Effective Corporate Codes of Ethics:

Perceptions of Code Users

ABSTRACT. The study examines employee, managerial, and ethics officer perceptions regarding their
companies codes of ethics. The study moves beyond
examining the mere existence of a code of ethics to
consider the role that code content and code process
(i.e. creation, implementation, and administration)
might play with respect to the effectiveness of codes in
influencing behavior. Fifty-seven in-depth, semi-structured interviews of employees, managers, and ethics
officers were conducted at four large Canadian companies. The factors viewed by respondents to be
important with respect to code effectiveness include:
provisions of examples; readability; tone; relevance;
realism; senior management support; training; reinforcement; living up to standards; reporting requirement; anonymous phone line; communicating
violations; and enforcement. The factors found to be
potentially important include: justification for provisions;
employee involvement; and sign-off requirements. Factors found not to be important include: objectives for
the code; prior distribution; testing; and relating ones
performance review to compliance with the code.
KEY WORDS: behavior, codes, content, effectiveness,
ethics, process

Introduction
Companies are increasingly being pushed towards
adopting a written document, typically referred to as
a code of ethics. For example, in the U.S., under
Mark S. Schwartz is Assistant Professor of business ethics and
business law at York University (Toronto, Canada). Previously he was lecturer of business ethics in the Legal Studies
Department at The Wharton School, University of Pennsylvania. He received his Ph.D. from the Schulich School of
Business, York University in 1999. His research interests
include corporate ethics programs, corporate social responsibility, and social investment.

Mark S. Schwartz

the Federal Sentencing Guidelines for Organizations

(1991), companies can have their sentences mitigated if they can demonstrate that they had an
effective compliance program in place prior to the
offence. One of the elements of an effective compliance program are compliance standards, which
are reasonably capable of reducing the prospect of
criminal activity (United States Sentencing Commission, 1991). Compliance standards have
become commonly understood to refer to a code of
ethics. While referring to the Federal Sentencing
Guidelines minimum requirements for an effective
compliance program, Chancellor William T. Allen
of the U.S. Court of Chancery of Delaware, in the
case Re: Caremark International (1996), held that
members of boards of directors could be held personally liable for failing to properly monitor the legal
and ethical behavior of their companies employees.
The case implied that directors should at a minimum
ensure that their companies possess a code of ethics
as part of an effective compliance program (Grunfeld, 2002).
In addition, recent corporate scandals, such as
Enron, WorldCom, Adelphia, Tyco International,
and Qwest, have led to legislative developments
such as the SarbanesOxley Act (2002), which
requires publicly held companies to disclose (e.g. in
its annual report) whether or not the company has
adopted a code of ethics for its principal executive
officer, financial officer, principal accounting officer
or controller, or persons performing similar functions, and if not, the reasons why not. Similarly,
proposed listing requirements for the New York
Stock Exchange (2002) and the Nasdaq stock market
(2002) require companies to adopt and disclose if
they possess a code of ethics. Based on the above
developments, a strong case can be made that codes
of ethics, while not an explicit legal requirement for
all companies, have virtually become legally

Journal of Business Ethics 55: 323343, 2004.

2004 Kluwer Academic Publishers. Printed in the Netherlands.

324

Mark S. Schwartz

required, at least for U.S. public companies

(Grunfeld, 2002).
With all of the current activity promoting the
adoption of codes of ethics, there appears to be an
implicit assumption among legislators, government
regulators, and the boards of the various stock
exchanges that codes of ethics are a potential means
to influence corporate and employee behavior. In
other words, companies should be required to
expend resources to develop and implement a code
of ethics in order to reduce the chance of improper
conduct by their agents. But is this in fact the case?
Do codes really make a difference when it comes to
behavior? If so, under what circumstances?
The proposition that codes might make a difference would appear to make intuitive sense, particularly in light of the WorldCom scandal. At the time
of its scandal, WorldCom did not posess a code of
ethics. According to WorldComs Board of Directors Investigative Report, the only mention of
ethics was contained in a section in WorldComs
Employee Handbook that simply stated that
fraud and dishonesty would not be tolerated
(WorldCom, 2003, p. 289). When a draft version of
a formal code of ethics was presented to Bernie
Ebbers (the former CEO) for his approval before the
fraud was discovered in 2001, his response was
reportedly that the code of ethics was a colossal
waste of time (WorldCom, 2003, p. 289). Following the scandal, and as part of the new CEOs
Ethics Pledge to make ethics an integral part of
how WorldCom does business, the company
adopted a Code of Business Ethics in the Fall of
2002 (WorldCom, 2003, p. 289). Although having a
code of ethics certainly may not have prevented the
scandal, it is hard to imagine how ethics could be
made an integral part of a companys business practices without at least adopting a code of ethics,
particularly for a company as large as WorldCom.
Before one can begin examining whether codes of
ethics really do make a difference in influencing
behavior, some clarification is required. A certain
degree of confusion remains as to what a code of
ethics even consists of. Codes of ethics have also
been referred to as codes of conduct, codes of
practice, corporate credos, mission statements, or
values statements (Berenbeim, 1988; Murphy, 1989,
1995; Ethics Resource Center, 1990a; Clarkson and
Deck, 1992; LEtang, 1992; Stevens, 1992, 1994;

Driscoll et al., 1995). Numerous definitions of a

code of ethics have been provided (Harris, 1978;
Berenbeim, 1988; Pitt and Groskaufmanis, 1990;
Hosmer, 1991; Townley, 1992; Robertson and
Schlegelmich, 1993; Weaver, 1993; Stevens, 1994;
Brandl and Maguire, 2002; Ferrell et al., 2002). A
review of the proposed definitions seems to suggest
the following general definition: A code of ethics is a
written, distinct, and formal document which consists of moral standards used to guide employee and/
or corporate behavior.
The definition includes three components. The
first component, moral standards to be applied, has
also been referred to as a value system, aspirational
ideals, guidelines, ethical principles, norms and beliefs, or ground rules. The moral standards provide
guidance to employees to understand what behaviors
are morally acceptable or improper. The second
component, to what or to whom does the standard
apply, is generally employee behavior or conduct,
but also includes the organizations behavior. One
might consider these two types of behavior as representing behavior against or on behalf of the
firm, as a corporation can only truly act through its
agents. The third component is that the document
itself is written, distinct (i.e. stand-alone), and formal
(i.e. explicit).
Several theorists suggest that ethical behavior can
be influenced by a code of ethics, in addition to a
number of other individual factors, such as gender,
nationality/culture, age, religion, type of education,
type of employment, years of employment, and
personality, beliefs and values, as well as situational
factors, such as peer group influence, top management influence, rewards and sanctions, type of
ethical decision, organization size, and industry type
(Ford and Richardson, 1994). In terms of the role
codes of ethics might play in influencing behavior,
Ferrell and Gresham (1985) as part of their contingency model suggest that: Ethics related corporate policy will influence ethical/unethical
behavior Corporate policy and codes of ethics
that are enforced will produce the highest level of
compliance to established ethical standards (1985,
p. 93). Trevino (1986) introduces a person-situation interactionist model of ethical decision-making. She includes codes as part of the corporate
culture variable. She states that: Another way
organizations attempt to guide members ethical

Effective Corporate Codes of Ethics

behavior is by developing formal codes of ethical
conduct (1986, p. 613). Brass et al. (1998) develop
a social network model of unethical behavior.
One of the organizations factors influencing
behavior includes codes of conduct, which can
significantly decrease the prevalence of unethical
behavior in organizational contexts (1998, p. 15).
Based on the theoretical models, a number of
studies have been conducted in an attempt to verify
if codes are in fact a variable which influence
behavior. As opposed to being conclusive however,
the results of the studies are clearly mixed. Several
studies (10/22) have found that codes are effective
(e.g. Hegarty and Sims, 1979; Laczniak and Inderrieden, 1987; Ferrell and Skinner, 1988; Rich et al.,
1990; Singhapakdi and Vitell, 1990; Kitson, 1996;
McCabe et al., 1996; Pierce and Henry, 1996;
Adams et al., 2001; Somers, 2001). Other studies (2/
22) have found that the relationship is weak (e.g.
Murphy et al., 1992; Weeks and Nantel, 1992),
while numerous other studies (10/22) have found
that there is no significant relationship between the
two variables (e.g. Ford et al., 1982; Hunt et al.,
1984; Chonko and Hunt, 1985; Akaah and Riordan,
1989; Callan, 1992; Allen and Davis 1993; Badaracco and Webb, 1995; Brief et al., 1996; Clark and
Leonard, 1998; Farrell et al., 2002).
Although the above studies examine the potential effect of codes, they do not provide an
explicit definition of code effectiveness beyond
influencing behavior. For the purposes of this
study, code effectiveness is defined as including
three components: (1) corporate agents (e.g.
employees and managers) behave in a manner that
is considered by the company to be legal and/or
ethical in nature (i.e. as defined in the code); (2)
any non-compliant behavior is reported and/or
addressed by the company to prevent its repetition; and (3) the compliant behavior (or the
reporting of non-compliant behavior) is at least in
part due to the existence of the code itself. An
ineffective code of ethics is one that has failed to
prevent illegal or unethical behavior on the part of
corporate agents that was prohibited in the code.
Code effectiveness can exist to different degrees
and can be measured among different hierarchical
levels of an organization (e.g. senior management,
lower level employees, etc.), within different
divisions (e.g. sales, manufacturing, etc.), or be-

325

tween different locales (e.g. head office, foreign

offices/plants, etc.).
Building on the important contributions of previous code research, this study seeks to gain greater
insight into the various characteristics of corporate
codes of ethics and how such characteristics might
relate to code effectiveness. To accomplish this
objective, the study: (i) examines several aspects of
code content and code process beyond the mere
existence of a code; and (ii) focuses the examination
from the perspective of the users of codes themselves
(i.e. employees, managers, and ethics officers).

(i) Code content and code process

What the empirical studies on code effectiveness
mentioned above essentially fail to take into account
is that the mere introduction of a code is only one
potential factor in encouraging ethical behavior
(Nijhof et al., 2003). For example, a study by the
Ethics Resource Center found that when a code was
the sole element of an ethics program, there was a
negative effect on employee perceptions of ethical
behavior as opposed to the existence of ethics training and ethics offices in addition to a code (1994, p.
31). The Ethics Resource Center study suggests that
codes, while necessary, are insufficient as a means of
encouraging ethical behavior among employees.
According to Adams et al. (2001, p. 209): Greater
understanding is needed on the process by which
corporate ethics codes influence employee behaviorresearch is also needed on the effects of characteristics of the code of ethics (emphasis added).
This study begins to address the concerns of
Adams et al. (2001) by examining whether there are
several aspects of code development itself that go
beyond the mere existence of the code that should
also be taken into account as potentially relating to
code effectiveness.
A number of commentators of codes of ethics
have made recommendations on how to improve
code effectiveness. These recommendations (discussed in greater detail below) include the following:
(1) Code content (a) provision of examples
(Murphy, 1995; Gibbs, 2003); (b) positive tone
(Austin, 1961; Harris, 1978; Ethics Resource
Center, 1990a); Raiborn and Payne, 1990); (c)

326

Mark S. Schwartz

appropriate length (Trevino and Nelson, 1995);

(d) relevance (Pitt and Groskaufmanis, 1990;
Brandl and Maguire, 2002); and (e) realism
(Harris, 1978; Murphy, 1988; Ethics Resource
Center, 1990a);
(2) Code creation (a) acceptable objectives
(Trevino et al., 1999; Byrne, 2002); (b) employee involvement (Molander, 1987; Arndt,
1990; Sweeney and Siers, 1990; Ethics Resource
Center, 1990a; Montoya and Richard, 1994;
Messmer, 2003);
(3) Code implementation (a) senior management
support (Ethics Resource Center, 1990a; Montoya and Richard, 1994; Jordan, 1995; Trevino
and Nelson, 1995; Brandl and Maguire, 2002);
(b) sign-off (Pitt and Groskaufmanis, 1990; Lane,
1991; Gibbs, 2003); (c) training (Benson, 1989;
Gellerman, 1989; Pitt and Groskaufmanis,
1990; Lane, 1991; Gibbs, 2003; Messmer, 2003);
(d) reinforcement (Trevino and Nelson, 1995);
(4) Code administration (a) living up to standards
(Trevino and Nelson, 1995; Gibbs, 2003; Messmer, 2003) (b) reporting violations (Gibbs, 2003;
Messmer, 2003); (c) anonymous phone lines
(Gellerman, 1989); (d) enforcement (Pitt and
Groskaufmanis, 1990; Sweeney and Siers, 1990;
Gibbs, 2003; Messmer, 2003); (e) connecting the
code to performance reviews (Pitt and Groskaufmanis, 1990; Raiborn and Payne, 1990).
The primary deficiency in the recommendations
that have been made however is that they do not appear to be based on any empirical studies. Such recommendations appear to be supported more on the
basis of personal intuition or experience as opposed to
any quantitative or qualitative research. According to
Adams et al. (2001, p. 202): organizations have
had to rely primarily on anecdotal evidence and prescriptive recommendations for assessing the effectiveness of the codes they have. There appears to be
little empirical evidence to support or refute the often
conflicting recommendations made in the literature.

code effectiveness are in fact supported by the users

of the codes themselves. Several business ethics
researchers emphasize the importance of identifying
employee perceptions in relation to codes of ethics.
Badaracco and Webb (1995, p. 8) indicate the
importance of getting the view from the trenches (i.e. young managers) as opposed to merely
views from the generals headquarters with respect to the effectiveness of codes of ethics. As part
of their assessment of ethics programs, Trevino et
al. (1999, p. 145) suggest that employee perceptions matter and that: Employees can tell a
company a great deal about whats going on
Wotruba et al. (2001, p. 62) suggest that we
believe it is time to shift attention from the codes
themselves to the persons whose behavior is the
focus of these codes. Similar to Badaracco and
Webb (1995), Trevino et al. (1999), and Wotruba
et al. (2001), this study is based on the premise that
code users perceptions are useful and should be
taken into account when assessing what might
make codes effective. The research question to be
explored then becomes: according to the perceptions of corporate managers, employees, and ethics
officers, what aspects of code content and code
process might relate to the effectiveness of corporate codes of ethics? Figure 1 below illustrates the
relationship between employee perceptions on code
content and process and code effectiveness.
What must be clear from the outset is that the study
does not attempt to directly measure code effectiveness. Instead, the study presumes that the views of the
users of codes should be considered relevant in
assessing the potential effectiveness of codes of ethics,
similar to the relevance of obtaining employee feedback on organizational practices or receiving consumer feedback on a companys products or services.
After discussing the methodology used for the
study, the paper will examine aspects of code

Code
Content

(ii) Perceptions from users of codes

In addition to focusing on code content and process, this study seeks to investigate whether the
recommendations that have been made regarding

Employee
Perceptions of
Code

Code Effectiveness
(Legal and
Ethical Behavior)

Code
Process

Figure 1. Employee perceptions and code effectiveness.

Effective Corporate Codes of Ethics

content and code process to explore whether there is
any support to their being related to code effectiveness. The paper concludes with practical implications for corporations that currently possess or
intend to develop a code of ethics.

Methodology
To explore the research question, the study consisted
of fifty-seven in-depth, semi-structured interviews
of employees, managers, and ethics officers at four
large Canadian companies. The selection of
respondents was random for three of four of the
companies, while a snow ball technique was used for
the fourth company. Of those contacted, 92% agreed
to be interviewed. A total of 58% of the respondents
were male (33/57), while 42% were female (24/57).
In terms of organizational level, 60% of the
respondents were managers (34/57), while 40%
were non-managers (23/57). Of the managers, 15%
(5/34) labeled themselves senior managers. Seven of
those interviewed were ethics officers, meaning that
they were responsible for the administration of the
code. The types of positions of the non-management
respondents included: telephone operators, sales
representatives, bank tellers, administrative assistants,
and assemblers on the production line. The range of
time working for the company ranged from 3
months to 33 years, with an average of 13.4 years
spent at the company. The researcher individually
interviewed all of the participants, with 51 of the
interviews being taped and transcribed. Upon the
request of several respondents, six interviews were
not taped, although extensive notes were taken of
their responses. The average length of the interviews
was 65 minutes. Respondents answers were coded
using qualitative research software (i.e. NUDIST)
and then analyzed according to the various categories of code development.
The companies represent a variety of industries:
telecommunications; banking; manufacturing; high
technology. They are among Canadas largest
companies, each earning billions in revenues and
having tens of thousands of employees. Three of
the four companies conduct multi-national activities. One of the companies was the subsidiary of a
U.S. parent company. The companies fall within
the upper echelon with respect to having well-

327

developed ethics programs in relation to other

Canadian companies, each possessing an ethics
officer as well as conducting training on their
codes, whereas most Canadian companies do not
engage in ethics training (only 39%) nor posess an
ethics officer (only 42%) (KPMG, 2000). The
selection of companies with extensive ethics programs was intentional, as it was presumed that
employee awareness of their companys code and
the codes potential impact on behavior would be
more likely in companies with training and ethics
officers than in those without (Ethics Resource
Center, 1994). A review of the four companies
codes suggests that their orientation was both
value-based and compliance-based (Paine, 1994,
Trevino et al., 1999). Each companys code initially
identified a set of fiveseven core values or principles, in addition to more detailed provisions of
expected behavior. The length of the codes varied
from 21 to 65 pages.
The interview-based methodology was chosen to
move the investigation of codes beyond questionnaires into an actual corporate setting involving the
actual users of the code. Out of the 22 studies
addressing the effectiveness of codes of ethics (see
above), 19 used a research method other than
interviews. A total of 17 studies used survey questionnaires, while two used an in-basket exercise, and
one a lab experiment. Other than studies conducted
by Badaracco and Webb (1995), Kitson (1996), and
Adams, et al. (2001), no other study was identified in
the literature which used in-person interviews as a
research methodology to investigate codes.
As an exploratory study and in order to obtain
preliminary data on whether content and process
factors affect code effectiveness, it has been suggested
that a qualitative research methodology based on
interviews with the actual users of codes is more
appropriate than quantitative methods (Randall and
Gibson, 1990, p. 466; Liedtka, 1992, p. 163; Creswell
1994, p. 146). Badaracco and Webb interview 30
recent Harvard MBA graduates for their views on the
usefulness of corporate ethics programs. They state
(1995, p. 25) we believe that there are many
important studies yet to be done that would be variants
of this one. These would rely upon in-depth interviews rather than questionnaires, and they would
examine business ethics from the viewpoint of people
at lower levels of an organization. Our belief is that

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Mark S. Schwartz

these studies for understanding the role of business

ethics in organizations and for making it more effective could prove quite significant. In addition, the
study also included for the first time those who are
responsible for the administration of codes, the ethics
officers.

Findings and discussion

Code content
In terms of code content, several aspects were explored to determine whether respondents had any
concerns, which could ultimately impact the effectiveness of the code in influencing behavior.
Respondents were asked questions regarding the
importance of the following: (a) the justification for
the subject matter in their codes; (b) the provision of
examples; (c) the tone of the code (i.e. negative language such as dont do x versus positive or
aspirational language such as do y or try to do y);
(d) the length of the code; (e) the relevancy of the
code, and (f) the realism of the codes expected
behavior matters.
(a) Justification. Although several code researchers
have examined which issues are more prevalent in
codes and which ones are missing (Chatov, 1980;
White and Montgomery, 1980; Cressey and Moore,
1983; Sanderson and Varner, 1984; Mathews, 1987;
Hite et al. 1988; Ethics Resource Center, 1990b;
Lefebvre and Singh, 1992; Berenbeim, 1999; Farrell
and Cobbin, 2000; Kapstein, 2004), what has not
been sufficiently examined is whether employees
views of their codes content can affect their desire
to comply with the code. Just as the desire of citizens to obey the law might be affected by whether
one believes the law is justified (Perry, 2002) or that
a societal norm exists to support the legislation
(McAdams, 1997), the same may be the case for
expected behavior as outlined in a corporations
code of ethics. To examine this possibility, respondents were asked whether they believed that the
content (i.e. subject matter) of their codes could
have an impact on the codes effectiveness.
Although the vast majority of respondents agreed
with or had no concerns with their codes content,
and thus did not believe that the content would

impact code effectiveness, there were a few provisions that did cause some concern. Several provisions were perceived by respondents to be
unjustified on the basis of being too overbearing or
unfair, implying that these provisions would have a
greater likelihood of not being followed.
Inventions. For example, provisions dealing with
inventions, and the requirement of employees to hand
over any inventions made to the company, even if
they were developed outside of normal working
hours, was perceived as being unduly unfair:
I might have a bit of a problem with the section
that talks about patents and copyrights, if you come up
with an invention on your personal time that [the
company] says that it would claim, I dont agree with
that. If it is something that you do and it is something
on your own, it is not work related, but it turns out to
be an invention I dont think [the company] should
have the right to take the patent for that [emphasis
added].

It appears that such a provision potentially extends

the codes reach or coverage beyond what is deemed
to be acceptable, by entering what might be considered the private affairs of an employee.
Sexual Harassment. Despite the renewed vigor
with which companies are now addressing the issue
of sexual harassment, several respondents felt that
their codes had gone too far:
sexually harassing people I mean, if you came up
to me and put your hand on my shoulder, I mean,
come on give me a break, am [I] going to say, Dont
do that or You are harassing me? Some women
would, it is stupid [emphasis added].

Environment. Several respondents raised an issue in

terms of the fairness for being disciplined for not
complying with environmental responsibilities as set
out in their codes:
All I know is that its part of the code [and] I think its
a good practice, but I dont know if it should be part of
the code. Like are you telling me if I dont recycle, Im
in breach of the code? [emphasis added].

The following respondent focused on the appropriateness of certain punishment for a potential code
violation: Should you lose your job if you are caught
throwing garbage on the road? [emphasis added].

Effective Corporate Codes of Ethics

Other provisions that raised concerns for the
respondents included opening up a second business,
requirements to donate ones time to volunteer
activities, or the inability to make facilitating payments.
One might speculate that an employees potential
disagreement with the codes content due to a perceived lack of justification might diminish the potential that the employee would comply with the
code. It also appears to be the case that for those
provisions that are not clearly justifiable, sufficient
justification would be required before employees
would accept and comply with the expected behavior.
(b) Provision of examples. According to respondents,
the provision of examples either in the code document itself or at least during the training on the code
was a very important means by which to facilitate an
employees understanding of the codes provisions
and ultimately code effectiveness. This finding supports what is discussed in the literature on the
importance of providing examples (Murphy, 1995,
p. 731; Gibbs, 2003, p. 40). Consider the following
statements by respondents:
I think [the code] does a good job, because it
actually gives you some examples as to how the
issue may relate to employees It makes it extremely
difficult for an employee not to understand this. I
think it is great.
I thought actually the examples really brought
things home. I thought one of the best things they did
was to put the examples in.

The respondents made it clear that a code (or

training based on the code) that lacks relevant
examples would most likely remain ineffective.
(c) Negative tone. One of the most serious charges
against codes by code commentators is that they
are often too negative in tone, a series of thou
shalt nots which does little to inspire employees
to do the right thing (Austin, 1961; Harris, 1978,
p. 315; Ethics Resource Center, 1990a, p. III-2;
Raiborn and Payne, 1990, p. 883). In this sense,
the code is used as more of a controlling, topdown instrument, and may ultimately be less
effective in influencing behavior in a positive
fashion. To date, these views are not supported by

329

any data. To assess whether employees actually felt

this way, the respondents were asked whether they
believed their codes to be too negative in tone.
Not only did most employees respond that their
codes were not too negative, but that codes should
be negative in tone. This finding appears to contradict what one tends to find in the literature on
codes. Respondents expected their codes to be
negative in order to be effective, in other words,
to have the ability to clearly identify what
behavior is expected or prohibited.
One of the reasons suggested is that a code written
in a negative tone provides clearer expectations than
one written in a positive fashion:
No, I think it should be negative Because its clearer to
understand. And thats what I mean by the black and
white issue. If there were gray issues people would
take that and misconstrue it and they could go back and
say, well it doesnt really say yes or no, do it or dont. I
think youd just be opening up yourself for a lot of
misinterpretation but if its clear and concise, negative or not, it doesnt matter, it needs to be very clear
No, I dont find it offensive at all [emphasis added].

As well, several respondents stated that the purpose

of a code is not to inspire, and therefore need not be
positive in tone: Well, it is not meant to be a
pump-me-up booklet
One of the reasons codes that are written with
negative language (e.g. dont do x) have been
criticized in the literature is because it is believed
that activities that are not expressly prohibited by the
code may be seen by employees as being permissible
(Harris, 1978, pp. 314315; Murphy, 1995, p. 730).
What the study found, however, was that a code
written in positive or inspirational language (e.g. try
to do x) might in fact provide employees with an
even greater opportunity to engage in inappropriate
activity. In other words, positive-toned codes may
create even more loopholes for employees than
negative-toned codes:
No, because I think if you say try or strive, then
people think they have a bit of an optionIt gives them
too many options to get out of the situation and say,
Oh well, I tried but [emphasis added].
if I dont tell you some of the things you cant do,
you would assume you can [emphasis added].

Mark S. Schwartz

330

One example in particular helps to demonstrate

the potential for employees to misinterpret a code
that does not explicitly prohibit an activity in a
negative fashion. One of the companys codes begins
its acceptance of gifts section by stating that Not
all gifts are unacceptable. It also states that the
timing and nature of the gift are important circumstances to consider, and that it is important to consider any gift as a potential conflict of interest. The
code refers employees to the companys more detailed conflict of interest policy that upon examination explicitly prohibits cash gifts. Despite this,
several respondents including a bank branch manager believed that acceptance of cash gifts at
Christmas time from a wealthy customer was
acceptable according to the code. This example
appears to suggest that a code which is written in
positive or open-ended language (e.g. not all gifts
are unacceptable) versus clear and specific negative
language (e.g. do not accept cash gifts), has a
greater potential to be misinterpreted in a manner
which permits an inappropriate activity.
(d) Length. Another possible criticism of codes is that
when the documents are too lengthy, they require
too much time to be properly read, and on that basis
alone code effectiveness could be impacted (Trevino
and Nelson, 1995; p. 246). The company codes used
in this study did vary in length, as follows:
Company
Company
Company
Company

One:
Two:
Three:
Four:

55
21
65
25

Pages
Pages
Pages
Pages

Most respondents felt that their codes were not

too lengthy. A few did find them too lengthy based
on their current time constraints. For those that were
dissuaded from reading their codes due to their
length, several still believed that the codes could not
be made any more concise, due to the need to be
used as a reference document. This position conforms with that found in the literature: Codes must
consist of enough detail to provide sufficient guidance on expected behavior (Pitt and Groskaufmanis,
1990, p. 1638; Laczniak and Murphy, 1991, p. 269).
A few respondents did believe their codes were
too lengthy which could dissuade others from even
reading the document:

we dont have enough time.

if it was thicker, I wouldnt even sit down and read
it, I dont have time for that.
I was baking cookies and it took me like four trays of
cookies to read that

A number of other respondents noted that although their codes might be considered lengthy, the
purpose of the document was to act as a reference
and therefore the entire document need not be read
at one time:
Well, you dont just go and read the whole thing.
I dont think it really could be shorter because I
think what happens is that some people get this
and they read it and they must go quickly through
it, and they put it away. So it is there as a reference
if they need it.

Even those respondents who believed their codes

to be lengthy felt that it would be impossible to
shorten them:
No, I mean, how can you shorten it?
Yeah, maybe. Obviously I havent read the whole
thing which may mean that its too lengthy. But on the
other hand Im not sure they can get away with
anything other than that.

There thus appears to be a certain ideal length for

corporate codes, beyond which the code becomes
overly cumbersome and less likely to be read and
therefore complied with.
(e) Relevance. Another concern is whether companies are providing their employees with codes that
address activities that are deemed to be relevant to
the employee in question (Pitt and Groskaufmanis,
1990, p. 1639; Brandl and Maguire, 2002). The vast
majority of respondents indicated that their codes
were relevant to their activities. Respondents did
suggest that only those provisions that are clearly
relevant tend to be read and remembered which
suggests a potential impact on effectiveness:
I definitely did not pay a lot of attention to it
because I didnt really need it in my everyday life, right
now. You know there are some things that you
overlook because it is not pertaining to what evolves
around you now.

Effective Corporate Codes of Ethics

They will remember bits and pieces, whatever happens
to be relevant to them.

This factor may become more significant as several U.S. companies may choose to simply adopt
generic codes of ethics to comply with the SarbannesOxley Act as opposed to developing a code that is
more directly related to the nature of its business and
the activities of its employees.
(f) Realistic. If companies are expecting their
employees to engage in behavior which is perceived
by employees to be unrealistic or unattainable, many
suggest that the code has the potential to lose its
legitimacy (Harris, 1978, p. 312; Murphy, 1988, p.
909; Ethics Resource Center, 1990a, p. V-1). All of
the respondents believed that their codes were not
placing unrealistic demands or expectations upon
them. This belief appears to be confirmed by the
respondents stating that most if not all of their codes
are simply common sense as indicated above:
there is nothing in there telling them to do something that they cant do. Everything is in their clenches,
they can do it [emphasis added].

In terms of code content, the study found that

employees: sometimes require justification for
certain code provisions that do not make initial
sense; prefer examples that facilitate understanding
of the codes provisions; desire codes that are
negative in tone (in addition to positive) to provide greater clarity in terms of what is appropriate
behavior; and favor codes that are of appropriate
length, are relevant, and are realistic.

Code creation process

(a) Code objectives. One of the first issues in the creation process is what employees think the reasons are
why the company has a code, and whether such views
influence the potential impact of the code over
behavior. Byrne (2002) argues that: Codes of business behavior, however arrived at, function without up-front rational justification. One study found
that a key factor in the success or failure of an ethics/
compliance program is employees perceptions of

331

managements motivation for the establishment of the

program itself (Trevino et al., 1999). This study,
however, did not find support for such a position.
When the respondents were asked why they
thought their company had a code of ethics, seven
different objectives or reasons emerged. The different
objectives included: (1) protecting the companys
reputation or image; (2) improving the bottom line
for the company; (3) establishing behavioral expectations for employees; (4) enhancing public relations;
(5) demonstrating corporate citizenship; (6) protecting employees (e.g. allowing them to know their
rights); (7) due to legal requirements. A few observations are noteworthy. Many respondents noted the
connection between several of the above reasons and
the ultimate improvement of the bottom line for the
company. Although several respondents mentioned
public relations as an objective, they also indicated
that their companies do not wave the code in the
air to customers or the public. Instead, the public
relations impact is based on the code leading to
appropriate employee behavior that is observed by
customers or the public. As well, despite Canadian
law not requiring companies to enact a code, several
respondents were under that impression.
Respondents were then asked whether their
perceptions of the companys objectives in enacting a code might affect whether they or others
would comply with the code. None of the
respondents raised any objections to the entire
range of possible code objectives, suggesting that
the perceived objectives of employees do not appear to be a factor that might influence the
effectiveness of codes.
(b) Employee involvement. It has also been suggested
that employees should be directly involved in the
code creation process (Messmer, 2003, p. 14). One
of the reasons for this suggestion is based on the
practical consequence of enhancing the employees
sense of ownership over the code (Molander, 1987,
p. 628; Arndt, 1990; Sweeney and Siers, 1990, p. 34;
Ethics Resource Center, 1990a, p. II-3; Montoya
and Richard, 1994, p. 714). The study examined this
issue by asking the respondents whether their participation or the participation of other employees in
the creation of the code was an issue for them in any
respect.

332

Mark S. Schwartz

When asked whether it is important to know that

employees were involved in the creation or revision
of the code, approximately two-thirds of respondents indicated that it did not matter to them, while
only one-third felt that it was important. For
example, one respondent stated: No. As long as its
applicable to me, I mean I basically dont care who
writes it [emphasis added].
The majority of respondents felt that their participation in the creation of the code would not
necessarily increase buy-in for the code. What their
participation would do, however, is increase the
chances that the codes content would be relevant
and realistic. Again, this finding seems to contradict
the literature discussing the necessity of employee
involvement in the code creation process in relation
to enhancing code buy-in, at least for the majority
of respondents.

Code implementation process

The study explored respondents views with respect
to several aspects of the code implementation process
which might influence the codes effectiveness: (a) the
timing of the codes distribution; (b) senior management support; (c) the sign-off process; (d) training; (e)
reinforcement; and (f) testing on the code.
(a) Distributing code before employment commences. Although not discussed in the literature on codes,
respondents were asked whether the timing of the
distribution of the code (i.e. prior to employment as
opposed to after being hired) was of any concern to
them. Although it did not appear to be much of an
issue, respondents generally believed that it would be
more appropriate to distribute the code prior to the
commencement of ones employment, just in case
there was something in the code which one would
not be able to live with:
Yeah, I think so. Just to give a person an understanding
you know of the corporations values. If theres
something in there I dont agree with, then I guess I
wouldnt take the job or something like that.

Other employees did not believe that giving out

the code prior to employment was an important
issue due to the minimal chance an employee would

object to its content: I dont see that would be a

major problem because there is nothing in there that
is really dramatic; it is all pretty basic, human rights,
common sense, ethical stuff.
(b) Senior management support. One of the factors
affecting code effectiveness mentioned in the literature is the necessity of employees knowing that
senior management supports their companys code
(Ethics Resource Center, 1990a, p. II-1; Montoya
and Richard, 1994, p. 714; Jordan, 1995, p. 305;
Trevino and Nelson, 1995, p. 252; Brandl and
Maguire, 2002). The respondents confirmed the
importance of perceiving senior management support. Although several employees felt that their own
senior management supported the code, when asked
to provide evidence, many were unable however to
identify specific examples. Some of the examples
employees were able to point to included hearing
management speak about the code, seeing managers
lead by example, and discovering that managers
know and understand the code. For example, all
respondents believed it was a good idea to see a letter
from the CEO: he is endorsing it. He is saying
that yeah, I buy into this concept I am bound by
the same rules you are.
(c) Sign-off process. There is general consensus in the
literature that in order for codes to be effective they
must be accompanied with a sign-off provision
whereby employees acknowledge that they have
read, understood, and/or complied with the code
(Pitt and Groskaufmanis, 1990, p. 24; Lane, 1991, p.
31; Gibbs, 2003, p. 41), although others raise concerns that possible cynical views among employees
might develop (Trevino and Nelson, 1995, p. 247).
Three of the four companies state in their codes that
employees are required to review the code either
annually or periodically.
There were a number of respondents who
pointed out some of their concerns with respect to
the sign-off procedure. The concerns include: (i)
general hesitation; (ii) the request of unions not to
sign; (iii) lack of utility; (iv) reflects lack of trust;
and (v) suggests pushiness on the part of their
company.
One concern related to a reflection of a lack of
trust or excessive paternalism:

Effective Corporate Codes of Ethics

if my manager wanted to read through it with me, I
would be somewhat insulted, because I would think
come on, have a little bit more faith in me.

In terms of pushiness one respondent indicated:

I feel handing out the booklet is fine. I dont feel
that they need to have people sign a copy though. I
mean, I think thats being a little pushy. I think just the
fact that they hand out the booklet to peopleI think
thats good enough. They should notneed to sign
something to say theyve read it [emphasis added].

Other respondents suggested that requiring

employees to sign-off on the code is a good idea
primarily because it would increase awareness and
provide an incentive to read the document. Several respondents indicated that it was important
that their managers appeared to take the annual
sign-off process seriously in order for them to take
it seriously. As one respondent noted however,
having a manager take you through the process
does not necessarily guarantee employee interest in
the code:
really, in all honesty, when the manager is sitting
here reading all that stuff, you are probably thinking, I
wonder what I am going to buy for supper tonight?

Although in general the sign-off process appeared

to be acceptable by the respondents, there were still a
number of concerns raised regarding the procedure.
The data indicates that employees must perceive that
the sign-off process is more about enhancing
awareness rather than a mechanism that is founded
on a lack of trust between employer and employee
in order for the sign-off process to serve a constructive purpose.

(d) Training. All code commentators concur that

without sufficient training, codes remain ineffective
in influencing behavior (Benson, 1989, p. 318;
Gellerman, 1989, p. 77; Pitt and Groskaufmanis,
1990, p. 24; Lane, 1991, p. 131; Gibbs, 2003, p. 40;
Messmer, 2003, p. 13). The U.S. Federal Sentencing
Guidelines includes effectively communicating the
standards to all employees (e.g. training) as one of
the elements of an effective compliance program
(United States Sentencing Commission, 1991).

333

The study found that although training was perceived positively by most of the respondents, too
much training could be perceived by employees to
be a waste of time and money, which may reduce
the legitimacy of the code.
Several respondents noted the value in training.
Essentially, training sessions provide the explanation
required for employees to become aware of the
codes usefulness, or at least to indicate the importance the company attached to the code:
[The training sessions] are how you make it real to
everyoneby showing them backing up a book.
Anyone can create a book, big deal. You back it up
with the session where you give examples why were
doing it, why do we have integrity, why is this so
important, how can your actions impact a [multimillion dollar] company? [emphasis added].
like, the room was just packed with people. You
obviously got the sense that it was very important I
mean [its very rare] that we all get together like that so
its usually something quite important [emphasis
added].

Other respondents noted that there may already

be too much training, that training will not have any
effect on unethical individuals, that a written document is sufficient, and that ethics training is boring:
We have got training coming out of our ears.
If you have a person thats unethical, you can put them
into a week course and theyll still be unethical.

Some commentators suggest that the decision of

who should conduct the training might have an impact on how employees perceive the code (Trevino
and Weaver, 1995, pp. 249, 250). When asked who
should conduct the training, approximately threequarters of the respondents believed that it should be
conducted in-house (i.e. by managers or ethics officers) versus one-quarter who believed that outside
consultants were more appropriate.
There were several reasons proposed as to why an
outside consultant as opposed to a manager should
conduct training. Some managers may not have the
ability to engage in code training:
My manager knows no more than I do. So I would
rather that a person who has been trained and has a
course on this to train us.

334

Mark S. Schwartz

Other respondents were concerned whether

employees would be open if their manager conducted the training:
A lot of people are very intimidated by management.
So I would have to say, if you really wanted to get
some results, it would probably [be] better to have
someone who was from the outside, just for the overall
honesty that people would have. People are going to
be more honest if it is someone who is not their
manager because it could affect their career or promotion or whatever.

Some respondents perceived their managers as

lacking the legitimacy necessary to conduct the
training:
I sure wouldnt want my manager teaching ethics. Id
have to go for the outside consultant. [My manager]
probably cant say the word [ethics].

There were several reasons why the majority of

respondents believed that training should be conducted in-house. For example, managers were perceived as better understanding the corporate culture
than consultants rendering them better equipped to
do the training:
When you get the outside consultants, you always get
the What do you know? You dont work here, sort
of thing.
an immediate manager could respond to a specific
question If it was an outside agency delivering it,
basically they are just reading the book.

In addition, greater buy-in can be demonstrated and

acquired if the manager conducts the training:
Management [has] got to walk the talk. If you as a
manager cant explain it to your employees, youre not
instilling a great deal of confidence that youll understand it when they have an issue.
I think its more personal if its conducted by
management and it also sends the message that its
something they believe in and theyre willing to
abide by.

The respondents indicated that with respect to

training, codes will be more effective overall if
managers conduct the training as opposed to outside
consultants.

(e) Reinforcement. Reinforcement through newsletters, e-mails, or executive speeches, has been suggested as playing a role in code effectiveness
(Trevino and Nelson, 1995, pp. 248253). This was
confirmed by the respondents who indicated that
without constant reinforcement, the code would
tend to have only a minimal impact on employee
behavior. Reinforcement appears to allow employees to perceive the seriousness and importance their
company places on compliance with the code.
Otherwise, the document becomes less of a concern,
and more easily disregarded:
its just a document. A document doesnt change
the culture, it doesnt change values, it doesnt change
behaviorwithout everything else the document is
just a document. You need the constant education, reeducation, awareness, examples and build that example
base and present it on a regular basis. Just putting in a
document, no [emphasis added].

(f) Testing. Although testing on the code has not

been raised in the literature as a factor that could
increase code effectiveness, it was presented to the
respondents for their perspective. Respondents appeared to hate tests in general, and certainly preferred not to be tested on their codes of ethics. Some
of the issues raised regarding testing include: how
does one fail the test; perceptions of patronization;
no guarantees that results of testing will relate to
ones actual behavior; and that the testing process is
merely a waste of time.

Code administration process

The literature on codes raises a number of potential
issues with respect to code administration and its
impact on code effectiveness. The issues examined
for the purposes of the study included: (a) living up
to the codes standards; (b) reporting violations of
the code; (c) anonymous phone line; (d) communication of violations; (e) enforcement; and (f) performance reviews in relation to the code.
(a) Living up to standards. As part of the code administration process, it has been suggested that companies
must be seen to be acting with integrity, that is, living

Effective Corporate Codes of Ethics

up to their own standards (Trevino and Nelson, 1995,
p. 197; Gibbs, 2003, p. 41; Messmer, 2003, p. 13).
Without this general perception, the administration of
the code may become unattainable. Almost every
employee indicated that their companies appeared to
be living up to the standards that had been set out in
the code. There were a few examples, however,
where this did not appear to take place in the minds of
the respondents and which appeared to generate
cynicism:
Respect for Customers: All of a sudden, it is not
quality, it is quantity. After the old [phone] board
went, they got these machines, its hurry up, get off
the phone, dont talk to the customers, you dont
have time It was like the customer did not
matter anymore. That poor little guy, Mr. Smith,
what time is it, but we dont give out the time
[the company] does not care about the customer
anymore money they do [care about] [the
company] has gotten too big.
Downsizing: With the code of ethics, and stuff, what
it entails in there, is like I wish they didnt have to cut
[jobs] period. To me it is like business ethics, like the
company is saying to you these are the rules, I love
having you as my employee, this, that...but the bottom
line is when they have to do what they have to do, that
is it.
Discrimination and Harassment: harassment, thats
what I had a problem with it says discrimination
and harassment, race, national or ethnic, colored,
religion, age, sex, I cant tell you how many times at
[the company] I was condemned for being a Jew, by
managers as well.

One ethics officer discovered that the companys policies on expenses for working out during
business trips and drinking bottled water from a
hotel mini-bar conflicted with the codes emphasis
on health:
Employee Health: Okaywe talk in the code of
conduct [about] being healthy and family, all this
stuff, and I was in Hong Kong last year and I
paid my five dollars to go to a gym and work out and
when I got back I expensed it and it got kicked back to
me expense wise and they said, Im sorry we dont pay
for gym costs. Well thats crazy. A huge disconnect on
what we say and [what we do]We also said that we
dont pay for any kind of [drinks] from the mini-bar,

335

well you know, water is a big deal when you go to

Colombia [emphasis added].

According to the respondents, perceived inconsistency between the code and how the company is
actually behaving appears to relate to the codes
potential effectiveness.
(b) Reporting violations. Most commentators suggest
that the ability to report wrongdoing is extremely
important if codes are to be effective (Gibbs, 2003, p.
40; Messmer, 2003, p. 13). Several researchers have
explored the individual and situational factors that
might influence whether employees report code
violations (i.e. blow the whistle). Some of the more
prevalent situational variables that have been considered to affect the decision to blow the whistle include:
the seriousness of the violation, perceived responsiveness, and the presence of others (Miceli and Near,
1988; Miceli et al., 1991; Sims and Keenan, 1998).
Each of the four companies codes discusses
employees obligations when they observe a code
violation. The provisions require employees to
report any and all code violations. The provisions
also indicate that failure to do so could result in
discipline. Respondents were asked how they felt
about the obligation to report all code violations.
Despite many respondents not being aware of the
reporting obligations as stipulated by the companies codes, most respondents still believed that
employees should be obligated to report all violations. By not reporting the violation, one was in
effect condoning the illicit behavior: I think
by not reporting certain things, then you are really
condoning their behavior, you are an accessory to
the fact.
Other respondents took a different position by
suggesting that companies may be creating code
provisions that are impossible to enforce:
I think that its pointless to say we can obligate you to
report wrongdoing how are you going to force me
to do it? People dont want to feel compelled [to
do] things. They might rebel if they feel that

Despite the requirement to report code violations,

what became absolutely clear when employees were
asked whether they would report violations of the
code is that not all violations would immediately be
reported. In other words, the respondents are already

336

Mark S. Schwartz

prepared not to explicitly comply with their codes

and report all violations. In some cases, even ethics
officers indicated that they might have difficulty
reporting their supervisors. Instead, all respondents
indicated that the decision to report violations depends. When asked, What does it depend on?,
several factors were revealed. These factors included:
(i) whether the employee has been warned; (ii) the
nature of the offence (e.g. stealing scotch tape versus
a company computer); (iii) who violated the code
(e.g. manager, friend, or star performer); (iv) the
certainty of the offense having been committed; (v)
the likelihood of action being taken; (vi) whether
other employees are aware and/or condone the violation; (vii) whether they must continue working
alongside the violator (e.g. due to breakdown of
trust); and (viii) whether retribution is feared (e.g.
being blacklisted).
Figure 2 summarizes the factors which influence
the respondents decision whether to report a code
violation:
(c) Anonymous phone line. The fact that respondents
(including ethics officers) will not automatically report code non-compliance raises significant issues for
companies in terms of their codes potential effectiveness. One way to counter concerns over possible
retribution is to implement an anonymous phone
line for employees to report concerns (Gellerman,
1989, p. 78). The U.S. Federal Sentencing Guidelines includes the establishment of a reporting
channel that protects against retribution as one of the
elements of an effective compliance program
(United States Sentencing Commission, 1991). Almost all of the respondents believed that having such
a line served a purpose, for example: sometimes
you dont feel comfortable talking with the people
around herewho you going to report [the violation to] if you dont want to talk to your manager?
Many respondents, however, raised concerns over
abuse and actual protection of their anonymity. At
the same time, there were some respondents who
did not agree at all with the concept of an anonymous phone line. Surprisingly, a number of
respondents from each of the four companies were
not aware that such a line existed. The major concerns were the perception of the line as a snitch line,
its potential abuse, and the lack of actual protection
over confidentiality.

(d) Communicate violations. Whether communicating

code violations to employees would improve code
effectiveness is an issue that the literature on codes
does not appear to have addressed. Each of the four
companies tended to go to various lengths to communicate employee code violations and the resulting
disciplinary action to the offending employees.
Overall, the respondents believed communicating
violations would increase the effectiveness of the
code. A number of reasons were suggested as to how
the publication of violations would be beneficial
including increasing employees awareness of the
code and the fact that it is actually being enforced by
the company. Other respondents, however, raised
several concerns regarding the communication of
violations such as limiting the communications to
serious violations, rather than those which are not
obvious violations. In addition, the communication
should not disclose any names. It may also act to
provide the opposite effect by giving employees
ideas, and may in fact discourage employees from
coming forward to report violations. Other respondents mentioned their concern that issues of lack of
trust are raised when violations are communicated.
Many respondents felt that the rumor mill was sufficient to communicate violations of the code.

FACTORS
(i) Warning was Given

(ii) Serious Violation

(iii) Individual Not
Friend/Star/Manager

Aware of
Violation

(iv) Certainty of Offense

Report
Violation

(v) Likelihood of Action

(vi) Others Dont
Know/Condone

(vii) Must Continue Working

With Person
(viii) No Fear of Retribution

Figure 2. Factors influencing decision to report code

violations.

Effective Corporate Codes of Ethics

(e) Enforcement. Several commentators have suggested
that enforcement of the code is essential to a code
being effective (Pitt and Groskaufmanis, 1990, p. 25;
Sweeney and Siers, 1990, p. 39, Gibbs, 2003, p. 40;
Messmer, 2003, p. 14). The U.S. Federal Sentencing
Guidelines (1991) includes consistent enforcement as
one of the elements of an effective compliance
program. It has even been suggested that the perception of justice (e.g. code enforcement) can directly
influence the misconduct of the observer (Trevino,
1992, p. 647). Most respondents believed that their
codes were in fact being enforced:
there [have been] things that [went] on maybe
someone might get their wrist slapped or whatever,
but people were not dismissed. Now, they are
dismissing people and I think it is important to set that
sort of example, you are not going to get away with it
People dont get away with it now.

Several respondents stated, however, that they did

not believe the code was being enforced:
I mean executives also should be following the same
rules. Unfortunately, they can do whatever the hell
they want, but no one is there to watch them.

337

mentioned to you and nothing is being done. Yes.

Its causing morale problems. And has for some
timepeople not showing up and everybody in the
department knowing they have another job and you
know its being reported and still nothing done and
that sort of thing [emphasis added].

The respondents made it clear that without consistent and unbiased enforcement, the code may not be
taken seriously.
(f) Performance review. Contrary to the literature on
codes which tends to recommend rewarding ethical
behavior (Pitt and Groskaufmanis, 1990, p. 1645;
Raiborn and Payne, 1990, p. 888), most respondents
believed that compliance or doing the right thing is
already part of your job for which you are being
compensated, and therefore need not be explicitly
rewarded in any sense:
No. Because good ethical behavior is part of our job
You shouldnt be rewarded for doing something
that is expected of you. You should be rewarded for
going over and above the call of duty.
Its the right thing to do. Why should we be rewarded
for doing the right thing?

I dont think [the codes] being enforced at all.

Management is also seen by one respondent as not

taking action with respect to the racist activities of a
manager:
The boss is racist, very. If you are [the same race] you
get breaks, and if youre not Actually its been reported. Time and time again to upper management
about this guy and nothings been done.

Although the respondents responses did not

indicate that lack of enforcement would prevent the
code from still having an impact, it clearly does increase the level of cynicism:
I didnt feel cynical, I just thought [the code] was a joke
compared to what I was seeing around me, what other
employees were doing to get a sale or the way they were
talking or behaving in the office [emphasis added].
Theyre cynical about what goes on around here. So
that means the code I suppose. Theyre very cynical.
They have a big chip on their shoulderabout
whats happening with certain employees. How certain employees are getting away with the things Ive

Other respondents pointed out the difficulty in

measuring ethical behavior:
I dont think theres really any way you can measure a
person on their compliance. I think you can measure
them if theyre not in compliance of the code, but I dont
think it can be the other way around.

The majority of respondents suggested that ones

performance review should not be related to code
compliance, but rather only with ones non-compliance with the code.
In terms of code content and code process (i.e.
creation, implementation, and administration), a
number of concerns or potential concerns were raised,
or in some cases were found to be non-issues for
employees. Table I represents a summary of the
concerns or lack of concern for each stage of code
development. Those aspects that were mentioned by a
majority of the respondents (i.e. more than half) were
deemed to be important in terms of code effectiveness. Those aspects that were mentioned by a
minority of respondents (i.e. less than half) were
deemed potentially important, while those not

Mark S. Schwartz

338

TABLE I.
Code developmental stages and effectiveness
Code development
stage

Relationship to code
effectiveness

Concerns of respondents

Content
Justification
Examples
Tone
Length
Relevance

Potentially important
Important
Important
Important
Important

Justify provisions if not clear otherwise less acceptance

Examples critical to ensure understanding of code
Negative tone necessary to ensure expectations are clear
Lengthy document can dissuade attempts to read it
Must be relevant otherwise employees may not read and/or
remember provisions
Expected behavior must be achievable

Realistic

Important

Creation
Objectives
Employee involvement

Not important
Potentially important

All objectives acceptable including bottom line or public relations

Involvement not necessarily required but could lead to more
relevant code

Implementation
Prior distribution

Not important

Prior distribution of minimal concern but couldnt hurt; employees will most likely not object to code content
Sufficient support from management must be observed or code
will not be taken seriously
Sign-off can generate increased awareness but potential indication
of lack of trust
Training must be sufficient or potential lack of awareness of codes
usefulness will result
Reinforcement must be sufficient or code will be considered just
another flavor of month
Testing ineffective; potentially patronizing

Senior management
support
Sign-off

Potentially Important

Training

Important

Reinforcement

Important

Testing

Not important

Administration
Living up to standards
Reporting violations

Important

Important
Important

Anonymous phone lines Important

Communicate violations Important
Enforcement
Performance review

Important
Not important

Code must be abided by company otherwise cynicism generated

Necessary to obligate reporting of code violations but concerns
over possible retribution
Useful to provide anonymous phone line but concerns over
protection of anonymity
Communicating violations beneficial as a deterrent to other
employees under certain limitations
Enforcement must be consistent or cynicism generated
Performance review should not be based on code; ethical behavior
is already part of ones job requirements

mentioned by any respondents were deemed not

important.
Limitations and conclusion
In terms of the study, the views of actual users of
codes of ethics help to shed light on which elements

of code content, creation, implementation, and

administration are deemed important in relation to
potential code effectiveness.
There were several limitations to the study however. The research was qualitative in nature, and was
based on self-reported data. Research on direct
behavioral evidence related to the code should also be

Effective Corporate Codes of Ethics

conducted (e.g. Farrell, et al., 2002), along with specific case studies involving code compliance and noncompliance. Whether an employees perception of
the importance of a code aspect actually leads to the
employee abiding by the code can also be questioned.
For example, employees might have felt that the signoff procedure was pushy or untrustworthy, yet
requiring a sign-off might remain important in terms
of that particular employee or other employees abiding by the code. Social desirability bias might also have
taken place. In terms of the sample, only large Canadian companies were included in the sample, as opposed to smaller firms. In addition, the study did not
attempt to empirically measure and assess the
respondentss views regarding code content and process, other than indicating whether a majority, a
minority, or none of the respondents deemed certain
code aspects to be important. This was primarily due
to the limited numbers of respondents interviewed,
and the fact that the study was intended as a preliminary investigation of the importance of several
code content and process variables according to the
users of the code. Further empirical research should be
conducted to help verify whether the initial assessment is accurate.
In terms of future research, other code content
(e.g. prioritization of values) or code process aspects
(e.g. respondents views of the firms ethics office)
might be considered as well. Additional research
questions might also be examined such as whether
there might be linkages among the various code
aspects. For example, would distribution of the code
prior to employment act as a signal indicating strong
management support? How do all of the various
code aspects relate to an ethical corporate culture?
Which factors are more important relative to the
others? (e.g. seeing their managers lead by example
rather than merely hearing their managers speak
about the code, etc.).
Based on the study, if the views of the studys
respondents are to be taken into account,
additional research should also be conducted to
help verify the following:

Code content
Companies should provide examples in the code
document or during code training, as well as main-

339

tain a negative tone for certain activities such as gift

giving and receiving. Provisions that may not seem
apparent should include a rationale to help justify the
expected behavior.
Code creation
Employees should be involved in the process, not
necessarily in order to gain their buy-in or sense of
ownership, but to help ensure a relevant and realistic
document is produced.
Code implementation
Senior managers must be seen to support the code,
the sign-off process must be seen to be for the
purposes of enhancing awareness, training efforts
must provide employees with examples and an
opportunity to ask questions, training should be
conducted by managers, and reinforcement of the
code needs to take place.
Code administration
Companies must live up to their codes standards, and
address the potential retribution concerns of
employees. Anonymous phone lines should be provided. Enforcement must be consistent and impartial.
Other somewhat counter-intuitive findings from
the study include the following:
 the majority of respondents believe that codes
should be negative in tone, rather than positive
(and that positive/inspirational language in a
code can contribute to inappropriate activity);
 most employees will not immediately report
code violations, which might raise issues about
code efficacy;
 the majority of employees are unaware of the
existence of an anomymous phone line for
reporting violations;
 most respondents believe that performance reviews should not be related to code compliance,
but rather with code non-compliance.
This study attempts to address a deficiency in
the current research on codes of ethics by

340

Mark S. Schwartz

engaging in qualitative in-depth research, and by

speaking with the actual users of codes, to gain
greater insight into whether what has been
claimed by code commentators is in fact the case.
Such exploratory research is necessary before recommendations are made by consultants, or legislation identifying elements of an effective
compliance program is enacted. In addition, rather
than simply posing the code variable, additional
factors (i.e. code content and process) that support
or hinder the codes influence should be identified
in the literature on code theory, which is still in
its infancy.
In addition to enhanced legislative enforcement
and additional emphasis on ethics education at
business schools as recommended by U.S. President George Bush (CNN, 2002), the emergence
of corporate codes of ethics represents one of
many ways to address corporate misconduct.
Unfortunately, the phenomenon of corporate
codes, despite growing tremendously in popularity
over recent years, still faces resistance, skepticism,
and cynicism from many within the corporate
(e.g. former WorldCom CEO Bernie Ebbers, see
above) and academic communities. According to
Pitt and Groskaufmanis (1990, p. 1630): Corporate codes of conduct boast as many critics as
proponents. Many continue to argue that codes
can become a legal pitfall (Pitt and Groskaufmanis,
1990), are unnecessary due to the existence of
good internal auditing and legal constraints (Berenbeim, 1988, p. 91), and tend to be used merely
as window dressing (Benson, 1991, p. 18). Part
of the reason for these views might be the continued lack of attention placed by academics and
senior managers at corporations on the various
aspects of code content and code process. In fact,
it may be the case that code content and code
process are the keys to explaining why some
companies such as Enron, despite possessing a
code of ethics, have faced major scandals, while
others have been able to avoid them (such as
through internal reporting of misconduct by
employees with resultant action taken). Unfortunately one doesnt hear very much regarding the
companies that managed to avoid scandals due to
their codes of ethics.
The study found employees, managers, and ethics
officers do not necessarily support certain code

content and code process variables currently in use

and recommended by others. Whether this lack of
code user support translates into a less effective code
of ethics is not clear, and thus should be subject to
greater empirical research. What this study indicates
however is that code content and process best
practices should be subjected to greater empirical
scrutiny before they are advised or even mandated
by governments. The study supports the claim that
the mere existence of a code alone will unlikely
influence employee behavior, and companies merely
possessing a code might legitimately be subject to
allegations of window-dressing. Further research
on code content and process is clearly necessary to
further develop our understanding of whether and
how codes influence employee behavior.

Acknowledgement
The author gratefully acknowledges Wesley Cragg
and Linda Trevino as well as the anonymous reviewers for their helpful comments towards the
preparation of this article.

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