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

DOI 10.1007/s10551-007-9370-z

Corporate Ethical Codes: Effective

Instruments For Influencing Behavior Betsy Stevens

ABSTRACT. This paper reviews studies of corporate gard by the American public (Gallup, 1977; Gallup,
ethical codes published since 2000 and concludes that codes 1986). Feeling a need to improve their images and
be can effective instruments for shaping ethical behavior facing increasing accusations of corruption, busi-
and guiding employee decision-making. Culture and nesses turned to ethical codes to publicize their
effective communication are key components to a codeÕs virtues and create a more positive impression with
success. If codes are embedded in the culture and embraced
stakeholders (Berenbeim, 1987; Brooks, 1989;
by the leaders, they are likely to be successful. Communi-
cating the codeÕs precepts in an effective way is crucial to its
Cressey and Moore, 1983). Some critics argued the
success. Discussion between employees and management is codes were simply public relations tools; others be-
a key component of successful ethical codes. lieved they could be effective in encouraging more
ethical behavior in organizations. The debate over
KEY WORDS: communication, corporate ethics, ethical code effectiveness continues today.
culture, ethical codes, honesty and ethics standards American ethical codes were first called ‘‘creedsÕ
or ‘‘credos’’ and those in the 1980Õs 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
Introduction written documents which attempt to state the major
philosophical principles and articulate the values
Following Watergate and President Richard NixonÕs embraced by the organization (Stevens, 1996).
resignation in 1974, corporate scandals and acts of Codes articulate ethical parameters of the organiza-
egregious behavior proliferated in the United States tion – what is acceptable and what is not. They have
and continued for several decades. The ethical been defined multiple times in JBE journal articles,
standards of corporations were not held in high re- sometimes redundantly without building on earlier
works and other times adding new dimensions to the
Betsy Stevens as associate professor of Business Administration understanding of a code. Kaptein and Wempe
at Elon University. Her academic interests are business and describe them as policy documents defining
management communication, business ethics, international responsibilities of the organization to stakeholders
communication, and hospitality management. An active re- and articulating the conduct expected of employees
searcher, she has published more than 20 articles in refereed (2002). Nijhof et al. note codes contain open
journals such as The Journal of Business Communica-
guidelines describing desirable behaviors and closed
tion, Business Communication Quarterly, The Journal
guidelines prohibiting certain behaviors (2003). As
of Business and Technical Communication, Journal of
Business Ethics, Bquest and the Journal of Employ- instruments to enhance social responsibility, codes
ment Counseling. She has an M.A. from the University of clarify the norms and values the organization seeks to
Cincinnati and a Ph.D. from Wayne State University. As a uphold (Kaptein, 2004). In contrast, mission state-
Fulbright Scholar, she taught university classes in Tomsk, ments articulate the objectives of a company and
Russia and has also been on the faculty of the Australian declare what goals the organization intends to
International Hotel School in Canberra, Australia accomplish (Stevens, 1994). Ethical codes differ from
602 Betsy Stevens

mission statements by articulating the value system Snell and Herndon agreed, concluding codes were
and answering the question – within what ethical oriented toward corporate self-defense (2000).
standards and values should the mission be pursued? In a study of codes from the US, Germany,
This paper argues the premise that sufficient new France and England, Langlois and Schelgelmilch
evidence exists to show that corporate codes can concluded that American codes discussed govern-
successfully moderate ethical behavior. Although ment and customer relations more than European
research on ethical code effectiveness has surren- and British codes (1990). Kaptein found that most
dered mixed results, this study examines the situa- codes described company responsibilities for product
tions where ethical codes have influenced the quality and services, obeying laws and protecting the
behavior of employees in organizations and those environment (2004). He also found content differ-
situations where they have not. A body of research ences in European, American, and Asian codes.
certainly exists pointing to code ineffectiveness and European codes focused almost 50% more on the
failure to effect behavior; however, a number of environment than American codes. Honesty was a
recent studies show codes can be effective when major theme in American codes (64%), but it was
certain parameters are in place. This paper examines mentioned less frequently in European codes (45%)
two recent sets of studies and analyzes why some and in Asian codes (38%). Fairness was a less pre-
codes have failed when others succeeded. valent topic in American codes than in European
and Asian codes (Kaptein, 2004). Gaumnitz and Lere
proposed a classification scheme for ethical code
Ethical code prevalence and content content, but their scheme appears to be basic content
analysis that does not incorporate much of existing
Corporations increasingly adopted codes throughout ethical code research (2004).
the 1980Õs and 1990Õs and most American companies
now have an ethical code (Chonko et al., 2003;
Trevino et al., 1999). Worldwide, fifty eight percent Evidence of code ineffectiveness
of the 100 largest companies use ethical codes
(Kaptein, 2004). Also, European companies have Code scholars have reported a number of unsuc-
increasingly adopted codes of conduct to regulate cessful outcomes in both positively impacting
labor relations (Sobczak, 2003). Studies of ethical employee behavior and deterring unscrupulous
code content conducted in the 1980Õs concluded actions. MathewsÕ classic study of 202 Fortune 500
that codes reflected concern over unethical behavior codes yielded little evidence linking codes with
that might decrease profits and showed a weak behavior and concluded that codes did not provide
commitment to social responsibility (Cressey and self-regulation or a culture of ethical behavior
Moore, 1983). Conflict of interest was an important (1987). Cleek and Leonard later concurred that
theme (White and Montgomery, 1980) along with codes of ethics did not determine or influence an
compliance with federal laws (Sanderson and Varner, employeeÕs ethical behavior (1998). Additional
1984). Mathews (1987) performed an extensive empirical evidence has shown either mixed results
content analysis, which showed that firms primarily (Loe et al., 2000; Marshall et al., 1998) or a lack of
emphasized illegal activities and employee miscon- effectiveness. Weeks and Nantel (1992) found
duct in codes and placed little emphasis on the codes were ineffective except when well commu-
environment, quality, or product safety. Pitt and nicated in organizations. Loe et al. examined 17
Groskaufmanis found conflict of interest, gifts, and empirical codes studies attempting to relate ethical
misuse of confidential information were frequently codes to ethical behavior. The results were mixed,
mentioned topics (1990). StevensÕ study indicated but some showed positive relationships. Schwartz
that the content in ethical codes was primarily argued that codes are ineffective systems of control
designed to defend organizations against illegal (2000), then examined the results from 19 studies
behavior and was found lacking in visionary per- concluding they worked in some situations and
spectives and in providing ethical guidance (1996). failed in others (2002).
 Corporate Ethical Codes 603

TABLE 1 senior management typically do not work because

Evidence of code ineffectiveness employees have not accepted them as part of their
culture.
Study Year N Country Similarly Snell and Herndon observed this same
phenomena (2004). They saw that willingness to
Marnburg 2000 449 Norway employ best practices for implementing ethical codes
McKendall et al. 2002 108 U.S.A. was weak in Chinese organizations because of col-
Healey and Iles 2002 125 U.K. lectivist features in the culture. Pseudo-support was
Snell and Herndon 2004 171 Hong Kong
given, but companies did not embrace the ethical
code even when it was in their best interest to do so.
Three studies of code use outside the U.S. also The authors hypothesized that culture and power
concluded codes were ineffective. MarnburgÕs study distance play significant roles since subordinates are
of Norwegian business professionals indicated that expected to publicly support their superiors even if
ethical codes had no effect on attitudes toward ethics they disagree. Codes imposed by senior management
(2000). Snell and Herndon (2000) observed that on Chinese workers were not accepted by the
Hong Kong employees did not perceive ethical workers. Their study illustrates the interplay
codes impacted their organizations and Healy and between culture and ethical codes, whether in an
Iles reported that codes did not promote greater Asian or U.S.A. company. Codes imposed by
ethical considerations in London-based companies external agents are typically ineffective. In sum, good
(2002). ethics cannot be ordered by management. Codes
Table 1 shows a summary of recent code studies attempting to create legal controls are generally
which yielded negative results. N indicates the ineffective.
number of respondents in each country and country Further, Healy and Iles study of 125 London-
refers to the country where the study was performed based firms found codes issued by IT firms designed
and hence the respondentsÕ home country. to govern information and technology were not
Why were these codes ineffective? Several factors effective. The codes did not influence the behavior
may have been at work in these situations where of IT end users in organizations. Again, governance
codes did not influence employee behavior. Marn- and compliance seem to be the operative failure
burg measured ethical attitudes of engineers and points. Top down attempts at ethical control typi-
economists in a group of Norwegian businesses and cally fail. Healy and Iles stated ‘‘Codes of ethics are a
found the existence of ethical codes did not affect means by which organizations seek to exercise
their attitudes. He postulated that the mere existence power, control and ownership’’(p.123). But this is
of a code was not influential, but processes and exactly the wrong motive. Codes are not meant to
systems that the code symbolized needed to be in be instruments of control. When used as such, they
place for the codes to be effective. The respondents will fail, which explains why the group of studies
in all these studies saw the code as external and were shown in Table 1 reported unsuccessful results. In all
not influenced by it. of these cases, codes failed to regulate ethical
McKendall, DeMarr, and Jones-Rikkers exam- behavior showing that the mere existence of a cor-
ined data from 108 large US corporations to deter- porate code of ethics does not prevent acts of
mine whether an ethical compliance program egregious behavior.
comprising training, communication and ethical Schwartz argued against using codes as compli-
codes would result in fewer OSHA violations. They ance control systems (2000) and Trevino and Wea-
found no positive effects, concluding that ethics ver also observed that codes do not work when used
programs might simply be decorative artifacts to as control systems or for legal compliance because
deflect criticism of corporate ethics. But the opera- this places them outside the climate and culture
tive words here are regulation and control. It is not boundaries where employees feel ownership (2003,
surprising that codes in these compliance programs p. 194). Culture and cooperation – not legalistic
failed to achieve their goals. Forced code compliance compliance – create conditions where ethical codes
in organizations is ineffective. Codes imposed by are effective.
604 Betsy Stevens

More evidence of code ineffectivess ethics and act accordingly, they can function as
essential management tools.
The Enron and WorldCom scandals shook the US Trevino et al. (1999) also found that ethical
market resulting in the Sarbanes-Oxley Act to reg- leadership and open discussions of ethics in the
ulate accounting practices and force executive organization contributed to increased ethical
responsibility. Enron had an extensive ethical code behavior. Strong leaders who share their values with
(Megan, 2002,), yet it also had a pervasive ‘‘cow- others positively affect the organization and its code.
boy’’ culture where rules were routinely broken and Then, Trevino and Weaver discovered a correlation
aggressive, individualistic behavior was rewarded. between alumni who attended honor code colleges,
EnronÕs board of directors actually suspended their then worked for organizations with strong ethical
ethical code twice (Sims and Brinkman, 2003). The codes (2003, p.8). Those employees self-reported
off-balance sheet partnerships created by Enron fewer unethical behaviors, suggesting that businesses
executives to hide debt eventually imploded, causing desiring ethical employees can benefit by hiring
the organizationÕs demise. graduates of honor code colleges. Adam and Rach-
Clearly the code did not work for Enron; it was man-Moore noted that the influence of managers
an artifact that was separate from their culture. setting examples was more effective than formal
Enron executives Jeffrey Skilling and Kenneth Lay ethics training (2004). Somers (2001) discovered that
were convicted in June, 2006 and both faced prison management accountants perceived less wrongdoing
sentences of up to 25 years. However, Lay died in in organizations with corporate codes and respon-
October, 2006 before serving his sentence for fraud dents in organizations without formal codes were
and conspiracy. His conviction was voided because more aware of wrongdoing. Awareness and under-
he had appealed the conviction and died while the standing the codes is similarly important. Both
appeal was pending. Worldcom corporation, Wotubra (1995) and Chonko et al., (2003) showed
involved in an $11 billion accounting fraud, the usefulness of codes as decision-making guides
emerged from bankruptcy in 2004 as MCI, which increased with the familiarity of the content. Table 2
was bought by Verizon. Worldcom also had an shows recent studies which support the effectiveness
ethical code, but it was not adopted until 2002. of ethical codes. N indicates the number of
Given the timing of the executivesÕ egregious respondents in the study and country indicates their
behavior, the code came too late to influence the home country.
behavior of Worldcom executives, if it had any The studies shown in Table 2 all reported that
influence over them at all. 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,
When are codes effective? but as an integrated, embedded part of a larger part
of organizational culture. How can an ethics code
Several studies conducted prior to 2000 showed become organizationally embedded? Managers who
codes were effective when the right conditions were lead by setting clear standards and expecting the best
in place. Ford and Richardson correlated codes of from everyone including themselves are able to
ethics with observed unethical behaviors and found create ethical cultures. Ones who consider the eth-
fewer incidences of unethical behaviors in code ical codes superfluous fail to establish an ethically
companies (1994). Casel, Johnson and Smith (1997) meaningful culture. Most employees are motivated
observed that the right context and design, formal to commit to higher principles and unite in a
controls, individual influences such as self-control common cause. As Kouzes and Posner noted,
affected the workability of codes. Similarly, Laufer ‘‘Great leaders like great companies create meaning –
and Robinson showed that when employeesÕ and not just money’’ (2003, p. 59). They also observed
managersÕ behavior is consistent with codes, their that employees work harder and more effectively for
behavior can effectively influence others in the leaders who inspire them to rise beyond self-
organization (1997). These studies indicated that expectations. This is not a new paradigm, but with
when codes are partnered with managers who value the exception of Trevino, Weaver, and Schwartz,
 Corporate Ethical Codes 605

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.
OÕDwyer and Madden 2006 142 Ireland
Vitell 2006 152/235 Spain & U.S.A.

the relationship to ethics has been tenuously ad- Embedding the code in an organization means
dressed in the code literature to this point. defining and prioritizing responsibilities with strate-
How can companies achieve a strong, ethical, gies and policies in the organization such that the
values-driven organization where employees live by code is not a separate entity. Successful companies
the code of ethics? Research shows that the two have strong core values, in addition to financial
primary drivers of codes effectiveness are cultural goals. Porras and Collins found that successful
values and communication. Culturally embedded companies have values allowing them to adjust to
codes can be powerful strategic management tools. changes in the environment and react in positive
Similarly, when the values articulated in the codes ways (1994). They are flexible and adaptable without
are clearly communicated and are part of the orga- compromising their primary values. Long term
nization, the code affects employeesÕ behavior in a performance depends upon employees engaged in a
positive way. purposeful mission with a clear vision of ethical
values.
Codes are often communicated through orienta-
The effect of cultural values tion literature or posted on a company website.
Employees are told to read the materials, but many
Enron, Tyco, and Worldcom had miasmatic cultures do not until there is a need to know or a trigger
and lacked ethical values. At Enron the company event occurs. Many employees are overwhelmed by
culture rewarded strong financial performance at any a plethora of messages (e-mails, instant messages,
cost, even when fake numbers were entered into memos, faxes, and voice mail) to which they must
books. Former WorldCom chief executive Bernie respond. Keith Davis (1972) called this phenomena
Ebbers believed he was beyond the code and acted ‘‘overpublication’’ years before the exponential
dismissively toward it. Ebbers began serving a growth of multiple electronic messages. McKibben
twenty-five year prison sentence in October, 2006. recently observed that, faced with too many mes-
Tyco’s culture allowed for runaway expenditures by sages, most employees absorb and respond to bursts
its top executives. Tyco’s CEO and CFO Mark of information automatically, rather than thinking
Schwartz were also sentenced to twenty-five years. carefully about them (2004). Reflection time is
They will serve between eight and nine years in absent from many organizational cultures; codes can
prison before they are eligible for parole. To avoid become simply compliance documents that are easy
the egregious behavior demonstrated by executives to ignore. Ethical codes require thoughtful absorp-
in Enron and Tyco, organizations should develop tion and discussion in order to become culturally
strong cultures where employees embrace the code, embedded. The very process of creating a code
are supported and rewarded for following the code, shapes organizational culture as members search for
and observe managers and executives in the orga- words to express organizational values and ideals.
nization behaving consistently with the code. Words affect the perception of ideas and the process
606 Betsy Stevens

of enacting a code captures and communicates the open (2004, p.64). The result is a heightened
recondite ideals in the organization. Organizations awareness, expanded thinking, increased vision and
should discuss the code and the meaning behind the understanding (Cameron et al., 2003). This state of
words. It is important not to view culture as a sep- increased integrity, courage, and energy attracts
arate entity from communication; they are inter- others to become leaders. To help others with this
twined and woven as one in the organizational process, managers must discuss the tribulations of
fabric. ethical decision-making, the indecisions, and both
right and wrong paths openly and honestly with
everyone. They must analyze wrong decisions,
The effect of communication admit to errors, and rectify problems whenever
possible. Employees drawn to this fundamental
Effective communication is pivotal to ethical code state of leadership will become leaders themselves;
effectiveness. Both Adams and Rachman-Moore in this way organizations change and mature into
(2004) and Weeks and Nantel (1992) recognized thoughtful, ethical companies, financially and eth-
the interrelationship between codes and commu- ically strong.
nication. They saw that codes could be effective if Codes should act as powerful beacons to organi-
communication channels were effective. Ethical zational members and sanctions must be applied
concepts in codes cannot be enacted by organiza- when codes are violated. The role communication
tional members if they are unaware of or unfa- plays in code effectiveness is indisputable. Employees
miliar with the code. So communication is key, see and hear organizational action and they respond
but channels are also important. The way an eth- to internal messages. Nitsch et al. described the
ical code is communicated contributes directly to frustration, anger and cynicism that develops in
its success or failure. Schwartz (2004) found that organizations where code violations are unreported
codes are effective when they have features of (2005). Codes are effective only to the degree that
readability, relevance and are written with a posi- code violations are appropriately sanctioned. Orga-
tive tone. Formal communication (ethics code nizational leaders, who build trust by ensuring justice
training sessions, classes and directives) is less prevails and the code is followed, strengthen mem-
effective than informal ways such as social norms. bersÕ commitment to the code. Scalet noted that the
Most important are examples set by managers. real code involves patterns of trust among employees
When codes are embedded in an organizational (2006).
climate and leaders communicate the value of Employees respond to visible justice, so violations
ethics by modeling appropriate behaviors, they must be addressed and repercussions communicated
make a appreciable difference (Trevino et al., to all. Kickup noted that low trust causes employees
1999; Trevino and Weaver, 2003). to be more sensitive to fairness issues (2005).
When managers set examples and live according Implementation is the key to code effectiveness and
to the code, other members can visualize the action. it belongs at the top. In a recent article Schwartz,
However, it is also important that managers openly Dunfee, and Kline note that that corporate boards
discuss the principles with organizational members, need to set the tone in organizations (2005). The
engaging in both upward and downward commu- message of valuing ethics should come from the top
nication about ethics. Discussion about values, and as a key part of corporate strategy.
debates over difficult dilemmas help organizational
members realize that taking the right action often
requires a long and thoughtful process (Adams and Improving the impact of corporate codes
Rachman-Moore, 2004).
Change in organizations occurs when people The corpus of ethical code research has yielded
themselves change and alter the way they react to sufficient data that shows codes are effective.
events. When members enter what Quinn calls Researchers should no longer debate the general
‘‘the fundamental state of leadership’’ they become question of code effectiveness; Trevino, Weaver,
internally driven, other-focused and externally Schwartz, and others scholars reviewed in this
 Corporate Ethical Codes 607

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