The importance of the psychological process of ethicality in various areas of social life has long been recognized by moral philosophers. The pervasiveness of the failure of individuals to act ethically makes it necessary to understand and adjust the ethical standards that they hold (Bazerman & Banaji, 2004; De Cremer, Tenbrunsel, & van Dijke, 2010). Given the importance of ethicality in solving ethical failure, the quality of ethical decision making should be maximized with appropriate ethical decisions.

An essential prerequisite for ethical decision making and ethical behavior is ethicality evaluation, which refers to an individual’s evaluation of another person’s ethical behavior and perception of that person’s level of ethicality. For example, in the workplace, inaccurate ethical evaluations of subordinates by their supervisor indicate that the supervisor cannot distinguish ethical from unethical behavior, thereby encouraging the subordinates to breach ethical standards (Bazerman & Tenbrunsel, 2011). To make an accurate observation of a person’s moral character requires “a considerable amount of time, samples of behavior, and experience with a person” (Cohen, Panter, Turan, Morse, & Kim, 2013, p. 819), and specific psychological skills are required for the process (Cohen et al., 2013). In the moral (ethical) evaluation process, people must make judgments about whether or not a person is honest, compassionate, fair, worth affiliating with, and trustworthy, and whether or not a decision is right or wrong, or good or bad (Helzer et al., 2014; Kelley, 1971). Ethicality evaluation also constitutes an important kind of social influence, because moral judgments mediate the relationship between the social system and individual behavior (Kelley, 1971).

In this context, it is paramount that an individual’s ethical decision making is subjective and context dependent. The process of ethical decision making is influenced by both personal and situational factors. First, individual differences, such as cognitive moral development, impact on ethical decision making through influencing the ethical reasoning process (Craft, 2013; Kray & Haselhuhn, 2012). Demographic factors like age and gender may have an impact (Chan & Leung, 2006; Krambia-Kapardis & Zopiatis, 2008), and personality factors and mindfulness, an individual’s awareness of his or her present experience (Ruedy & Schweitzer, 2010), have been found to be related to ethical and unethical decisions and behavior. Second, situational factors also influence ethical decision making, because cognitive moral development relies on individual rationality in understanding different contexts, and the propensity to be guided by situational values (Watson & Berkley, 2009). For instance, the values of traditionalism, conformity, and stimulation combine with situational factors to impact on an individual’s ethical judgment (Watson & Berkley, 2009).

In the fields of social psychology and behavioral business ethics, many researchers have examined the factors influencing the ethical decision-making process (Cagle & Baucus, 2006; Chan & Leung, 2006; Craft, 2013; Krambia- Kapardis & Zopiatis, 2008). However, fewer researchers have investigated the subjective and context-dependent nature of ethicality evaluation. In these studies there has rarely been any examination of how the raters determined their ethical ratings, although the evaluation process has obviously been influenced by the raters’ individual traits, such as their inherent values, cognitive abilities, and emotional state (Craft, 2013; Jordan, Brown, Treviño, & Finkelstein, 2013; Loke, Heyman, Forgie, McCarthy, & Lee, 2011). Rater effect cannot be neglected in the evaluation process. For example, in performance evaluation, Scullen, Mount, and Goff (2000) indicated that, of the five factors influencing performance ratings, the rater’s idiosyncratic rating tendencies accounted for more rating variance than did random measurement error and other effects. Similarly, Wang, Wong, and Kwong (2010) demonstrated that, in ratings of performance, raters with different goals tended to employ different tactics (either inflating or deflating). In their creativity assessment study, Long and Pang (2015) pointed out problems in ratings that depended on the raters’ personal judgment that was based on their own definition of, or criteria for, creativity. Rater effect also exists in ethicality evaluation. For example, Reynolds (2003) found a negative relationship between a positive self-bias in individuals’ perception of their own ethics and of organizational ethicality.

Social context is another important factor that exerts an impact on raters’ judgments in their evaluation of ethical attitudes or behavior in the workplace (Yun, Donahue, Dudley, & McFarland, 2005). According to integrative social contracts theory (Donaldson & Dunfee, 1994), managers should apply ethical standards that depend on the type of norm identified as applying to a given situation. The interpersonal perception among acquainted individuals in the workplace provides such a situation and gives necessary information for the perceivers to construct judgments and norms to provide appropriate ethical guidance. These judgments influence individuals’ ethical evaluations and behavioral intention (Malloy & Albright, 1990; Spicer, Dunfee, & Bailey, 2004). Therefore, ethicality evaluation is socially determined. Previous findings support the effect of context on ethicality evaluation. For example, in 1998, Treviño, Butterfield, and McCabe conducted a field survey with respondents who worked in organizations with and without codes of ethics, to examine the influence of ethical context in organizations. Ethical context was represented by two constructs, namely, ethical climate and ethical culture, and can influence employee attitudes and behavior, such as unethical conduct.

We expected that the interaction between raters’ characteristics and the rating context would affect individuals’ ethicality evaluation, because it is natural or automatic for raters, when inferring the meaning of behavior and making ethical decisions, to consider and incorporate the context (Barrett, Mesquita, & Gendron, 2011). Thus, our aims in this study were as follows. First, our focus was on the subjective and context-dependent nature of ethicality evaluation. A finding of a significant relationship between context, raters’ psychological differences, and their ratings of ethicality, would provide initial evidence for the existence of subjective and context-dependent dimensions in the ethical perception, judging, and evaluation process. Second, we extended ethicality theory based on the perspective of the observer. Although this is an essential role in the evaluating process, its effect has been largely ignored by researchers. By concentrating on the rater, we believed that we could reveal how raters’ psychological differences influenced their ethicality evaluation. This would provide suggestions to enable individuals to reduce misjudgments in ethical decision making by regulating and solving ethical failures effectively. Third, as we examined individual and contextual factors simultaneously, we aimed to uncover their interaction effect on ethicality evaluation, whereas previous researchers have focused on either rater or situational effect. Thus, we expected to provide a better understanding of the evaluation process. This process plays a significant role in helping to solve problems such as moral blindness, namely, people claiming not to perceive wrongness in moral judgments (Cullison, 2010). It is difficult for people to remain morally blind when an ethicality evaluation provides a precondition of a situation. Fourth, we highlighted the motivational dimension in the ethicality evaluation process. Although previous researchers have placed importance on the cognition mechanism, they have relatively ignored the motivation mechanism, which provides critical solutions to problems such as ethical breakdowns (Bazerman & Tenbrunsel, 2011). At the time of an ethical breakdown, a person has a need to consciously consider or reason about what he or she must do, and this shakes the person out of the everydayness of being moral (Tigon, 2007). The person must then “find ways, and choosing and reasoning may only be two of the possible ways, to return to the unreflective state of being moral” (Zigon, 2007, p. 133). We wished to consider what organizations really encourage employees to do, and to emphasize the significance of the psychological dimension of motivation in shaping the understanding of ethicality.

Influence of Regulatory Focus on Ethicality Evaluation

We chose raters’ regulatory focus as an important individual factor influencing ethicality evaluation because regulatory focus can energize and direct people’s behavior, for example, by motivating them to adopt a heterogeneity of coping strategies when dealing with new tasks or confronting unprecedented problems (Higgins et al., 2001). As a way of explaining individuals’ cognition and behavior, regulatory focus is a motivational principle in which self-regulation has either a promotion or a prevention focus (Higgins, 1997). A promotion focus is concerned with advancement, growth, and accomplishment, and insuring against errors of omission, whereas a prevention focus is concerned with security, safety, and responsibility and insuring against errors of commission (Crowe & Higgins, 1997).

Gino and Margolis (2011) found that people with a promotion focus “are more likely to cross ethical boundaries” (p. 152), that is, to breach ethical standards and implement unethical behavior. This is because individuals with a promotion focus tend to be risk-seeking, whereas individuals with a prevention focus incline to risk avoidance (Gino & Margolis, 2011). Regulatory focus can therefore influence ethicality evaluation. Crowe and Higgins (1997) discussed differences in individuals when they were working on a signal detection task, which required them to decide whether or not they detected a signal. Crowe and Higgins found a risky response bias in those with a promotion focus, whereas individuals with a prevention focus had a conservative response and took more time to respond.

When confronted with the same situation, people will shape different ethical perceptions according to their regulatory focus. There are specific ethical judgment biases, and people with a promotion focus tend to be considerate in understanding other people’s ethicality-related behavior and to overrate their leader’s ethical leadership. That is, they may convince themselves that their leader’s unethical decision must be ethical at the leader’s level. In contrast, there is a greater likelihood that individuals with a prevention focus will make strict ethical judgments and that they will underrate their leader’s ethicality traits and behavior. Thus, we proposed the following hypothesis:
Hypothesis 1: Raters’ regulatory focus will be associated with their ratings of supervisors’ ethical leadership such that when raters have a promotion focus, this will be positively related to their ethical leadership rating, whereas when raters have a prevention focus, this will be negatively related to their ethical leadership rating.

Influence of Context on Ethicality Evaluation

We further argued that the relationship between employees’ regulatory focus and their rating of ethical leadership would depend on the context. In certain ethical contexts, perceivers are able to acquire the necessary information to develop an ethical judgment. The rating context established by an organization’s involvement in various activities is a key stimulus for raters to choose and hold a particular regulatory focus. Raters can be motivated by regulatory focus in diverse contexts with their leaders, as well as by organizational culture, climate, and norms (Valentine, Nam, Hollingworth, & Hall, 2014).

In the evaluation of ethical leadership, the leader’s moral attentiveness is a paramount element of social context for employees. Moral attentiveness is a construct developed by Reynolds (2008) to describe how people perceive and consider morality and moral aspects in their lives, and it comprises two dimensions, reflective and perceptual. Through its influence on individuals’ “recall and reporting of self- and others’ behaviors, moral awareness, and moral behavior” (Reynolds, 2008, p. 1029), moral attentiveness affects individuals’ understanding of their moral world (Reynolds, 2008). In this study, we were curious about the role of supervisors’ moral attentiveness in the interaction between employees and supervisors. We also chose moral attentiveness as an element in the rating context because it draws on a more general category of moral concepts than do specific types of moral frameworks, such as utilitarianism or formalism (Wurthmann, 2013).

Supervisors’ moral attentiveness may have a negative moderating effect on the correlation between regulatory focus and ethical leadership rating. Reynolds (2008) found that both dimensions of moral attentiveness were associated with individuals’ recall and reporting of their own and others’ morality-related behavior, moral awareness, and moral behavior. High moral attentiveness in supervisors requires them to pay more attention to the moral elements in their work, life, and experience, and demands that they intuitively grasp every opportunity in the workplace to recall and report morality-related behavior. When a supervisor shows moral awareness by behaving morally, this contributes significantly to how others perceive and understand their own moral traits and behavior. In circumstances of frequent exposure to moral issues, when it is unlikely that an action will evade the supervision of leaders with high moral attentiveness, employees are likely to develop a more disinterested and accurate understanding and more perceptive judgments of the supervisor’s leadership. Thus, we proposed the following hypothesis:
Hypothesis 2: Supervisors’ moral attentiveness will negatively moderate the relationship between raters’ regulatory focus and their ethical leadership rating, such that both the positive relationship between a promotion focus and ethical leadership rating, and the negative relationship between a prevention focus and ethical leadership rating, will be weaker.

Method

Participants and Procedure

Participants were department heads and employees who reported directly to them working in a large-scale Sino-American joint venture in the boiler manufacturing industry in Beijing. One of the corporate executives was a student in the executive development program at the authors’ university. With the company’s permission for staff members to participate in a management study, we provided the management personnel with a briefing on our research goal and procedures. Later, we asked for a list of department heads, including their titles and contact information. We used this list to invite department heads and four to six of the subordinates of each head to complete the survey. Then we introduced our study project and assured participants of the confidentiality of the files within the organization. After participants had filled out the survey, we also collected demographic information, including gender, age, education, position held, and work seniority. We followed Brislin’s (1970) back-translation procedure by translating the survey items, after which two doctoral students, who majored in management, back-translated the items.

After incomplete responses and unsuitable surveys had been eliminated, there were valid survey forms from 40 department heads (supervisors) and 142 matched employees (subordinates), giving a 59% response rate.

Measures

Regulatory focus. Employees (subordinates) filled out the Regulatory Focus Questionnaire developed by Higgins (1997) and Higgins and colleagues (2001). Responses to the 32 items were rated on the 7-point Likert-style scale (1 = strongly disagree, 7 = strongly agree). A sample item is “Compared to most people, are you typically unable to get what you want out of life?” The reliability of the subscales of prevention and promotion focus were .75 and .85, respectively.

Moral attentiveness. We measured both dimensions of moral attentiveness using the 12-item Moral Attentiveness Scale developed by Reynolds (2008). Department heads (supervisors) assessed their own moral attentiveness. Their responses were rated on the 7-point Likert-style scale (1 = strongly disagree, 7 = strongly agree). Sample items are “In a typical day, I face several ethical dilemmas” and “I often have to choose between doing what’s right and doing something that’s wrong.” The reliability of the scale was .87.

Ethical leadership. We measured ethical leadership with the 10-item Ethical Leadership Scale developed by Brown, Treviño, and Harrison (2005). Employees’ (subordinates) responses concerning an evaluation of their department heads’ (supervisors) ethical leadership were rated on the 7-point Likert-style scale (1 = strongly disagree, 7 = strongly agree). A sample item is “My direct supervisor listens to what employees have to say.” The reliability of the scale was .78.

Control variable. We controlled for leader-member exchange (LMX) because it has been found to be a significant factor in the relationship between leaders and subordinates. It helps to shape the work atmosphere and directly regulates the bilateral interaction and benefit distribution (Eisenberger et al., 2010; Li & Liao, 2014). LMX was measured using 12 items adapted from Liden and Maslyn’s (1998) and Scandura and Graen’s (1984) scales. Employees’ responses for their evaluation of their supervisor’s LMX were rated on a 7-point Likert-style scale (1 = strongly disagree, 7 = strongly agree). A sample item is “How well do you feel that your immediate supervisor understands your problems and needs?” The reliability of the scale was .79.

Data Analysis

We conducted hierarchical linear modeling (HLM) because the nested nature of the data is taken into consideration in HLM. In addition, we could estimate the effects of different level factors on individual-level outcomes and maintain the appropriate level of analysis for the predictors (Bryk & Raudenbush, 1992). We used two-level models (HLM2), wherein rating scores constituted the Level 1 cases nested within the Level 2 raters. The Level 1 outcome variable was the ethicality rating of a supervisor by an employee, and the outcome variables of Level 2 were the intercept and slope at Level 1.

Results

To examine the different patterns of the employees’ ratings of their supervisors’ ethical leadership according to the raters’ type of regulatory focus, we tested the interaction term of the employees’ regulatory focus and supervisors’ moral attentiveness in the Level 1 model. We group-mean centered the Level 1 predictors to reduce the potential for multicollinearity in the Level 2 estimation. The means, standard deviations, and correlations of all variables in the HLM are presented in Table 1. A summary of the HLM results is shown in Table 2.

We first checked if there was significant variance in rating across raters. We built a null model to examine the between-rater variability of the intercept (t00) and the intraclass correlation (ICC[1]). ICC(1) represented the proportion of variance in the outcome variable that resided between raters. We found significant between-rater variability for ethicality rating, ICC(1) = .06 (see Table 2, Model 1). The results indicated that it was appropriate to use HLM to test the hypotheses. A necessary precondition for testing cross-level interactions is that the slopes of the relationship between regulatory focus and ethicality ratings vary across raters. The results revealed significant variance in the Level 1 slopes (U1 variance = .03, p < .05). Thus, it was appropriate to test the cross-level interactions with our data.

Hypotheses Tests

The results of the multilevel models employed to examine Hypotheses 1 and 2 are shown in Table 2. After controlling for LMX in our models to partial out its effect, we found that there was a significant main effect of promotion focus on ethical leadership rating. In contrast, the relationship between prevention focus and ethical leadership rating was not significant. These findings suggested that raters with a promotion focus gave significantly higher ratings on their supervisor’s ethical leadership compared to raters with a prevention focus. Thus, Hypothesis 1 was only partially supported.

The results in Table 2 (Model 3) show that the interaction between a rater with prevention focus and the leader’s moral attentiveness was significant. In Figure 1, the pattern of the interaction depicted was consistent with Hypothesis 2. To further probe the nature of this significant interaction, we ran simple slope tests following the procedure developed by Preacher, Curran, and Bauer (2006). We estimated the slopes at two levels of prevention, one standard deviation above, and one standard deviation below, the mean. For raters with a high prevention focus, the relationship between the leader’s moral attentiveness and the rater’s assessment of the leader’s ethicality was significantly positive (b = .15, p < .05). For raters with a low prevention focus, the relationship between the leader’s moral attentiveness and the rater’s assessment of the leader’s ethicality was not significant (b = -.03, ns). A slope difference test indicated that they were significantly different (z = 2.04, p < .05). Hypothesis 2 was thus supported.

As the results in Table 2 (Model 4) show, the interaction between a rater with a promotion focus and the leader’s moral attentiveness was significant. In Figure 1 the pattern of the interaction shown was consistent with Hypothesis 2. To further probe the nature of this significant interaction, we ran simple slope tests following Preacher et al.’s (2006) procedure. We estimated the slopes at two levels of promotion, one standard deviation above, and one standard deviation below, the mean. For raters with high promotion focus, the relationship between the leader’s moral attentiveness and the rater’s assessment of the leader’s ethicality was not significant (b = -.02, ns). For raters with a low promotion focus, the relationship between the leader’s moral attentiveness and the rater’s assessment of the leader’s ethicality was significant (b = .38, p < .01). A slope difference test indicated that they were significantly different (z = 3.78, p < .05). Hypothesis 2 was thus supported.

Discussion

Previous researchers have pointed out the importance of ethicality evaluation (Goodwin, 2015; Goodwin, Piazza, & Rozin, 2014; Kelley, 1971). However, there has been a lack of agreement among individual raters on ethical leadership evaluation, and researchers have treated the differences as random measurement errors (Bono, Hooper, & Yoon, 2012; Helzer et al., 2014). We have provided a better understanding of the nonrandom effects of rater differences and context on ethicality evaluation, to aid researchers to further discuss the individual antecedents and contextual factors that influence ethical judgments.

Our major finding is that both rater and context influence ethicality evaluation. We found that the positive relationship between a regulatory promotion focus and rating of ethical leadership was negatively moderated by the supervisor’s moral attentiveness. In addition to establishing how individual and contextual factors influence ethical leadership evaluation, we examined the motivational mechanism that is an important psychological dimension in ethicality evaluation, but which, hitherto, in contrast to the cognition mechanism, researchers have ignored.

Theoretical and Practical Implications

Cognitive and motivational biases in organizations often distort ethical decision making, resulting in situations in which good people let bad things happen. Although not all the aspects of our hypotheses were supported, our empirical results suggest that both raters’ idiosyncrasy and rating context play nontrivial roles in the evaluation of ethicality.

We have made several contributions to the theory of ethicality evaluation. First, our findings complement those of Bono et al. (2012), who emphasized the nonrandom rater effects in leadership evaluation. Second, our findings will help to extend ethicality theory that is based on the perspective of observers and social context, both of which have indispensable roles in regulating ethical breakdowns (Bazerman & Banaji, 2004; De Cremer, Tenbrunsel, & van Dijke, 2010), but which researchers have ignored. Third, in this study we highlighted the motivational aspect in the ethicality evaluation process through concentrating on raters’ regulatory focus. Finally, we have contributed to research on moral perceptual knowledge by pointing out the conditions under which people tend to be lenient when they perceive unethical behavior.

There are also practical implications for firms in this study. First, our findings suggest that, to run an organization that operates ethically, and to be identified by followers as ethical leaders with a good reputation, supervisors should take special measures to build an ethical climate within their department and throughout the organization. This will guide subordinates to awareness and perception that their supervisors’ values and leadership are ethical. For example, it is helpful if supervisors talk about ethical issues frequently. We found that LMX was significantly associated with participants’ rating of their supervisor’s ethical leadership. This result is consistent with previous findings that employees’ perception of leadership depends on the level of LMX (Scandura & Graen, 1984). This inspired us to suggest that leaders should voluntarily show care and provide support and necessary help for their subordinates as well as giving them timely feedback, thus motivating them effectively. Third, to reduce the possibility of employees acting unethically, organization managers should set strict and detailed moral standards and should ask employees to abide by, as well as develop, moral discipline. Instead of using a simple system of rewards and punishments, managers of organizations should also try to balance employees’ promotion and prevention focus. For example, when innovation and courage are needed for a risk-tasking challenge in new products or solution-development projects, individuals with a promotion focus are more likely than are those with a prevention focus to take risks to identify diversified plans to achieve high work performance. Thus, managers should encourage a promotion focus in employees, and should prime this through specific training.

Limitations and Directions for Future Research

There are three limitations in this study. First, similar to most prior research on business-related ethics (Peterson, Albaum, Merunka, Munuera, & Smith, 2010), our field study was based on a relatively small, convenience sample of people employed in a single company. Second, we were unable to uncover why, contrary to our hypothesis, the result for the relationship between prevention focus and raters’ assessment of ethical leadership was nonsignificant. Third, the cross- sectional design of our study did not allow us to conduct a deeper examination of the motivational mechanisms that we included.

Our findings lay the groundwork for future researchers to examine how rater differences and rating context affect ethical leadership evaluation simultaneously. However, we strongly recommend that future researchers replicate this study, and in particular, reexamine the moderating effect of the relationship between regulatory focus and ethicality evaluation with diverse research methods, to confirm our conclusions and recommendations. Additional contextual factors should also be included in future studies and other questions should be investigated, for example, “What kind of contextual factors at individual, group, and organizational level influence ethicality evaluation?” Finally, future researchers should use a longitudinal design to establish how long it takes followers to perceive leadership as ethical, and how people’s perceptions and judgments on ethicality change over time.

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Yanling Chen, Room 538, Weilun Building, School of Economics and Management, Tsinghua University, Haidian, Beijing 100084, People’s Republic of China. Email: [email protected]