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How Organizational Culture Influences Organizational Climate

Dr. Dennis M. Reilly

Adjunct Professor
Organizational Leadership Faculty
Southern New Hampshire University
[email protected]
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How Organizational Culture Influences Organizational Climate

Abstract

This article examines whether organizational culture influences the organizational

climate with a group. Various studies on ethical culture and climate have established links to

different experiences and concerns. Concerning the subject of ethical organizational culture,

Schein’s study researched the impact of leadership on organizational culture. Treviño and

Weaver's study details the impacts of ethical leadership on ethical organizational culture.

Additionally, there are numerous studies in the field of ethical organizational. The paper intends

to give executives practical advice about the benefits of ethical culture and climate in a highly

regulated business environment today. In the United States, positive ethical organizational

culture and climate are paramount to organizations due to strong legislation, groups, and

standards.

Keywords: organizational culture, organizational climate, ethics, values.

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Introduction

In business ethics literature, the ethical organizational context, as perceived by

employees, is represented by two constructs: ethical climate and ethical culture (Treviño &

Weaver, 2003). Ethical culture is usually defined as those aspects that stimulate ethical conduct

(Treviño & Weaver, 2003). Ethical climate is typically defined as those aspects that determine

what constitutes ethical conduct (Victor & Cullen, 1988). In the past several years, the concept

of ethics in organizational culture and climate has evoked much interest among scholars (Vig &

Dumicic, 2016). Various studies on ethical culture and climate have established links to

different experiences and concerns. Concerning the subject of ethical organizational culture,

Schein’s (1992) study researched the impact of leadership on organizational culture. Treviño

and Weaver (2003), studies detail the impacts of ethical leadership on ethical organizational

culture. Additionally, there are numerous studies in the field of ethical organizational climate

(Wang & Hsieh, 2013; Vig & Dumicic, 2016; Lindbeck, 2004). This paper examines whether

organizational influences impact the organizational climate. The paper intends to give

executives practical advice about the benefits of ethical culture and climate in today’s business.

Organizational Culture

Ethical values relate to doing what is morally right. Stahl and Grigsby (1997) describe

ethics as doing the right thing right the first time. The ethical values that a firm establishes in its

goals, policies, and practices, is essential in any organizational culture (Olsen, 2013). However,

it wasn’t until 1962 when Blau and Scott, two of the first post-war management authors, made

the assertion that all organizations consist of both formal and informal conditions, and that it is

simply not possible to know or understand the workings of an organization without a sound

understanding of its informal character (Blau and Scott, 1962). In 1978, the first major analysis
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of the informal dimension, focusing on organizational culture, gained attention in the

conventional literature of organizational theory (Peters, 1978). Peters’ work was closely

followed by the extensive and significant work of Pettigrew (1979), who suggested that

organizational cultures consist of cognitive systems explaining how people think, reason, and

make decisions. Pettigrew also noted different levels of culture, arguing that at the lowest level,

culture consists of a complex set of values, assumptions, and beliefs that define how a firm

conducts its business (Pettigrew, 1990). From the early work by Pettigrew, Peters, and others,

the organizational cultural school emerged.

Ethical organizational culture, with its shared values, influences employee behavior, and

strong ethics are considered to be the core of a positive organizational culture. The

organization’s ethical culture is vital because decision making without ethical awareness will

lead to unanticipated and unwanted misconduct (Vig & Dumicic, 2016). According to Treviño

and Nelson (2014), ethical organizational culture should be thought of in terms of a multi-system

framework that includes formal and informal systems that must be aligned to support ethical

judgment and action. Formal and informal systems can be separated into two sets of

components: formal ones (rules, policies and codes, executive leader communications,

orientation and training programs, selection systems, performance management systems,

organizational structures, and formal decision-making process) and informal ones (norms of

daily behavior, stories heroes, rituals, myths and role models, and language) which refer to

whether the ethical culture represents reality, or it acts as mere "window dressing". As part of

his PhD-thesis (1998), Muel Kaptein (2007), performed a qualitative analysis of 150 cases of

unethical behavior by managers and employees that could be related to the organization in which

they worked and defined the Corporate Ethical Virtues Model (abbreviated as CEV Model) that
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contains complex dimensions which represent a company's level of business ethics. The CEV

Model contains seven organizational virtues: clarity, congruency, feasibility, supportability,

discussability, sanctionability and transparency. The first two virtues, clarity and congruency,

refer to the self-regulating capacity of the organization. The next two virtues, feasibility and

supportability, refer to the self-providing capacity of the organization, and the last three virtues,

discussability, sanctionability and transparency, refer to the self-correcting or self-cleansing

capacity of the organization (Kaptein, 2007):

•The first virtue is clarity, which is the extent to which ethical expectations, such as

values, norms, and rules are concrete, comprehensive and understandable to managers

and employees. Therefore, the virtuous organization is clear about the ethical standards

employees should uphold.

•The second virtue is congruency of management and supervision, which defines the

extent to which the board and middle management perform per ethical expectations. This

second organizational virtue amounts to the moral requirement that managers and

supervisors should visibly act within normative expectations.

•The third virtue is feasibility, defined as the extent to which the organization makes

available time, budgets, equipment, information and authority to management and

employees to fulfill their responsibilities. The third organizational virtue Kaptein

therefore discerned is the requirement that employees’ responsibilities are possible.

•The fourth virtue is supportability. Supportability refers to the relative strength of an

individual’s identification, involvement, and commitment to the standard expectations of

the organization and the extent to which the organization provides motivation.
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•The fifth virtue is transparency or visibility in the organization. The organizational virtue

of transparency is the degree to which employee conduct and its consequences are

perceptible to those who can act upon it, i.e. colleagues, supervisors, subordinates, and

the employee(s) concerned. In the CEV Model, transparency is broken down into

horizontal and vertical components. The vertical component refers to the extent to which

managers can observe unethical conduct and its consequences of employees (top-down)

and vice versa (bottom-up). The horizontal component refers to the extent to which

employees can observe unethical conduct and its consequences among themselves.

•The sixth virtue is discussability. Another factor that characterizes the virtuousness of

an organization concerns the opportunity employees have to raise and discuss ethical

issues. If employees are expected to report perceived wrongdoings, their work

environment should be a secure place where moral issues can be raised without fear of

reprisal.

•The seventh virtue is sanctionability. The seventh and final organizational virtue in the

CEV Model is sanctionability. The organizational virtue of sanctionability refers to the

likelihood of employees being disciplined for behaving unethically and rewarded for

behaving ethically.

The seven corporate ethical virtues are not just relevant because they influence the behavior of

managers and employees, but also because they can be altered by organizations (Kaptein, 2007).

Olson (2013) suggest that an ethical organizational culture have fair procedures, respects

employee rights and provide equal pay and promotion possibilities, and promotes loyalty,

honesty, compassion, and tolerance of stakeholders. “Businesses that have ethical workplace

cultures outperform their competitors and peers in all the categories that matter, but especially in
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stock price growth” (Olson, 2013). Modern explorations of organizational culture refer to

homogeneous versus heterogeneous cultures, enriched versus managed cultures, developing

versus stationary cultures, and balanced versus dissonant cultures (Fletcher and Jones, 1992).

Organizational Climate

Organizational climate can be defined as the shared perceptions of members of an

organization who collectively participate in the same organizational structure (Ruiz-Moreno,

García-Morales, & Llorens-Montes, 2008). Victor and Cullen (1987) suggest that ethical climate

is "the shared perceptions of what is ethically correct behavior and how ethical issues should be

handled" (p. 51). Victor and Cullen (1988) suggest that ethical climate is "the prevailing

perceptions of typical organizational practices and procedures that have ethical content." James

and James (1989) define organizational climate as a multidimensional construct that

encompasses a wide range of individual evaluations of the work environment.

Organization climate is important because it can be a motivator and indicator of job

performance, psychological health, and withdrawal of individuals in an organization (Carr,

Schmidt, Ford, & DeShon, 2003). Victor and Cullen (1987, 1988) created the concept of ethical

climate. Victor and Cullen studied organizational climate from an ethical standpoint (1988).

Using the Ethical Climate Questionnaire, exploratory factor analysis was conducted, followed by

a confirmatory factor analysis. They suggest that organizations have distinct types of ethical

climates and that there is variance in the ethical climate within organizations by position, tenure

and workgroup membership. Ethical theory, in Victor and Cullen's (1987, 1988) construct,

consists of three dimensions that parallel the pre-conventional, conventional, and post-

conventional orientations of Kohlberg's model (Goslin, 1969). They include egoism (hedonism),

benevolence (utilitarianism), and principled (deontology) ethical grounding. Egoism refers to

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behavior that is primarily self-interested in seeking pleasure and avoiding pain for the individual.

The focus of benevolence or utilitarianism is toward the greatest pleasure and least pain for the

collective or the greater number (e.g., the immediate workgroup, the firm, the community, and

the society-at-large). In contrast to these two, teleological-based orientations are the ethical

view, which places the greatest emphasis upon duty founded upon laws, rules, policies, and

procedures (e.g., the organization's code of ethics, the laws of a given society, the Judeo-

Christian Ten Commandments). These three broad categories are presented hierarchically from

egoism to a principle-based upon the Kohlberg’s developmental model and compared with locus

of analysis dimension.

Locus of analysis, consisting of individual, local, and cosmopolitan sources, functions to

"shape the behaviors and attitudes of role incumbents" (Victor and Cullen, 1988, p. 106). The

individual locus of analysis is ideologically based and may reflect a hedonistic or an

existentialistic ethical orientation. The local referent is the immediate workgroup or the firm

generally as well as the individual's community of significant others. Norms, values, and

behaviors derived from this immediate work or social community are internalized or at least

generally operationalized by the individual. The cosmopolitan locus of analysis extends beyond

the group and the firm. At this level, the behavior is shaped by normative systems that have the

potential to operate within the organization but are generated and maintained externally (e.g.,

professional codes of ethics as opposed to firm-specific behavioral norms).

Knowing the importance of the ethical climate of an organization/individual, how do you

determine the type/level of the ethical climate of your organization/leaders? One approach is to

use the method of Victor and Cullen (1987) which creates a matrix of two dimensions. The first
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dimension is the ethical criteria, which are the standard for moral reasoning of a person and are

based upon three ethical criteria previously discussed.

 Egoism: Doing what is best for oneself

 Benevolence: Doing what is good

 Principle: Finding a standard to adhere to

The second dimension is to use the locus of analysis and is the perspective for judgment.

 Individual: Looking from the perspective of oneself

 Local: Looking from the perspective of those who are directly involved/affected

 Cosmopolitan: Looking from the perspective of society as a whole.

By using the matrix, if an organization has ethical criteria of self-interest and loci of

analysis of local locus, and the company and management are driven by the bottom line of sales

and profit, the company's ethical climate is likely ‘Company Profit.’ Furthermore, it can be

construed organizational leadership is focused on doing whatever has to be done to make their

numbers and they were willing to blame and sacrifice others to do so. This climate could lead to

high annual employee turnover rate and other dysfunctional problems. The organization would
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not be an enjoyable one to work for, and the ethical climate would most likely result in

employees looking for new employment opportunities elsewhere.

On the contrary, if one applies the characteristics to another organization, one could find

the ethical criteria which best fit the organization is benevolence, and the loci of analysis are

cosmopolitan because the company mission and values are to do good things for the benefit of

society. The organization’s ethical climate would be ‘Social Responsibility.’ Thus, the

organization promotes cooperation, open communication, mutual respect and an overall

environment that was fair and safe. The high degree of satisfaction and commitment by

employees would encourage a low employee turnover rate due to employee satisfaction.

While formally established guidelines as to the key components of climate are yet to find

universal acceptance, the influences of the concept exist in its potential to conceptually link

organizational and individual behavioral phenomena (Moran and Volkwein, 1992). Many

researchers, including Jones and James (1979), have argued in favor of a multidimensional

approach to the issue of measurement. Specifically, Jones and James derived six dimensions of

organizational climate:

(1) leadership facilitation and support;

(2) workgroup co-operation, friendliness, and warmth;

(3) conflict and ambiguity;

(4) professional and organizational esprit;

(5) job challenge, importance and variety; and

(6) mutual trust (Jones and James, 1979).

Possibly, these dimensions represent a useful method for measuring organizational

climate (Ryder and Southey, 1990). Organizational climate is an established construct of

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considerable interest within the field of organizational behavior research, mainly as a result of its

obvious influence on organizational effectiveness as well as its relationship to individual

motivation and behavior.

Discussion

The concepts of organizational climate and culture are related directly to the concept of

the workplace as a community. Within any form of community, there exist formal and informal

beliefs, values, and norms of how the members should conduct themselves (Etzioni, 1993).

Cohen (1995) states that "with the workplace replacing the church and state as a primary source

of behavioral norms and even moral values, ideologies reinforced in the work setting have a

stronger impact on behavior outside the workplace than at any other time in history" (p. 338). In

contrast, the workplace, based upon the culture/climate metaphor, is regarded as a community of

individuals who bring with them the ability to believe, to value, and to seek meaning in

organizational missions, goals, and objectives. Organization and ethical climate are important

because these conditions will impact the behavior, motivation, and effectiveness of the

workforce. These forces, if positive and supportive, can strengthen and increase morale and

productivity, but when caustic and damaging, they can cause withdrawal, dysfunctional and

undesirable behaviors.

There is a close and sometimes ambiguous relationship between organizational culture

and climate, which is often ignored in the literature (Ryder and Southey, 1990). According to

Barker (1994), there is evidence the two terms, culture and climate, have frequently been used

synonymously. Despite a large number of studies into climate, attempts to define the construct

in a way that differentiates it from culture have proven problematic (Field and Ableson, 1982).

Moran and Volkwein (1992) argue that while culture and climate are distinctly identifiable
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elements within organizations, there is some overlap between the two terms. Culture is widely

understood to be made up of a collection of fundamental values and belief systems that give

meaning to organizations (Pettigrew, 1979; Schein, 1992). In this respect it is argued to be a

more implied concept than organizational climate, which consists of more empirically accessible

elements such as behavioral and attitudinal characteristics (Moran and Volkwein, 1992). A

further distinction between the two lies in the contention that the climate of an organization

consists essentially of shared perceptions, whereas the culture of an organization is made up of

shared assumptions (Ashforth, 1985). In a similar vein, Moran and Volkwein (1992) have

suggested that climate consists of attitudes and values alone, whereas culture exists as a

collection of basic assumptions, in addition to attitudes and values. Contemporary administrative

literature indicates that the concepts of culture and climate have been widely accepted as a means

to explain organizational behavior generally and ethical behavior specifically (Moran and

Volkwein, 1992; Olson, 2013).

Some literature states that change within an organization calls for its leaders to recognize

and balance culture and climate dimensions. Their approach to defining the main climate change

factors based on organizational culture are Values, Beliefs, Myths, Traditions, and Norms. The

viewpoint of defining climate through these factors may give alternative view how

organizational climate could be defined in change process. Schneider et al. (2013), in their work

Organizational Climate and Culture, argues that there still exists a lack of integration between

both and climate and culture offer overlapping perspectives of integrative experiences people

have in any organizational setting. Deeper integration between both is needed to understand the

organizational change process better. This concept gives managers, who are not only project-

oriented but realize the importance of changing organizational culture an idea on how to deal
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with a top-down approach to influence organizational climate. Nevertheless different

organizations may have some deviations between factors on proceeding with change.

As the organizational climate is perception of organizational culture and is easily

adopted, behavior of individual organizational members could be further explored. The

organizational climate could be differently characterized, for example, people-oriented, rule-

oriented, innovation-oriented. It is most important to explore how the characteristics of

organizational climate are influenced by organizational culture factors and which factors can

influence shifts between the characteristics.

Though closely related to culture, organizational climate holds several important

differences. Climate is held to be a summary perception of how an organization deals with its

members and environments, and thus develops specifically from internal factors primarily under

the managerial influence (Ostroff and Schmitt, 1993). Organizational culture, by contrast, is

created from a broad range of internal and external influences, some of which have been argued

to lie beyond managerial control (Alvesson, 1991). Where climate is measurable quantitatively,

culture seems to require, at different levels, both quantitative and qualitative methods (Olson,

2013). Finally, climate appears to be the result of a manifestation of organizational culture,

whereas culture incorporates climate (Olson, 2013).

Summary

In business ethics literature, the ethical organizational context, as perceived by

employees, is represented by two constructs: ethical climate and ethical culture (Treviño &

Weaver, 2003). Ethical culture is generally defined as those aspects that stimulate ethical

conduct (Treviño & Weaver, 2003). The ethical climate is generally defined as those aspects

that determine what constitutes ethical conduct (Victor & Cullen, 1988).
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Ethical values relate to doing what is morally right. Stahl and Grigsby (1997) describe

ethics as doing the right thing right the first time. Ethics, as in the values a firm establishes in its

goals, policies, and practices are essential in any organizational culture (Olsen, 2013). Ethical

organizational culture, with its shared values, influences employee behavior, and strong ethics

are considered to be the core of a positive organizational culture. The organization’s ethical

culture is vital because decision making without ethical awareness will lead to unanticipated and

unwanted misconduct (Vig & Dumicic, 2016).

The concept of ethical climates, in particular, is a powerful one. Despite the attempts by

the organization to formally create an ethical workplace, it is the perception of these policies,

procedures, myths, and reward and punishment systems and behaviors that are manifested in

actual ethical conduct of the members (Treviño, 1992). Organizational climate can be described

as the shared perceptions of organizational members who are exposed to the same organizational

structure (Ruiz-Moreno, García-Morales, & Llorens-Montes, 2008). Victor and Cullen (1987,

1988) created the concept of ethical climate. James and James (1989) define organizational

climate as a multidimensional construct that encompasses a wide range of individual evaluations

of the work environment. Organization climate is important because it can be a motivator and

indicator of job performance, psychological health, and withdrawal of individuals in an

organization (Carr, Schmidt, Ford, & DeShon, 2003).

There is a close and sometimes ambiguous relationship between organizational culture

and climate, which has often been overlooked in the literature (Ryder and Southey, 1990).

According to Barker (1994), there is evidence the two terms have frequently are used

synonymously. Despite a large number of studies into climate, attempts to define the construct

in a way that differentiates it from culture have proven problematic (Field and Ableson, 1982).
 15

Climate is held to be a summary perception of how an organization deals with its members and

environments, and thus develops specifically from internal factors primarily under managerial

influence (Ostroff and Schmitt, 1993). Organizational culture, by contrast, is created from a

broad range of internal and external influences, some of which have been argued to lie beyond

managerial control (Alvesson, 1991). Where climate is measurable quantitatively, culture seems

to require, at different levels, both quantitative and qualitative methods (Olson, 2013). Finally,

climate appears to be the result of an expression of organizational culture, whereas culture

embodies climate (Olson, 2013).

Conclusion

This paper examined whether ethical organizational culture impacts organizational

climate. Organizational culture was reviewed, as well as organizational climate. Organizational

culture factors influencing organizational climate have been assessed, and theoretical

information has been presented. The results of the research confirmed that stability, reward

system, job satisfaction, team orientation, empowerment, core values, and agreement are most

important organizational culture factors influencing organizational climate.

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