Ethical Failure as a Catalyst for Double‐Loop Learning: A Process Study of Procedural Justice and the Strengthening of ESG Governance

ABSTRACT This study analyzes the dynamic mechanism through which severe ethical failure leads to fundamental, systemic change in sustainable governance from the perspectives of organizational learning and business ethics. Unlike prior studies that predominantly focus on static outcomes or superficial single‐loop learning, this research explains how organizations overcome deep‐seated defensive routines to engage in radical reform. Employing a process‐tracing qualitative case study of an ethical violation in a major Korean firm, we investigate the causal mechanisms that drive system reform following an ethical shock. The findings reveal that a consistent and transparent disciplinary process, conducted by an independent audit team, was instrumental in cultivating a strong perception of procedural justice among organizational members. Procedural justice acted as a catalyst that dismantled defensive routines and activated double‐loop learning (DLL), compelling the organization to re‐examine its core ethical assumptions. This DLL process ultimately led to substantive governance enhancements, such as the redesign of audit committee independence, revision of ethical codes, and strengthening of supply chain due diligence. This study provides practical and policy implications for policymakers and boards of directors, suggesting that procedural justice should be utilized as a governance tool to transform ethical failures into a source of systemic learning rather than mere objects of control.