The Influence of Formal and Informal Ethical Systems on Employees’ Unethical Decisions

Clara Koetz; Sarah Hudson

doi:10.37725/mgmt.2025.9727

Clara Koetz Marketing Department, Rennes School of Business, Rennes, France https://orcid.org/0000-0002-0042-5610
Sarah Hudson Management and Organization Department, Rennes School of Business, Rennes, France https://orcid.org/0000-0003-4881-652X

DOI: https://doi.org/10.37725/mgmt.2025.9727

Keywords: Formal and informal ethical systems, Social norms, Ethical decision making, Punishment

Abstract

This paper examines the effect of formal (e.g., codes of conduct [COC] and punishment) and informal (e.g., peer behavior) ethical systems on employees’ unethical intentions. Previous studies disagree about the effectiveness of COC and punishment policies on individuals’ unethical intentions. Moreover, there is not much research regarding the interactive effects of formal and informal norms in organizations on unethical behavior and how employees decide when there is incongruence between formal and informal ethical systems. To investigate this, we propose the following research question: What is the effect of distinct formal (implicit and explicit COC and strong and weak punishment policies) and informal (peers’ ethical and unethical behaviors) ethical systems on individuals’ unethical decisions? The results of an exploratory qualitative study (N = 275) and an experimental study (N = 374) demonstrate that (1) peer behavior has the strongest effect on individuals’ unethical intentions; (2) punishment and clear COC combined are effective in reducing unethical intentions when peers behave unethically; however, in these contexts, rules are ineffective when not supported by punishment policies, and punishment can be counterproductive when rules are implicit or nonexistent. Our study contributes to the literature on ethical decision-making by showing how combinations of formal and informal ethical systems influence unethical intentions. It also offers valuable recommendations to managers on reducing unethical behavior in companies.

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Author Biographies

Clara Koetz, Marketing Department, Rennes School of Business, Rennes, France

Clara Koetz is an assistant professor in the Marketing Department of Rennes School of Business, France. She holds a PhD in marketing from the university of Rennes 1, France, with a double degree from the Federal University of Rio Grande do Sul, Brazil. Her research focuses on consumer emotions, social influence, and social norms. She has published her work in journals such as the Journal of Business Research, Managerial and Decisions Economics, and the International Journal of Entrepreneurship and Small Business.

Sarah Hudson, Management and Organization Department, Rennes School of Business, Rennes, France

Sarah Hudson is a professor in the Management and Organisation Department of Rennes Rennes School of Business, France.  Her current research interests are in the human behavioral and psychological elements of managerial decision-making, employee well-being, and consumer behavior and attitudes to the issues of sustainability, CSR, and business ethics. Her work has been published in journals such as the Journal of Business Ethics and the Journal of Business Research. She teaches and publishes on the topic of CSR, sustainable development and business ethics. 

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