include role models and heroes, norms, rituals, myths and stories, and lan-
guage. A close examination of these categories reveals that all but norms are associated with culture and not climate.
Indeed, Schein (2004) describes culture as a function of the values and beliefs that lead people to create similar per-
ceptions to what they experience. On the other hand, Schein describes climate as the meaning people derive from what
they experience. Using this lens, role models, heroes, rituals, myths, and stories are related to culture, whereas climate
consists of perceptions of policies, practices, and procedures in the organization. A measure of ethical culture could be
developed and used alongside our measure of EOC in future research.
There has been a proliferation of new measures in the management literature, and we had to think carefully as to
whether developing a new measure of EOC is necessary and useful. In the end, we concluded that as the organizational
climate literature and methods have progressed over the past three decades, continuing to use the ECQ could limit
our understanding of the ethical context in organizations. In this respect, the EOC should be used when it is important
to comprehensively assess the organization’s multiple systems. Moving forward, we recommend referring to the ECQ
as a climate for ethical decision-making rather than EOC. As such, the ECQ can be compared to the decision-making
dimension of the EOC to assess convergence. In terms of reviewing and citing past ethical climate research, if scholars
use individual-level data, we recommend that they refer to it as psychological climate. If scholars use aggregated data,
this should be referred to as organizational ethical climate. Finally, researchers need to be clear as to what referent is
used in the items. We recommend that a referent shift is used to the appropriate unit level for organizational climate
research (Klein, Conn, Smith, & Sorra, 2001).
Finally, although we believe that our EOC measure provides a well-validated measure of ethical climate at the unit
level, scholars should not lose sight of the foundational work that came before our measure. Just as Colquitt (2001)
provides a refined measure of justice, researchers still rely on prior, seminal work to build their research arguments.
We expect the same pattern to emerge with our new measure, and we hope it will provide a useful path forward.

6.4 Conclusions
There is considerable public concern about the plethora of corporate scandals chronicled in the mainstream media. We
argue that organizational unethical acts are not solely because of a few bad apples, but rather that cracks in the foun-
dation of an organization’s ethical climate are the likely cause of the wrongdoing. We hope that this research provides
useful conceptualization and a tool for scholars interested in examining the important role of an organization’s ethical
climate.

ENDNOTES
1 Treviñoand Nelson’s (2017) six formal systems are composed of policies, practices, and procedures. However, to make the
paper more concise and easier to read, we will use the term practices to represent policies, practices, and procedures when
referring to this framework and our ethical climate measure.
2 In
addition to these six formal organizational systems, Treviño and Nelson (2017) discuss leadership as another compo-
nent. We did not include leadership as a formal organizational system for two reasons. First, in recent years, there has been
66 KUENZI ET AL .

considerable work on the ethical leadership construct and a measure has been developed (Brown, Treviño, & Harrison, 2005).
Second, leadership is generally thought of as an antecedent of, as opposed to a specific aspect of, climate (Kuenzi & Schminke,
2009).
3 We received IRB approval from two institutions. We received approval from the University of Central Florida (IRB# SRB-06-

03737 titled, “The Development of a Measure of Ethical Climate”). We also received IRB approval from Southern Methodist
University (IRB# H190029-KUEM titled, “Developing a Measure of Ethical Climate”).
4 Raters were provided definitions of climate in general, ethical climate, and the six formal systems. We asked the raters to
identify which formal system appropriately categorized each statement. They were allowed to choose more than one if they
thought the item could belong in more than one category. Raters were asked to rate the relevance, clarity, and overall quality
of all items. At the end, there was an open-ended section where raters were asked to explain why they placed items in more
than one category if they did. In addition, there was a section where they could add any items they felt were missing. Six items
were modified slightly based on this feedback to clarify the items.
5 We surveyed 476 working adults on their ethical organizational climate and then conducted principal axis factoring (PAF).
We chose the three items with the highest loadings of each of the formal systems representing organizational ethical climate
for a total of 18 items.
6 We followed Hinkin (1998) and Hinkin and Tracey’s (1999) steps for the development of measures used in survey question-
naires. Therefore, we used principal components analysis. Since we collected this data, it is standard practice to use principle
factor analysis or maximum likelihood.
7 We also developed and tested a 12- and 18-item EOC measure. These longer measures may serve as more comprehensive,
diagnostic tools for assessing an organization’s ethical climate. The rwg for the 12-item EOC is .92 and 𝛼 = .88. The rwg for the
18-item EOC is .94 and 𝛼 = .92. The items for the longer measures are presented in the Appendix.
8 For the 16-item ECQ, we use the same items adapted by Schminke, Ambrose, and Neubaum (2005). In searching papers citing

Victor and Cullen (1987, 1988) and Cullen, Victor, and Bronson (1993), Schminke et al. (2005) find 31 papers using the ECQ,
with 12 of them providing factor analysis reports. They examine the studies to identify the common ethical climate types.
Schminke et al. (2005) identify no stable alternatives to the original five-factor model found by Victor and Cullen (1988).
They also examine the items that consistently loaded on these five ethical climates. Published studies may have found similar
ethical climate factors, but the items of the ECQ do not always consistently load on the originally specified ethical climate
types. Schminke et al. (2005) find 16 items consistently load on the five most often found ethical climates, and thus, they use
these items in their study. We use these same 16 items of the most common five ethical climates in our study to examine
divergent and predictive validity of our ethical climate measure.
9
We report the results using supervisor ratings of unit deviance to address the same source bias. However, we find the same
pattern of results when using employee ratings of unit deviance.

ORCID

Maribeth Kuenzi https://orcid.org/0000-0003-3617-7492

David M. Mayer https://orcid.org/0000-0001-7631-9825
Rebecca L. Greenbaum https://orcid.org/0000-0001-5594-8606

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How to cite this article: Kuenzi M, Mayer DM, Greenbaum RL. Creating an ethical organizational environment:
The relationship between ethical leadership, ethical organizational climate, and unethical behavior. Personnel
Psychology. 2020;73:43–71. https://doi.org/10.1111/peps.12356

APPENDIX
Six-Item Measure of the EOC (One for each formal system)

1. Ethical issues are taken into consideration when decisions are made. (DM1)
2. Ethics training is consistent with how employees actually perform their jobs. (OT1)
3. Employees strictly follow the written code of ethics. (PC1)

4. An effort is made to search for applicants of a high moral standard. (RS1)

5. A good effort is made to measure and track ethical behaviors. (RP1)
6. When an unethical act occurs, employees take responsibility for their actions. (AR1)

Twelve- and 18-Item Measures of the EOC (For the 12 items, two for each formal system in shown italics. For the 18 items,
three for each formal system)

1. Ethical issues are taken into consideration when decisions are made. (DM1)

2. When decisions are made, we talk about whether something is the “right thing to do.” (DM2)
3. Employees consider ethical issues when making decisions even during stressful times. (DM3)
4. Ethics training is consistent with how employees actually perform their jobs. (OT1)
5. All employees are required to attend ethical training. (OT2)
6. Ethical issues are discussed with new employees as part of their initial orientation. (OT3)
7. Employees strictly follow the written code of ethics. (PC1)
8. The behavior of employees is consistent with the company’s ethical codes. (PC2)

9. Employees followed established procedures to seek guidance about business ethical issues. (PC3)
KUENZI ET AL . 71

10. An effort is made to search for applicants of a high moral standard. (RS1)
11. When we hire employees, we try to assess how they would handle ethical issues. (RS2)
12. In recruiting new employees, my department emphasizes the importance of ethical behavior. (RS3)

13. A good effort is made to measure and track ethical behaviors. (RP1)
14. Employees receive positive feedback for making ethical decisions. (RP2)
15. Ethical behavior is evaluated as part of the performance appraisals. (RP3)
16. When an unethical act occurs, employees take responsibility for their actions. (AR1)
17. Employees at all levels take responsibility for the outcomes of their actions. (AR2)
18. Employees question authority if an unethical behavior occurs. (AR3)
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