How an organization's ethical climate contributes to customer satisfaction and financial performance

Abstract

Purpose – Researchers in the field of business ethics have posited that an organization's ethical climate can benefit for employees as well as organizations. However, most of the prior research has been conducted at the level of the individual, not organization. Thus, the purpose of this paper is to examine how an organization's ethical climate has a positive influence on two its performance indicators – customer satisfaction and financial performance – with a perspective of organizational innovation. Design/methodology/approach – The data were collected from 29 subsidiaries of a conglomerate in South Korea. Hypotheses were tested using the partial least squares (PLS). Findings – The result showed that an organization's ethical climate was positively related to customer satisfaction as well as financial performance, and this relationship was mediated by perceived organizational innovation. Additionally, the positive influence of an ethical climate on employees’ perceived organizational innovation was mediated by their organizational commitment and the climate for innovation. Originality/value – With a focus on innovation, the study explained how an organization's ethical climate influences customer satisfaction and financial performance. Furthermore, as was the case in studies conducted in other developed countries, the results derived from South Korea sample demonstrated that an ethical climate is critical for organizational performances in developing countries.

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