Codes of MNE What Do They Say

8/14/2019 Codes of MNE What Do They Say

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ABSTRACT. Business codes are an oft-cited man-

agement instrument. But how common are codes

among multinationals? And what is their content? In

an unprecedented study, the codes of the largest

corporations in the world have been collected and

thoroughly analyzed. This paper presents the results

of that study. Of the two hundred largest companies

in the world, 52.5% have a code. More than half

of these codes describe company responsibilities

regarding quality of products and services (67%),

adherence to local laws and regulations (57%) and the

protection of the natural environment (56%). Many

codes make reference to principles governing stake-

holder relations (e.g. transparency (55%), honesty

(50%) and fairness (45%)), corporate core values (e.g.

teamwork (43%)), appropriate conduct among

employees (e.g. discrimination (44%) and intimida-

tion (43%)) and treatment of company property by

employees (e.g. conflict of interests (52%), corruption

(46%) and fraud (45%)). Monitoring compliance withthe code is addressed in 52% of the codes. Based on

this content study, three types of codes are distin-

guished: the stakeholder statute (72%), the values

statement (49%) and the code of conduct (46%). The

results of this inquiry present a benchmark for the

evaluation and development of both individual and

international business codes.

KEY WORDS: business code, business principles,

code of conduct, compliance, ethics management,

international business ethics, mission statement, multi-

nationals, norms, values

Introduction

The interest in corporate social responsibility,sustainable business practice, corporate gover-

nance, business ethics, and integrity and com-pliance management has grown markedly in the

past decade (Waddock et al., 2002). It is not onlystakeholders who expect companies to pay

greater attention to norms, values and principles;

companies themselves are acknowledging theimportance of responsible business practice

(Waddock et al., 2002). But what are a companysresponsibilities? And how can the board and

management ensure that the company meets itsresponsibilities? A much recommended manage-

ment instrument to achieve this is a business code(also referred to as a corporate code of ethics (e.g.

Cressey and Moore, 1983), a code of conduct(e.g. White and Montgomery, 1980) or an

integrity code (e.g. Petrick and Quinn, 1997)).Scholars (see for example McIntosh et al., 2002),

international governing bodies (e.g. the United

Nations, the European Union and theOrganization for Economic Cooperation and

Development), business associations (e.g. theInternational Chamber of Commerce) as well as

special interest groups (e.g. the InternationalLabor Organization and Transparency

International) have been calling on companies

to develop their own business codes. But whatis a business code and what is its function?

A business code is a policy document that

defines the responsibilities of the corporation

towards its stakeholders and/or the conduct thecorporation expects of employees (Kaptein and

Wempe, 2002). A code clarifies the objectives thecompany pursues, the norms and values it

upholds and what it can be held accountable for.

Business Codes of

Multinational Firms:

What Do They Say? Muel Kaptein

Journal of Business Ethics 50: 1331, 2004. 2004 Kluwer Academic Publishers. Printed in the Netherlands.

Muel Kaptein is professor of Business Ethics and IntegrityManagement at the Erasmus University, Rotterdam, TheNetherlands. He also works as a consultant for KPMGIntegrity, where he assisted about thirty companies in thedevelopment of their code of business.


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A code aims to reduce the occurrence of

incidents, to improve the extent to which stake-holder expectations are realized, to boost stake-

holder confidence in the company and toencourage the authorities to relax regulations and

controls (see, for example, Ethics ResourceCenter, 1980; Raiborn and Payne, 1990).

How common are codes among companies?

And what is their content? Many studies havebeen conducted into the prevalence of codes in

specific countries (see Table I). Various publica-tions have also appeared on the content of codes

in specific countries. Research has also beenconducted into the content of business codes of

multinational firms with reference to one or

more issues such as bribery, child labor andhuman rights (see Table II).

To date, no research has been conducted toexamine the prevalence and full content of

business codes of the largest corporations in theworld.

This paper presents the results of an analysis of

the codes of the two hundred largest multina-tional firms. What do they tell us? What are the

most cited issues? Which issues are barely men-tioned? What wording do companies choose to

express their responsibilities? How uniform anddiverse are the codes? Is there a core set of

14 Muel Kaptein

TABLE I

Research conducted on the prevalence of business codes

Country Most recent Researcher Research method Percentage

study of codes

United States 1999 Weaver et al. Survey of Fortune 1000 with a 78%

response rate of 26%

Canada 2002 KPMG Canada Survey of largest 800 companies and 77%

200 public sector organizations with

a response rate of 13%

Japan 1997 Nakano Survey of largest 2199 companies 37%

with a response rate of 7.2%

India 2002 KPMG India Survey of largest 800 companies with 78%


South Africa 2002 KPMG Survey of 1026 public and private 71%

South Africa organizations with a response rate of

16%

Australia 1996 Farrell and Cobbin Survey of largest 537 companies with 42%


England 1999 London Business Survey of largest 350 companies with 78%

School and a response rate of 12%

Arthur AndersenGermany 1999 KPMG Germany Survey of largest 1000 companies 54%

and the University with a response rate of 25%

of Erlangen-Nrnberg

Belgium 2002 KPMG Belgium Telephonic survey of all of the largest 53%

100 companies

Netherlands 2003 Employer association Telephonic survey of all of the largest 54%

VNO-NCW, KPMG 100 companies

and Ethicon


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universal norms that multinational firms uphold

and, if so, how can they be described?A content analysis of business codes delineates

the responsibilities multinationals proclaim. To besure, the existence of codes does not imply that

companies strictly adhere to them (Sims andBrinkmann, 2003), but an analysis of the content

of business codes nevertheless reveals what kind

of ethics companies claim to uphold. The resultscould, among other things, serve as benchmark

in evaluating and developing individual andinternational business codes (e.g. the OECD

Guidelines for Multinational Enterprises, theUNs Global Compact and the Caux Principles).

Business Codes of Multinational Firms 15

TABLE II

Research conducted on the content of codes

Researchers Year Object of research Themes researched

White and Montgomery 1980 30 codes of U.S. companies Several issues

Cressey and Moore 1983 119 codes of largest companies Several issues

in U.S.

Mathews 1987 202 codes of 485 companies in U.S. Several issues

Schlegelmich and Houston 1989 31 codes of the largest 200 Several issues

companies in England

Langlois and Schlegelmich 1990 189 English, French and West Several issues

German company codes

Employer association 1991, 1999 Respectively, 21, 38 and 54 codes Several issues

VNO-NCW, KPMG and 2003 of the largest 100 companies

and Ethicon

Lefebvre and Singh 1992 75 of the largest 500 companies in Several issues

Canada

Farrell and Cobbin 1996 95 codes of the largest 537 Several issues

companies in Australia

Council of Economic 1997 71 codes of 360 companies Sourcing Guidelines

Priorities for Labor Rights

OECD 1998 98 codes of randomly chosen Fair business practice,

companies labor rights, environ-

mental stewardship and

corporate citizenshipILO 1999 215 codes of multinationals Labor rights

Van Tulder and Kolk 2000 13 international companies in the Several issues

sporting goods industry

Ashridge Centre for 2000 52 business codes of Fortune 500 Human rights

Business and Society companies

Gordon and Miyake 2001 246 codes of international companies Bribery

Kolk and Van Tulder 2002 55 business codes of Fortune 500 Child labor

companies

KPMG Belgium 2002 53 codes of the largest 100 companies Several issues


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Clearly, it is not to implied here that the moral

obligation of companies to include an issue intheir codes is directly proportional to the

frequency with which an issue presents itself. Themoral legitimacy of an ethical standpoint is not

determined by numbers (Donaldson and Dunfee,1999). The frequency with which issues areincluded in codes does, however, allow us to

deduce that the more an issue is mentioned, thegreater the number of companies there are who

endorse it. It can thus be asserted that the greaterthe frequency with which an issue is addressed

the greater reason a company should have for notincorporating this issue in its business code.1

An examination of the prevalence of codes andthe issues they deal with subsequently generates

the question of how the similarities and differ-ences among the codes could be explained. In

this paper, the collected data will be used to carry

out an in-depth analysis of the different codetypes that can be found in practice. Is there uni-

formity among business codes with the sameobjective and target group and what bearing do

differences in this regard have on the issues thatare addressed? Thereupon, the influence of

cultural and continental divisions on code typeand content will be examined.

This paper aims to give the reader a bettergrasp of the content of business codes. The

empirical effectiveness of business codes,however, falls beyond the scope of this paper (see

for example Schwartz, 2001). The content of

individual codes is not evaluated either.This paper starts with a discussion of the

methodology of the research conducted. Follow-ing this, the issues in the analyzed codes are

arranged according to theme and prevalence. Onthe basis of this analysis, we distinguish three

types of codes. The paper concludes with an

overview of the most significant findings and anumber of suggestions for companies to improvetheir business codes.

Methodology

This study focuses on the two hundred largest

corporations in the world, using the SCOPECore Company list (Van Tulder et al., 2001). In

2001, the respective company headquarters were

contacted by phone with the inquiry of whetherthe company had a business code. A business

code was defined as an independent, company-specific policy document which delineates

company responsibilities towards stakeholdersand/or employee responsibilities. Documents thatformulate responsibilities towards a single stake-

holder (e.g. a code for suppliers), a mission state-ment that merely formulates economic

objectives, or rules of conduct for employeeswith regard to a single issue (e.g. a code for the

use of e-mail and the Internet) were excludedfrom this definition.

In the telephonic contact, a connection withthe department of Public Affairs or Corporate

Communications was requested. The companyrepresentative was addressed in the official locallanguage. Since a range of terms are used to refer

to business codes in practice, the companyrepresentative was assisted as much as possible

with synonyms and different descriptions of acode. If the person in question had doubts, we

asked to be put in contact with a colleague (fromanother department). In some cases, we were put

through to Human Resources, Legal Affairs orCorporate Security. The companies that claimed

to have a code were requested to send us anoriginal copy. Two companies that claimed to

have a code but did not want to make it public

due to its confidential nature were not includedin the list of companies with a code given that

it could not be verified.At the beginning of 2002, the managing

directors of the companies that maintained thatthey did not have a code were contacted by mail

to establish whether this was indeed the case. Theletters were written in the official language of the

country where headquarters was based. Two

additional codes were eventually received. Finally,a search was conducted on the web sites ofcompanies that repeatedly stated that they did not

have a code and other public resources on

company codes were also consulted. This did notyield any additional codes. The search was ended

on 1 August 2002.The aim of this approach was to collect as

many codes as possible so that the proportion ofcompanies with a code could be represented as

16 Muel Kaptein


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reliably as possible. This contrasts with a few of

the studies listed in Table I that have been con-ducted. Simply approaching companies with a

questionnaire could have an adverse effect on thereliability of ones findings. Companies with a

code are more likely to respond with the resultthat on the basis of the total response rate, thepercentage of companies with a code could

appear higher than what is actually the case (seefor example the study conducted in England by

the London Business School with a response rateof 12%).

The Japanese codes that were received weretranslated into English by a native speaker and

checked by a second native speaker. This wasfollowed by a content analysis. In this analysis, an

inventory was made of the different items con-tained in the codes. The corporate integrity

model developed by Kaptein and Wempe (2002)

served as basis for classification. The modeldistinguishes between (1) company responsibili-

ties towards stakeholders, (2) principles governingstakeholder relationships, (3) corporate values

and (4) employee responsibilities towards thecompany. In addition, the codes were analyzed

for the degree to which they contained referencesto implementation, compliance and monitoring

along with their length and tone. The analysisleft aside the distinction that can potentially be

drawn between ethical and economical norms

and responsibilities (Robin et al., 1989). It is,after all, not possible to deduce from the text of

a companys business code whether the commit-ment, for example, to deliver high quality

products is motivated by ethical and/or economicconsiderations. This is also why this study

employs the concept of business codes rather thancodes of business ethics.

The prevalence, title and size of codes

How many multinational firms, then, have a

code? Of the one hundred largest companies inthe world, 58% have a code. Of the successive

group of one hundred companies, 47% have acode. This means that of the two hundred largest

multinationals, 52.5% have a business code.Business codes are most prevalent among U.S.

companies, a finding that is consistent with an

earlier study of Langlois and Schlegelmilch

(1990). The U.S. has a long tradition of businesscodes (see for example White and Montgomery,

1980). The large number of Japanese companies

in the top 200 and the relatively small propor-tion of Japanese companies with a code lower thetotal percentage of company codes. The preva-

lence of company codes by country is outlinedin Table III.

The vast majority of the analyzed codes (79%)belong to companies based in the U.S., France,

Germany and Japan. In the analysis below, we

will examine the differences among codes fromthe Americas (largely represented by the U.S.),

Europe (largely represented by Germany and

France) and Asia (largely represented by Japan).The titles of the codes diverge strongly, for

instance, Standards of Business Conduct

(Exxon Mobil), What We Stand For (BPAmoco), and Legal and Ethical Policy (BTR).

Of all the titles employed, 36% contain the wordconduct, 17% principles/guidelines, 9%

ethics, 6% values and 4% integrity.The size of the different codes varies, as pre-

sented in Table IV, from 1 page (e.g. Nichemen)

to 79 pages (3M), and from 50 words to almost18,000 words.

The content of business codes

In the following section, the content of the codesof the two hundred largest companies are

analyzed and discussed with reference to (I)stakeholder responsibilities, (II) stakeholder prin-

ciples, (III) corporate values, (IV) internalemployee conduct and (V) implementation and

compliance. Thereupon, we shall identify the

types of codes that can be distinguished on thebasis of the content analysis that has been carried

out.

I. Stakeholder responsibilities

In its Global Business Standards, Sara Lee

declares that we have a responsibility to our-selves, to each other, to our consumers, to our



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stockholders, to our business partners and to our

communities. But what are these responsibili-ties? What kind of responsibilities do companies

embrace? In Table V, the issues that are addressed

in the examined codes are depicted by stake-holder.

Most corporate codes, whether extensively orconcisely, pay attention to consumers, investors,

employees, society and the natural environment.Specifying responsibilities towards competitors

and suppliers is significantly less widespread.

Although some issues are frequently referred to(such as delivering quality and achieving returns)

the terms in which this is stated may differ. The

quality levels companies pledge to deliver to cus-tomers are subject to a number of qualifications

such as high quality (Nestl), highest quality(Merck/HP), excellent quality (Coca-Cola)

and customers first choice for quality (BritishTelecom). Greater divergence can be found in

18 Muel Kaptein

TABLE III

Prevalence by country

Country Top 100 Top 101200 Total

More than 10 companies in top 20001. United States 071% (17/24) 066% (23/35) 068% (40/59)

02. France 060% (6/10) 033% (4/12) 045% (10/22)

03. Germany 050% (7/14) 038% (3/8) 045% (10/22)

04. Japan 050% (15/30) 027% (8/30) 038% (23/60)

Fewer than 10 companies in top 20005. Netherlands 100% (1/1) 100% (2/2) 100% (3/3)

06. England/Netherlands 100% (2/2) 00 100% (2/2)

07. England/United States 100% (1/1) 00 100% (1/1)

08. Canada 00 100% (1/1) 100% (1/1)

09. Sweden 100% (1/1) 00 100% (1/1)

10. Switzerland 100% (3/3) 067% (2/3) 083% (5/6)

11. England 050% (1/2) 100% (3/3) 080% (4/5)12. Italy 050% (2/4) 100% (1/1) 060% (3/5)

13. South Korea 033% (2/6) 00 033% (2/6)

14. Venezuela 000% (0/1) 00 000% (0/1)

15. Mexico 000% (0/1) 00 000% (0/1)

16. Brazil 00 000% (0/2) 000% (0/2)

17. Spain 00 000% (0/3) 000% (0/3)

Total 058% 047% 052.5%

TABLE IV

Number of pages of business codes


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TABLE V

Responsibilities towards stakeholders

Degree to which it is

mentioned (n = 105)

I. Customers (or: consumers, clients, buyers)

Supplying sufficient/good/high/highest/superior/excellent/reliable/top quality/

original products and services and offering good value 67%

Sustaining or enhancing the health and safety of consumers 35%

Providing reasonable/competitive/fair prices (and payment conditions)

commensurate with quality 34%

Continually improving quality of products and services 28%

Providing products and services at the right place and time and in the right

amount (accurately, timely, continuity) 10%

Preventing misuse/abuse of products 03%

Helping consumers to use products responsibly 02%

Providing customized products for minorities 01%

II. Capital providers (or: stockholders, owners, investors)

Achieving a maximum/superior/satisfactory/sound/competitive/acceptable/

above-the-market-average return on the capital in the long term, in fair

proportion to the market-related risk 41%

Conserving, protecting and (above-the-market-average/maximize) increasing

the owners/investors assets/capital 09%

III. Employees (or personnel, staff, human capital, including applicants and temporary employees)

Encouraging/optimizing personal development/growth/use of talents 40%

Treating employees with dignity/respect 39%

Valuing diversity/equal opportunity 31%

Offering productive/responsible/challenging/pleasant/enriching work and working

environment 23%

Offer ing good/competitive/excellent terms of employment/compensation 12%

Providing stable and secure job opportunities 09%

Making the best possible use of each persons skills, abilities and knowledge 09%

Conforming to sound labor standards 08%

Refraining from child labor 04%

Creating/enabling/guaranteeing a balance between work and private life 02%

IV. Suppliers, joint ventures, contractors and distributors

Ensuring equal opportunity 14%

Seeking mutually beneficial/long-term relationships 12%

Paying competitive market prices in timely manner 06%

Making reasonable demands 03%


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20 Muel Kaptein

TABLE V (Continued)

Degree to which it is

mentioned (n = 105)

V. Society (or local community)Observing, both directly and indirectly, all relevant local laws and regulations 57%

Being a good corporate citizen through charitable donations, educational and

cultural contributions, and employee participation in community and civic affairs 36%

Enhancing the quality of life/contributing to sustainable development/improvement 18%

Respecting human rights/dignity (of those affected by the activities) and

promoting them wherever practicable 11%

Supporting public policies and practices that promote human development and

democracy 8%

Supporting/participating in local initiatives that promote peace, security,

diversity and social integration. E.g. collaborating with community organizations

(for example government agencies and industry groups) dedicated to raisingstandards of health, education, product safety, workplace safety and prosperity 7%

Recognizing governments legitimate obligation to society (legitimizing

government authority) 6%

Doing business with stakeholders who do not systematically violate national and

international social standards 4%

Abandoning commercial activities in countries where it is made impossible to

promote/respect human rights 2%

Setting an example in countries where human rights are seriously and

systematically violated 2%

Adopting practices that permit the transfer and rapid diffusion of technologies and

know-how 2%

Timely payment of taxes 1%

VI. Competitors

Refraining from seeking access to competitors assets through improper means 21%

Refraining from casting competitors in a bad light or criticizing them publicly 2%

VII. Natural environment (health, safety and environment)

Preventing/preserving/restoring the natural environment or treating the

environment with due care 56%

Offering safe, clean, orderly and healthy working conditions; eliminating/

preventing injuries/incidents 49%

Preventing/limiting/reducing/controlling negative environmental impacts such

as the direct and indirect pollution of soil, water and air, noise, creation of wasteproducts and use of hazardous materials 31%

Collecting and having waste processed separately and re-using or recycling it where

possible 21%

Using energy and other natural resources effectively and prudently/efficiently 20%

Preventing incidents 16%

Promoting development of environmentally friendly products 10%

Supporting research and development of environmental technologies 7%

Preventing harm to animals and helping to optimize animal welfare 2%


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the level of returns to shareholders: acceptable

(Shell), sufficient (Hewlett Packard), satisfac-tory (Philips), superior (Ito Yokado Group),

best possible (Merck), excellent long term(British Telecom) and maximize long term

(BP). With respect to the natural environmentand competitors, there is greater textual unifor-mity. The terms in which companies express

their position towards society are more diverse.A few examples include a harmonious rela-

tionship with society (Ito Yokado Group),contributing to the well-being of society

(AT&T), benefit humankind (Bayer), majorcontribution to development of society

(Deutsche Telekom), betterment of society(Coca-Cola), meeting legal obligations (Fiat)

and being a good corporate citizen (Toshiba).Striking is that when the results are analyzed

by continent, references to environmental

responsibilities appear 45% more in Europeanthan they do in American codes. Responsibilities

towards competitors are referred to 52% morein American codes than in European as well as

Asian codes.

II. Stakeholder principles

In addition to articulating stakeholder interests,

a code can also communicate and elaborate on

the principles the company upholds. Stakeholderprinciples are general requirements for company

and employee conduct: they govern the rela-tionship between company and stakeholders

(Kaptein and Wempe, 2002). Table VI depicts themost cited stakeholder principles.

Stakeholder principles generally do not receiveas much attention as stakeholder interests.

Transparency (55%), honesty (50%) and fairness

(45%) are the most cited principles. Fairness, forexample, is referred to in connection with theselection of suppliers, the distribution of benefits

and burdens and the assessment of employee

performance. As Merck declares . . . we treatour suppliers with honesty, fairness and respect.

Shell applies fairness also to its competitors:. . . to compete fairly . . . will not prevent

others from competing freely . . . Good stake-holder communication (e.g. transparency,

honesty, dialogue, and responsiveness) is men-tioned most. For example, Nestl . . . invites

government officials, health professionals and

consumers to draw its attention to any Nestlinfant formula marketing practices in developing

countries which they consider are not in con-formity with the above commitment and BT

states that it will . . . use [its] values and prin-ciples in dialogue with other organizations . . ..

Comparing the most frequently mentionedprinciples in the business codes by continent

shows that American codes specifically empha-size the principle of honesty (64% in comparison

with 45% in European and 38% in Asian codes);European companies place relative more emphasis

on the principles of transparency (68%, comparedto Asian 54% and American companies 52%) andthe principle of empathy (30%, compared to

Asian 21% and American companies 11%); and Japanese companies place somewhat more

emphasis on the principle of trust (29%, incontrast with American 22% and European

companies 17%). The principle of fairness ismentioned less often in American codes (35%)

than in European (50%) and Asian (46%) codes.


TABLE VI

Stakeholder principles

Extent to which

it is cited

(n = 105)

01. Transparency 55%

02. Honesty/truth 50%

03. Fairness/impartiality 45%

04. Trust 23%

05. Empathy/respect/diversity 20%

06. Stimulating stakeholders to

raise concerns 19%

07. Accountability 18%

08. Dialogue/open communication 14%

09. Equality 12%

10. Responsiveness 11%

11. Keeping promises 10%

12. Coherence/uniformity 04%

13. Freedom/autonomy of

stakeholders 03%


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III. Corporate values

Apart from stakeholder principles which pertain

specifically to stakeholder relationships, organi-zations also express their core values in a code.

Core values refer to those qualities a companydeems desirable and which should ground allbusiness conduct and outcomes (Kaptein and

Wempe (2002)). Table VII presents a summaryof the organizational values that can be found in

the examined codes.

The core values cited in the codes diverge

strongly. Merck, for example, asserts that . . .we strive to create an environment of mutual

respect, encouragement and teamwork . . .while AT&T states that We treat each other

with respect and dignity . . . The most oftencited values are teamwork (43%), responsibility(33%), open communication (29%) and innova-

tion (29%). Noteworthy is that the value of effec-tiveness is seldom mentioned explicitly. Shell is

one of the exceptions in asserting that The mostimportant contribution . . . to the social and

material progress of countries . . . is in per-forming basic activities as effectively as possible.

American codes make comparatively less mentionof values than do European codes. Open com-

munication can be found in 35% of the Europeancodes, while it amounts to 25% in Americancodes. European codes mention teamwork 1.5

times more often than do Japanese and Americancodes. Humility, harmony, dedication, innova-

tion, creativity and team spirit are largely foundin business codes of Asian origin. Innovation and

creativity, for example, are respectively men-tioned 73% and 46% more in Asian codes than

in American and European codes. By contrast,the value responsibility/conscientiousness can be

found just as often in American (30%) as in Asian(35%) and European codes (33%).

IV. Internal conduct

Business codes can also clarify what is expected

of employees in their engagement with oneanother and their treatment of organizational

assets. Contrary to the categories discussed above,the latter refers to employee conduct versus the

company as opposed to employee conduct on

behalf of the company (Mathews, 1987). TableVIII provides an overview of the items referredto in this area.

Many codes include a diverse range of rules

of conduct employees must obey among them-selves (particularly discrimination (44%) and

intimidation (43%)) and with respect to thecompany. Most forms of conduct listed in

Table VIII such as engaging in fraudulent prac-tices, leaking confidential information and sexual

22 Muel Kaptein

TABLE VII

Core values of/within the organization

Extent to which

it is mentioned(n = 105)

01. Teamwork/mutual support/

interdependence/co-

operation/team-spirit 43%

02. Responsibility/

conscientiousness 33%

03. Open communication 29%

Innovation, creativity,

pioneering 29%

05. Customer oriented 19%

06. Flexibility 17%

07. Efficiency 16%

08. Professionalism 14%

Entrepreneurship 14%

Pride/dignity 14%

11. Loyalty 13%

12. Motivation/enthusiasm/

energy/spirit/encouragement 12%

13. Participation 11%

14. Shared purpose/unity 10%

15. Exchanging ideas/learning 09%

Independence 09%

17. Consistent and unequivocal

public image 08%18. Effectiveness 06%

Productivity 06%

20. Cost-awareness 05%

21. Discipline 04%

Diligence/perseverance/

dedication 04%

23. Courage/daring 03%

24. Harmony 02%

25. Humility 01%


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intimidation are prohibited. The norms formu-lated in the codes diverge most with respect to

the acceptance of gifts. Acceptance of gifts or

invitations is mostly subject to certain conditions,for example, that the value is below $50 (GTE)

or purely symbolic (Fiat), that their acceptance


Extent to which

it is mentioned

(n = 105)

IV. AuthoritiesNo conflicting side-line

activities/conflict of interests 52%

No corruption or bribery 46%

Prohibition or restriction on

acceptance of gifts 47%

No favoring of family and

friends 34%

V. Corporate timeNo alcohol and drug use 17%

No private surfing on the inter-net during working hours 03%

Sufficient effort 02%

Keeping to stipulated times 01%

No unjustified calling in sick 01%

No arms/weapons in the

workplace 01%

VI. StaffNo discrimination 44%

No intimidation/harassment/

threatening 43%

Treating one another with

respect 35%

No sexual harassment 26%

Treating one another fairly 20%

No unwelcome or unsolicited

physical and verbal sexual

advances 16%

Respect for privacy 14%

No racism or racist

insinuations 12%

No verbal abuse 11%

No physical violence 11%

No tasteless/obscene jokes/

gestures or material 10%No bullying 10%

No gossiping/ridiculing/

insulting 06%

No favoritism 03%

Extent to which

it is mentioned

(n = 105)

I. Corporate fundsAdherence to sound financial

accounting principles 46%

No fraud 45%

No diversion of funds

(embezzlement) 19%

No misuse of funds for

personal gain 18%

No misuse of funds for

business purposes 16%

Correct handling of expensereturns 08%

No unjustified billing of hours 07%

II. Corporate equipmentProper use of equipment and

goods 29%

Protection and conservation of

equipment and goods 18%

No theft of business equipment

or goods 18%

Prohibition of or restriction on

taking business equipment

home for private use 17%Prohibition or restriction on

private use of means of

communication 14%

No neglect of maintenance 03%

III. Corporate informationNo leakage of confidential

information (like trade

secrets) 50%

No use of insider information

when trading shares of

other securities 44%

No unauthorized use of accesscodes 10%

TABLE VIII

Employee conduct towards the company and among themselves


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is always agreed with the supervisor (Deutsche

Telecom), a social courtesy (NTT), that thecompany officer or his/her delegate [has]

approve[d] its acceptance (Kodak), that it isgenerally accepted business practices of ones

country and industry (Sara Lee) or that itspurpose is to create goodwill (Xerox).

V. Implementation and compliance

A quarter of the codes make reference to

implementation of the code. GTE for instance,points out the central role of managers: GTE

supervisors have an additional responsibility formaintaining a climate in which legal and ethical

business conduct is the norm; communicating toemployees the seriousness of GTEs commitment

to such conduct; encouraging open discussion

of employees business concerns; accepting andprocessing reports filed by employees of possible

misconduct; and, never compromising GTEsstandards to achieve a goal or objective, no matter

how important that goal or objective seems at themoment. GTE also refers to a Business Conduct

Line for employees with questions about inter-pretation and compliance with the code.

Some 52% of the codes indicate that compli-ance with the code is monitored. British

Telecom, for instance, sheds light on its moni-toring practices as follows: We are committed

to communicating, measuring and appropriate

reporting of our performance against these

principles.

Profiles of business codes

The analysis thus far (in keeping with mostscientific analyses of codes) has treated business

codes as a uniform concept. The question,however, is whether the diversity in the codes

content is not (partly) the result of the type ofcode individual companies have in mind. On the

basis of the collected and analyzed codes, we candistinguish three clusters of codes: (1) the stake-

holder statute/business principles, (2) the valuesstatement and (3) the code of conduct. 72% of

the codes formulate responsibilities towards stake-holders (the so-called stakeholder statute orbusiness principles), 49% express the corporate

core values in a coherent manner (the so-calledvalues statement) and 46% set down norms and

rules for employee conduct (the so-called codeof conduct).2 A number of codes integrate two

or even three approaches. Each type is elaboratedon in Figure 1. The types of corporate codes

differ, among other things, in focus (for internaland/or external use), level of abstraction, size,

use of pronoun and attention to compliance.Based on a content analysis of codes of

business in the U.S., Mathews (1987) concludesthat U.S. companies are more concerned with

conduct against the company than on behalf of

24 Muel Kaptein

Figure 1. Frequency of type of codes


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TABLEX

Typeofcodes

Focus

Objects

Levelof

Size

Useof

Tone

Compliance

Countries

abstraction

personal

paragraph

pronoun

Stakeholder

Internaland

Responsibilities

Mostlyhigh

Asingleto

Oftenfirst

Predominantly

Mostly,in

Especially

statute/

externaluse

andprinciples

afewpages

personplural

descriptive

termsof

European

business

towards

e.g.external

(46%)and

principles

stakeholders

reportingand

Asian

mechanisms

(40%)

forcomplaints

companies

ofstakeholders

Values

Primarilyfor

Organizational

Mostlyhigh

Asingleto

Oftenfirst

Predominantly

Hardly

Especially

statement

internaluse

values

afewpages

personplural

descriptive

Asian

andtoalesse

r

(47%)and

degreefor

European

externaluse

(32%)

companies

Codeof

Primarilyfor

Desirable

Mostly

Afewto

Often

Predominantly

Largely,in

Especially

conduct

internaluse

employee

detailed

manypages

secondor

prescriptive

termsof

U.S.

conduct

thirdperson

e.g.sanction

companies

singular

mechanisms

(53%)

andwhistle-

blowers

procedures


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the company. From this study, it would indeed

appear that codes of conduct are a particularlyAmerican phenomenon. Asian and European

companies, however, choose for a stakeholderstatute/business principles or a values statement

more often than do American companies.Mathewss conclusion with respect to Americancodes is also only a partial reflection of the

present state of affairs. Many American codes(74%) address stakeholder responsibilities, stake-

holder principles and/or, to a lesser extent, corevalues. As this is often (64%) accompanied by a

detailed explication of the norms and rules foremployee conduct in regard to the company, the

latter often overshadows the rest (at least as faras number of words and visual impact are con-

cerned).Calculating anew the frequency with which

issues are referred to by code type shows that

more uniformity can be found especially amongcodes of conduct. For example, the percentage

of codes of conduct that address fraud, bribery,use of confidential information and upholding

proper social norms between employees increaseby a factor of 1.8 compared to the total per-

centage of business codes that refer to theseitems.3 Of all the codes of conduct, 91% address

these issues. Regarding business codes which canbe defined as values statements, much variation

can still be found in the corporate values thatare mentioned.

Conclusion

This paper consisted of three steps. First, we

made an inventory of the codes of the twohundred largest companies in the world. Second,

we analyzed the content of the collected codes.

Finally, we examined to what extent the contentof the codes can be related to the type and originof codes.

It was found that 58% of the hundred largestcompanies (and 52.5% of the two hundred largest

companies) in the world have a code of conduct.On the one hand, this figure can be viewed as

positive: more than half of the largest multi-

national firms acknowledge and define theirresponsibilities, principles, values and/or norms

in a written policy document. On the other

hand, almost half of the largest multinationalfirms at the time of this study do not have

a code.Although a business code is not a statutory

requirement, it would appear advisable for com-panies who do not have a code to (re)considerwhether it might be desirable to develop and

introduce a business code (Schwartz, 2002). Asmore companies adopt a code, those who refrain

from doing so will increasingly be confrontedwith stakeholders who will want to know why

a code is not viewed a desirable instrument tomanage ethics, integrity and social responsibility.

This study did not examine the reasons com-panies may have for not adopting a code. A

follow-up study could focus on this question andexamine to what extent companies have ethicallyjustifiable reasons for not having a code.

This paper has shown that both similarities anddifferences can be found in the content of codes,

both with respect to responsibilities towardsstakeholders, stakeholder principles, corporate

values, as well as conduct against the company.Codes generally describe the responsibilities a

company assumes with respect to employees, cus-tomers, capital providers and society as a whole.

In general, companies do not employ opposingnorms. They specifically differ in what they

include and exclude from their codes and thewording that is used (for instance in terms of

levels of commitment).

Finally, this paper has shown that an impor-tant determining factor in the content of a code

is the target group the company has in mind:external and/or internal stakeholders. In the case

of the former, the code will focus mostly onresponsibilities towards stakeholders and the

principles that apply. In the case of the latter,

the code will mostly formulate rules for conduct.If the analyzed codes are grouped according totype, uniformity in content increases markedly.

The diversity in the content of corporate

codes (also within countries) is not necessarily anegative sign. It could very well be an indica-

tion of the authenticity of the codes in the sensethat companies draw up codes to suit their par-

ticular circumstances as opposed to merelycopying those of other companies, model codes

26 Muel Kaptein


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or codes of international institutions. At the same

time, a number of topical social issues such ashuman rights receive slight attention in the

codes.This study offers a benchmark for companies

to assess their codes against other corporate codesand the items they address. As companies becomemore international, comparisons with the cor-

porate codes of companies in the countries wherethey do business become more desirable.

Stakeholders judge the quality of individualbusiness codes partly with reference to the quality

of other corporate codes in that country. Forexample, in an Asian country, a typically

American code of conduct could be regarded astoo comprehensive and forceful while the

business principles of a European company couldbe viewed as too ambitious and abstract.

The benchmark that is presented in this paper

is neither a proposal for a model code nor doesit suggest that uniformity among business codes

is necessarily desirable. The benchmark givescompanies and stakeholders cause for examining

the reasons why a company does not take a standon a given issue. If a company decides to address

an issue in its code, it is important that it usesits own words and tailors it to its own circum-

stances. This overview is especially useful forcompanies who do not have a code but who

would like to develop such a policy document.

One of the first steps in developing a code is todecide on the type of code the company deems

fitting (a stakeholder statute/business principles,a values statement and/or a code of conduct), the

issues it elects to address and the terms in whichthe code will be shaped.

The benchmark offers stakeholders support inquestioning companies on the content of the

code: Why does your company include issue X

but not issue Y? Why do you, as company, for-mulate it like this and not like other companiesdo? Why do you not mention, for example, fair

play, knowing that 45% of companies do? For

international institutions that have issued astandard for corporations (e.g. the UN and the

OECD) this overview offers an aid in evaluatingtheir own standards on comprehensiveness and

the extent to which companies have adoptedtheir standard. The more companies embrace a

given issue, the more reason exists for other

companies to ask themselves why they have

omitted it.By performing a periodical analysis of the

content of business codes, we can track the

extent to which there is evidence of furtherhomogenization or diversification in codes (forexample in terms of structure, issues and

wording).

Recommendations

An assessment of content is just one aspect of theoverall evaluation of a business code. Another

factor concerns the extent to which a code

demonstrates a companys awareness of relevantand topical issues, organizational dilemmas andstakeholder expectations (Kaptein and Wempe,

1998). Judging individual codes merely based ondesk-research and just in terms of comprehen-

siveness is therefore not justified. Moreover, somenorms may be so self-evident for instance the

prohibition on killing someone in the workplace that it need not be included in the code despite

the fact that it remains valid.

Another significant aspect is the processthrough which the code is established and

institutionalized. A code is nothing, coding iseverything (Kaptein and Wempe, 1998). The

quality of individual business codes can there-fore only be determined by conducting research

on these aspects as they manifest in practice.We can, nevertheless, in random order, put

forward a number of general suggestions forimproving codes.

Accountability: The impact and credibility ofa code can be enhanced by making a com-

mitment to stakeholders to periodicallyaccount for implementation and compliance

with the code, for example in an annualreport (Van Tulder and Kolk, 2000). Only

4% of the analyzed codes address externalreporting.

Feedback: A company can use a code as ameans to invite internal and external stake-

holders to share their ideas on improvingthe code or even its implementation.



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Although many companies have institu-

tionalized and refer to an internal ethicshotline (Kaptein, 2002), it is often unclear

to external stakeholders who they can turnto. Only 5% of the examined codes indicate

that the company would appreciate externalstakeholders to report incidents and whothey can contact.

A stimulating work environment: A key factorin the proper implementation of a code is

that managers create a work environmentwhich enables and encourages employees to

observe the code (Benson, 1989; Tucker etal., 1999). Few codes give a clear and con-

vincing account of its implementation(25%) and the role fulfilled by management

(16%). Companies could therefore considerplacing more emphasis on the responsibility

the organization (and management in

particular) has in stimulating and creatingthe conditions for employees to comply

with the code. Periodic update: If a code is to be a relevant

and meaningful document, it is not only itsimplementation that should be attended to

in great detail; it should also be updated atregular intervals (Ethics Resource Center,

1990). Some business codes have not beenmodified in more than ten years, which

increases the likelihood that new issues will

not be attended to. It is therefore advisablethat companies consider stipulating

(maximum) intervals between updates intheir codes. If a company refrains from

doing so updates might repeatedly be post-poned. Moreover, in the event that updates

do occur unexpectedly, it could create sus-picion among stakeholders that something

must be (fundamentally) amiss to have

prompted adjustment of the code. Apartfrom that, most companies (86%) make nomention of the process through which the

code came into being.

Clear status of the code: Most codes areunclear about the status of the code, that

is, to what extent the codes express decla-rations of intent or actual business practice.

It is often also unclear how the code relatesto other regulations within and beyond the

boundaries of the company. In 67% of the

codes it is not clarified whether the norms

and values subscribed to in the code are alsoworked out in greater detail in separate

policy documents and regulations.

Availability of the code: Through this researchproject, first hand experience was gainedof how cumbersome it can be to obtain

company codes (in a few cases it took morethan four months and in another few it took

between twelve and fifteen telephone callsbefore the document was sent by mail). It

also appeared that some companies regardtheir code as confidential or classified

information. Apart from that, codes are

often unavailable via the intranet or in

English (despite the fact that these com-panies maintain business relations inEnglish-speaking countries).

Convincing message: Some codes areabstractly formulated. In theory, an abstract

code could be as effective (or even moreeffective) as a detailed code (Kaptein and

Wempe, 1998). In that case, it is importantthat (even more of) an effort is made with

implementation (due to the demand itplaces on employees to translate it to their

specific functions). Companies with abstract

codes should therefore examine how it canbe made clear to users and readers that

abstraction is not an admission of weaknessbut rather a considered admission of

strength. Clear structure: As we have seen, there is

strong divergence among the codes in termsof structure. The structure depends, among

other things, on the type of code thecompany has in mind (for instance orga-

nizing it according to stakeholder group or

values). At the same time, some codesdisplay considerable lack of coherence andissues appear to have been assembled at

random. Organizational values especially are

at times scattered in the text or mentionedonly in the introduction. The impact of

core values in particular, lies in their selec-tion (Collins and Porras, 1994).

Appropriate presentation: Despite the fact thatthe content of and process through which

28 Muel Kaptein


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codes are established are of chief impor-

tance, the appearance of codes also sayssomething about a companys regard for its

code (White and Montgomery, 1980). Aglossy publication, for example, can

generate suspicion that the company is moreconcerned about its appearance than itscontent. On the other hand, taking care

with a codes presentation and style reflectsa companys regard for the code and, by

implication, the length of time it expectsthe code to serve (from being of one-off use

to being a reference). The examined codesvary from being presented in the form of a

few standard photocopies to full color textand photos printed on quality paper.

Unique identity: The strength of and com-mitment to the code is largely reflected in

the extent to which the code is tailored to

the companys unique circumstances(Pemberton and Pendergraft, 1990). The

texts of the codes display strong similaritiesparticularly with regard to the natural

environment and rules of conduct withrespect to fraud and corruption. The

current growth of international codesincreases the likelihood that companies will

adopt these texts (almost) literally in theircodes. If external stakeholders and

employees are to regard the code seriously,

companies should avoid appearing to havebeen led by one or more codes of other

companies or international organizationswithout having thoroughly thought through

their position is on the issue at hand.

Finally, another important question is whethersome types of codes are more effective than

others (Schwartz, 2001). A general code that

appeals to employees sense of responsibilitycould be more effective than a very detailed codewhich can easily be interpreted as a vote of no

confidence (Treviio et al., 1999). We may

likewise ask what a code actually says about thefactual situation. The current growth in sustain-

ability reporting (KPMG, 2002) could perhapsserve as point of departure in formulating an

answer to this question. As yet, this study showsthat on paper, many companies have an eye for

the responsible treatment of stakeholders along

with the principles, values and norms that

ground sound conduct.

Acknowledgement

Thanks to the two referents for their very useful

comments on an earlier version of this paper.

Notes

1 An analysis of business codes unravels the norms

and values companies endorse and provides insight

into the extent to which companies actually share the

principles that have been developed in the academicfield of business ethics. An inventory of so-called

micro-norms is also in keeping with the call of

Donaldson and Dunfee (1999) to supplement their

Integrated Social Contracts Theory with empirical

research on the ethics of business.2 In calculating the prevalence of code types, each

code was examined to establish whether it elaborates

on at least two specific responsibilities towards stake-

holders, values or rules of conduct. Codes were

treated for instance as values statements only if the

company named the values as such and clustered them

as such in the code. If only a few scattered valuesappeared in the text, the codes were not treated as

values statements.3 This factor was calculated by dividing the number

of times an item occurs by the total number of codes

of conduct instead of by the total number of business

codes as was done earlier. This percentage was then

divided by the percentage of this item of the total

number of codes as presented in Table VIII.

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Department Business-Society Management,Erasmus University Rotterdam,

P.O. Box 1738,3000 DR Rotterdam,

The Netherlands,E-mail: [email protected]



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