2011/03/17 § 4 Comments


Introduction: Ethics and morale in a Business context and the effect of honor codes






Tackling the main reasons for unethical behaviour
From the research reviewed so far one can easily conclude that there are four general drivers of dishonesty of immoral behaviour, namely:

1) Relatively low costs for large benefits through deception,
2) A lack of social norms,
3) Lack of self-awareness and a related low moral awareness, and
4) Self-deception (Nina, Dan et al. 2010).

Hence the resulting actions that are expected to lower unethical behaviour would be:

1) Increasing the probability of being caught deceiving. Interestingly, the magnitude of the punishment has been shown to be less of a deterrent for people who plan to commit unethical acts (Nagin and Pogarsky 2003).
2) Some argue that social norms must be communicated where there is a lack thereof. Suggestions include, but are not limited to, leaflets, movie-trailers, and similar types of measures in order to raise awareness for the conseuences of ones actions on other members of society. It has also been emphasized that such actions may need to be taken early in people’s life’s (Nina, Dan et al. 2010).
3) Asking people to sign an Honour Code has been suggested as a counter-measurement for a lack of self-awareness and moral awareness (Nina, Dan et al. 2010).
4) Contrary to what one might expect, educating people about self-serving bias is not successful in de-biasing people (Babcock and Loewenstein 1997).(Babcock, Loewenstein et al. 1997). Self-deception may be hard to tackle, some argue, and suggest that only eliminating the reason for bias may ultimately be successful (M H Bazerman 2001; Bazerman 2002).

Teaching ethics in courses
Results from studies investigating ethical courses for students that attempt to raise awareness of moral issues are conflicting. It has been shown in some studies with high-school students that merely learning about ethics had no positive effect on students’ ethicality. In fact, at the end of the course the students were slightly less ethically committed (Daniel 2010).

Another longitudinal study demonstrated the exact opposite effect, showing a significant increase in moral judgement scores (Geddes, Salvatori et al. 2009). It has been suggested that a lack of impact may rely on a lack of assessments and small group teaching which has been found to be beneficial for the impact of ethics teaching (John, Lisa et al. 2002).

There may be further reasons for these variations; one study found that of the nine ethical climate dimensions measured using a questionnaire some were correlated with unethical behaviours examined in the study, but not others (Peterson 2002). In conclusion the selection of investigation criteria have an impact on the outcome. Not all ethical dimensions may be equally suitable for the measurement of changes in ethical attitudes.

A study that reviewed studies on ethical training and investigated various types of ethics training arrived at the following conclusion: “People need environments that also support and encourage the practice of ethical reflection, dialog and action. Needed are additional activities that cultivate organizational process norms to develop ethical thinking in support of personal accountability and moral development. A greater focus on context implies that supervisors and managers need to bring forward ethical issues in staff meetings, become aware of and responsible for areas of ethical risk, and link ethical practice to organizational goals and personal performance. Finally, an emphasis on ethical competency development will help employees exercise ethics as an active ‘practice’ rather than seeing ethics as a form of forced compliance” (Sekerka Leslie 2009).

In essence, the “how” is equally important as the fact that a training in ethics exists. As a basis for ethics teaching Honour Codes have been suggested (Pavela 1993).

Business Ethical Codes of Conduct (BECC)
Another approach designed to raise moral awareness are business codes. Business codes or corporate ethics programs were introduced in the 1950s. In 2000 approximately 80% of the 500 largest US companies had an ethics code in place. The codes fall into three categories: Code and compliance, identity and values, and social outreach (Donaldson 2000). The content consist of behaviour and actions discussed in the codes, enforcement procedures, and penalties (Farrell, Cobbin et al. 2002).

96% of board members of 225 samples US companies had knowledge of the companies’ BECC in 2006 (Board 2006). A study of the Conference board in 1991 showed that the Compliance Code was the most common code type in all regions. Over 90% responded that their company’s statement requires particular types of employee or company behaviour (Board 1992).

75% of the responding organizations with codes said their statement is a credo that explains the company’s accountability to its key constituencies, like e.g. employees, customers and suppliers. Management philosophy declarations are the least common format – still, more than half of the companies with codes use this type of statement (Board 1992).

Effects of BECC on corporate behaviour
The National Business Ethics Survey® (NBES) is a study that samples ethical measures on a regular basis. The most recent survey in 2009 reported, confirming previous findings, that there’s a strong association between raising awareness for ethics and a strengthening ethical culture (Verschoor 2010).

Eight reviews covering approximately 700 individual research reports, investigating the effect of BECC on financial performance, showed that a small majority of studies found a positive effect, i.e. BECC influence financial performance to the better (Bickel 2009). One study compared companies that emphasize their ethics as an aspect of corporate governance performed better financially than without any special emphasize on ethics (Verschoor 1998).

35% of 79 studies found BECC or Codes of Honour to be effective, 16% found a weak effect, 14% showed mixed results, and 33% of the studies found no effect (Kaptein and Schwartz 2008). The reason for these difference may be the due to differences in study design, but also due to differences in the design of the codes and the communication of, and about the codes (Kaptein 2010).

These studies have mostly investigated the effects of BECC or Codes of Honour looking at the effects of codes in companies that apply them (Kaptein 2004; Kaptein 2010). The technique used in the studies has been to ask participants about their perception, i.e. how they perceive the ethical behaviour in their work place.

A further study tested Norwegian professionals from two different companies, i.e. companies with and without BECC, using vignettes. He concludes that the codes had no effect on people’s attitude to the presented dilemmas (Marnburg 2000).

Apparently the body of evidence pro- and contra BECCs is conflicting. The non-standardization of the test applied, and various differences that are hard to control for in a real-life situation apparently complicate the investigations. An alternative to cross sectional studies employing surveys is laboratory tests under controlled conditions.

Business codes in laboratory experiments
Only very few studies have employed laboratory experiments. Cleek and Leonard found no significant effect of a BECC on ethical behaviour in a questionnaire (Cleek and Leonard 1998). However, Cleek told all participants that they were to follow a BECC, but only gave on e group the content to read. Hence, the study did not measure the difference between the existences of the code versus no code, but rather the effect of the knowledge of the content of a BECC.

Mazar et al. showed that telling students that they had to follow a Code of Honour in an exam situation eradicated all attempts to cheat. The students had no knowledge of the content of the code; in fact such a code did not exist (Mazar, Amir et al. 2008). It is possible therefore that in Cleek’s study all participants had an increased ethical awareness and acted more ethical.

Hegarty and Sims on the other hand found in a simulation that handing students an alleged letter of the president of the company, emphasizing the importance of ethical behaviour, increased ethical behaviour (Sims 1979).

In a similar scenario Laczniak and Inderieden found that MBA students reacted more strongly to ethical scenarios describing illegal actions, following exposure to a letter or a code of ethics. The attitude towards unethical but legal scenarios on the other hand was unaltered (Inderrieden 1987).

Mathews conducted an analysis of 485 US companies and found that BECCs had a small but not significant positive effect on these companies in terms of frequency of civil actions, and price of shares (Mathews 1987).

Kaptein and Wempe so far have performed the only longitudinal study. They investigated the effect of a BECC by measuring several factors before and six months after introduction. The study found that the code had a positive effect on damage of corporate vehicles, which was down by 25%, and a reported improvement of the corporate culture (Kaptein and Wempe 1998).

Differences in the studies may partially be explained by differences in the way the BECC is communicated. Merely having a code does of course not guarantee that anyone read it, hence it should be frequently communicated. Stevens et al. found that training programs were positively related to ethical decisions (Stevens, Kevin Steensma et al. 2005).

The accessibility for the employees, the understandability, and the usefulness has an influence on the efficiency of the training. Furthermore, it has been argue that the quality of the code, i.e. the number of relevant ethical issues that are addressed, is crucial for its effectiveness (Kaptein 2010).

Content and structure of business codes
In order to apply the scientific method to the investigation of codes of business ethics their inherent complexity must be made available to classification schemes (Gaumnitz and Lere 2004). The following scheme has been suggested for structuring BECCs:
• Length: The number of statements included
• Focus: Such as a topic areas of the code
• Level of detail: How many statements per theme are included
• Shape: Defined as broadness of coverage versus depths of coverage
• Thematic content: General theme such as e.g. “honesty”
• Tone: For example inspirational, positive or regulatory, negative

Eighteen rules for the writing of a BECC have been suggested (Davis 2007):

1. Keep the writing of a code of ethics separate from any discussion of professional licensing (or other controversial projects)
2. Keep the drafting committee small
3. Keep preparation for the first draft simple
4. Get a draft as soon as possible but do not circulate it to any authoritative body or authoritative individual until the draft is ‘‘final’’
5. Have a well-defined procedure in place for turning the first draft into a final draft
6. Make the procedure as open as possible once there is a first draft
7. Email is no substitute for in-person meetings
8. Plan on a slow process from first draft to final adoption
9. Find ways to test the code by making people use it (user testing)
10. Work for consensus (rather than simple majority)
11. Get a writer to serve as the drafter or at least to work over the draft both at an early stage and again near the end
12. Keep objectives modest
13. Do not list authors, contributors, or the like in the code itself
14. Never suppose that there are experts on what a code should say
15. Don’t rely on those highly respected in a profession (prefer outside view)
16. Start planning early for dissemination, education, and administration
17. Establish a procedure for review and revision
18. Be wary of official translations of a code

As discussed by Kaptein and Schwartz, a BECC has to cover a range of integrated components in order to be efficient (Kaptein and Schwartz 2008). The components that influence the creation and efficiency of a BECC include the following:

1. Organization characteristics: Influence on efficiency of BECC (Weller 1988), e.g. company size (Murphy, Smith et al. 1992)
2. Stakeholder expectations: Pressure from stakeholders has shown an increased likelihood for financial executives to integrate a BECC into strategy (Stevens, Kevin Steensma et al. 2005)
3. Corporate objectives: Communicate core values (Paine 1994) and perception thereof (Linda Klebe Trevino 1999)
4. Development process: Creating support, raising awareness, create sense of ownership (Center 1990)
5. Personal characteristics and management style: Gender, age, nationality, educational level and religious background influence ethical decisions (Fallon and Butterfield 2005)
6. Implementation process: Distribution to employees for instance (Weaver 1999)
7. Conduct of employees and management: For example the existence of enforcement mechanisms influences behaviour (Hegarty 1979)
8. Corporate effects: As has been discussed above the actual effects of a BECC can vary, however, there are effects on the corporate climate, as well as feedback influencing stakeholders and the environment outside of the corporation.

Generally speaking a BECC can take various shapes and forms. Importance has been given to adjusting the code to the specific requirements of the field of business. More important than the content may, as discussed above, be the frequency and type of communication of the code (Kaptein 2010).

Previous chapter: Thesis Literature Review: PSYCHOLOGICAL BASIS OF MORALITY

Next chapter: Thesis Literature Review (Ch.4): MEASURING MORALE AND ETHICS


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