An ethical decision has been defined as “a decision that is both legal and morally
acceptable to the larger community” (Jones, 1991: 367). An organization’s focus on legal
responsibilities alone merely represents ethical neutrality. Corporations need to perform
well beyond what the law mandates, implementing moral management in the context of
organization-stakeholder relationship (Carroll, 1991).
There are two general approaches available to firms for promoting ethical conduct; one
focuses on the individual level factors and the other on organizational aspects (James,
2000). Though ethical decisions are made by individuals, yet the organizational culture and
the context tend to shape or at least influence these decisions (Jackson et al. 2012).
Jones and Ryan (1997) proposes that individuals seek moral approval from oneself or
others. They observe that most adults are at Kohlberg’s Stage 3 or 4 of moral development
where they rely on moral cues from their immediate peers or the larger society. Since they
use an external frame of ethical reference, their decision making can be influenced by
organizational goals, communicated values, and adopted structures and strategies.
Hence, leadership can play a crucial role in this regard. Leaders in an organization serve as
role models and can influence followers’ ethical behaviour (Mihelic et al. 2010). Individual
factors affecting behaviour include level of moral development, education in ethics,
current ethical value system, ethical sensitivity, self-concept, self-efficacy, risk taking and
long term/short term orientation (Jackson et al. 2012). The extent to which an
organization’s leadership embodies these factors can impact the ethical dissolution of the
organization.
The organizational culture provides an ethical context in which decisions are made. It has
