Institutionalisation of ethics, ethical climate, and project performance outcomes : the case of business- to- business contractual relationships

Ethical misconduct in negotiating and managing contracts in projects can have significant reputational and financial impacts on people, organisations, and society. While there is a significant and growing body of writing on ethics in organizations, less is known about the ethical climate within organizations and how this impacts the benefits realized. Specifically, in this research my aim is to explore the role of ethical climate in shaping project outcomes in business-to-business contracts. Based on social exchange theory, behavioural integrity, institutionalisation theory, stakeholder theory, transactional cost, and cognitive dissonance theory, a conceptual model is developed in order to explicate the relationships between perceived ethical climate and project contractual performance. In addition, the role of the institutionalisation of ethics is explored in shaping ethical climate. The conceptual framework was tested on a sample of 200 business-to-business commercial relationships between buyers and sellers from diverse industries including oil and gas, IT, supply chain and engineering. The respondents were comprised of senior commercial managers collected through the IACCM (International Association of Contract and Commercial Management: a peak international professional association for contract and commercial managers. Confirmatory and reliability tests were conducted in order to establish that the measurement scale is fitting with the collected date. Structural Equation Modelling (SEM) was utilised to test the proposed set of hypotheses and to gauge if the data adheres to the conceptual model. The results show that particularly explicit institutionalisation of ethics through the ethical climate of the organisation positively influences the contractual performance. However, implicit institutionalisation of ethics has no significant impact on both ethical climate and contractual performance. As one might expect, it was also found that ‘opportunism’ significantly negatively influenced ethical climate, trust and as a result the performance of contractual projects. The theoretical and practical implications of these findings are discussed and suggestions are made as to the possible directions for future research.