In modern business environment it is imperative to have an ethical climate. Traditional commerce is fundamentally based upon performance and profit. With the ever changing workforce, it is imperative that organisations open themselves up to reorganisation, including the application of ethical and moral decision-making, and incorporating interest of ethics in the corporate structure. According to Victor and Cullen (1988 cited by Cohen 1993, p.343) organisational norms and values are means to show how ethical problems should be addressed, creating an ethical climate which has a powerful impact on employees capacity to do the right things. However, the degree to which organisation encourages ethical practices varies distinctly. .
2.1 Definition: Ethical Climate
Business ethics is concerned with truth and justice and has a variety of aspects such as the expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy, and corporate behaviour. Victor and Cullen (1988 cited by Cohen 1993, p.344) defined ethical climate as the persistent moral atmosphere of a social system, characterised by mutual perceptions of right and wrong, as well as common assumptions about how moral concerns should be addressed. Ethical climate in organisation refers to the way in which an organisation typically handles issues such as responsibility, accountability, communication, regulations, equity, trust, and the welfare of stakeholders. Hence, an ethical climate is usually about standards of behaviour in the workplace as well as with customers and partners. Companies known for high ethical standards usually have an ethical code stating that they treat everyone with dignity, do not present misleading information, and strictly follow rules and regulations.
1.2 Importance of an ethical climate
Having an ethical climate naturally leads to more effective business practices. For example, people are usually willing to pay premium prices to feel good about the products they buy. Companies that follow certain moral codes attract better people, and willing to work harder with less compensation. Ethical companies are less likely to undergo costly scrutiny of courts and regulations. An ethics is a system of standards of conduct and moral judgement, that is, behaviour and belief systems are components of an ethics. Usually unethical practices in an organisation lead to a climate of disrespect and distrust. Thus, business ethics is crucial of any successful enterprise. The Enron Scandal is an example which highlights the importance of ethics. The Enron had a significant corporate collapse in the U.S, and thousands of people lost their job, some lost their entire pensions, and the money they had invested in the corporation after it went bankrupt. This scandal demonstrates the need for significant reforms in accounting, corporate governance as well as for a close look at the ethical quality of the culture of business. A recent example is that of Bernard Madoff, a chairman of a big American investment company. He has enriched himself, at the expense of his thousands of clients across the world, through deceptive practices (namely, a ponzi scheme); the biggest investor fraud ever. Some client businesses have even been forced to close down and most investors have faced massive losses. In March 2004, Former WorldCom chief financial officer (CFO) Scott Sullivan was charged in the multibillion dollar accounting fraud; former controller David Myers and three others pleaded guilty to securities fraud. The jury even held former WorldCom CEO Bernard Ebbers responsible for counterfeit practices that terminated in the biggest bankruptcy in US corporate history. On March 15, 2005, Ebbers was found guilty of all charges and on July 13th of that year, sentenced to twenty-five years in prison
1.3 Necessary indicators to have an ethical climate