Corporate Ethics Codes and Practices

Abstract

Having a Code of Ethics (COE) has become a common practice within large companies since the 1980s. A COE serves multiple functions for organizations: as an internal control mechanism to guide employees during ethical dilemmas, a benchmark for fostering ethical corporate culture, and as a communication tool to signal organizational commitment to stakeholders. Four major theoretical frameworks underpin the extant academic scholarship on COEs. In particular, organizational justice and stakeholder theories highlight the role of individuals in adopting and shaping a COE, and the institutional theory emphasizes the influence of the exogenous environment on the convergence and/or divergence of COEs across firms and contexts. Integrative social contracts theory captures the significance of both individuals and the institutional environment and views COEs as a contractual obligation that guides managers and employees to manage contradictions between local and global norms. Within these theoretical framings, significant variations in the nature and stakeholder orientations of COEs have been detected across the developed and developing world. In the developed contexts, a comparative institutional analysis using the national business system approach shows that while in the compartmentalized cluster (the United States, United Kingdom, Canada, Australia, and Japan), expectations of market participants and firm owners are key drivers of COEs; in the collaborative cluster (Germany, Ireland, and the Netherlands), firms develop COEs that have a wider focus oriented towards multiple stakeholders such as employees, suppliers, and the environment. Whereas in the state-organized cluster (South Korea, Spain, Greece, and Slovakia) the role and the nature of the state are important guiding factors. The coordinated industrial district cluster (Italy) characterized by alliances among smaller artisanal firms demonstrates a human-centric view of business embedded within their COEs. Excluded from the national business systems categorization, the Nordic cluster displays a unique distinctiveness in its approach to COEs through the presence of a structured moral apparatus within firms. In the developing world, country-specific institutional characteristics play a vital role behind adoption of localized a COE, yet nonstate actors—namely multinationals enterprises, and international and supranational institutions—promote the diffusion of hyper-norms. Given the pervasiveness of corporate misconduct despite the global diffusion of COEs, scholars must pay heed to understand the conditions under which gaps between a COE adoption and implementation arise. Equally, more scholarly attention needs to be accorded to a systematic investigation of COEs in transitional and emerging contexts. This becomes particularly necessary in the face of sociological changes, a fast-evolving landscape of local and transnational regulations including those arising from global events such climate change, and COVID-19, and the co-existence of multilevel COEs at the industry, firm, and professional levels.