Ethical Decision Making in Multinational Organizations: A Culture-Based Model

Chris Robertson Paul A. Fadil

ABSTRACT. The purpose of this paper is to analyze the relationship between national culture and ethical decision making. Established theories of ethics and moral development are reviewed and a culture-based model of ethical decision making in organizations is derived. Although the body of knowledge in both cross-cultural management and ethics is well documented, researchers have failed to integrate the influence of cultural values into the ethical decisionmaking paradigm. A conceptual understanding of how managers from different nations make decisions about highly ethical issues will provide business ethics researchers with a sound theoretical foundation upon which future empirical inquiry can be based.

The term ethics refers to the study of whatever is right and good for humans (Donaldson and Werhane, 1993). In recent years there has been a growing interest around the world surrounding the topics of ethical behavior and social responsibility (Jones, 1991). As trade barriers continue to fall, differences in morality across borders regarding such issues as human rights and environmental conservation are clearly going to gain more recognition in both academic and professional settings (Sikkink, 1993; Gowdy, 1994). While research in the fields of ethics and crosscultural management has received considerable and separate attention, there has been virtually
Chris Robertson previously taught at La Universidad San Francisco de Quito in Ecuador. His research focuses on cross-cultural ethics, corporate codes of conduct, and strategy-based ethical issues. Paul A. Fadil is an Assistant Professor of Management at Valdosta State University. His research interests include attribution theory, organizational culture and change, and cross-cultural management.

no attempt to establish either causal or correlational relationships between these two areas (Vitell, Nwachukwu and Barnes, 1994; Hofstede, 1994). However, as organizations continue to shift their focus to incorporate the international setting, the knowledge and understanding of how other cultures view ethical decisions will become invaluable to these multinational entities (DeGeorge, 1987). The first goal of this paper is to demonstrate that a need for research in the area of ethical decision making from a cultural perspective clearly exists. The second objective is to fulfill this need, as a culture-based consequentialist model of ethical decision making will be proposed. Summaries of the relevant literature in the research fields of culture, moral development, and consequentialist behavioral views will support the derived model, and research propositions regarding the effects of culture on ethical decision making will be delineated. Both the model and proposals will provide multinational organizations with a representative and accurate framework of differences in ethical behavior across cultures.

The need for a culture-based model of ethical decision making As multinational enterprises extend their operations around the globe there will be an increasing demand for an understanding of the cultural values of foreign cultures (Sundaram and Black, 1992; Ginsberg and Miller, 1991). According to Bochner and Perks (1971), people tend to be much more uncomfortable when interacting with members of other cultures than

Journal of Business Ethics 19: 385392, 1999. 1999 Kluwer Academic Publishers. Printed in the Netherlands.

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Chris Robertson and Paul A. Fadil (Kohlberg, 1984; Turiel, Edwards and Kohlberg, 1978). Certain immoral acts, such as the genocide that took place in Nazi Germany, support Kohlbergs (1984) position, while business activities such as bribes or grease payments are used as examples of moral relativism (Speer, 1981). Although Skinner (1971) and Kohlberg (1969, 1984) view the influence of culture on ethical decision making from two distinct paradigms, both philosophers clearly acknowledge that culture does affect the moral structure upon which individuals base ethical decisions. As previously stated, it is the position of the current authors that individuals from different societies will view ethical issues differently. In other words, are there specific cultures that create different ethical climates which encourage or discourage what is generally considered ethical behavior? The culture-based consequentialist model attempts to explain how cultural value differences alter the ethical actions of individuals who are engaged in the ethical decision making process.

they are when interacting with members of their own culture. Personal differences are often exaggerated and disagreements consistently occur when members of diverse cultures are confronted with interpersonal situations (Pulakos and Wexley, 1983). These misconceptions that occur across cultures are due to diverse cognitive views of the world and society (Shaw, 1990). Thus, a working knowledge of these cultural and cognitive differences will not only enhance cross-cultural communication and interaction (Graham, 1985), it will also provide individuals with a general guideline of proper or ethical behavior in the specific countries where their organizations are currently engaging in business activities (Schneider, 1989). Although business ethics has historically been of little interest to organizations in the global environment, the salience of this area has significantly increased over the past ten years (Ciulla, 1991). The recent approval of the North American Free Trade Agreement, as well as other trade pacts (i.e. E. C. 1992), should stimulate global interest regarding the influence of cultural differences on such moral matters as copyright infractions, business negotiations, environmental violations, etc. (Butler, 1993; Guiterrez, 1993; Sikkink, 1993). In 1977, the U.S. Congress passed the Foreign Corrupt Practices Act in an attempt to legislate standards of conduct for multinational enterprises by making it a crime for U.S. based multinational to make sensitive payments, or brides, to officials of foreign governments. This act clearly recognizes the concern for unethical behavior by individuals representing U.S. organizations in their interaction with individuals from different cultures (Donaldson and Werhane, 1993). There has been extensive debate over the influence of culture on ethical values. One view supports the concept of moral relativism which states that each culture has its own unique set of values (Rosen, 1980; B. F. Skinner, 1971). Kohlberg (1984) offers universalism as a contrasting perspective to moral relativism. Universalism contends that all cultures are made up of the same value-set but each culture develops at a different moral pace due to cultural surroundings and other traits of the society

The culture-based consequentialist model The culture-based consequentialist model builds upon previous models of ethical decision making. Our model focuses on the specific cultural dimension of individualism/collectivism and the classic ethical philosophy of consequentialism.

Fig. 1. The culture-based consequentialist model of ethical decision making organizations.

Ethical Decision Making in Multinational Organizations Importantly, the model also incorporates other key stages in the ethical decision making process such as: education and training; moral development; the intensity of the ethical dilemma; and moderating factors.

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National culture: individualism versus collectivism The first stage of the model focusses on the ambiguous notion of culture and the distinction between cultures utilizing values. Specifically, the work of Hofstede (1980, 1983, 1984) and his cultural dimension of individualism/collectivism will be employed as the measure of cultural variation in this conceptual examination. The major advantage of using the cultural dimension individualism/collectivism as the catalyst of influence in this paper is that this dimension is explicit and measurable (Triandis et al., 1988). Specifically, the Individualism/Collectivism scale was developed and tested by Hui and Triandis (1984) and is a sufficient and effective tool which can be utilized to dichotomize an individuals position on this polar continuum. Before exploring the potential impact of individualism/collectivism on ethical decision making, a clarification and definition of the concept culture must be provided. Culture is a term that was originally developed in the field of anthropology, and has recently become a prevalent research area in organizational studies (Smircich, 1983). Unfortunately, a consistent definition of this ambiguous concept is extremely difficult to find, especially in a managerial context. However, there are certain concepts that are ubiquitous to attempted definitions of culture and one of the more accepted ones comes from Kroeber and Kluckhohn:
Culture consists of patterns, explicit and implicit, of and for behavior acquired and transmitted by symbols, constituting the distinctive achievement of human groups, including their embodiment of artifacts; the essential core of culture consists of traditional (i.e. historically derived and selected) ideas and attached values (1952, p. 181).

For years, scholars have called for research that would explain and analyze the relationship

between management, organizations and culture (Evans, 1980). Subsequently, culture is just beginning to be realized as an observable, tangible aspect of human behavior (Adler, 1986). Although the above thick description of culture may be favored by anthropologists, social psychologists have concentrated on a more applicable, operational form of cultural value orientations. In his seminal study, through a factor analytical treatment of country value measures, Hofstede (1980) derived four cultural value dimensions related to basic anthropological, societal and organizational issues (individualism/ collectivism, power distance, masculinity/femininity, and uncertainty avoidance). Of Hofstedes four cultural dimensions, the individualism/ collectivism bipolar continuum has stimulated the most empirical research (Hofstede, 1984; Triandis et al., 1985; Triandis et al., 1988). Since there has been significant empirical and theoretical support for the individualism/collectivism value orientation, this dimension will provide the theoretical foundation necessary for the current model. According to Hofstede (1980, 1984), individualist cultures are societies where individuals are primarily concerned with their own interests and the interests of their immediate family. In collectivist cultures, on the other hand, individuals belong to ingroups or collectivities which look after them in exchange for their loyalty. Cultures that endorse individualism, such as countries in North America and Western Europe, place a high value on autonomy, competitiveness, achievement and self-sufficiency. In contrast, cultures that endorse collectivism, such as countries in Asia and South America, place a high value on interpersonal harmony and group solidarity. Individualism/collectivism has been found to have interesting, global effects on an individuals values. For example, Hegarty and Sims (1979) found that in the United States, an individualist society according to Hofstedes work, the personal desire for wealth is positively related to unethical behavior. Similarly, Hui and Triandis (1984) discovered that people in individualistic cultures tend to be more pervasive in applying their ethical value standards to all, while people

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Chris Robertson and Paul A. Fadil level, the preconventional level is where the individual is concerned with his or her immediate interests and does not yet understand the rules and expectations of society. In the second level, the conventional level, people recognize societal laws, rules, and expectations. The third level, the postconventional level, is represented by people who accept societys rules only if they agree with the moral foundation that the rules are based upon. Generally, children under the age of nine appear in level I, adolescents and most adults hit their plateau in level II, and only a small percentage of people ever reach the third level of moral development (Kohlberg, 1984). Standard open-ended interview questions, named standard issue scoring, are used to measure an individuals relative position on Kohlbergs stages of moral development (Kohlberg, 1984). There have been numerous empirical tests of Kohlbergs model which include longitudinal and cross-cultural analyses. One study discovered that correlations between an adults moral judgement level and IQ range from .37 to .57; which signifies that moral judgement is not strictly based on mental development (Colby, Kohlberg, Gibbs and Lieberman, 1983). The extensive research that has been performed on Kohlbergs model at the international level adds to the understanding of other factors that may amplify an individuals growth through the moral development stages. A longitudinal study of moral judgment in Turkey supported Kohlbergs universalism claim and concluded that the six moral stages did not vary between cultures (Nisan and Kohlberg, 1982). However, it was found that people from villages morally developed at a slower rate than people from the city. While the stages appeared to be the same in both locations, the city dwellers moved more quickly through the stages. Kohlberg credits this interesting difference to the varying cultural surroundings that village and city residents face. Studies by Kohlberg and his research colleagues in countries such as Kenya, Honduras, and India had similar findings (Kohlberg, 1984). The impact of culture on the ethical reasoning of managers in Kohlbergs stages has also been empirically explored. Manning (1981), in a study

in collectivistic cultures tend to be more particularistic, applying differential ethical value standards to members of their ingroups and outgroups. Based on this literature, it is apparent that people from different nations have distinct conceptions of ethical and unethical behavior. P1: The cultural dimension of individualism/collectivism influences a managers ethical decision making.

The Kohlberg stages of moral development Lawrence Kohlbergs (1969) work on moral development has made a major contribution to the research on ethical decision making in organizations and comprises the second stage of the model. Kohlbergs research focuses on moral judgements and the cognitive processes of individuals confronted by ethical dilemmas. A moral judgement, according to kohlberg (1984), is essentially the mental determination of right and wrong which is based on values and social judgements involving people. Kohlbergs model of moral development asserts that individuals pass sequentially through one or more different stages as they morally develop. each stage reflects a level of moral maturity and Kohlberg contends that ethical behavior can be understood by identifying an individuals relative position on the scale. Kohlbergs six stages of moral development are subdivided by three exclusive levels. The first

Fig. 2. The Kohlberg stages of moral development.

Ethical Decision Making in Multinational Organizations of performance appraisal, found that managers in stage one were likely to judge a situation in egocentric terms (an individualist trait) while managers in stage four considered the employees loyalty to the organization (a collectivist trait). Apparently, exposure to diverse cultural environments explains a portion of the variability in moral development rates (Kohlberg, 1984). Based on this analysis, and the work of Hofstede, the following propositions have been developed: P2a: Managers from collectivist societies will reason about ethical dilemmas at higher levels in Kohlbergs stages of moral development than managers from individualist societies. P2b: Managers from individualist societies will reason about ethical dilemmas at lower levels in Kohlbergs stages of moral development that managers from collectivist societies.

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proposed an issue-contingent model of ethical decision making in organizations. The foundation of this model is its focus on the impact of moral intensity on ethical decision making behavior. Moral intensity, according to Jones, is the variance in response by individuals to different moral issues based on the specific characteristics of the issue. Thus, this major contribution by Jones (1991) to the ethical decision making process is incorporated into the present model and we also agree that the intensity of the ethical dilemma clearly has an impact on an individuals judgment and actions.

Moderating effects The major limitation of Kohlbergs model is that it focuses on how individuals reason about ethical matters and not on actual behavior. In Trevinos (1988) person-situation interactionist model of ethical decision making, individual and situational variables are provided as moderators in the ethical decision making process. Trevino proposes that the individual moderators of ego strength, field dependence, and locus of control influence an individuals ethical behavior. Other traits, such as altruism, loyalty, and honesty, affect an individuals action as well (Kohlberg and Candee, 1984). Kohlbergs work (1984) also supports cultures impact on an individuals cognitive decision making ability (an individual moderator) regarding ethical issues. Trevino (1988) also purports that situational variables moderate an individuals ethical response. Factors such as job context, organizational culture, and work characteristics are potential situational moderators according to Trevino. Moreover, group influences on individual decisions are often an integral part of an organizations culture (Trevino, 1988) and can alter the situation in which an individual engages in an ethical decision. Kohlbergs (1984) research also supports that unethical behavior not only results from individual characteristics but also from the interaction of the individual and the situation. In addition, Schneider and Meyers (1991) study found that national culture moderates the amount of crisis situations (a situational moderator) an

Education and training Research on Kohlbergs model also suggests that moral development is positively related to education and work experience (Colby et al., 1983). In an application of Kohlbergs model to a random sample of graduate business ethics students, Penn and Collier (1985) concluded that 37 percent of the students moved to a higher moral development stage as a result of ethical training. Kohlbergs work (1984) also supports that as individuals learn more about moral issues they tend to move faster through the six stages of moral development. Therefore: P3: Involvement in education and training continually increases a managers growth through Kohlbergs stages of moral development.

Intensity of ethical dilemma An important factor that alters the variability of an individuals ethical decision is the intensity of the actual ethical dilemma. In an extensive analysis of previous models, Jones (1991)

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Chris Robertson and Paul A. Fadil likely to judge the ethical dilemma in individualistic terms than managers reasoning in higher stages supports that cultural differences exist in ethical decision making logic. Thus, based on the prior analyses: P5: Managers from individualist societies are more likely to follow the ethical egoist theory of ethical decision making than managers from collectivist societies. Utilitarianism is a theory that was popularized by the nineteenth-century philosopher John Stuart Mill. Supporters of this theory argue that moral action is concerned with more than just personal satisfaction. In utilitarianism, right action maximizes the good of the overall human community, as opposed to ethical egoism where individual utility in maximized. A person following a utilitarian approach behaves in a fashion which attempts to maximize the overall desired benefits of society (Donaldson and Werhane, 1993). Therefore, the following proposition appears logical: P6: Managers from collectivist societies are more likely to follow the utilitarian theory of ethical decision making than managers from individualist societies.

individual confronts, as well as his potential to react effectively in these situations. Thus, based on the above rationale: P4a: The individual factors which moderate ethical behavior are influenced by a managers national culture. P4b: The situational factors which moderate ethical behavior are influenced by a managers national culture. Consequentialist theories of ethical behavior The previous discussion reviewed the cognitive reasoning process that individuals engage in when confronted by an ethical dilemma. This mental contemplation of moral issues has been pondered in the fields of philosophy and religion as far back as the times of Aristotle (Donaldson and Werhane, 1993). However, there has been minimal effort to make a conceptual link between this cognitive activity and decision making behavior in organizations (Fritzsche and Becker, 1984). To gain a better understanding of this relationship, one specific philosophical paradigm of ethical decision making, the consequentialist approach, will now be examined. Consequentialism focuses on the consequences of human actions. Proponents of this theory argue that all actions are evaluated in terms of the extent to which desirable results are achieved (Donaldson and Werhane, 1993; Vitell et al., 1993). Consequentialist theories, which are also known as teleological theories, further argue that the end result of an action or behavior supersedes the concepts of moral right and wrong. There are two basic types of consequentialist theories of ethical decision making: ethical egoism and utilitarianism. Ethical egoism, as its name implies, views right action as that which emphasizes the individuals personal good. An ethical egoist behaves in an egocentric manner which maximizes individual benefits and while minimizing individual harm (Donaldson and Werhane, 1993). Interestingly, Kohlbergs stages of moral development have been applied to ethical decision making situations. Mannings (1981) findings that managers reasoning in lower stages were more

Discussion The primary objective of this paper was to establish a need for research in the area of ethical decision making from a cultural perspective. We believe that our proposed model, and the theoretical foundation upon which it is based, has clearly fulfilled this objective. The strength of the culture-based consequentialist model is that it focuses on one cultural dimension, individualism/collectivism, and one established theory of ethical decision making. Although this narrow scope has its empirical advantages, it also creates many opportunities for future conceptual research through the use of the many existing cultural dimensions and ethical philosophies. The proposed model of ethical decision making has many implications for organizational researchers. The opportunities for empirical

Ethical Decision Making in Multinational Organizations inquiry in this research paradigm are plentiful. Testing of specific hypotheses may add to the understanding of how members of different cultures reason about ethical dilemmas. However, there are many limitations to any empirical examination of both culture and ethics. Generalizations about cultures are often difficult to make due to the existence of vast subcultures in many societies. These subcultures, which are often diverse, should be considered when attempting any cultural analysis. In the study of ethics the social desirability bias amongst the subjects will be quite prevalent. This is compounded by the very nature of social desirability inherent within any collectivist culture. Proper research design can protect against individuals responding to questions in a socially desirable fashion. Managers of multinational organizations may also find the propositions in this paper, if empirically tested, helpful in the understanding of intrinsic differences in ethical decision making by workers and managers from different cultures. Further, a knowledge of how certain societies morally develop may assist managers in international negotiations and corporate policy decisions regarding ethical matters. In conclusion, the purpose of this paper was not to question either cultural or ethical theory, but to work within the bounds of the chosen theories to develop an applicable model which utilizes both culture and ethics as important constructs within its framework. The derived model and propositions attempt to fill a large gap in both cross-cultural and ethical research. This gap concerns the ability to relate differences in cultural values to major ethical issues. According to Negandhi (1974), cross-cultural management is filled with too many conclusions and not enough conceptualizations. His position is still credible today. The Culture-Based Consequentialist Model provides a mechanism by which cultural differences affect important ethical variables, which, in turn, influences how individuals perceive, evaluate and react. The strong theoretical nature of this paradigm, combined with its applicable nature, should prove to be indispensable to future researchers of crosscultural business ethics. References

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Department of Management, College of Business Administration, James Madison University, Harrisonburg, VA 22807, U.S.A. Department of Management & Information Systems, School of Business Administration, Valdosta State University, 1500 North Patterson Street, Valdosta, GA 31698, U.S.A.