Corporate+Ethical+Codes+Effective+Instruments+for+Influencing+Behavior

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Corporate Ethical Codes: Effective

Instruments For Influencing Behavior Betsy Stevens

ABSTRACT. This paper reviews studies of corporate

ethical codes published since 2000 and concludes that codes

be can effective instruments for shaping ethical behavior

and guiding employee decision-making. Culture and

effective communication are key components to a codes

success. If codes are embedded in the culture and embraced

by the leaders, they are likely to be successful. Communi-

cating the codes precepts in an effective way is crucial to its

success. Discussion between employees and management is

a key component of successful ethical codes.

KEY WORDS: communication, corporate ethics,

culture, ethical codes, honesty and ethics standards

Introduction

Following Watergate and President Richard Nixons

resignation in 1974, corporate scandals and acts of

egregious behavior proliferated in the United States

and continued for several decades. The ethical

standards of corporations were not held in high re-

gard by the American public (Gallup, 1977; Gallup,

1986). Feeling a need to improve their images and

facing increasing accusations of corruption, busi-

nesses turned to ethical codes to publicize their

virtues and create a more positive impression with

stakeholders (Berenbeim, 1987; Brooks, 1989;Cressey and Moore, 1983). Some critics argued the

codes were simply public relations tools; others be-

lieved they could be effective in encouraging more

ethical behavior in organizations. The debate over

ethical code effectiveness continues today.

American ethical codes were first called ‘‘creeds

or ‘‘credos’’ and those in the 1980s were considered

‘‘legalistic’’ and ‘‘more likely to talk about ethics or

the reputation of the company’’ (p. 308); they

showed concern over issues like affirmative action

(Benson, 1989). More recently they were defined as

written documents which attempt to state the major

philosophical principles and articulate the values

embraced by the organization (Stevens, 1996).

Codes articulate ethical parameters of the organiza-

tion – what is acceptable and what is not. They have

been defined multiple times in JBE journal articles,

sometimes redundantly without building on earlier

works and other times adding new dimensions to the

understanding of a code. Kaptein and Wempe

describe them as policy documents defining

responsibilities of the organization to stakeholders

and articulating the conduct expected of employees(2002). Nijhof et al. note codes contain open

guidelines describing desirable behaviors and closed

guidelines prohibiting certain behaviors (2003). As

instruments to enhance social responsibility, codes

clarify the norms and values the organization seeks to

uphold (Kaptein, 2004). In contrast, mission state-

ments articulate the objectives of a company and

declare what goals the organization intends to

accomplish (Stevens, 1994). Ethical codes differ from

Betsy Stevens as associate professor of Business Administration

at Elon University. Her academic interests are business and

management communication, business ethics, international

communication, and hospitality management. An active re-searcher, she has published more than 20 articles in refereed

journals such as The Journal of Business Communica-

tion, Business Communication Quarterly, The Journal

of Business and Technical Communication, Journal of

Business Ethics, Bquest and the Journal of Employ-

ment Counseling. She has an M.A. from the University of

Cincinnati and a Ph.D. from Wayne State University. As a

Fulbright Scholar, she taught university classes in Tomsk,

Russia and has also been on the faculty of the Australian

International Hotel School in Canberra, Australia

Journal of Business Ethics (2008) 78:601–609 Springer 2007

DOI 10.1007/s10551-007-9370-z



mission statements by articulating the value system

and answering the question – within what ethical

standards and values should the mission be pursued?

This paper argues the premise that sufficient new

evidence exists to show that corporate codes cansuccessfully moderate ethical behavior. Although

research on ethical code effectiveness has surren-

dered mixed results, this study examines the situa-

tions where ethical codes have influenced the

behavior of employees in organizations and those

situations where they have not. A body of research

certainly exists pointing to code ineffectiveness and

failure to effect behavior; however, a number of

recent studies show codes can be effective when

certain parameters are in place. This paper examines

two recent sets of studies and analyzes why somecodes have failed when others succeeded.

Ethical code prevalence and content

Corporations increasingly adopted codes throughout

the 1980s and 1990s and most American companies

now have an ethical code (Chonko et al., 2003;

Trevino et al., 1999). Worldwide, fifty eight percent

of the 100 largest companies use ethical codes

(Kaptein, 2004). Also, European companies have

increasingly adopted codes of conduct to regulatelabor relations (Sobczak, 2003). Studies of ethical

code content conducted in the 1980s concluded

that codes reflected concern over unethical behavior

that might decrease profits and showed a weak

commitment to social responsibility (Cressey and

Moore, 1983). Conflict of interest was an important

theme (White and Montgomery, 1980) along with

compliance with federal laws (Sanderson and Varner,

1984). Mathews (1987) performed an extensive

content analysis, which showed that firms primarily

emphasized illegal activities and employee miscon-duct in codes and placed little emphasis on the

environment, quality, or product safety. Pitt and

Groskaufmanis found conflict of interest, gifts, and

misuse of confidential information were frequently

mentioned topics (1990). Stevens study indicated

that the content in ethical codes was primarily

designed to defend organizations against illegal

behavior and was found lacking in visionary per-

spectives and in providing ethical guidance (1996).

Snell and Herndon agreed, concluding codes were

oriented toward corporate self-defense (2000).

In a study of codes from the US, Germany,

France and England, Langlois and Schelgelmilch

concluded that American codes discussed govern-ment and customer relations more than European

and British codes (1990). Kaptein found that most

codes described company responsibilities for product

quality and services, obeying laws and protecting the

environment (2004). He also found content differ-

ences in European, American, and Asian codes.

European codes focused almost 50% more on the

environment than American codes. Honesty was a

major theme in American codes (64%), but it was

mentioned less frequently in European codes (45%)

and in Asian codes (38%). Fairness was a less pre-valent topic in American codes than in European

and Asian codes (Kaptein, 2004). Gaumnitz and Lere

proposed a classification scheme for ethical code

content, but their scheme appears to be basic content

analysis that does not incorporate much of existing

ethical code research (2004).

Evidence of code ineffectiveness

Code scholars have reported a number of unsuc-

cessful outcomes in both positively impactingemployee behavior and deterring unscrupulous

actions. Mathews classic study of 202 Fortune 500

codes yielded little evidence linking codes with

behavior and concluded that codes did not provide

self-regulation or a culture of ethical behavior

(1987). Cleek and Leonard later concurred that

codes of ethics did not determine or influence an

employees ethical behavior (1998). Additional

empirical evidence has shown either mixed results

(Loe et al., 2000; Marshall et al., 1998) or a lack of

effectiveness. Weeks and Nantel (1992) foundcodes were ineffective except when well commu-

nicated in organizations. Loe et al. examined 17

empirical codes studies attempting to relate ethical

codes to ethical behavior. The results were mixed,

but some showed positive relationships. Schwartz

argued that codes are ineffective systems of control

(2000), then examined the results from 19 studies

concluding they worked in some situations and

failed in others (2002).

602 Betsy Stevens



Three studies of code use outside the U.S. also

concluded codes were ineffective. Marnburgs study

of Norwegian business professionals indicated that

ethical codes had no effect on attitudes toward ethics

(2000). Snell and Herndon (2000) observed that

Hong Kong employees did not perceive ethicalcodes impacted their organizations and Healy and

Iles reported that codes did not promote greater

ethical considerations in London-based companies

(2002).

Table 1 shows a summary of recent code studies

which yielded negative results. N indicates the

number of respondents in each country and country

refers to the country where the study was performed

and hence the respondents home country.

Why were these codes ineffective? Several factors

may have been at work in these situations where

codes did not influence employee behavior. Marn-burg measured ethical attitudes of engineers and

economists in a group of Norwegian businesses and

found the existence of ethical codes did not affect

their attitudes. He postulated that the mere existence

of a code was not influential, but processes and

systems that the code symbolized needed to be in

place for the codes to be effective. The respondents

in all these studies saw the code as external and were

not influenced by it.

McKendall, DeMarr, and Jones-Rikkers exam-

ined data from 108 large US corporations to deter-mine whether an ethical compliance program

comprising training, communication and ethical

codes would result in fewer OSHA violations. They

found no positive effects, concluding that ethics

programs might simply be decorative artifacts to

deflect criticism of corporate ethics. But the opera-

tive words here are regulation and control. It is not

surprising that codes in these compliance programs

failed to achieve their goals. Forced code compliance

in organizations is ineffective. Codes imposed by

senior management typically do not work because

employees have not accepted them as part of their

culture.

Similarly Snell and Herndon observed this same

phenomena (2004). They saw that willingness toemploy best practices for implementing ethical codes

was weak in Chinese organizations because of col-

lectivist features in the culture. Pseudo-support was

given, but companies did not embrace the ethical

code even when it was in their best interest to do so.

The authors hypothesized that culture and power

distance play significant roles since subordinates are

expected to publicly support their superiors even if

they disagree. Codes imposed by senior management

on Chinese workers were not accepted by the

workers. Their study illustrates the interplaybetween culture and ethical codes, whether in an

Asian or U.S.A. company. Codes imposed by

external agents are typically ineffective. In sum, good

ethics cannot be ordered by management. Codes

attempting to create legal controls are generally

ineffective.

Further, Healy and Iles study of 125 London-

based firms found codes issued by IT firms designed

to govern information and technology were not

effective. The codes did not influence the behavior

of IT end users in organizations. Again, governance

and compliance seem to be the operative failurepoints. Top down attempts at ethical control typi-

cally fail. Healy and Iles stated ‘‘Codes of ethics are a

means by which organizations seek to exercise

power, control and ownership’’(p.123). But this is

exactly the wrong motive. Codes are not meant to

be instruments of control. When used as such, they

will fail, which explains why the group of studies

shown in Table 1 reported unsuccessful results. In all

of these cases, codes failed to regulate ethical

behavior showing that the mere existence of a cor-

porate code of ethics does not prevent acts of egregious behavior.

Schwartz argued against using codes as compli-

ance control systems (2000) and Trevino and Wea-

ver also observed that codes do not work when used

as control systems or for legal compliance because

this places them outside the climate and culture

boundaries where employees feel ownership (2003,

p. 194). Culture and cooperation – not legalistic

compliance – create conditions where ethical codes

are effective.

TABLE 1

Evidence of code ineffectiveness

Study Year N Country

Marnburg 2000 449 Norway

McKendall et al. 2002 108 U.S.A.

Healey and Iles 2002 125 U.K.

Snell and Herndon 2004 171 Hong Kong

Corporate Ethical Codes 603



More evidence of code ineffectivess

The Enron and WorldCom scandals shook the US

market resulting in the Sarbanes-Oxley Act to reg-

ulate accounting practices and force executiveresponsibility. Enron had an extensive ethical code

(Megan, 2002,), yet it also had a pervasive ‘‘cow-

boy’’ culture where rules were routinely broken and

aggressive, individualistic behavior was rewarded.

Enrons board of directors actually suspended their

ethical code twice (Sims and Brinkman, 2003). The

off-balance sheet partnerships created by Enron

executives to hide debt eventually imploded, causing

the organizations demise.

Clearly the code did not work for Enron; it was

an artifact that was separate from their culture.Enron executives Jeffrey Skilling and Kenneth Lay

were convicted in June, 2006 and both faced prison

sentences of up to 25 years. However, Lay died in

October, 2006 before serving his sentence for fraud

and conspiracy. His conviction was voided because

he had appealed the conviction and died while the

appeal was pending. Worldcom corporation,

involved in an $11 billion accounting fraud,

emerged from bankruptcy in 2004 as MCI, which

was bought by Verizon. Worldcom also had an

ethical code, but it was not adopted until 2002.

Given the timing of the executives egregiousbehavior, the code came too late to influence the

behavior of Worldcom executives, if it had any

influence over them at all.

When are codes effective?

Several studies conducted prior to 2000 showed

codes were effective when the right conditions were

in place. Ford and Richardson correlated codes of

ethics with observed unethical behaviors and foundfewer incidences of unethical behaviors in code

companies (1994). Casel, Johnson and Smith (1997)

observed that the right context and design, formal

controls, individual influences such as self-control

affected the workability of codes. Similarly, Laufer

and Robinson showed that when employees and

managers behavior is consistent with codes, their

behavior can effectively influence others in the

organization (1997). These studies indicated that

when codes are partnered with managers who value

ethics and act accordingly, they can function as

essential management tools.

Trevino et al. (1999) also found that ethical

leadership and open discussions of ethics in the

organization contributed to increased ethicalbehavior. Strong leaders who share their values with

others positively affect the organization and its code.

Then, Trevino and Weaver discovered a correlation

between alumni who attended honor code colleges,

then worked for organizations with strong ethical

codes (2003, p.8). Those employees self-reported

fewer unethical behaviors, suggesting that businesses

desiring ethical employees can benefit by hiring

graduates of honor code colleges. Adam and Rach-

man-Moore noted that the influence of managers

setting examples was more effective than formalethics training (2004). Somers (2001) discovered that

management accountants perceived less wrongdoing

in organizations with corporate codes and respon-

dents in organizations without formal codes were

more aware of wrongdoing. Awareness and under-

standing the codes is similarly important. Both

Wotubra (1995) and Chonko et al., (2003) showed

the usefulness of codes as decision-making guides

increased with the familiarity of the content. Table 2

shows recent studies which support the effectiveness

of ethical codes. N indicates the number of

respondents in the study and country indicates their home country.

The studies shown in Table 2 all reported that

codes played a role in impacting employee behavior

and perceiving right ethical actions. In these studies

the codes functioned not as a set of stand-alone rules,

but as an integrated, embedded part of a larger part

of organizational culture. How can an ethics code

become organizationally embedded? Managers who

lead by setting clear standards and expecting the best

from everyone including themselves are able to

create ethical cultures. Ones who consider the eth-ical codes superfluous fail to establish an ethically

meaningful culture. Most employees are motivated

to commit to higher principles and unite in a

common cause. As Kouzes and Posner noted,

‘‘Great leaders like great companies create meaning –

not just money’’ (2003, p. 59). They also observed

that employees work harder and more effectively for

leaders who inspire them to rise beyond self-

expectations. This is not a new paradigm, but with

the exception of Trevino, Weaver, and Schwartz,

604 Betsy Stevens



the relationship to ethics has been tenuously ad-

dressed in the code literature to this point.How can companies achieve a strong, ethical,

values-driven organization where employees live by

the code of ethics? Research shows that the two

primary drivers of codes effectiveness are cultural

values and communication. Culturally embedded

codes can be powerful strategic management tools.

Similarly, when the values articulated in the codes

are clearly communicated and are part of the orga-

nization, the code affects employees behavior in a

positive way.

The effect of cultural values

Enron, Tyco, and Worldcom had miasmatic cultures

and lacked ethical values. At Enron the company

culture rewarded strong financial performance at any

cost, even when fake numbers were entered into

books. Former WorldCom chief executive Bernie

Ebbers believed he was beyond the code and acted

dismissively toward it. Ebbers began serving a

twenty-five year prison sentence in October, 2006.

Tyco’s culture allowed for runaway expenditures byits top executives. Tyco’s CEO and CFO Mark

Schwartz were also sentenced to twenty-five years.

They will serve between eight and nine years in

prison before they are eligible for parole. To avoid

the egregious behavior demonstrated by executives

in Enron and Tyco, organizations should develop

strong cultures where employees embrace the code,

are supported and rewarded for following the code,

and observe managers and executives in the orga-

nization behaving consistently with the code.

Embedding the code in an organization means

defining and prioritizing responsibilities with strate-gies and policies in the organization such that the

code is not a separate entity. Successful companies

have strong core values, in addition to financial

goals. Porras and Collins found that successful

companies have values allowing them to adjust to

changes in the environment and react in positive

ways (1994). They are flexible and adaptable without

compromising their primary values. Long term

performance depends upon employees engaged in a

purposeful mission with a clear vision of ethical

values.

Codes are often communicated through orienta-tion literature or posted on a company website.

Employees are told to read the materials, but many

do not until there is a need to know or a trigger

event occurs. Many employees are overwhelmed by

a plethora of messages (e-mails, instant messages,

memos, faxes, and voice mail) to which they must

respond. Keith Davis (1972) called this phenomena

‘‘overpublication’’ years before the exponential

growth of multiple electronic messages. McKibben

recently observed that, faced with too many mes-

sages, most employees absorb and respond to burstsof information automatically, rather than thinking

carefully about them (2004). Reflection time is

absent from many organizational cultures; codes can

become simply compliance documents that are easy

to ignore. Ethical codes require thoughtful absorp-

tion and discussion in order to become culturally

embedded. The very process of creating a code

shapes organizational culture as members search for

words to express organizational values and ideals.

Words affect the perception of ideas and the process

TABLE 2

Evidence of code effectiveness

Study Year N Country

Fisher 2001 45 U.K.

Somers 2001 613 U.S.A.

Trevino and Weaver 2003 multiple studies U.S.A.

Chonko et al. 2003 286 U.S.A.

Schwartz 2001 57 Canada

Adam and Rachman-Moore 2004 812 Israel & U.S.A.

ODwyer and Madden 2006 142 Ireland

Vitell 2006 152/235 Spain & U.S.A.




of enacting a code captures and communicates the

recondite ideals in the organization. Organizations

should discuss the code and the meaning behind the

words. It is important not to view culture as a sep-

arate entity from communication; they are inter-twined and woven as one in the organizational

fabric.

The effect of communication

Effective communication is pivotal to ethical code

effectiveness. Both Adams and Rachman-Moore

(2004) and Weeks and Nantel (1992) recognized

the interrelationship between codes and commu-

nication. They saw that codes could be effective if communication channels were effective. Ethical

concepts in codes cannot be enacted by organiza-

tional members if they are unaware of or unfa-

miliar with the code. So communication is key,

but channels are also important. The way an eth-

ical code is communicated contributes directly to

its success or failure. Schwartz (2004) found that

codes are effective when they have features of

readability, relevance and are written with a posi-

tive tone. Formal communication (ethics code

training sessions, classes and directives) is less

effective than informal ways such as social norms.Most important are examples set by managers.

When codes are embedded in an organizational

climate and leaders communicate the value of

ethics by modeling appropriate behaviors, they

make a appreciable difference (Trevino et al.,

1999; Trevino and Weaver, 2003).

When managers set examples and live according

to the code, other members can visualize the action.

However, it is also important that managers openly

discuss the principles with organizational members,

engaging in both upward and downward commu-nication about ethics. Discussion about values, and

debates over difficult dilemmas help organizational

members realize that taking the right action often

requires a long and thoughtful process (Adams and

Rachman-Moore, 2004).

Change in organizations occurs when people

themselves change and alter the way they react to

events. When members enter what Quinn calls

‘‘the fundamental state of leadership’’ they become

internally driven, other-focused and externally

open (2004, p.64). The result is a heightened

awareness, expanded thinking, increased vision and

understanding (Cameron et al., 2003). This state of

increased integrity, courage, and energy attracts

others to become leaders. To help others with thisprocess, managers must discuss the tribulations of

ethical decision-making, the indecisions, and both

right and wrong paths openly and honestly with

everyone. They must analyze wrong decisions,

admit to errors, and rectify problems whenever

possible. Employees drawn to this fundamental

state of leadership will become leaders themselves;

in this way organizations change and mature into

thoughtful, ethical companies, financially and eth-

ically strong.

Codes should act as powerful beacons to organi-zational members and sanctions must be applied

when codes are violated. The role communication

plays in code effectiveness is indisputable. Employees

see and hear organizational action and they respond

to internal messages. Nitsch et al. described the

frustration, anger and cynicism that develops in

organizations where code violations are unreported

(2005). Codes are effective only to the degree that

code violations are appropriately sanctioned. Orga-

nizational leaders, who build trust by ensuring justice

prevails and the code is followed, strengthen mem-

bers commitment to the code. Scalet noted that thereal code involves patterns of trust among employees

(2006).

Employees respond to visible justice, so violations

must be addressed and repercussions communicated

to all. Kickup noted that low trust causes employees

to be more sensitive to fairness issues (2005).

Implementation is the key to code effectiveness and

it belongs at the top. In a recent article Schwartz,

Dunfee, and Kline note that that corporate boards

need to set the tone in organizations (2005). The

message of valuing ethics should come from the topas a key part of corporate strategy.

Improving the impact of corporate codes

The corpus of ethical code research has yielded

sufficient data that shows codes are effective.

Researchers should no longer debate the general

question of code effectiveness; Trevino, Weaver,

Schwartz, and others scholars reviewed in this

606 Betsy Stevens



article have answered that question. The focus

should now be on creating and implementing

codes that militate the values of the corporation

and establishing connections with strong commu-

nication channels.Synthesizing the existing research from code

scholars has surrendered some salient information for

implementing codes. The following five-step plan

will help managers use ethical codes as a strategic

organizational document:

1. Engage in a collaborative process to create

the code and incorporate revisions.

2. Discuss the topics in the code frequently

with everyone and debate the organization’s

trouble spots.3. Use the code to resolve ethical issues. It

belongs in the board room and should be

part of corporate strategy meetings.

4. Communicate ethical decisions to all mem-

bers of the organization by explaining the

rationale and how the code was used to

arrive at the decision.

5. Reward people who behave consistently

with the code.

Conclusion

Corporate ethical codes have earned a secure place as

strategic management tools in organizations. A body

of research is now in place demonstrating that if

codes are embedded in the organizational culture and

communicated effectively, they can shape ethical

behavior and guide employees in ethical decision-

making. Managers must model the desired behavior

and employees need to see that sanctions occur if

codes are violated. Communication is a requirement

for codes to be successful. Employees must be awareof the content in their ethical codes and participate in

discussions about the codes so they have full under-

standing of the meaning. Codes do not work when

they are written by management and passed down to

employees as a mandate. Employees must perceive

the ethical code as a personal document in which

they have ownership, as a key component of the

organizational fabric, and as one that is central to the

organizations strategic functions.

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Betsy Stevens

Elon University,

316 KOBC, Elon, NC, 27249, U.S.A.

E-mail: [email protected]


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