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Business Codes of

Multinational Firms:
What Do They Say? Muel Kaptein

ABSTRACT. Business codes are an oft-cited man- Introduction


agement instrument. But how common are codes
among multinationals? And what is their content? In The interest in corporate social responsibility,
an unprecedented study, the codes of the largest sustainable business practice, corporate gover-
corporations in the world have been collected and nance, business ethics, and integrity and com-
thoroughly analyzed. This paper presents the results
pliance management has grown markedly in the
of that study. Of the two hundred largest companies
in the world, 52.5% have a code. More than half
past decade (Waddock et al., 2002). It is not only
of these codes describe company responsibilities stakeholders who expect companies to pay
regarding quality of products and services (67%), greater attention to norms, values and principles;
adherence to local laws and regulations (57%) and the companies themselves are acknowledging the
protection of the natural environment (56%). Many importance of responsible business practice
codes make reference to principles governing stake- (Waddock et al., 2002). But what are a company’s
holder relations (e.g. transparency (55%), honesty responsibilities? And how can the board and
(50%) and fairness (45%)), corporate core values (e.g. management ensure that the company meets its
teamwork (43%)), appropriate conduct among responsibilities? A much recommended manage-
employees (e.g. discrimination (44%) and intimida- ment instrument to achieve this is a business code
tion (43%)) and treatment of company property by (also referred to as a corporate code of ethics (e.g.
employees (e.g. conflict of interests (52%), corruption
Cressey and Moore, 1983), a code of conduct
(46%) and fraud (45%)). Monitoring compliance with
the code is addressed in 52% of the codes. Based on
(e.g. White and Montgomery, 1980) or an
this content study, three types of codes are distin- integrity code (e.g. Petrick and Quinn, 1997)).
guished: the stakeholder statute (72%), the values Scholars (see for example McIntosh et al., 2002),
statement (49%) and the code of conduct (46%). The international governing bodies (e.g. the United
results of this inquiry present a benchmark for the Nations, the European Union and the
evaluation and development of both individual and Organization for Economic Cooperation and
international business codes. Development), business associations (e.g. the
International Chamber of Commerce) as well as
KEY WORDS: business code, business principles, special interest groups (e.g. the International
code of conduct, compliance, ethics management,
Labor Organization and Transparency
international business ethics, mission statement, multi-
nationals, norms, values
International) have been calling on companies
to develop their own business codes. But what
is a business code and what is its function?
A business code is a policy document that
defines the responsibilities of the corporation
Muel Kaptein is professor of Business Ethics and Integrity towards its stakeholders and/or the conduct the
Management at the Erasmus University, Rotterdam, The corporation expects of employees (Kaptein and
Netherlands. He also works as a consultant for KPMG Wempe, 2002). A code clarifies the objectives the
Integrity, where he assisted about thirty companies in the company pursues, the norms and values it
development of their code of business. upholds and what it can be held accountable for.

Journal of Business Ethics 50: 13–31, 2004.


© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
14 Muel Kaptein

A code aims to reduce the occurrence of multinational firms with reference to one or
incidents, to improve the extent to which stake- more issues such as bribery, child labor and
holder expectations are realized, to boost stake- human rights (see Table II).
holder confidence in the company and to To date, no research has been conducted to
encourage the authorities to relax regulations and examine the prevalence and full content of
controls (see, for example, Ethics Resource business codes of the largest corporations in the
Center, 1980; Raiborn and Payne, 1990). world.
How common are codes among companies? This paper presents the results of an analysis of
And what is their content? Many studies have the codes of the two hundred largest multina-
been conducted into the prevalence of codes in tional firms. What do they tell us? What are the
specific countries (see Table I). Various publica- most cited issues? Which issues are barely men-
tions have also appeared on the content of codes tioned? What wording do companies choose to
in specific countries. Research has also been express their responsibilities? How uniform and
conducted into the content of business codes of diverse are the codes? Is there a core set of

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%
a response rate of 20%
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%
a response rate of 42%

England 1999 London Business Survey of largest 350 companies with 78%
School and a response rate of 12%
Arthur Andersen
Germany 1999 KPMG Germany Survey of largest 1000 companies 54%
and the University with a response rate of 25%
of Erlangen-Nürnberg
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
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 citizenship
ILO 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

universal norms that multinational firms uphold of business codes nevertheless reveals what kind
and, if so, how can they be described? of ethics companies claim to uphold. The results
A content analysis of business codes delineates could, among other things, serve as benchmark
the responsibilities multinationals proclaim. To be in evaluating and developing individual and
sure, the existence of codes does not imply that international business codes (e.g. the OECD
companies strictly adhere to them (Sims and Guidelines for Multinational Enterprises, the
Brinkmann, 2003), but an analysis of the content UN’s Global Compact and the Caux Principles).
16 Muel Kaptein

Clearly, it is not to implied here that the moral 2001, the respective company headquarters were
obligation of companies to include an issue in contacted by phone with the inquiry of whether
their codes is directly proportional to the the company had a business code. A business
frequency with which an issue presents itself. The code was defined as an independent, company-
moral legitimacy of an ethical standpoint is not specific policy document which delineates
determined by numbers (Donaldson and Dunfee, company responsibilities towards stakeholders
1999). The frequency with which issues are and/or employee responsibilities. Documents that
included in codes does, however, allow us to formulate responsibilities towards a single stake-
deduce that the more an issue is mentioned, the holder (e.g. a code for suppliers), a mission state-
greater the number of companies there are who ment that merely formulates economic
endorse it. It can thus be asserted that the greater objectives, or rules of conduct for employees
the frequency with which an issue is addressed with regard to a single issue (e.g. a code for the
the greater reason a company should have for not use of e-mail and the Internet) were excluded
incorporating this issue in its business code.1 from this definition.
An examination of the prevalence of codes and In the telephonic contact, a connection with
the issues they deal with subsequently generates the department of Public Affairs or Corporate
the question of how the similarities and differ- Communications was requested. The company
ences among the codes could be explained. In representative was addressed in the official local
this paper, the collected data will be used to carry language. Since a range of terms are used to refer
out an in-depth analysis of the different code to business codes in practice, the company
types that can be found in practice. Is there uni- representative was assisted as much as possible
formity among business codes with the same with synonyms and different descriptions of a
objective and target group and what bearing do code. If the person in question had doubts, we
differences in this regard have on the issues that asked to be put in contact with a colleague (from
are addressed? Thereupon, the influence of another department). In some cases, we were put
cultural and continental divisions on code type through to Human Resources, Legal Affairs or
and content will be examined. Corporate Security. The companies that claimed
This paper aims to give the reader a better to have a code were requested to send us an
grasp of the content of business codes. The original copy. Two companies that claimed to
empirical effectiveness of business codes, have a code but did not want to make it public
however, falls beyond the scope of this paper (see due to its confidential nature were not included
for example Schwartz, 2001). The content of in the list of companies with a code given that
individual codes is not evaluated either. it could not be verified.
This paper starts with a discussion of the At the beginning of 2002, the managing
methodology of the research conducted. Follow- directors of the companies that maintained that
ing this, the issues in the analyzed codes are they did not have a code were contacted by mail
arranged according to theme and prevalence. On to establish whether this was indeed the case. The
the basis of this analysis, we distinguish three letters were written in the official language of the
types of codes. The paper concludes with an country where headquarters was based. Two
overview of the most significant findings and a additional codes were eventually received. Finally,
number of suggestions for companies to improve a search was conducted on the web sites of
their business codes. companies that repeatedly stated that they did not
have a code and other public resources on
company codes were also consulted. This did not
Methodology yield any additional codes. The search was ended
on 1 August 2002.
This study focuses on the two hundred largest The aim of this approach was to collect as
corporations in the world, using the SCOPE many codes as possible so that the proportion of
Core Company list (Van Tulder et al., 2001). In companies with a code could be represented as
Business Codes of Multinational Firms 17

reliably as possible. This contrasts with a few of companies, a finding that is consistent with an
the studies listed in Table I that have been con- earlier study of Langlois and Schlegelmilch
ducted. Simply approaching companies with a (1990). The U.S. has a long tradition of business
questionnaire could have an adverse effect on the codes (see for example White and Montgomery,
reliability of one’s findings. Companies with a 1980). The large number of Japanese companies
code are more likely to respond with the result in the top 200 and the relatively small propor-
that on the basis of the total response rate, the tion of Japanese companies with a code lower the
percentage of companies with a code could total percentage of company codes. The preva-
appear higher than what is actually the case (see lence of company codes by country is outlined
for example the study conducted in England by in Table III.
the London Business School with a response rate The vast majority of the analyzed codes (79%)
of 12%). belong to companies based in the U.S., France,
The Japanese codes that were received were Germany and Japan. In the analysis below, we
translated into English by a native speaker and will examine the differences among codes from
checked by a second native speaker. This was the Americas (largely represented by the U.S.),
followed by a content analysis. In this analysis, an Europe (largely represented by Germany and
inventory was made of the different items con- France) and Asia (largely represented by Japan).
tained in the codes. The corporate integrity The titles of the codes diverge strongly, for
model developed by Kaptein and Wempe (2002) instance, “Standards of Business Conduct”
served as basis for classification. The model (Exxon Mobil), “What We Stand For” (BP
distinguishes between (1) company responsibili- Amoco), and “Legal and Ethical Policy” (BTR).
ties towards stakeholders, (2) principles governing Of all the titles employed, 36% contain the word
stakeholder relationships, (3) corporate values “conduct”, 17% “principles/guidelines”, 9%
and (4) employee responsibilities towards the “ethics”, 6% “values” and 4% “integrity”.
company. In addition, the codes were analyzed The size of the different codes varies, as pre-
for the degree to which they contained references sented in Table IV, from 1 page (e.g. Nichemen)
to implementation, compliance and monitoring to 79 pages (3M), and from 50 words to almost
along with their length and tone. The analysis 18,000 words.
left aside the distinction that can potentially be
drawn between ethical and economical norms
and responsibilities (Robin et al., 1989). It is, The content of business codes
after all, not possible to deduce from the text of
a company’s business code whether the commit- In the following section, the content of the codes
ment, for example, to deliver high quality of the two hundred largest companies are
products is motivated by ethical and/or economic analyzed and discussed with reference to (I)
considerations. This is also why this study stakeholder responsibilities, (II) stakeholder prin-
employs the concept of business codes rather than ciples, (III) corporate values, (IV) internal
codes of business ethics. employee conduct and (V) implementation and
compliance. Thereupon, we shall identify the
types of codes that can be distinguished on the
The prevalence, title and size of codes basis of the content analysis that has been carried
out.
How many multinational firms, then, have a
code? Of the one hundred largest companies in
the world, 58% have a code. Of the successive I. Stakeholder responsibilities
group of one hundred companies, 47% have a
code. This means that of the two hundred largest In its “Global Business Standards”, Sara Lee
multinationals, 52.5% have a business code. declares that “we have a responsibility to our-
Business codes are most prevalent among U.S. selves, to each other, to our consumers, to our
18 Muel Kaptein

TABLE III
Prevalence by country

Country Top 100 Top 101–200 Total

More than 10 companies in top 200


01. 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 200
05. 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%

stockholders, to our business partners and to our and suppliers is significantly less widespread.
communities”. But what are these responsibili- Although some issues are frequently referred to
ties? What kind of responsibilities do companies (such as delivering quality and achieving returns)
embrace? In Table V, the issues that are addressed the terms in which this is stated may differ. The
in the examined codes are depicted by stake- quality levels companies pledge to deliver to cus-
holder. tomers are subject to a number of qualifications
Most corporate codes, whether extensively or such as “high quality” (Nestlé), ‘highest quality’
concisely, pay attention to consumers, investors, (Merck/HP), “excellent quality” (Coca-Cola)
employees, society and the natural environment. and “customer’s first choice for quality” (British
Specifying responsibilities towards competitors Telecom). Greater divergence can be found in

TABLE IV
Number of pages of business codes
Business Codes of Multinational Firms 19

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%
Offering good/competitive/excellent terms of employment/compensation 12%
Providing stable and secure job opportunities 09%
Making the best possible use of each person’s 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%
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 raising
standards of health, education, product safety, workplace safety and prosperity 7%
Recognizing government’s 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 waste
products 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%
Business Codes of Multinational Firms 21

the level of returns to shareholders: “acceptable” TABLE VI


(Shell), “sufficient” (Hewlett Packard), “satisfac- Stakeholder principles
tory” (Philips), “superior” (Ito Yokado Group),
“best possible” (Merck), “excellent long term” Extent to which
(British Telecom) and “maximize long term” it is cited
(n = 105)
(BP). With respect to the natural environment
and competitors, there is greater textual unifor- 01. Transparency 55%
mity. The terms in which companies express 02. Honesty/truth 50%
their position towards society are more diverse. 03. Fairness/impartiality 45%
A few examples include “a harmonious rela- 04. Trust 23%
tionship with society” (Ito Yokado Group), 05. Empathy/respect/diversity 20%
“contributing to the well-being of society” 06. Stimulating stakeholders to
(AT&T), “benefit humankind” (Bayer), “major raise concerns 19%
contribution to development of society” 07. Accountability 18%
(Deutsche Telekom), “betterment of society” 08. Dialogue/open communication 14%
(Coca-Cola), “meeting legal obligations” (Fiat) 09. Equality 12%
and “being a good corporate citizen” (Toshiba). 10. Responsiveness 11%
11. Keeping promises 10%
Striking is that when the results are analyzed
12. Coherence/uniformity 04%
by continent, references to environmental 13. Freedom/autonomy of
responsibilities appear 45% more in European stakeholders 03%
than they do in American codes. Responsibilities
towards competitors are referred to 52% more
in American codes than in European as well as
Asian codes.
honesty, dialogue, and responsiveness) is men-
tioned most. For example, Nestlé “. . . invites
II. Stakeholder principles government officials, health professionals and
consumers to draw its attention to any Nestlé
In addition to articulating stakeholder interests, infant formula marketing practices in developing
a code can also communicate and elaborate on countries which they consider are not in con-
the principles the company upholds. Stakeholder formity with the above commitment” and BT
principles are general requirements for company states that it will “. . . use [its] values and prin-
and employee conduct: they govern the rela- ciples in dialogue with other organizations . . .”.
tionship between company and stakeholders Comparing the most frequently mentioned
(Kaptein and Wempe, 2002). Table VI depicts the principles in the business codes by continent
most cited stakeholder principles. shows that American codes specifically empha-
Stakeholder principles generally do not receive size the principle of honesty (64% in comparison
as much attention as stakeholder interests. with 45% in European and 38% in Asian codes);
Transparency (55%), honesty (50%) and fairness European companies place relative more emphasis
(45%) are the most cited principles. Fairness, for on the principles of transparency (68%, compared
example, is referred to in connection with the to Asian 54% and American companies 52%) and
selection of suppliers, the distribution of benefits the principle of empathy (30%, compared to
and burdens and the assessment of employee Asian 21% and American companies 11%); and
performance. As Merck declares “. . . we treat Japanese companies place somewhat more
our suppliers with honesty, fairness and respect”. emphasis on the principle of trust (29%, in
Shell applies fairness also to its competitors: contrast with American 22% and European
“. . . to compete fairly . . . will not prevent companies 17%). The principle of fairness is
others from competing freely . . .” Good stake- mentioned less often in American codes (35%)
holder communication (e.g. transparency, than in European (50%) and Asian (46%) codes.
22 Muel Kaptein

III. Corporate values The core values cited in the codes diverge
strongly. Merck, for example, asserts that “. . .
Apart from stakeholder principles which pertain we strive to create an environment of mutual
specifically to stakeholder relationships, organi- respect, encouragement and teamwork . . .”
zations also express their core values in a code. while AT&T states that “We treat each other
Core values refer to those qualities a company with respect and dignity . . .” The most often
deems desirable and which should ground all cited values are teamwork (43%), responsibility
business conduct and outcomes (Kaptein and (33%), open communication (29%) and innova-
Wempe (2002)). Table VII presents a summary tion (29%). Noteworthy is that the value of effec-
of the organizational values that can be found in tiveness is seldom mentioned explicitly. Shell is
the examined codes. one of the exceptions in asserting that “The most
important contribution . . . to the social and
TABLE VII material progress of countries . . . is in per-
Core values of/within the organization forming basic activities as effectively as possible.”
American codes make comparatively less mention
Extent to which of values than do European codes. Open com-
it is mentioned munication can be found in 35% of the European
(n = 105) codes, while it amounts to 25% in American
codes. European codes mention teamwork 1.5
01. Teamwork/mutual support/ times more often than do Japanese and American
interdependence/co- codes. Humility, harmony, dedication, innova-
operation/team-spirit 43%
tion, creativity and team spirit are largely found
02. Responsibility/
conscientiousness 33%
in business codes of Asian origin. Innovation and
03. Open communication 29% creativity, for example, are respectively men-
Innovation, creativity, tioned 73% and 46% more in Asian codes than
pioneering 29% in American and European codes. By contrast,
05. Customer oriented 19% the value responsibility/conscientiousness can be
06. Flexibility 17% found just as often in American (30%) as in Asian
07. Efficiency 16% (35%) and European codes (33%).
08. Professionalism 14%
Entrepreneurship 14%
Pride/dignity 14% IV. Internal conduct
11. Loyalty 13%
12. Motivation/enthusiasm/
Business codes can also clarify what is expected
energy/spirit/encouragement 12%
13. Participation 11%
of employees in their engagement with one
14. Shared purpose/unity 10% another and their treatment of organizational
15. Exchanging ideas/learning 09% assets. Contrary to the categories discussed above,
Independence 09% the latter refers to employee conduct versus the
17. Consistent and unequivocal company as opposed to employee conduct on
public image 08% behalf of the company (Mathews, 1987). Table
18. Effectiveness 06% VIII provides an overview of the items referred
Productivity 06% to in this area.
20. Cost-awareness 05% Many codes include a diverse range of rules
21. Discipline 04% of conduct employees must obey among them-
Diligence/perseverance/ selves (particularly discrimination (44%) and
dedication 04%
intimidation (43%)) and with respect to the
23. Courage/daring 03%
24. Harmony 02%
company. Most forms of conduct listed in
25. Humility 01% Table VIII such as engaging in fraudulent prac-
tices, leaking confidential information and sexual
Business Codes of Multinational Firms 23

TABLE VIII
Employee conduct towards the company and among themselves

Extent to which Extent to which


it is mentioned it is mentioned
(n = 105) (n = 105)

I. Corporate funds IV. Authorities


Adherence to sound financial No conflicting side-line
accounting principles 46% activities/conflict of interests 52%
No fraud 45% No corruption or bribery 46%
No diversion of funds Prohibition or restriction on
(embezzlement) 19% acceptance of gifts 47%
No misuse of funds for No favoring of family and
personal gain 18% friends 34%
No misuse of funds for
business purposes 16% V. Corporate time
Correct handling of expense No alcohol and drug use 17%
returns 08% No private surfing on the inter-
No unjustified billing of hours 07% net during working hours 03%
Sufficient effort 02%
II. Corporate equipment Keeping to stipulated times 01%
Proper use of equipment and No unjustified calling in sick 01%
goods 29% No arms/weapons in the
Protection and conservation of workplace 01%
equipment and goods 18%
No theft of business equipment VI. Staff
or goods 18% No discrimination 44%
Prohibition of or restriction on No intimidation/harassment/
taking business equipment threatening 43%
home for private use 17% Treating one another with
Prohibition or restriction on respect 35%
private use of means of No sexual harassment 26%
communication 14% Treating one another fairly 20%
No neglect of maintenance 03% No unwelcome or unsolicited
physical and verbal sexual
III. Corporate information advances 16%
No leakage of confidential Respect for privacy 14%
information (like trade No racism or racist
secrets) 50% insinuations 12%
No use of insider information No verbal abuse 11%
when trading shares of No physical violence 11%
other securities 44% No tasteless/obscene jokes/
No unauthorized use of access gestures or material 10%
codes 10% No bullying 10%
No gossiping/ridiculing/
insulting 06%
No favoritism 03%

intimidation are prohibited. The norms formu- invitations is mostly subject to certain conditions,
lated in the codes diverge most with respect to for example, that the value is below $50 (GTE)
the acceptance of gifts. Acceptance of gifts or or “purely symbolic” (Fiat), that their acceptance
24 Muel Kaptein

is “always agreed with the supervisor” (Deutsche reporting of our performance against these
Telecom), “a social courtesy” (NTT), that the principles.”
“company officer or his/her delegate [has]
approve[d] its acceptance” (Kodak), that it is
“generally accepted business practices of one’s Profiles of business codes
country and industry” (Sara Lee) or that its
purpose is “to create goodwill” (Xerox). The analysis thus far (in keeping with most
scientific analyses of codes) has treated business
codes as a uniform concept. The question,
V. Implementation and compliance however, is whether the diversity in the codes’
content is not (partly) the result of the type of
A quarter of the codes make reference to code individual companies have in mind. On the
implementation of the code. GTE for instance, basis of the collected and analyzed codes, we can
points out the central role of managers: “GTE distinguish three clusters of codes: (1) the stake-
supervisors have an additional responsibility for holder statute/business principles, (2) the values
maintaining a climate in which legal and ethical statement and (3) the code of conduct. 72% of
business conduct is the norm; communicating to the codes formulate responsibilities towards stake-
employees the seriousness of GTE’s commitment holders (the so-called stakeholder statute or
to such conduct; encouraging open discussion business principles), 49% express the corporate
of employees’ business concerns; accepting and core values in a coherent manner (the so-called
processing reports filed by employees of possible values statement) and 46% set down norms and
misconduct; and, never compromising GTE’s rules for employee conduct (the so-called code
standards to achieve a goal or objective, no matter of conduct).2 A number of codes integrate two
how important that goal or objective seems at the or even three approaches. Each type is elaborated
moment.” GTE also refers to a Business Conduct on in Figure 1. The types of corporate codes
Line for employees with questions about inter- differ, among other things, in focus (for internal
pretation and compliance with the code. and/or external use), level of abstraction, size,
Some 52% of the codes indicate that compli- use of pronoun and attention to compliance.
ance with the code is monitored. British Based on a content analysis of codes of
Telecom, for instance, sheds light on its moni- business in the U.S., Mathews (1987) concludes
toring practices as follows: “We are committed that U.S. companies are more concerned with
to communicating, measuring and appropriate conduct against the company than on behalf of

Figure 1. Frequency of type of codes


TABLE X
Type of codes

Focus Objects Level of Size Use of Tone Compliance Countries


abstraction personal paragraph
pronoun

Stakeholder Internal and Responsibilities Mostly high A single to Often first Predominantly Mostly, in Especially
statute/ external use and principles a few pages person plural descriptive terms of European
business towards e.g. external (46%) and
principles stakeholders reporting and Asian
mechanisms (40%)
for complaints companies
of stakeholders

Values Primarily for Organizational Mostly high A single to Often first Predominantly Hardly Especially
statement internal use values a few pages person plural descriptive Asian
and to a lesser (47%) and
degree for European
external use (32%)
companies
Business Codes of Multinational Firms

Code of Primarily for Desirable Mostly A few to Often Predominantly Largely, in Especially
conduct internal use employee detailed many pages second or prescriptive terms of U.S.
conduct third person e.g. sanction companies
singular mechanisms (53%)
and whistle-
blowers
procedures
25
26 Muel Kaptein

the company. From this study, it would indeed in a written policy document. On the other
appear that codes of conduct are a particularly hand, almost half of the largest multinational
American phenomenon. Asian and European firms – at the time of this study – do not have
companies, however, choose for a stakeholder a code.
statute/business principles or a values statement Although a business code is not a statutory
more often than do American companies. requirement, it would appear advisable for com-
Mathews’s conclusion with respect to American panies who do not have a code to (re)consider
codes is also only a partial reflection of the whether it might be desirable to develop and
present state of affairs. Many American codes introduce a business code (Schwartz, 2002). As
(74%) address stakeholder responsibilities, stake- more companies adopt a code, those who refrain
holder principles and/or, to a lesser extent, core from doing so will increasingly be confronted
values. As this is often (64%) accompanied by a with stakeholders who will want to know why
detailed explication of the norms and rules for a code is not viewed a desirable instrument to
employee conduct in regard to the company, the manage ethics, integrity and social responsibility.
latter often overshadows the rest (at least as far This study did not examine the reasons com-
as number of words and visual impact are con- panies may have for not adopting a code. A
cerned). follow-up study could focus on this question and
Calculating anew the frequency with which examine to what extent companies have ethically
issues are referred to by code type shows that justifiable reasons for not having a code.
more uniformity can be found especially among This paper has shown that both similarities and
codes of conduct. For example, the percentage differences can be found in the content of codes,
of codes of conduct that address fraud, bribery, both with respect to responsibilities towards
use of confidential information and upholding stakeholders, stakeholder principles, corporate
proper social norms between employees increase values, as well as conduct against the company.
by a factor of 1.8 compared to the total per- Codes generally describe the responsibilities a
centage of business codes that refer to these company assumes with respect to employees, cus-
items.3 Of all the codes of conduct, 91% address tomers, capital providers and society as a whole.
these issues. Regarding business codes which can In general, companies do not employ opposing
be defined as values statements, much variation norms. They specifically differ in what they
can still be found in the corporate values that include and exclude from their codes and the
are mentioned. wording that is used (for instance in terms of
levels of commitment).
Finally, this paper has shown that an impor-
Conclusion tant determining factor in the content of a code
is the target group the company has in mind:
This paper consisted of three steps. First, we external and/or internal stakeholders. In the case
made an inventory of the codes of the two of the former, the code will focus mostly on
hundred largest companies in the world. Second, responsibilities towards stakeholders and the
we analyzed the content of the collected codes. principles that apply. In the case of the latter,
Finally, we examined to what extent the content the code will mostly formulate rules for conduct.
of the codes can be related to the type and origin If the analyzed codes are grouped according to
of codes. type, uniformity in content increases markedly.
It was found that 58% of the hundred largest The diversity in the content of corporate
companies (and 52.5% of the two hundred largest codes (also within countries) is not necessarily a
companies) in the world have a code of conduct. negative sign. It could very well be an indica-
On the one hand, this figure can be viewed as tion of the authenticity of the codes in the sense
positive: more than half of the largest multi- that companies draw up codes to suit their par-
national firms acknowledge and define their ticular circumstances as opposed to merely
responsibilities, principles, values and/or norms copying those of other companies, model codes
Business Codes of Multinational Firms 27

or codes of international institutions. At the same given issue, the more reason exists for other
time, a number of topical social issues such as companies to ask themselves why they have
human rights receive slight attention in the omitted it.
codes. By performing a periodical analysis of the
This study offers a benchmark for companies content of business codes, we can track the
to assess their codes against other corporate codes extent to which there is evidence of further
and the items they address. As companies become homogenization or diversification in codes (for
more international, comparisons with the cor- example in terms of structure, issues and
porate codes of companies in the countries where wording).
they do business become more desirable.
Stakeholders judge the quality of individual
business codes partly with reference to the quality Recommendations
of other corporate codes in that country. For
example, in an Asian country, a typically An assessment of content is just one aspect of the
American code of conduct could be regarded as overall evaluation of a business code. Another
too comprehensive and forceful while the factor concerns the extent to which a code
business principles of a European company could demonstrates a company’s awareness of relevant
be viewed as too ambitious and abstract. and topical issues, organizational dilemmas and
The benchmark that is presented in this paper stakeholder expectations (Kaptein and Wempe,
is neither a proposal for a model code nor does 1998). Judging individual codes merely based on
it suggest that uniformity among business codes desk-research and just in terms of comprehen-
is necessarily desirable. The benchmark gives siveness is therefore not justified. Moreover, some
companies and stakeholders cause for examining norms may be so self-evident – for instance the
the reasons why a company does not take a stand prohibition on killing someone in the workplace
on a given issue. If a company decides to address – that it need not be included in the code despite
an issue in its code, it is important that it uses the fact that it remains valid.
its own words and tailors it to its own circum- Another significant aspect is the process
stances. This overview is especially useful for through which the code is established and
companies who do not have a code but who institutionalized. A code is nothing, coding is
would like to develop such a policy document. everything (Kaptein and Wempe, 1998). The
One of the first steps in developing a code is to quality of individual business codes can there-
decide on the type of code the company deems fore only be determined by conducting research
fitting (a stakeholder statute/business principles, on these aspects as they manifest in practice.
a values statement and/or a code of conduct), the We can, nevertheless, in random order, put
issues it elects to address and the terms in which forward a number of general suggestions for
the code will be shaped. improving codes.
The benchmark offers stakeholders support in
questioning companies on the content of the • Accountability: The impact and credibility of
code: Why does your company include issue X a code can be enhanced by making a com-
but not issue Y? Why do you, as company, for- mitment to stakeholders to periodically
mulate it like this and not like other companies account for implementation and compliance
do? Why do you not mention, for example, fair with the code, for example in an annual
play, knowing that 45% of companies do? For report (Van Tulder and Kolk, 2000). Only
international institutions that have issued a 4% of the analyzed codes address external
standard for corporations (e.g. the UN and the reporting.
OECD) this overview offers an aid in evaluating • Feedback: A company can use a code as a
their own standards on comprehensiveness and means to invite internal and external stake-
the extent to which companies have adopted holders to share their ideas on improving
their standard. The more companies embrace a the code or even its implementation.
28 Muel Kaptein

Although many companies have institu- boundaries of the company. In 67% of the
tionalized and refer to an internal ethics codes it is not clarified whether the norms
hotline (Kaptein, 2002), it is often unclear and values subscribed to in the code are also
to external stakeholders who they can turn worked out in greater detail in separate
to. Only 5% of the examined codes indicate policy documents and regulations.
that the company would appreciate external • Availability of the code: Through this research
stakeholders to report incidents and who project, first hand experience was gained
they can contact. of how cumbersome it can be to obtain
• A stimulating work environment: A key factor company codes (in a few cases it took more
in the proper implementation of a code is than four months and in another few it took
that managers create a work environment between twelve and fifteen telephone calls
which enables and encourages employees to before the document was sent by mail). It
observe the code (Benson, 1989; Tucker et also appeared that some companies regard
al., 1999). Few codes give a clear and con- their code as confidential or classified
vincing account of its implementation information. Apart from that, codes are
(25%) and the role fulfilled by management often unavailable via the intranet or in
(16%). Companies could therefore consider English (despite the fact that these com-
placing more emphasis on the responsibility panies maintain business relations in
the organization (and management in English-speaking countries).
particular) has in stimulating and creating • Convincing message: Some codes are
the conditions for employees to comply abstractly formulated. In theory, an abstract
with the code. code could be as effective (or even more
• Periodic update: If a code is to be a relevant effective) as a detailed code (Kaptein and
and meaningful document, it is not only its Wempe, 1998). In that case, it is important
implementation that should be attended to that (even more of) an effort is made with
in great detail; it should also be updated at implementation (due to the demand it
regular intervals (Ethics Resource Center, places on employees to translate it to their
1990). Some business codes have not been specific functions). Companies with abstract
modified in more than ten years, which codes should therefore examine how it can
increases the likelihood that new issues will be made clear to users and readers that
not be attended to. It is therefore advisable abstraction is not an admission of weakness
that companies consider stipulating but rather a considered admission of
(maximum) intervals between updates in strength.
their codes. If a company refrains from • Clear structure: As we have seen, there is
doing so updates might repeatedly be post- strong divergence among the codes in terms
poned. Moreover, in the event that updates of structure. The structure depends, among
do occur unexpectedly, it could create sus- other things, on the type of code the
picion among stakeholders that something company has in mind (for instance orga-
must be (fundamentally) amiss to have nizing it according to stakeholder group or
prompted adjustment of the code. Apart values). At the same time, some codes
from that, most companies (86%) make no display considerable lack of coherence and
mention of the process through which the issues appear to have been assembled at
code came into being. random. Organizational values especially are
• Clear status of the code: Most codes are at times scattered in the text or mentioned
unclear about the status of the code, that only in the introduction. The impact of
is, to what extent the codes express decla- core values in particular, lies in their selec-
rations of intent or actual business practice. tion (Collins and Porras, 1994).
It is often also unclear how the code relates • Appropriate presentation: Despite the fact that
to other regulations within and beyond the the content of and process through which
Business Codes of Multinational Firms 29

codes are established are of chief impor- the responsible treatment of stakeholders along
tance, the appearance of codes also says with the principles, values and norms that
something about a company’s regard for its ground sound conduct.
code (White and Montgomery, 1980). A
glossy publication, for example, can
generate suspicion that the company is more Acknowledgement
concerned about its appearance than its
content. On the other hand, taking care Thanks to the two referents for their very useful
with a code’s presentation and style reflects comments on an earlier version of this paper.
a company’s regard for the code and, by
implication, the length of time it expects
the code to serve (from being of one-off use Notes
to being a reference). The examined codes
vary from being presented in the form of a 1
An analysis of business codes unravels the norms
few standard photocopies to full color text and values companies endorse and provides insight
and photos printed on quality paper. into the extent to which companies actually share the
• Unique identity: The strength of and com- principles that have been developed in the academic
mitment to the code is largely reflected in field of business ethics. An inventory of so-called
the extent to which the code is tailored to micro-norms is also in keeping with the call of
the company’s unique circumstances Donaldson and Dunfee (1999) to supplement their
(Pemberton and Pendergraft, 1990). The Integrated Social Contracts Theory with empirical
texts of the codes display strong similarities research on the ethics of business.
2
particularly with regard to the natural In calculating the prevalence of code types, each
environment and rules of conduct with code was examined to establish whether it elaborates
on at least two specific responsibilities towards stake-
respect to fraud and corruption. The
holders, values or rules of conduct. Codes were
current growth of international codes treated for instance as values statements only if the
increases the likelihood that companies will company named the values as such and clustered them
adopt these texts (almost) literally in their as such in the code. If only a few scattered values
codes. If external stakeholders and appeared in the text, the codes were not treated as
employees are to regard the code seriously, values statements.
3
companies should avoid appearing to have This factor was calculated by dividing the number
been led by one or more codes of other of times an item occurs by the total number of codes
companies or international organizations of conduct instead of by the total number of business
without having thoroughly thought through codes as was done earlier. This percentage was then
their position is on the issue at hand. divided by the percentage of this item of the total
number of codes as presented in Table VIII.
Finally, another important question is whether
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