And Justice for All… How Organizational Justice Affects Ethical Culture – Ethical Culture Series 2

Organizational justice is the individual's perception of justice in relation to the practices in the organization in which they work. People pay attention to whether the developments in their lives are fair and tend to steer their behavior accordingly. When doing so, they seek to ensure that all three constituent elements of the notion of justice are realized: equality, rationality, and reciprocity (for a situation to be fair there must be a relationship between at least two parties). Within the framework of reciprocity, individuals have the same justified expectations of the places in which they work and of the work relationships that they establish.

Employees compare themselves with others in their organization. They expect the rules to be applied equally to everyone, to be paid equal wages for equal work, to have equal rights for leave, and to benefit from social opportunities equally with others. However, the focus of the perception of justice is not just the comparison of outcomes. An organization’s rules, how they are applied and the interaction between individuals are also at the center of the perception of justice.

It is highly risky and inconvenient for employees to try to establish their subjective justice on their own in their workplace. A process that considers the interests of everyone equally can only be realized under a professional management. Many processes such as managing situations, establishing rules, taking measures to accomplish a purpose, and determining policies should be performed by managers who try to ensure the ethical culture and compliance programs in a company. For instance, it is the duty of Human Resources managers to establish organizational justice (in matters such as fair wages, equal opportunity for promotion and personnel selection procedures) in a distributive, proportionate and appropriate manner.

When employees see that others gain an advantage by not following the rules, they want to see those rule breakers suffer the consequences. Proper interventions appeal to our sense of fairness just like when a cashier intervenes when someone breaks the line in a supermarket.

What Can We Learn From the Ultimatum Game?

The ultimatum game, one of the most famous examples of behavioral economics, was put forward by Werner Güth in the 1980s, and it has since been the subject of social experiments.

There are two players in the ultimatum game, who do not know each other. One of the players is known as the proposer and the other is the responder. According to the experiment, the proposer is given 100 dollars and must offer to share some of this money with the responder (for example, 40 percent of the money). If the responder accepts the share of money offered it will be allocated as agreed by the parties, however, if the responder does not accept the offer, neither party receives any money. As a result of the experiment, it was observed that the offers below 20% of the money were not accepted by responders. Therefore, a proposer must make an offer that satisfies the responder in order to keep any money.

The ultimatum game shows us a remarkable behavior in social psychology related to organizational justice. If there is no fairness in an agreement, people will reject the money that they could earn for free and prevent others from making money.

The game can teach us a lot about creating ethical cultures in companies. When employees think that a company is not treating them fairly compared to other employees, they may opt out of an agreement, that is, break their commitment to the company.

What Can an Ethics and Compliance Officer Do?

Breaking the commitment of employees to a company is a risk that needs to be taken care of. Therefore, an ethics and compliance officer should be the manager that works most closely with HR. If the sense of justice within a company has been damaged, an ethics and compliance officer should implement rules that apply to all employees to help to repair it and should ensure that arbitrary practices are avoided.

In addition to taking steps to create a certain sense of justice within a company, an ethics and compliance officer should also show the same care and attention to violations after they have occurred. Just like a firefighter, the ethics and compliance officer must make sure that a fire is extinguished and does not rise from the ashes. Indeed, a company's sense of justice will be disrupted if violations are tolerated, not stopped and necessary sanctions are not implemented.

White-collar crime undermines organizational justice in a company. These violations can easily be swept under the carpet, which is a common occurrence. In addition, the fact that the damage caused by these crimes is usually noticed too late and is very difficult to compensate for makes these situations more dangerous. Although the number of victims of these crimes is sometimes more than those of street crime, to which society is very sensitive, the silence surrounding white collar crime is an observable behavior in almost every part of society. One of the most important reasons for this is that the culprits in these crimes are influential in society, have high status, and are part of the middle and upper classes. These particular characteristics make people forget how white-collar crime undermines the idea of social order. However, according to Sutherland, who first introduced the concept of "White Collar Crime" in 1949, these people (perpetrators) are perceived as “victims” of the social pathology of urban society.

When it comes to the indispensable concepts of governance such as crime, justice, and equality, they inevitably elicit control mechanisms. One of the most famous examples of a control mechanism is the carrot and stick. In short, this method, which is seen as a valid diplomatic approach used in international relations, rewards good behavior and punishes bad behavior. It is a method that can also be used as a control mechanism for companies that are structured like a small model of a state, although it is an approach that is often criticized. Through the carrot, which represents reward, employees gain motivation, and as a result of the stick that represents punishment, they will avoid mistakes.

Consequences of a Lack of Organizational Justice:

223-Year-Old British Bank Sold to ING Bank for 1 Pound. None of the points raising the importance of maintaining organizational justice are abstract statements. Underestimating these issues can have immediate and devastating consequences. Barings Bank, which was a 233-year-old British bank, is a case in recent memory. The Barings Bank Scandal is used nowadays as a striking example that clearly demonstrates management errors and vulnerabilities in human behavior.

The long-established bank became bankrupt within a few days when the negligence of a trader, Nick Leeson, working in the Singapore subsidiary of the bank, was not detected until it was too late. A number of violations and omissions were poorly managed by Leeson and his mismanagement had a snowball effect.

The bank’s management ignored risk factors such as excessive profit, exceeding limits and continuous demand for funds. They did not conduct a risk analysis and did not take preventive measures. In this case, besides the failure of internal control mechanisms, the inadequacy of HR management was also largely to blame.

When the inevitable end came, Barings Bank, which had been banned from financial markets, declared bankruptcy on 26 February 1995. The bank was then dramatically sold to ING Bank of Dutch origin for £1. This devastating outcome wasn't just about Barings Bank itself, and the "I'm sorry" note Leeson left on his desk didn't save more than 1,000 people who lost their jobs.

As a result, in order to establish and protect organizational justice, which is the lifeblood of a company, company departments that have direct relationships with employees should work very carefully and continuously while looking after fairness. In addition, it is of course very important that every employee assimilates the company's culture of justice and ethics and acts accordingly. Neglecting these issues may lead to steps that bring about a company's demise. Establishing an ethical culture is essential not only for companies but also for society. Because, as Einstein said, "Without ethical culture, there is no salvation for humanity ".