When the Firm is Large the Code of Ethics is Good
The highest quality codes of ethics can be found in firms that are large, that operate in industries where normative pressures are high and the relationships with stakeholders are critical (such as energy and utilities), and that focus mostly on a one country-market.
These conclusions are supported by recent research carried out by Emilia Merlotti (Department of Accounting) with Giovanni Maria Garegnani (Università LUM Jean Monnet and Department of Accounting) and Angeloantonio Russo (Università LUM Jean Monnet and CRESV). They investigate which firms have the highest quality codes of ethics and advance our understanding of how to evaluate the quality of these codes in a sample of 248 Italian firms listed on the MTA stock exchange (Mercato Telematico Azionario). Their results are reported in the article Scoring firms' codes of ethics: an explorative study of quality drivers, which recently appeared on the Journal of Business Ethics (doi: 10.1007/s10551-013-1968-8). In the picture, Merlotti and Russo.
Empirically, the greatest challenge is to understand the quality of the ethics code. Many studies have investigated the content of such codes as well as their capacity to condition the behaviour of people within organizations. However, few of them have focused on the drivers of quality. The authors try to fill this gap by developing a 46 item scale that is consistent with previous methods but is more detailed. Specifically, it measures quality in the following areas: managerial commitment to the code; style and availability; treatment of whistle blowers; relations with stakeholders; legal items and compliance procedures. This scale was applied to all 248 firms in the sample and the resulting variable was regressed on firm size, industry, and international sales ratio to evaluate what factors determine the quality of the code.
The authors argue that larger companies have more financial resources to develop ethics codes and more developed managerial cultures to appreciate the relevance of this tool to better respond to the interests and claims of stakeholders. Indeed, results indicate that larger firms adopt higher quality codes of ethics.
Furthermore, the authors argue that firms that operate internationally have higher quality codes because they have to try to consolidate them with different cultures across the globe. However, in this case results indicate the opposite, supposedly because, really, managers still think of these codes as a way to manage their national relationships.
Finally, firms in industries where normative pressures are higher, community relationships important and production processes potentially criticalreveal higher quality codes of ethics. Enterprises operating in these industries in fact have a greater need to disclose not only their strategies and performance within and outside their organizations but also their commitment to business ethics and sustainable growth and a code of ethics is one of the most suitable ways of doing so.
This research has several implications for research and practice. First, the scoring model for the quality of the code of ethics can be used to investigate why some firms adopt high quality codes of ethics, and what are the consequences of such a decision. Managers that wish to develop high quality codes of ethics can get guidance from the codes of large companies in the energy and utilities industry, who generally have high quality codes of ethics. They can also use the scale to assess their own firm and benchmark themselves against other firms.