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In the last decades the practice of establishing codes of ethics in business organizations has increased tremendously. The growth in adopting these ethical codes started in 1970s and was seen as a way to set out specific guidelines and standards to direct appropriate ethical behavior for the company’s employees (Crane, Matten, 2004, p. 175). Since the market and the legal systems do not always lead to organizational behavior that includes morality in its decision making, many scholars view the creation of codes of ethics as an important element to enhance employees’ ethical conduct.
Others believe that through codes of ethics, business as a profession can be established “similar to medicine or law,” and through the creation of ethical codes, the organizational values and norms may become part of the corporation’s culture and facilitate the incorporation and adaptation of new employees (Adams et al, 2001, p. 199). The main argument against the establishment of corporate codes of ethics is the discrepancy that exists between what managers expect to achieve and what is actually achieved.
Some view that having broader ethical codes cannot successfully regulate the behavior of employees (Robin et al, 1989, p. 71). Very often codes of ethics are also identified as “questionable control mechanisms that potentially seek to exert influence over employee beliefs, values and behaviors” (Crane, Matten, 2004, p. 181). Other weakness is that in the presence of codes of ethics individuals might tend to feel as being relieved from the responsibility of evaluating ethical dilemmas and taking moral decisions (Adams et al, 2001, p. 203).
When it comes to the effectiveness of codes of ethics the question is highly arguable. Although, there is little evidence that employees can actually recall the content of their company’s code of ethics or that it influences their behavior in a certain way, making unethical employees ethical and moral, the mere presence of code of ethics indicates “that management places some value on ethical behavior” (Adams et al, 2001, p. 201). As Crane and Matten state: “…it is perhaps less important what a code says than how it is developed, implemented and followed up” (p. 80). The proper and clear communication of the code from the management to the personnel is the only successful way to ensure that the company’s code of ethics will be remembered and easily recalled by the employees, changing their pattern of behavior in a more ethical direction. High importance is placed on codes of ethics in terms of the growing number of multinational corporations, where there is an urgent need to make managers in different geographic areas follow one and the same policy.
However, a problem might arise with the exact framing of the codes, because not always the design of the ethical codes for domestic application works for the company’s international operations. Important questions are what is the best way to stay politically correct and to take into consideration cultural barriers when communicating ethical norms, and isn’t morality one and the same for all individuals or there should be a differentiation based on cultural background. In order to examine the effectiveness of code of ethics, first there should be a clear definition of what it means.
Crane and Matten define codes of ethics as “voluntary statements that commit organizations, industries, or professions to specific beliefs, values, and the actions and/or that set out appropriate ethical behavior for employees” (2004, p. 175). They distinguish between four different types of ethical codes and divide them into organizational or corporate codes of ethics, professional codes of ethics, industry codes of ethics, and program or group codes of ethics. Codes of ethics, however, are not principles, because they do not apply universally but rather are limited to the employees of specific company.
Codes of ethics are also functional when they provide a basis for testing the legality of an employee’s actions, but not in attempting to “inculcate a moral behavior” (Lecture notes). An organization is a moral agent because it consists of individuals who act as moral agents, and as such should formulate principles and guidelines for regulating all organizational processes and decisions, based on the virtues “that inform how we ought to live as human beings” (Lecture notes). The format of codes of ethics vary largely from being only a one-page sets of maxims to lengthy documents organized as booklets.
Schlegelmilch and Houston formally divide codes of ethics into three groups (1989, p. 15). First, they can be regulatory documents which prescribe particular conduct and envision sanctions for any transgression of rules. Companies that have this type of codes of ethics are Mobil Holdings, Petrofina and British Gas. The second type is short and is more organized in the form of statements of values, aims and objectives: an example of a company using this type is British Telecom.
The last third form is of elaborate corporate codes of ethics that cover a wide range of social responsibilities (e. g. Shell) (Schlegelmilch, Houston, 1989, p. 15) Recently we observe a growing importance of codes of ethics. Mainly a practice of US corporations with fewer examples in Europe several decades ago, now more and more European companies start adopting codes of ethics (Langlois, Schlegelmilch, 1990, p. 519). As defined by Carasco and Singh there are five business reasons that stay behind the tendency of formulating ethical codes (2003, p. 72).
A code of ethics helps in enhancing the reputation and brand image of a company, because it is regarded as sending the right messages of good internal and external practices. It is also a signal to share-holders, activists and media that the company is committed to create an ethical environment so in times of crisis when it is accused of behaving unethically, this act “will be seen as an exception not a rule” (Carasco, Singh, 2003, p. 72). A corporate code of ethics is also the means in creating corporate culture, mechanisms for operationalizing company’s values and “sense of community” among employees.
Avoiding fines and sanctions is another reason for establishing codes of ethics in a company. It is also thought that the existence of ethical practice in a corporation will have a positive effect on the enhancement of “development prospects in emerging economies in Africa, Asia and Latin America by establishing universal standards which transcend differences in laws and cultures” (Carasco, Singh, 2003, p. 72). The main argument in favor of organizational codes of ethics is the need to guide the moral and ethical behavior of individuals.
But what actually determines the behavior of employees, and thus, the effectiveness of codes of ethics? Many theorists believe that individual decision making process is affected not only by factors, such as personality and attitudes, but also by the situational and environmental factors (Adams et al, 2001, p. 201). In their opinion, regardless of the fact that human beings are capable of making moral judgments on their own, when they are put in an organizational environment, they tend to conform to the expectations of managers and peers (2001, p. 10). However, in order to ensure the successful effectiveness of codes of ethics they should “become part of a learning process that requires inculcation, reinforcement and measurement” (Doig, Wilson, 1998, p. 146). A substantial corporate investment is required in producing code of ethics, so that the company will be capable of ensuring that all employees are informed, participate and discuss the meaning and implementation of the new practice. Any performance against the code also should be monitored and sanctioned (Doig and Wilson, 1998, p. 47). Although, good on theory, the requirements for an effective code of ethics sometimes fail in practice. Two examples can be given with companies functioning in UK: the abortive takeover of the Cooperative Wholesale Society (CWS) in 1996 and regulatory report by the Financial Services Authority (FSA) on the Prudential Assurance in 1997, where companies’ confidential information has been revealed in spite of the existing ethical code (1988, p. 147). Codes of ethics are a way of meeting the different needs of different employees.
Based on Trevino and Nelson (1995) classification in Adams et al (2001, p. 201) there are three groups of people in an organization: “good soldiers” who are informed of the rules and follow them; for them the existence of a code only strengthens their inner sense of ethical behavior. “Loose cannons” are usually the new and inexperienced employees who are not familiar with the organizational policies and need to be educated in the code. The final group is “the grenades” who might or might not be informed about the rules and who lack sense of morality.
The company should envision sanctions to make sure that the code is followed by the “grenades”. Its effectiveness should not be ignored in this case, because codes of ethics are of high importance in defining and clarifying company’s policy and preventing any deviation from the established rules. Many companies also justify the existence of codes of ethics as part of their “total quality approach”. British Telecom stated that ethics “is a subject high on our agenda as a part of total quality approach to management and service” (Schlegelmilch, Houston, p. 9). Although the research findings on the effectiveness of codes of ethics are mixed, there is no doubt that to enhance the impact of company’s ethical codes on employees there should be a high-quality communication and even ethical education. Wotruba, Chonko & Loe (2001) identify four steps in achieving greater effectiveness of the ethical codes. The introduction of codes of ethics for them is nothing more than simply the first step in building organizational ethical behavior.
This first step is followed by informing the employees of the existence of the code and making them familiar with it. This familiarity consists not only of the employees’ awareness of the code, but also with their understanding of it. The third step Wotruba et al explain as the one where the employees will “recognize the usefulness of the code as a guide to behavior” and finally, the whole ethical climate of the organization will be positively influence as more and more employees adopt the ethical norms of behavior required by the code (2001, p. 2). All these four steps can be summarized as code institutionalization, code awareness, code understanding and code enforcement that will eventually lead to the intention of the individuals within the organization to behave ethically (Bricknell, Cohen, 2005, p. 57). Various numbers of studies have been conducted evaluating the effectiveness of codes of ethics and comparing organizations with and without ethical codes.
The results of Adams et al research show that the employees in companies which have codes of ethics judge their coworkers, managers and subordinates as more ethical than the employees in organizations without ethical codes (2001, p. 207). The former employees are also more satisfied with the way their companies deal with ethical issues and dilemmas than the latter. These respondents also indicate that they feel less pressure and restrictions on their ability to behave ethically.
Adams et al findings show that codes of ethics have an effect on individuals’ behavior and perception and “heighten awareness and sensitivity to the importance of ethical behavior” (2001, p. 207). The mere existence of ethical code is perceived as a signal that management places value and importance on the need of corporate ethical behavior. This signal is a further support for shaping the positive behavior of the employees, who are in general inclined to behave ethically, and a warning and threat of sanctions for those who might deviate from the rules.
James Weber’s finding emphasizes on another aspect in favor of codes of ethics and their effectiveness. He points out that “individuals report lower levels of moral reasoning in scenarios set in business context” (1999). Thus, in an organization operating without the existence of ethical codes, employees may behave below their level of moral development, since they do not fear direct sanctions and restrictions. The opposite will be valid as well. When a company has an established code of ethics, employees who have low moral standards will be compelled to behave in the way the organization demands.
It leads to the conclusion that codes of ethics can serve the function of “moral compasses”, through which employees will be able to self-monitor their behavior and ensure consistency between their “ethical decision-making and actions” (Adams et al, 2001, p. 208). Although, there are many researchers and scholars who tend to question the effectiveness of codes of ethics in the business environment, it is impossible to ignore the importance of ethical codes when it comes to the functioning of transnational companies.
It is essential for transnational companies to prove that they are good and responsible corporate citizens, especially after their significance as global actors has increased (Carasco, Singh, 2003, p. 73). The increase of foreign direct investments and the number of international corporations has established the need for creating means for tackling global ethical challenges. On way of solving this emerging problem is the creation of universal ethical codes that vary in formulation depending on the culture, industry and legal requirements (2003, p. 73).
Carasco and Singh mention several attempts to enforce the creation of global codes of ethical conduct. The first one initiated in 1970s by the UN (Draft Code of Conduct for Transnational Corporations) failed due to the inability to agree on universal principles, but the attempt was followed by several successful developments on this area (2003, p. 75): Caux Principles of Business formulated in 1986 included four arrays of concern: the employment dilemma, sustainable practices and values; trust, honesty, and transparency; and collaboration and partnership for action.
A more recent development in the scope of transnational ethical codes is the UN Global Compact, which includes nine principles of human rights, labor and the environment. Although, the move towards global corporate ethics is still a slow process and the implementation of codes varies largely among nations and cultures, it is important to understand the significance in the attempt to formulate similar ethical standards. Based on them, managers in different countries can act in agreement and correspondence to the policy of their companies.
Forming a unified ethical image turns into a priority for many transnational corporations nowadays. Despite the fact that codes of ethics are disputable as means of improving the ethical behavior within an organization, there are evidence and reasons to conclude a degree of effectiveness. The existence of corporate codes of ethics influences the perception on employees to the level of importance management places on fostering ethical conduct. Since most individuals are impacted by the situation and the environment, they tend to conform to the expectations of peers and managers.
Knowing what exactly they are supposed to do or not to do, employees attempt to behave within the required limits. Fear of sanctions will be an additional stimulus shaping their ethical behavior. The existence of codes, furthermore results in strengthening the positive image and reputation of the organization, presenting it as a good corporate citizen. Tackling with any kind of ethical issues and dilemmas will be even more facilitated by the establishment of codes of ethics. Bibliography:
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