Better than ever? Employee reactions to ethical failures in organizations, and the ethical recovery paradox

• We examine organizational attempts to recover internally from ethical failures witnessed by employees.
• We integrate theory from service recovery and relationship repair literatures to predict an ethical recovery paradox.
• Two studies support our predictions, enhancing our understanding of the consequences of unethical activity on organizations.

This research examines organizational attempts to recover internally from ethical failures witnessed by employees. Drawing on research on service failure recovery, relationship repair, and behavioral ethics, we investigate how witnessing unethical acts in an organization impacts employees and their relationship with their organization. In two studies—one in the lab and one in the field—we examine the extent to which it is possible for organizations to recover fully from these ethical lapses. Results reveal an ethical recovery paradox, in which exemplary organizational efforts to recover internally from ethical failure may enhance employee perceptions of the organization to a more positive level than if no ethical failure had occurred.