The 5 Stages of Corporate Ethical Development

5 Stages of Corporate Ethical Development

Reidenbach & Robin’s model proposes that there are five stages of organizational morality and ethics. Organizations typically progress through these as they develop, though not all organizations pass through all of the stages.

At the lowest stage, referred to as “amoral”, an organization’s concern for profits far outweighs its concern for ethics.

Organizations demonstrate an increasing concern for ethics at the cost of profit as they progress through the “legalistic”, “responsive” and “emerging ethical” stages of moral development.

Once organizations have fully balanced their concern for ethics and profits, they have reached the last stage or moral development and are considered to be “ethical” organizations.

The model argues that an organization’s culture (the shared values and believes of its members, or ”the way we do things here”), which is heavily influenced by leadership role-modelling, is the foundation on which organizational morality develops. The model was inspired by theories of personal moral development.

Stage 1 – Amoral organizations

The lowest level of organizational development occurs in Amoral organizations. At this level the only concern the organization has is for profit and it will break any ethical or moral rules in the pursuit of that profit. Organizations like this typically don’t last long.

Stage 2 – Legalistic organizations

The lowest level of sustainable moral development for organizations occurs in Legalistic organizations. Organizations at this stage understand the rules and adhere to existing legal and regulatory frameworks. They’re often willing to stay just on the right side of the law in their pursuit of profits. These organizations adhere to laws not through any form of ethics or morality, but simply because doing so is their only route to sustainable profit.

Stage 3 – Responsive organizations

The middle level of organizational morality sees the emergence of Responsive Organizations. While these organizations are still highly focused on profit, there’s an increasing awareness of morality and a desire to “do the right thing” where possible. At this stage, organizations are responsive in their morality and not yet proactive and seeking to be moral and ethical leaders.

Stage 4 – Emerging ethical organizations

The penultimate stage of moral development results in Emerging Ethical Organizations. At this stage organizations nearly balance their concern for morality and profit. These organizations increasingly and proactively consider morality and ethics in their strategic and operational decisions. They usually look to undertake their business ethically as a matter of principle and these behaviors start to permeate their wider organizational culture.

Stage 5 – Ethical organizations

The ultimate stages of moral development that organizations can achieve is reflected by Ethical Organizations. At this stage an organizations concern for ethics is perfectly balanced with their concern for profits. Decisions about the organization’s direction and operations are all made with concern for their ethical impact, and the leadership demonstrate and role-model high levels of morality. These organizations are moral leaders within their industries and their internal cultures are highly moral.

Improving Organizational Morality

The moral development of an organization is effectively a reflection of the organization’s culture. Improving the morality of an organization is, therefor, an exercise in cultural change. Efforts to change organizations in this way usual involve a program of organizational development interventions. As with all change efforts of this nature, it’s advisable to follow best practice models of organizational change such as Kotter’s 8 step model or Lewin’s 3 stage model of change.

Though there are many factors that affect the culture of an organization, including its vision and purpose, espoused values and internal communications, the factor that will have most impact on organizational morality is leadership.

While it’s possible to create organizational change programs to address the broader cultural aspects of morality, the individuals who work in any organization will ultimately take their behavioral cues from those above them.

In short, improving organizational morality requires improving leadership morality.

The 5 Stages of Corporate Ethical Development detail how organizations may progress towards becoming a responsible business. Responsible businesses can be thought of as businesses that focus not just on profit. They also consider their impacts on society and the environment. A good lens to view impact through is the UN’s Sustainable Development Goals.

To learn more, it might be interesting to listen to our podcast case-study of a responsible business. It’s an interview with the chairman of a successful B-corporation, James Perry:

We like the The 5 Stages of Corporate Ethical Development. We like concept of organizational morality and think when organizations behave in an ethical way that they benefit both themselves and society. Though we like the model, we’re not totally sure though that it’s right to separate the morality of the organization from that of the individuals in leadership positions. We know this happens de-facto, given that our organizations predominantly have their own legal identities, but we’re still not certain it’s a good thing.

Whether or not we like the separation of organizations from their leadership, we do like the five stages of morality that are described in this model. We believe that the more people are aware of the moral actions of organizations, the better. This increased awareness of organizational morality should help individuals make better consumption choices.

Our High Horse…

Ultimately, it is our view that as long as companies focus on maximizing shareholder returns, that morality will only enter strategy when that morality is considered to contribute to current or future profitability. This is exactly as things should be under our current paradigm. We, though, believe that new legal frameworks would support increased morality in our organizations, enabling a shift from shareholder capitalism towards stakeholder capitalism, and allow them to make a greater contribution towards better futures for humanity.

Though the model does not specifically call it out, we firmly believe that environmental considerations are hugely important from an ethical and moral basis. We want to call out our view that as a mater of morality, many organizations can and should do more to reduce their environmental impact. In fact, we think many organization should strive to become not simply neutral, but to become net contributors to our global environmental wellbeing.

At it’s core, we think it’s pretty simple. Organizations should cover the costs associated with the negative exernalities they produce. Lots of significant reports seem to come back to this. And this is where regulation comes in, if you’re of that mindset. If you’re other another mindset, then the belief is that another commercial entity will find profit in fixing those externalities so regulation is unnecessary, we suppose.

This post is based on original work by Donal Robin and Eric Reidenback as published in the Journal of Business Ethics. For more details, you can access their article: “A conceptual model of corporate development”. “A conceptual model of corporate development”. The original work behind this topic was completed by the American Psychologist David McClelland. You can read more about it specifically in his 1961 book: The Achieving Society.

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