Sociologists have long accepted that exchange relationship is a preliminary part of human interaction (Homans 1958; Emerson 1972; Blau 1986). In general, it is accepted by people that who have treated them well should be rewarded and those who have treated them unfriendly or bad should be punished (Gouldner, 1960; Perugini, Gallucci, Presaghi, & Ercolani, 2003; Eisenberger, Lynch, Aselage, & Rohdieck, 2004). The concept of exchange relationship is a joint activity of two or more people in which individual has something the other values. The specific task in exchange relationship is to bring benefit for people by exchanging behaviors or goods that many people cannot achieve alone (Thibaut & Kelley 1959; Homans 1961; Emerson 1972).
Exchange relationship originally formulated by Thibaut and Kelley (1959) and Emerson (1972). It is developed and extended by Emerson and Cook (1978) and Molm (1989). Exchange relationship between two people, who exchange resources with each other. People could be individuals or groups. Each individual resource in the exchange relationship are items in that people’s behavior that produce consequences of value for the other people (Emerson, 1972). Firstly, the valued consequences of among people may be tangible objects like money or goods, social rewards such as status or approval, or psychological states such as happiness or self-esteem. The exchange relationship provides people with opportunities to exchange resources, the relations changing in the frequency with opportunities are used after a period of time and the value and distribution of exchange.
Since people provide valued benefits for one another, they are depends on each other or interdependence. Interdependence between people varies directly with the value of the benefit other people can provide, or conversely with the availability of the benefit to themselves from alternative sources (Emerson, 1972). These alternatives are other exchange relations as well, connected to each other in larger exchange networks. If exchange in one relation affects the other relation, the two relations are connected. Network connections are positive to the degree that exchange in one relation is accompanying by exchange in the other. On the other hand, negative to the degree that exchange in one relation is without accompanying by the other (Emerson, 1972).
Exchange relationship had been used as a fundamental to social stability. According to the Gouldner (1960) existence of the mutual exchanges of benefits is to make the social system to be stable. Flynn and Brockner (2003) stated that both givers and receivers prefer to engage in the exchange in ways that strengthen the relationship with one another. They do not want to engage the exchange relationship in the ways that harm the particular relationship in order to make a stable social system.
Exchange relationship serves as a starting mechanism to initiate the social interaction. As refer to Emerson (1972) indicated that the consequences for social relation and social structure are regularly resulting in the exchange relationship as the dependent variable. It is believe that people always form a relationship is resulting from the exchange with attention to gain a certain benefits. It also can help people to interpret, cope and adapt to the relationship formed through the exchange relationship (Larsen & Buss, 2005).
The exchange relationship has been at the heart of economics theory from the beginning and anthropologists such as Malinowski (1922), Mauss (1925) and Strauss (1969) focused attention on the social implications of exchange. These varied social science perspectives share the observation that exchange can be done through different forms of interaction, including negotiation, gift-giving, and even implicit understandings of direct or indirect reciprocity among individuals in networks, groups, or communities. The resulting social structures and the consequences for social relations are often taken as dependent variables in exchange relationship (Emerson, 1972)
2.1 What is Ethics?
The word ethics comes from the Greek “ethos” which means the customs, habits and morals of people (Trimble & Dickson, 2010). Ethics is defined as a set of moral principles or values. This is the most common way of defining “ethics” as norms for conduct that distinguish between acceptable and unacceptable behaviour (Resnik, 2011). According to Crommelin and Pline (2007) stated that ethic distinguishes between what is good and bad; determines moral duty and obligations; and establishes principles of conduct for an individual and a professional group.
According to Velasquez (2001), he defined ethics as “The principle of conduct or behaviour that govern an individual or a group of people.” Ferrell, Fraedrich and Ferrell (2010) have also defined ethics as “Inquiry into the nature and ground of morality…” In fact, ethics is deﬁned as the systematic reﬂection on what is moral. Morality is the judgment of standards and conducts which an individual or group has about what is right and wrong, or good and bad (Velasquez, 2001). Essentially, ethics is the process of examining the moral standards of a person or society in which the degree of reasonableness in applying the moral standards to concrete situations is determined. In short, people need to systematically reflect on what people think is right or wrong. In regards to this, developing a body of moral standards that are reasonable for people to accept and apply to the choices people have to make in life, is the ultimate aim of ethics (Velasquez, 2001).
Ethics is a requirement for human life. It is important in adaption of human behaviour (Gintis, Bowles, Boyd & Fehr, 2003). Ethical behaviour versus unethical behaviour are based upon the degree to which a proposed act is perceived as right versus wrong, good versus evil, fair versus unfair (Roman, 2003). Human actions would be random and aimless if without ethics. According to Landauer and Rowlands (2001), people are able to organize their action to accomplish their most important values through a degree of rational ethical standard is taken. Humans feel honour toward ethical action and shame toward acting unethically because of human nature as moral beings. So, any flaw in ethics will reduce ability to be successful in the effort.
2.2 Exchange Relationships
Exchange relationships refer to the dyadic interaction in which the giving and receiving resources is predicted on the expectation of equitable resources being provided directly in return (Homans, 1958; Blau, 1964). Thus, Blau (1964) defined exchange as unilateral acts of giving that either reciprocate previously rendered favors or are given with expectations of reciprocation.
As Gouldner (1960) has pointed out that the need to exchange for the benefits received serves as a starting mechanism of social interaction. When people are thrown together, and before common norms or goals or role expectations have crystallized among them, the advantages to be gained from entering into exchange relations furnish incentives for social interaction, and the exchange processes serve as mechanisms for regulating social interaction, thus fostering the development of a network of social relations and a rudimentary group structure.
Therefore in exchange relationships, trust and commitment are the key component to constructs and promote a long-term relationship (Gouldner, 1960; Ganesan, 1994; Sanzo, Santos, Vazquez, & Alvarez, 2003). It is well accepted that the trust and commitment are desired dominant sentiments in any exchange relationship. According to the Sanzo, Santos, Vazquez, & Alvarez (2003) found that the trust and commitment have a great influence in the exchange relationship directly. These two components serve as a variable to moderate in the exchange relationship. In other words, in order to build an exchange relationship, trust and commitment is the component must take into consideration.
2.2.1 Components in Exchange Relationship
a) Trust Most of the researches consider trust as an antecedent of successful exchange relationship (Stanko, 2007; Cater & Zabkar, 2008). Trust has long been considered fundamental to exchange relationships (Deutsch, 1962; Blau, 1964). It is one of the most important elements in exchange relationship (Gundlach, Gregory, Achrol, John, Ravi & Mentzer, 1995; Geyskens, Inge, Steenkamp, Nirmalya, Jan-Benedict, & Kumar, 1999). It is defined as the willingness to rely on an exchange partner with whom one has confidence (Moorman, Christine, Deshpande, Rohit, Gerald & Zaltman, 1993; Morgan & Hunt, 1994). The existence of trust is a central component in exchange relationship when one party has confidence in an exchange partner’s reliability and integrity (Morgan & Hunt, 1994). Hon and Grunig (1999) define trust as one party’s level of confidence in and willingness to open oneself to the other party.
An exchange relationship evolves in a slow process, starting with minor transactions in which little trust is required because little risk is involved (Blau, 1964). For instance, Hansen and Riggle (2009) had indicated that the relationship between ethical sales behavior and buyer commitment to the salesperson is completely mediated by buyer trust in the salesperson.
Partnering relationships with other individual depend on exchange processes that are characterized by high levels of trust between the parties involved in an exchange (Morgan & Hunt, 1994). An exchange relationship requires trusting others to discharge their obligations. If partners in exchange relationship trust each other more, they are more emotionally involved and less consciously weighing the benefits against the costs of that relationship (Wetzls, 1998). In other words, the receiver in an exchange relationship will tend to neglect their obligation to make a reciprocate toward the giver because of the trust build in the exchange relationship make the both partners less concern about the benefits gain compare to the cost invest in the relationship.
b) Commitment Commitment in exchange is defined as the belief of an exchange partner that an ongoing relationship with each other is important to warrant maximum efforts aimed at maintaining it, including short-term sacrifices (Kumar, Nirmalya, Scheer, Lisa, Steenkamp, & Jan-Benedict, 1994; Morgan & Hunt, 1994; Geyskens, Inge, Steenkamp, Nirmalya, Jan-Benedict, & Kumar, 1999). Research suggests that commitment is at the core of all exchange relationships and it is an essential ingredient in successful long-term exchange relationships (Anderson & Narus, 1998). This means that commitment is a good indicator of long-term exchange relationship. This is because commitment includes an attitudinal component signifying an enduring intention by the parties to develop and maintain a stable long-term relationship (Anderson, Barton, Erin & Weitz, 1992).
Hon and Grunig (1999) reflect commitment as the extent to which the exchange parties feels that the relationship is worth spending time and energy to maintain. As indicated by Moorman, Zaltman, and Deshpande (1993), commitment defined as an enduring desire to maintain a valued relationship.
2.2.2 Interdependence in Exchange Relationship
Interdependence plays pivotal roles in the exchange relationship. A shared concept among all exchange relationship derived by researcher is interdependence between people (Thibaut & Kelly 1959; Homan, 1961; Blau, 1998). An individual’s behavior in exchange relationship is dependent on the other’s behavior in order to drive the interaction. According to the Blau (1998) states that interdependence is not in itself sufficient enough for exchange relationship to exist between two people.
Blau (1998) suggests that there is another criterion to meet the existence of exchange relationship which is interaction with another specific individual which whom one is interdependent. Interdependences occur when someone has performed a favor to an individual is required to reciprocate that favor by that particular individual. If that person fails to reciprocate then they are seen as ungrateful and interdependence is not obtained. However, if the favor is reciprocated then it induces the other to reciprocate in kind and encourages both parties to continue such exchange. Each individual’s behavior in this exchange is dependent on the other’s behavior in order to drive the interaction. If one was to fail to reciprocate, the exchange would then halt and interdependence would no longer exist.
2.3 Importance of Exchange Relationship in Individual Behaviors
Exchange relationship is an important and normal phenomenon that happening everywhere and everyday in human life. Most of the studies have examined that either how givers respond to favor they have performed (Cialdini, 1993; Latane & Darley, 1970) and how a receivers respond to that favors have been done for them (Gergen, Ellsworth, Maslach & Seipel, 1975; Nadler, 1991).
The exchange relationship is purportedly maintained by invoking the norm of reciprocity which is stipulates that people should help those who have helped them (Gouldner, 1960). The norm of reciprocity act as a social rule that maintains, among other thing, that people should return favors and other acts of kindness (Gouldner, 1960).
Blau (1964) establish the notion that individuals prefer to maintain balance in their exchanges. For individuals to enter into mutually beneficial exchange relationships, they have able to commit to fulfill their contractual obligations. A lender will not lend without being assured that the borrower will not invest the money in a hopeless venture or take the money and run. Particularly, neither givers nor receivers prefer to engage in favors exchange in ways that strengthen their relationship with one another (Flynn & Brockner, 2003). This means that they will do not want to engage in favor exchange in ways that harm their relationship. A proper structure of our relationships in a manner will enables us to benefit from exchange. For instance, an individual would enter into exchange relationship unless assured that the exchange can indeed make him better off and that the other party would act in manner that will make him better off.
2.4 Exchange Relationship in Organization
The relationship between employees and their organizations has often been described as an exchange relationship (Mowday, Porter, & Steers, 1982; Eisenberger, Huntington, Hutchison & Sowa, 1986; Rousseau, 1989). Member of organizations often request favors to perform tasks or obtain resources they might not be able to perform or obtain alone (Blau, 1964). Exchange relationship between the leaders and subordinates develop from the interactions between these parties and motivated by the mutual benefits derived from the exchange (Blau, 1964; Brown & Trevino, 2006). An effective exchanges relationship must be created between the parties in order to increase their dependence upon each other for long term survival. Leader and subordinates have closer relationships, the latter will tend to receive better performance evaluations and more promotion opportunities. In addition, mutual trust, respect and care are more likely to happen between subordinates and their employers (Graen, Novak, & Sommerkamp, 1982). In return, the subordinates will show more loyalty and respect toward their leader.
Organizational commitments have emphasized the importance of employee perceptions of the exchange relationship with the organization. Many scholar like Major, Kozlomski, Chao and Gardner (1995) and Lee (2001) indicate that the high quality of the leader-member exchange relationship such as employees empowerment, attracting reward and compensation is positively correlated with the organizational commitment and negatively correlated with turnover. This is because they tend to be satisfied with the organization. A large number of studies have shown that employees who feel that they have been empowered are likely to remain more committed to their organizations (Allen & Meyer, 1990; Liden, Wayne & Sparrowe, 2000). Empowered employees will consider themselves more capable of influencing their work and organization in a more meaningful way and more willing to stay in the organization. This is where the exchange relationship exists when a employees had empowered by their managers will willing to remain and work for the organization as a return.
There are two important frameworks for exchange relationship in organization which are psychological contracts and perceived organizational support. Psychological contract is means that an individual’s belief regarding the terms and conditions of an exchange relationship with another party in organization (Rousseau, 1989). Perceived organizational support captures an individual’s perception concerning the degree to which an organization values their contributions and cares about their well-being (Eisenberger, Huntington, Hutchison & Sowa, 1986). These two frameworks are similar in that they are both grounded in exchange relationship as the explanatory mechanism for their consequences on employees’ attitude and behavior.
The psychological contract and perceived organizational support are also both positioned as key means by which an employee globally evaluates the employment relationship with the organization. Perceived organizational support is one-sided in that it focuses on the employer’s side of the exchange as perceived by employees. Psychological contract includes an employee and employer perspective which is the contingent relationship between an employee’s perception of the reciprocal obligation between that individual and the employer (Jacqueline, Shapiro & Conway, 2005).
2.5 Relationship Between Exchange Relationship And Ethics
Exchange relationship and ethics are two concepts that correlated. These two concepts are explained in theory which is able to enhance the understanding of the concept. Exchange relationship is a dyadic interaction between two parties by giving and receiving resources while ethics are the basic concepts of human conduct.
An ethical action can build a long-term exchange relationship. According to Hansen (2011) says that someone who had perceived as an ethical people will more likely to gain a trust from others and develop an exchange relationship easily with them. As mentioned above, trust is one of the elements in building an exchange relationship. In other words, behave ethically can gain trust easily from others party. Exchange relationship can be developed through the trust between two parties (Brower, Schoorman & Tan, 2000). Besides that, commitment tends to be higher between the parties who involved in exchange relationship due to ethical behavior. This is because they perceived ethical behavior can make them constantly engage in particular relationship.
By referring to Gouldner (1960) norm of reciprocity which act as a social rule that maintains, among other things, that people should return favors and other acts in kindness. This means that peoples should treat others as how they want to be treated. If an individual act ethically will tend to influence people around them to act ethically. This is a learning process take place where people learn to behave ethically during interaction in exchange relationship. Therefore, people will learn to behave ethically to affect others to act ethically so that they can be gain the ethical treatment from the others as well.
According to the Brown and Trevino (2006), ethical individuals are a role model for the others to follow because they tend to seek to do the right thing and conduct their personal lives in an ethical manner. For instance, an ethical leaders in organization are in the habit of seeking out “what is right” (Brown & Trevino, 2006). This means that they are tend to make a fair and balanced decision from a means rather than just an ends perspective (Brown & Trevino, 2006).
Most studies consider how the managers’ ethical attitudes and behaviors influence those of their direct subordinates and how the subordinate respond toward it (Porter, Allen & Angle, 1983; Ginzel, Kramer & Sutton, 1993; Pfeffer, 1997). Leaders who are perceived as ethical will positively influence employee work behavior (Mayer, Kuenzi, Greenbaum, Bardes, & Salvador, 2009). In other words, a manager who acts ethically can make a great influence toward employee’s behavior in exchange relationship. By referring to the relational leadership theory (Brower, Schoorman & Tan, 2000) stated that an ethical leader are likely to develop the exchange relationships between the leader and subordinate because ethical leaders exemplify the essential of trustworthiness in the eyes of their subordinate.
In an organization, the subordinates who perceive their leader to be an ethical people will be more likely to perceive this leader as a trustworthy leader and intend to continue in the exchange relationship development process with that leader (Hansen, 2011). In other words, an ethical leader who are honest, seek to do the right thing and holding high moral standards will lead their subordinate to perceive them as a trustworthy leader. This perception of trustworthiness on the ethical leader will act as a catalyst to the development of the exchange relationship between the leader and subordinate (Brower, Schoorman & Tan, 2000).
Exchange relationships between ethical leaders and their subordinates develop from interactions between these parties and are motivated by the mutual benefits derived from the exchanges (Blau, 1964; Brown &Trevino, 2006). Ethical leaders are more likely to develop a strong exchange relationship with their subordinate because they are trusted by their subordinates. Scholars have been suggested that exchange relationships are related to discussions of ethical leadership (Brown, Trevino & Harrison, 2005; Brown & Trevino, 2006). Exchange relationships require a significant amount of trust the part of exchanging parties. In other words, keeping the definition of ethical leadership in mind that characterizes ethical leaders as being ‘trusted’ by their subordinates, it is quite likely that a subordinate who perceives his or her leader to be an ethical leader will also perceive this leader to be trustworthy.
Exchange relationship is important in human interaction. Exchange relationship is a dyadic interaction between the individual in order to gain something from other and reciprocate something as return. Norm of reciprocity serves as a guideline for individual to deal in the exchange relationship. In exchange relationship, Batson (1993) claims that an individual assume that benefits are given with the expectation of receiving a benefit in return while the receipt of benefits incur in a debt or obligation to return a comparable benefits. The benefits that issue must be intentionally given and may include anything of use or value, tangible or intangible; they need not involve money or things for which monetary value can be calculated (Clark & Mills, 1979). Ethic is study of moral principle while it helps in govern our decision making and moral choices (Ianinska & Zamor, 2006). Human actions always judge by others in term of ethical or unethical. Without ethic act as guide for human, human action will tend to be aimless.
From the study, exchange relationship is required the involvement of trust and commitment elements. These two elements is important in generate a successful exchange relationship. Trust and commitment is the key component in promoting a long-term exchange relationship (Gouldner, 1960; Sanzo, Santos, Vazquez, Alvarez, 2003). These two elements serve as a starting point for an exchange relationship to be generated. Before an exchange relationship build, the two party must have a certain degree level of trust between them. Without a minimum level of trust, it is hard to deal in exchange relationship. This is because exchange involves a certain level of risk need to be taken (Blau, 1964). Besides that, interdependent is also play an important role in exchange relationship. Interdependent will occur when each of the party who delivered some favors to another party is required a return for that favour from the recipient. Therefore, the exchange relationship only can be exits through interdependent individuals.
For the individual behaviour, exchange relationship will not run away from their interaction. It is focus on how the parties perform and respond to the favour in exchange relationship (Cialdini, 1993; Latane & Darley, 1970; Gergen, Ellsworth, Maslach, Seipel, 1975; Nadler, 1991). A mutually benefits is expected by both of the party in exchange relationship. Therefore, individual will expect toward the benefits to be gained when making an exchange with particular individual. Exchange relationship is vital for organization as well. As the most scholar had study the exchange relationship between the employees and organization widely (Mowday, Porter, & Steers, 1982; Rousseau, 1989; Eisenberger, Huntington, Hutchison & Sowa, 1986). In deep, the leader and employees move in a same direction because of willingness to exchange their value each others. For instance, the manager empowered their employee and the employees feel satisfy then they tend to perform well and commit in their duty as well as the organization (Allen & Meyer, 1990; Liden, Wayne, & Sparrowe, 2000). At the end, the organization is the greater beneficial receiver.
Next, study on relationship between exchange relationship and ethics is the main discussion part. The researches have widely examine this topic by reflect it in the organization (Brown & Trevino, 2006; Porter, Allen & Angle, 1983; Ginzel, Kramer & Sutton, 1993; Pfeffer, 1997). It is explain that how a person to behave ethically in exchange relationship. Normally, a person will get influence by the ethical individual in exchange relationship. For instance, Mayer, Kuenzi, Greenbaum, Bardes and Salvador (2009) claim that the ethical leader can influence their subordinate behavior in the organization. Employees will perceive the ethical leader as their role model. These means that employees will tend to be trust on their leader due to the moral principle hold by their leader. In other words, leader established a positive behaviour toward their subordinate, the subordinate will tend to act the same way in manner. In exchange, employees to be more commitment toward their leader as well as organization due to the ethical leader had gain a trust from their employees.
Last but not least, two relevant theories had been established to explain the concept of exchange relationship and ethics. Social exchange theory and leader member exchange theory had been used to provide a clear understand of the topic. Social exchange theory is the human fundamental activity aid to clarify about social behaviour through the exchange relationship. This theory explain that in exchange relationship, an individual should reciprocate on the favour that given by the giver on a pro quo basis (Brown & Mitchell, 2010; Blau, 1964). In general, social exchange theory had involved three main types of exchange which are negotiated exchange, reciprocal exchange, and generalized exchange. Each of the type served in different situation in term of risk involvement. Another theory that been used is leader member theory.
This theory helps in explain how the exchange relationships occur among the employer and employees. From this theory, the exchange relationship among the leader and employee is related to the quality of the relationship. Throughout this relationship, leader and subordinate will generate a trust among them to establish the exchange relationship. A high quality of relationship involves showing mutual respect, concern and sharing of decision control (Dienesch & Liden, 1986; Liden & Maslyn, 1993). Therefore, exchange for benefits can be developed easily between the leader and subordinate.