ORGANIZATIONAL JUSTICE: A BEHAVIORAL SCIENCE CONCEPT WITH CRITICAL IMPLICATIONS FOR BUSINESS ETHICS AND STAKEHOLDER THEORY LaRue Tone Hosmer and Christian Kiewitz Abstract: Organizational justice is a behavioral science concept that refers to the perception of fairness of the past treatment of the employees within an organization held by the employees of that organization. These subjec- tive perceptions of fairness have been empirically shown to be related to 1) attitudinal changes in job satisfaction, organizational commitment and managerial trust beliefs 2) behavioral changes in task performance activities and ancillary extra-task efforts to assist group members and improve group methods 3) numerical changes in the quantity, quality and efficiency of divisional outputs and���^though this is far more tentative���4) eventual changes in the competitive advantage and financial performance of the full organization. The authors propose that these constructs can be applied to all stakeholders, rather than just to the current employees of the firm, and that objective determinations of fairness by the managers can be related to subjective perceptions of fairness by the stakehold- ers that will result in the sequential series of attitudinal, behavioral and numerical changes that will lead to performance improvements. In short, the authors propose a normative stakeholder theory of the firm, based upon ethical principles, that will have testable descriptive hypotheses derived from the behavioral constructs. Organizationaf l justice is a behavioral science concept that refers to the perception of fairness o the past treatment of the employees within an organization held by the employees of that organization. It is a subjective personal view of justice, based upon experience, rather than an objective moral determination of justice based upon principle. Still, it is critically important for scholars in business ethics and stakeholder theory. Why? Because literally hundreds of empirical studies have substantiated that there are clear causal relationships between those subjective perceptions of organizational justice and positive organizational outcomes at the individual, group and divisional levels. Specifically, this stream of research has shown that perceived organizational justice is related to 1) attitudinal changes in job satisfaction, orga- nizational commitment and managerial trust beliefs 2) behavioral changes in task performance activities and ancillary extra-task efforts to assist group members and �� 2005. Business Ethics Quarterly, Voiume 15, Issue 1. ISSN 1052-150X. pp. 67-91

68 BUSINESS ETHICS QUARTERLY improve group funcdoning and 3) numerical changes in the quantity, quality and efficiency of divisional outputs. Behavioral scientists operate on the assumption that these verifiable attitudinal, behavioral and productive changes at the individual, group and divisional levels have an eventual positive effect upon the performance of the overall organization as measured by competitive advantage and/or financial return. We believe that business ethicists operate���though we are not aware of any prior literature in which this be- lief has been explicitly stated or empirically demonstrated���on the assumption that managerial decisions and actions that follow accepted ethical principles, and thus could be convincingly explained as being objectively fair, would have an eventual positive impact upon their acceptance by employees and other stakeholders, and thus would also be viewed as being subjectively fair. A logically incremental connection between the just managerial decisions understood by business ethics and the positive organizational outcomes examined by behavioral science can thus be proposed, as shown in Figure 1: Figure 1 Proposed Incremental Relationship in Stages Between Just Managerial Decisions and Beneficial Organizational Outcomes, Divided Between the Disciplines of Business Ethics and Behavioral Science Manage- rial ethical decision��� objective principles Personal Justice perceptions��� subjective beliefs Individual attitudinal adjustments��� satisfaction and trust Group behavior modifica- tions���role and extra role based Divisional output improvements ���quantity and quality Organi- zational performance advancements ���advantages and profits Domain of Business Ethics ���normative theory Domain of Behavioral Science ���descriptive theory The balance of this article will attempt to explain that proposed juncture of the just managerial decisions of business ethics to the positive organizational outcomes of behavioral science, as shown in Figure 1. This will be done in a series of four sections, to be described below. Firstly, however, let us warn readers that the term "distributive justice" when used in the behavioral science literature refers to the perceived fair- ness of an individual's rate of pay and other remuneration, not to the Rawls (1971) principle of logical moral reasoning. 1. Conceptual content of organizational justice. This construct has developed gradu- ally over time���the first explicit reference was in Adams (1965)���and now consists of four distinct elements: a) distributive justice, which is a subjective judgment of the fairness of an individual's rate of pay and additional remuneration relative to other persons and other positions b) procedural justice, which is a subjective judgment of the fairness of the procedures by which the managerial decision on pay and/or other outcomes was reached c) interactional justice, which is a subjective judgment of the fairness of the interpersonal treatment of employees by managers while the decision is being reached and d) informational justice.

ORGANIZATIONAL JUSTICE 69 which is a subjective judgment of the adequacy of the explanation provided to the employees by the managers after the decision has been reached. 2. Empirical support for organizational justice. Behavioral science is an empirically based endeavor. There have been more than 400 studies of observed relationships between the perceived justice or injustice of a managerial act by the employees of an organization, and the positive or negative impacts upon the beliefs, actions and outputs of that organization. Representative samples of studies reporting those positive or negative impacts will be discussed in five sub-sections: a) individual changes in attitudes b) group changes in behaviors c) division changes in outputs d) combined changes in attitudes, behaviors and outputs examined through meta analysis and e) organizational changes in performance. 3. Research difficulties in the social performance to financial performance relation- ship. An underlying belief in business ethics has been the hopeful expectation that morally correct decisions by management would lead to improved performance measures for the organization. This instrumental literature will be briefly explored in the third section of the article for now the subtitle of Robert Solomon's recent (1999) book will suffice as support for the claim: A Better Way to Think about Business: How Personal Integrity Leads to Corporate Success. This proposed moral to financial relationship has not been explored empirically by business ethics scholars. It has, however, frequently been approached by those active in the social responsibility of business field for good summaries see Preston and O'Bannon (1997) or McWilhams and Siegel (2001). There are measurement problems at both ends of the proposed relationship and directional problems in between these problems will be discussed within this section. 4. Theory implications for business ethics. The direct moral and/or social perfor- mance by management to strategic and/or financial performance by the firm relationship appears to be difficult to establish due to measurement problems and directional issues. This, we believe, has prevented the development of a normative stakeholder or moral-based theory of the firm because the sole test- able hypothesis���that morally and/or socially oriented management will lead to strategically and/or financially successful performance���lacks empirical support. We believe that the interim variables in the behavioral science sequence leading from subjective perceptions of justice to individual changes in attitude to group improvements in behavior to division expansions in efficiency and effectiveness can generate those testable hypotheses. It will be necessary to apply those interim variables to the full range of corporate stakeholders rather than the limited number of company employees. And, it will be necessary to conceptually describe and empirically test the proposed relationship between the objective determination of justice by managers (the domain of business ethics) and the subjective percep- tion of justice by stakeholders (the province of behavioral science). This latter relationship, once established, will lead to a normative stakeholder theory of the firm with testable descriptive hypotheses.

70 BUSINESS ETHICS QUARTERLY This research opportunity, and the content of the prior sections on behavioral science constructs that have led to it, have been briefly summarized and graphically portrayed in Figure 2, which is a more detailed and explicit version of Figure 1. The set of relationships at the bottom of Figure 2 that combines constructs from business ethics and behavioral science constitutes in our view the proposed normative stake- holder theory of the firm with testable descriptive hypothesis Conceptual Content of Organizational Justice Organizational justice has been defined in a recent summary work (Folger and Cropanzano 1998: xii) as "the conditions of employment that lead individuals to believe that they are treated fairly or unfairly." Justice, those authors continue, "is about how rewards and punishments are distributed by and within social collectives, and it is also about how people govern their relations with one another. It is about who gets what and whether the participants in these transactions believe them to be righteous" (xii). "Once we understand whatjustice is, we can easily comprehend why it is so central to human affairs. People care deeply about how they are treated by others" (xv). There is an underlying moral content in the behavioral science construct of organizational justice, and thus a clear connection to business ethics, though this underlying moral content is viewed descriptively: how people actually do act within a business firm. Folger and Cropanzano, in another connection to business ethics, ascribe the impor- tance of these beliefs about fairness in the "who gets what" distributions of corporate benefits and harms to the need for social cooperation. "Group cooperation often en- hances the ability to provide for economic needs . .. people choose to affiliate with others. People hope that ultimately their comrades will help them attain their goals. Unfortunately, those comrades have many of the same objectives for themselves. They seek collaboration in order to achieve their goals, which might be incompatible with the goals of others seeking their help" (Folger and Cropanzano 1998: xix). Ultimately, these authors conclude, successful collectives are based upon a grand compromise: all members of the group agree to keep their personal self-interests partially in check so that adequate benefits will be left for other members of the group. This compromise also finds expression in the behavioral science construct of a psychological contract which in work settings refers to each individual's expectations and beliefs about the terms and conditions of a reciprocal exchange agreement between the individual and the employer (Rousseau 2001 Rousseau and McLean Parks 1992). This "everyone must keep their personal self-interests at least partially in check" common understanding or psychological contract for corporate collaboration is, of course, almost exactly similar to the Social Contract concepts of Hobbes (1986/1651), Locke (1952/1690), Rawls (1971), and Nozick (1974). The difference is that scholars in the behavioral sciences ascribe the moral precepts governing the fair distribution of corporate benefits to the social norms that develop over time within an organiza- tion. These social norms currently are said to fit into four separate categories: 1) distributive justice, which focuses on the fairness of the compensation received by

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