Effective, but not all the time: Experimental evidence on the effectiveness of a code of ethics' design

• Published date: 01 June 2021
• Author: Peter Kotzian,Thomas Stöber,Barbara E. Weißenberger,Florian Hoos
• Date: 01 June 2021
• DOI: http://doi.org/10.1111/basr.12231

ORIGINAL ARTICLE

Effective, but not all the time: Experimental

evidence on the effectiveness of a code of ethics'

design

Peter Kotzian

1

| Thomas Stöber

1

| Barbara E. Weißenberger

1

|

Florian Hoos

2,3

1

Chair of Management Control and

Accounting, Heinrich Heine University

Duesseldorf, Duesseldorf, Germany

2

Department of Accounting and

Management Control, HEC Paris, Jouy-

en-Josas, France

3

Centre for Entrepreneurship, Technical

University Berlin, Berlin, Germany

Correspondence

Peter Kotzian, Chair of Management

Control and Accounting, Heinrich Heine

University Duesseldorf, 40225

Duesseldorf, Germany.

Email: peter.kotzian@hhu.de

Abstract

Relations between society and business are increasingly

characterized by the societal demand for compliance

with ethical standards. Companies are held responsible

for behavior of their employees, which increases the

demand for effective internal governance. To assure

compliance, many companies enact codes of ethics.

Despite a common core of ethical standards, codes

differ considerably in formal design elements. Albeit

theory suggests that a code's formal design, that is, how

a code's content is presented, affects its behavioral

impact, there is little research on this issue. Addressing

this research gap, we conducted a between-subjects

experiment (factorial survey) in which we manipulated

design elements of codes and examined how these

elements affect behavioral intentions in various

business situations. Holding the code's content con-

stant, we manipulated its tone (positive vs. negative)

and whether it was signed by the company's executive

board (with vs. without signature). Our results indicate

that the effectiveness of a code can be improved by

using signed codes, while there is no effect for a

code's tone. Our paper contributes designing internal

Received: 14 June 2020 Accepted: 4 March 2021

DOI: 10.1111/basr.12231

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

© 2021 The Authors. Business and Society Review published by Wiley Periodicals LLC on behalf of W. Michael Hoffman Center for Busi-

ness Ethics at Bentley University.

Bus Soc Rev. 2021;126:107–134. wileyonlinelibrary.com/journal/basr 107

governance in two ways: by giving experimental evi-

dence on the relevance of a code's formal design and by

providing practical guidance how to increase code

effectiveness.

KEYWORDS

code of ethics, corporate compliance, ethical decision making

1|INTRODUCTION

Business ethics have become a highly relevant issue for companies over the course of the last

decades. Stakeholders and shareholders increasingly demand corporate social responsibility, an

issue which concerns all business activities. Companies are expected to pursue not only finan-

cial but also societal goals ranging from eco-friendly production to adhering to social standards,

to consumer protection or responsible dealings with customer data (Abiteboul &

Stoyanovich, 2019; Flammer, 2013; Perez-Batres et al., 2012; Riedl & Smeets, 2017; Treviño &

Nelson, 2014). Employees are required to trade off economic and ethical considerations in all

their activities. Companies are both legally and publicly held responsible for their employees, so

that ensuring compliance with ethical standards has become a core element of management

control (Hunoldt et al., 2020).

Codes of ethics, henceforth referred to simply as codes, are fundamental to companies'

ethics and compliance programs (Kaptein & Bons, 2014). Implementing codes of ethics is, in

fact, required by financial regulation (e.g., Section 406 of the Sarbanes-Oxley Act, see

SEC, 2003). A code is one of the most commonly recommended and frequently used elements

of compliance programs (Kaptein, 2015), which typically consist of compliance training, a com-

pliance office (Schwartz, 2008; Weber & Wasieleski, 2013), and other compliance-related insti-

tutions, such as whistleblowing.

Codes have been subject to research for decades, and the associated research efforts can be

categorized into content-, output-, and transformation-oriented studies, investigating the con-

tent of codes, their relevance for employee behavior, and their implementation in entrepreneur-

ial practice, respectively (Babri et al., 2019; Helin & Sandström, 2007). This study contributes to

our understanding of the issue of code effectiveness, by investigating an aspect of codes that has

yet received little attention.

Given that codes are installed as a means to an end, that is, to ensure compliance with for-

mal and informal rules and ethical behavior in general, what do we really know about their

effectiveness? Despite their proliferation, there is mixed evidence as to whether and under what

conditions codes are effective in ensuring ethical behavior. Some studies find a positive relation-

ship between codes and ethical intentions and behavior (e.g., Kaptein, 2011; McKinney

et al., 2010, as well as the majority of output-related studies reviewed in Babri et al., 2019). The

meta-analysis by Kish-Gephart et al. (2010) actually reports a negative relationship between the

existence of a code, ethical intentions, and behavior, while organizational features like code

enforcement or the ethical climate are conducive to ethical behavior.

Clearly, situational and individual factors matter for ethical behavior (Ackert et al., 2011;

Craft, 2013; Jones, 1991; Smith et al., 2007). For the case of employees in firms, Lehnert

et al. (2015, p. 196) mention ego strength and locus of control as individual factors, whereas job

108 KOTZIAN ET AL.