Relationship Between Organizational Structure and Business Ethics or Behavior


The involvement of society in business operations in terms of moral requirements is a call that every business organization must yield to. Today, the society is more inclined to ethics in business and this concern has initiated changes in the social responsibilities of business organizations. The public attitude is undergoing a gradual yet continuous shift and businesses are obliged to contribute significantly in solving the social problems that people face. It is no longer a business of profits alone because public demand now calls for business organizations to embrace morality in their all their undertakings.

According to White, ethics is a discipline studies moral understanding by examining the difference between good and bad behavior. However, personal morality and organizational morality will always conflict in one way or another. It is this conflict that defines human proclivity to morality. Based on this understanding, business owners or managers are compelled to make informed choices and decisions in regards to organizational designs so that ethical behavior and moral reasoning are entrenched in the functions of an organization.

While organizations may have well defined and documented code of ethics, organizational structure plays a critical role in the attainment of moral reasoning within an organization. More often than note, the codes of ethics formulated by business organizations are always drawn from the mission and vision of the organization. Little or no consideration is always given to design and structure of organization in relation to business ethics. Whereas it is important to have a code of ethics for employees to follow, it is equally imperative that organizational designs are structured to compliment the former.

Business organizations operate within multiple environments including social, economic, legal as well as political environments. However, as far as business ethics is concerned, it is always the economic environment of business organizations that trigger all the unethical decisions made by decisions makers (koloroutis, 2014). The possibility of circumventing organizational policies at the expense of realizing abnormal profits and yielding to the profit demands of organizational stakeholders cannot be underestimated. It has always created a platform for unethical decision making.

This study explores the relationship between organizational structures and ethics and the effects organizational designs have on the development of moral understanding of all stakeholders in a business organization. In addition, it incorporates studies that have been carried out to examine whether organizational structures have influence on business ethics. Categorically and without loss of generality, this paper analyses business organizations in terms of ethics and design and the impact the latter has on the former as regards decision making.

Theory of Hierarchy

Hierarchy in organizations is an idea that originated from Max Weber. His propositions concerning management extol hierarchy as an important element in management. His theory of bureaucracy describes an ideal organization as one that operates within rules and protocols. He believes in clear definition roles and separation of management and other employees. According to Max Weber, superior- subordinate relationships should be one that superiors exercise total authority over subordinates and the subordinates by equal measure are expected to accept authority. The hierarchy goes down to form a chain of command from which authority is flows up to last group in the chain.

Today, the concept of hierarchy has been questioned by scholars who have developed the perception that hierarchy in organizations has negative effects as far as business ethics are concerned. Hierarchy is viewed as a domination of individual and a decrease in the ability of organizations to embrace change (Feldman, 2002). This system of management encourages implementation of unethical behaviors because all powers are bestowed upon the top management who instructs lower level individuals to implement decisions without questioning.

Hierarchy and Ethics

While hierarchy is inevitable in organizational management, it is important to integrate ethics in hierarchical structures by allowing scrutiny of decisions. Thompson highlights the negative relationship between hierarchy and the ethical aspects of democratic responsiveness. He argues that hierarchies place managers to act beyond the moral proprieties and decencies of ethical behavior. Concern is not given to the consequences of decisions made as long as bureaucrats implement orders as submitted by high cadre mangers.

Another aspect that arises from hierarchical organizations is the dilemma to choose between the organizational moral standing and sacrificing those standards for business success. However, it is also important to understand that the goals set by organization can sometimes be unrealistic to achieve and such scenarios the propensity to overlook moral behavior at the expense achieving such goals is high.The restriction hierarchical organizations have on human development also affects moral development because the latter is a subset of the former.

There are three perspectives that can be established by carrying out a structural analysis of an organization. These perspectives are: rational, natural and open systems. It is important to note that these three perspectives seek to examine the relationship an organization has with the environment from which it operates (Collins, 2000). While natural and rational perspectives holds that an organization’s structure is slightly affected by its environment, open system perspective acknowledges the impact the environment has on organizational structure. The latter perspective views an organization structure as a system that is fully influenced by its environment.

Just like Max Weber’s theory of bureaucracy, the rational system also supports an organizational system that is governed by well-defined systems of command with specific organizational goals. An organization that embraces formality in its entirety with leaders having the radical power to make decisions for the company. This system emphasizes on the coordination of behavior and control of personnel to achieve the goals and objectives of the organization.

Unlike the rational system perspective on an organization, the natural system perspective argues that there exist a difference between an organization’s expected goals and real goals. In this regard, it acknowledges that organizational behavior is part and parcel of an organization’s endeavor to accomplish its goals. The element of social engagement between the organization and its environment defines the methodologies employed by an organization to achieve its goal. This perspective appreciates the need for moral reasoning and understanding within an organization as an important aspect that not only builds an organization’s public perception but also creates a noble working environment.

Open systems perspective acknowledges the impact the environment has on an organization in terms of its design and structure. An organization can adopt a given structure based on the requirements of the environment it operates in. The varying and complex nature of business environments justifies the differences in organizational structure in terms of business ethics and behavior. For example, business organizations operating within an environment of corrupt government systems are likely to assume business ethics and uphold decisions that are not morally acceptable.

Ethics and Capitalism

The society has become so sensitive to business ethics by creating a social system that seeks to enhance the general well-being of the society. Capitalism as a self-regulating system has been developed to govern societal practices as far as business is concerned. Societies today ensure business ethics precede economic decisions made by business organizations. It is a general tendency for economics to presume that individual have their own personal rights and thus can assign priorities and implement them using their preferred options. It however, does not take into consideration the insatiable nature of human beings and greed that surpasses corporate social responsibility. Capitalism therefore is an important aspect in promoting business ethics because business decisions are made by individual business owners who have a moral obligation to protect the general well-being of the society. Private enterprises have to ensure social responsibility unlike government business organizations where long chains of command are used as scapegoats for implementing unethical decisions. Unethical behavior in any organization is reinforced by its own management because organizational decisions are made by its top management.

Ethics in Organizations

Ethics in organization can be viewed from two perspectives, the individualistic approach or the communal approach. Whether individualistic or communal, the need for moral responsibility is inevitable despite the different views the two perspectives have as far as resolving ethical problems in business organizations is concerned. Discussions about moral responsibility are always attributed to individualistic approach to social responsibility where personal interests precede communal interests. In this regard, communal approach becomes the best approach to social responsibility because businesses are viewed not as private entities but as communal entities that operate in the best interest of the society at large. This means that tailoring individual behavior to suit the moral requirements of the society requires change of society in terms of how they view morality.

Individualistic and communal approaches are also critical in the evaluation of moral understanding in businesses as well as in the society. While individualistic approach emphasizes on personal development and protection of individual rights, communal approach enjoins the society through development of organizational policies that promote social justice and bring forth benefits to the society.

Micro-ethics and macro-ethics

Business ethics in organizations not only require moral training of managers but also the incorporation of moral concerns in the design and structure of organizations. Micro-ethics and macro-ethics are two categories of business ethics that deal with the above mentioned aspects that define social responsibility in organizations.

Micro-ethics is a social responsibility component that is concerned with the moral training of managers and provision of moral rationale to decision makers within a business organization (Adam, 2013). While short-term goals may be important to an organization because they add up to the long terms goals, it is important to appreciate the future of an organization by maintaining good public opinion. Competition has increased and businesses solely rely on reputation and brand image to survive the competitive market. Unethical decisions such as exploitation of customers in terms of product prices can result to the downfall of a business organization. The onus therefore lies with the organizational management to extol virtues of moral practice by taking the lead through ethical decision making and taking measures against unethical practices.

Whereas micro-ethics deals with the moral conscience of organizational managers and their proclivities to moral reasoning, macro-ethics on the other hand looks at social responsibility in the broader perspective of the whole organization. The top management may be determined to facilitate social responsibility; however, it is important to understand that the whole organization must share the same ideology of upholding moral reasoning not only within the precincts of the organization but also outside the organization.

Central to this argument is the need to provide leverage for the top managers to make ethical decision by designing a flexible organizational structure and providing guidance as to what constitutes ethical behavior to all the other stakeholders of a business organization. This simply means that the practice of social responsibility by business organizations is not a one man call but a general concern to the organization in its entirety. To accomplish ethical behavior in organizations, systems must therefore be put in place to reward moral behavior and punish by equal measure unethical behavior.

The need for business ethics and social responsibility compels business entities to embrace at least four essential ethical obligations which include:

  • Provision of socially acceptable and valuable products
  • Maximization of profits through productivity optimization
  • Maintenance of business economic health
  • Designing organizations to protect the dignity of its stakeholders and the public

The attainment of corporate social responsibility can only be achieved when the structure of an organization is made less rigid in terms of hierarchy and oversight committees with the mandate of decision scrutiny established. Additionally, the board of directors being the decision makers in any business organization should be held accountable for the organization’s social responsibility. In simple terms, they should be responsible for all the decisions they make and ensure they are in tandem with the moral requisites of the society (Collins, 2000).

Business ethics and formal organizational designs

While formal structures may be necessary for business organizations, they are not sufficient for ensuring business ethics. Additionally, moral training to organization managers is not adequate to promote ethical behavior within an organization. It is therefore imperative for organization managers to make considerations and develop organizational structures that favor ethical sensitivities rather than undermining ethical behavior. There are three critical characteristics that affect ethical behavior within organizations. They include:

Reward systems- whether monetary or non-monetary, reward systems create a platform on which workers resort to unethical practices in pursuit of rewards. Workers may make unethical decisions such as deceit to customers to attain exemplary performance for the mere reason of getting a reward.

Performance evaluation systems- these are systems within an organization that evaluates performance of stakeholders within an organization. In most instances exemplary performers are always rewarded with either a promotion or salary increment. This forms a ripe sector for unethical decision making. It is important for the organization management to make it clear that organizational goals are the ultimate purpose of the organization but on the same note emphasize on the need to consider the means to that end. In addition, the performance evaluation systems should be devised not only to assess the tangible returns from individuals but also the overall behavioral characteristics of individuals.

Delegation of decision-making rights to workers- while workers’ opinion may be important for the overall management of an organization, it can equally be a destructive idea to grant employees the right to make decisions of their own regarding certain organizational issues that may result to sensitive consequences.

Decision making whether in formal structures or decentralized structures may still fail is there is no link between knowledge and the right to make organizational decisions. Managers within the ranks of a formal organization may make unethical decisions because of lack of knowledge regarding the consequences of their decisions. By the same token, decentralized organizational structures may succumb to the destructive consequences of unethical decision-making because employees may make unsound decisions as a group and escape accountability. However, if the decision making process in decentralized systems are well monitored then chances of positive behavior change in employees are high.

Rational Organizational Structures and Business Ethics

Whereas it is difficult to understand the relationship between organizational structures and business ethics, it is important to understand that organizations with rational systems can be used to foster ethical decision making. Organizations with rational operation systems provide a working environment that promotes business ethics and moral reasoning in terms of decision making. Reliable systems are very useful to an organization because they have well laid out plans of accomplishing organizational goals therefore limiting the possibilities of unethical decisions to achieve organizational goals.

Reliability simply means the ability of a system to continuously produce successful results when used over and over again. Organizations with reliable systems are therefore considered successful organizations because the ay are able t achieve their desired objectives. In this regard, reliable systems can be used to promote business ethics because organizations will seek to maintain their status quo rather that use underhand techniques which may water down organizational reputation.

Most often, unethical decisions always arise in situations where individuals are inclined to satisfy their personal interest rather than the general interest of the organization. However, reliable systems can be designed to ensure that individuals despite serving their own interest make ethically sound decisions. It is therefore important to take into account the needs of all stakeholders in a organization and design a reliable organizational system that promotes business ethics.

There are two ways in which reliability can be integrated into an organization, that is, redundancy and requisite variety. Redundancy refers to the contingent measures put in place in an event of failure. These actions may include reactive measures as well as alternative approaches to achieving organizational goals. Requisite variety ensures that an organization has enough internal systems in place to cope with the complex environmental factors that affect the organization.

The concept of redundancy however, does not appreciate the theory of rational systems in promoting ethical behavior. This is because decision making is centralized and thus subjective with no room for scrutiny. The top management has the final say on what happens within the organization. Redundancy is applicable in organizations with tight regulations with no measures in place to allow flexibility in decision making in case of unanticipated situations.

Requisite variety is essential in the decision making systems within an organization. It enables organizations to assess and point out environmental changes affecting the organization and prompt for alternative solutions to be generated by decision makers. Studies suggest that having a variety of solutions to a course reduces the possibilities of making unethical decisions (Husted, 1993). An organization can introduce requisite variety by establishing a board of directors comprising of representatives from every level of an organization. It is equally essential to assign oversight systems to monitor and provide objections to planned courses of action and provide recommendations and alternatives for the same.

Designing organizations based on reliability has its own limitations. By the same token, incorporating redundant functions in an organization has cost limitations especially in high risk environments where the cost of implementing such systems may outweigh the benefits. Besides using redundant functions to foster business ethics, it is also important to understand how control systems in an organization affects decision making.

Studies on Organization design and Ethical Behavior

Research studies have been carried out to examine the relationship between organizational design and ethical behavior. This paper outlines two recent studies on the same with descriptions and findings.

White Study

Richard White carried out a study to examine the relationship between hierarchical organization structures and their effects on the moral development of organizational stakeholders. He used a highly rigid hierarchical organizational structure to study how it influences moral reasoning of members of an organization. Analysis was done using Kohlberg’s six-stage moral development framework to ascertain the various levels of moral development. Rest’s Defining Issues Test (DIT) was used to measure the moral reasoning levels of samples.

Kohlberg argues that human beings gradually develop from a low level to high level position of moral reasoning. He understands moral judgement in terms of how people reason. DIT is a process that uses a given set of multi-choice questions to quantify moral judgement. These questions are drafted in such a way that they present a dilemma that prompts for the best course of action. Scores are then assigned based on Kohlberg’s stages of moral development. The higher the DIT the higher the level of moral development.

The military was used as a sample for the test because military organizations have rigid hierarchical structures. Comparison was made to the society to investigate the difference organizations with rigid hierarchies have on its members vis-a vis a less rigid societal hierarchies. The US Coast Guard; the coast guard vessel was also selected for the test because of its rigid hierarchical structures compared to on-shore operations.

The DIT results of the test showed that the US Coast Guard had a lower DIT than that of the adults from the society. In addition, the Coast Guard vessel had lower DIT compared to the scores of the Coast Guard on-shore operations. In essence, the studies carried out by Richard White depicts that a relationship exists between hierarchies and moral development. He found out that an individual’s moral development is adversely affected by organizations with rigid hierarchical structures.

This research therefore supports the previous studies carried out by other theorists who suggested that there is a negative relationship between moral development and hierarchical structures. Organizations that follow protocols and strict regulations limits the freedom of thought and can sometimes stifle judgement. Such organizations structures hinder moral development of individuals and the possibility of making unethical decisions is high given the fact that no one is responsible for such action except for the top management from which all rules and instructions are given.

Schminke Study

This study was carried out by Marshall Schminke to investigate the effects of a highly bureaucratic organization on the moral reasoning of employees. His study was based on two comparisons. One was the effect of highly centralized organization structures on ethical behavior and the second one was the effect of decentralized organization on ethical behavior of employees. The study covered several organizations both private and public organizations and the survey investigated on the degree to which decision making is devolved within the ranks of the organization. The survey questions asked among other things the frequency to which workers are allowed to participate in decision making, procedures in organizational operations, job descriptions, organizational policies in place etc.

Every individual’s result was tabulated and their ethical behaviors measured using the Measure of Ethical Viewpoints. Similarly, individuals who worked under decentralized organizational structures showed a higher predisposition to ethical behavior compared to individuals who worked under centralized organizational structures. By the same token, individuals from highly formal organizations showed higher moral levels than those from less formal organizations. This study contradicts White’s study in the sense that it argues that organizations with rigid hierarchies show high ethical standards on employees. However, he bases his argument on the importance of organizational policies on the running of organizations.

Business ethics in strategic alliances

Today, businesses are undergoing a paradigm shift in corporate strategy including firms with strategic alliances. The rising number of issues concerning control of business networks has prompted organizations to adopt modern methods of behavior control. Social issues have become a key aspect in the running of organizations especially those that operate under strategic alliances. Emphasis on using “clan control” systems to promote ethical behavior and uphold social well-being in the running of business organization is an inevitability if businesses have to prosper and establish strong reputations. There is need for business organizations with strategic alliances to share similar values as far as business ethics is concerned.

In reality, it is very difficult to have control systems to monitor ethical behavior of business partners. It is for this reason hat business partners must always rely on trust and good reputation of each other to make their business a success. It is safe to do business with only those organizations that have good reputation and no record of unethical dealings. Governing policies and organizational values are equally critical in streamlining operations.


Business organization must embrace good ethical behavior for them to survive the current competitive markets. It is important to understand that ethical behavior is not only affected by formal business structures but also other factors such as business environment, corporate norms, organizational culture and policies (Lozano, 2000). Human moral development is however a very critical aspect in organizational management because it plays a vital role in determining the relationship between organization and the public. Today most businesses depend on reputation for their survival and success.

In response to this demand, business organizations are integrating aspects of social responsibility in their management. In addition, business organizations are also employing the use of rational systems to control moral behavior within their organizations. However, rational systems alone are not sufficient to eliminate unethical behavior in business organizations. This is because rational systems do not take into account other factors such as human factors which are also an important element of ethical behavior. Human factors are considered under open systems theory of organizational design. An integration of open systems and rational systems theories of organizational design can therefore make a perfect system that can be used in controlling ethical behavior in organizations.

While organization policies, values and codes of ethics can be used to foster ethical behavior within business organization, they are never the ultimate solutions unethical behavior. Nevertheless, they still play a vital role in providing directions and guidance to employees as far as embracing ethical behavior is concerned. The ultimate purpose of an organization is to achieve its goals and every effort is directed towards accomplishing organizational goals and objectives. The desire to achieve organizational goals creates a platform on which all unethical business decisions are made.

In this respect, it is important for business organizations to establish goals that are realistic and achievable using the normal business practices and operations. Certain organizational cultures such as those that focus much on performance and achievement of goals create an environment that invites unethical behavior. It is good business practice to use acceptable business practices to realize organizational goals because it not only serves to promote social responsibility but also builds a good portfolio for business organizations.

Of importance to note therefore, is the need for business organizations to cultivate an organizational culture that promotes ethical behavior. Business organizations should make ethical behavior a dire concern in every undertaking within the organization. The problem of unethical behavior has always been fostered by the mere belief that organizational goals must be achieved regardless of the means to that end. Based on this premise, business organizations should focus on establishing a moral climate within their business environments to ensure ethical behavior and social responsibility. By identifying and appreciating the mission of an organization, mangers can commit to social responsibility and influence other stakeholders to embrace business ethics.

In business ethics, honesty has always been viewed by people as the only missing connection between ethical behavior and organizational structures. Organizations must embrace some level of truth so that ethical behavior can permeate an organization. Organizations must incorporate ethical behavior and moral reasoning within their structures so that their performance can be appreciated both in an economic perspective as well as in a social perspective.

Organization cultures, corporate norms, policies and values are important elements that must be integrated with an organization’s mission and vision to guide organizational members on the best behavior to embrace. These elements must exist within a flexible organizational structure that appreciates formality and ethical decision making. The general perspective of an organization that follows business ethics is showed by the top management because they are the face of the organization. However, other stakeholders must also emulate their managers and help in the establishment of a good reputation.

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