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Positioning codes of ethics on international corporations' websites: A six-year

longitudinal study
Richard A. Bernardi , Catherine C. LaCross
Gabelli School of Business, Roger Williams University, Bristol, RI 02809, United States
a b s t r a c t a r t i c l e i n f o
Website Disclosure of Corporate
Codes of Ethics
This research examines the level of international website disclosures of corporate codes of ethics during the
period of July 2002 and July 2003, which surrounds the enactment of the SarbanesOxley Act (SOX) in
United States. We also gathered similar data from these corporations' websites in April of 2006 through April
of 2008 (i.e., three through ve years after the effective date of SOX). In April of 2006 (2007 and 2008), 30
(34 and 36) of the 43 corporations listed on the New York Stock Exchange (NYSE) had readily available codes.
While not required to have their codes on their corporate websites, 14 (18 and 23) of the 49 corporations that
were not listed on the NYSE also had readily available codes. Our research also indicates that corporations
headquartered in Europe were more likely to have readily available codes of ethics than corporations
headquartered in the Pacic region in 2006 and 2007 but not in 2008.
2009 Published by Elsevier Ltd.
1. Introduction
In the wake of the EnronArthur Andersen crisis and other nan-
cial debacles, an expedient way for management to indicate their
openness to external scrutiny would be to make their corporation's
code of ethics readily available to all stakeholders on their corporate
website. While hundreds of articles in business ethics and accounting
journals have examined various aspects of ethics codes, none of these
studies empirically examine the issue of internationally-headquartered
corporations making these codes readily available to all stakeholders
through the worldwide web. This research is an empirical extension
of: Schwartz's (2002) research about making codes available to out-
side stakeholders on corporate websites; Bondy, Matten, and Moon's
(2004) researchonthe locationof codes oncorporate websites; and, the
Securities and Exchange Commission's (SEC) requirement for website
disclosure of codes.
This research examines the positioning of codes of ethics on their
corporate websites to ensure their availability to outside stakeholders
during the timeframe surrounding the enactment and implementa-
tion of the SOX including their position in April of 2008. Research by
Schwartz (2002) and Bondy et al. (2004) suggest that codes of ethics
will be as readily available to stakeholders on a corporation's website
as their annual report (i.e., access to a corporation's code of ethics
should not require a dedicated individual). One might question what
difference the ease or difculty in accessing a company's code makes.
This attitude suggests that, as long as one follows the letter of the law
(i.e., doing the minimum), the spirit of the law doesn't matter, which
was what caused the problems with Enron and WorldCom.
All publically-traded corporations that are headquartered in the
United States would be required to have their code of ethics listed on
their websites because of SEC and Stock Exchange requirements. Con-
sequently, we test whether the rate of readilyavailable codes varies by
exchange reporting requirements for a sample of 92 internationally-
headquartered companies from the Global Fortune 500 (Fortune,
Forty-three of these corporations (46.7%) are listed on the
NYSE and thus are subject to the disclosure requirements of the SOX.
However, the other 49 corporations (53.3%) are not subject to these
requirements and serve as a control group for the placement of their
codes of ethics.
2. Literature review
2.1. Overview
In a study of Fortune 500 companies from 1960 through 1994,
Ruhnka and Boerstler (1998, pp. 322323) found that the number
of codes of ethics had increased from 50 to approximately 100 for
Fortune 500 companies in 1976 due to the SEC's amnesty for volun-
tarily reporting illegal foreign payments; this amnesty expired at the
end of 1976 just prior to the effective date of the Foreign Corrupt
Practices Act (1977). Ruhnka and Boerstler also report that a second
sharp increase in the number of codes occurred in the 1989 to 1990
Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 7580
Corresponding author. Tel.: +1 401 254 3672; fax: +1 401 254 3545.
E-mail address: (R.A. Bernardi).
Of the 97 corporations with headquarters in the United States in LaCross and
Bernardi's (2006) study, 90 (92.8%) had readily available codes of ethics on their
websites by April of 2006. The difference in readily-available codes between the 97
corporations headquartered in the United States and the 92 internationally-head-
quartered corporations was signicant (X
=35.31, p=0.0001). Given the listing
requirements of the SEC in the United States, we limited this research to internationally-
headquartered corporations.
0882-6110/$ see front matter 2009 Published by Elsevier Ltd.
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Advances in Accounting, incorporating Advances in
International Accounting
j our nal homepage: www. el sevi er. com/ l ocat e/ adi ac
period just before the January 1991 effective date of the Federal Or-
ganizational Sentencing Guidelines. Ruhnka and Boerstler's data in-
dicate a decline in the rate of increase after the end of the amnesty
periods. Consequently, we anticipate a pattern similar Ruhnka and
Boerstler's for readily available codes (i.e., a sharp increase in the level
of readily available codes leading up to the effective date of Sarbanes
Oxley and then a sharp leveling off) and corporations going beyond
the letter of the law by having a readily available code.
This study does not measure SarbanesOxley compliance; rather, it
documents the extent of making codes of ethics readily available on
corporate websites based on Bondy et al.'s (2004) suggestion about
the location of codes on corporate websites. In the literature review,
we reviewthe SOX (U.S. Congress, 2002) that was enacted in the wake
of this crisis to restore the public's condence in the auditing pro-
fession (Donaldson, 2003). The SOX requires corporations to disclose
whether or not they have a code of ethics (i.e., all corporations must
have a code of ethics); however, SOX did not specify the media to be
used. The SEC (SEC, 2004) emphasized this requirement by ruling that
corporations listed on the NYSE must include their code of ethics on
their website or make a printed copy available to anyone who requests
it at no charge.
2.2. Codes of ethics: goals and disclosure
White and Montgomery (1980) and Cressey and Moore (1983)
suggest that the goals expressed in a code of ethics about corporate
behavior should go beyond merely adhering to the law. Deloitte and
Touche's CEO called on multinational corporations to make a differ-
ence by implementing voluntary codes of behavior that set objective,
quantiable standards (Parrett, 2004). Not surprisingly, factors that
commonly inuence a company's reputation such as: following the
law; having a reputation of trust and integrity; avoiding conicts of
interest between personal and company obligations; and, maintaining
the integrity of condential information were emphasized in corpo-
rate codes of ethics (Kaye, 1992, p. 859).
To gain the public's trust, the concerns of each group of stake-
holders must be considered as each has a legitimate interest in the
corporation and its behavior (Donaldson & Preston, 1995). Kaptein
and Wempe (1998) indicate that codes provide a basis for evaluating
how well a corporation meets the public's expectations. However, for
this to occur, a corporation must make its code of ethics available to
stakeholders (Schwartz, 2002, p. 34) because:
The company cannot be held accountable unless the code's stan-
dards are available. For outside stakeholders such as customers,
regulators, or the general public, companies are therefore obli-
gated to provide copies upon request. Placing the code of ethics on
the internet is one means of ensuring accessibility to the code by
the outside public.
Corporations must maintain the society's approval of their actions
or risk threats to their continued legitimacy (Kaplan & Ruland, 1991).
Consequently, the legitimacy of a corporation is based on the expec-
tation that a corporation's behavior is desirable, proper, or appropriate
within some socially constructed system of norms, values, beliefs, and
denitions (Suchman, 1995, p. 574). If a society disapproves of the
corporation's actions, the society can impose sanctions such as im-
plementing newgovernment regulations that affect the corporationand
its industry (Deegan & Rankin, 1996). These authors also suggest that,
when the public's trust is signicantly violated as in the case of Enron
and destroying incriminating documents by Arthur Andersen, the so-
ciety can revoke the corporation's right to operate. In the Enron crisis,
the SEC's indictment of Arthur Andersen effectively terminated their
main line of business. Even before the SEC's indictment, Freddie Mac,
Merck, Delta Air Lines and SunTrust terminated their audit relationship
with Arthur Andersen (Hedges & Ivanovich, 2002).
Lehman (1992) maintains that, when a signicant violation of the
public's trust occurs, corporations must provide evidence to mitigate
or refute the perception that they have violated the public's trust (i.e.,
damage control). For example, Patten (1992) notes that Exxon's 1989
annual report included substantial coverage of the Exxon Valdez in-
cident, the cleanup effort and additional environmental disclosures.
Indeed, Exxon's 1989 coverage of the Exxon Valdez incident was ten
times their 1988 coverage of environmental issues. Consider Arthur
Andersen's actions immediately following the news of their failed
Enron audit. Andersen's CEOBernadino (2002) steadfastly maintained
that shredding old audit papers was a standard practice in auditing
during a nationally television news interview. Rather than indicating
no violation had occurred, Bernadino should have provided evidence
to mitigate the challenge to his corporation's legitimacy.
While responding to corporate lapses such as the Exxon Valdez
incident in an annual report was appropriate in 1989 (Patten, 1992),
the worldwide web is nowa readily available source of information to
essentially all corporate stakeholders. However, Deloitte and Touche
(2003) found that, while stakeholders were cited in 90% of the re-
sponses to their survey, only half of these stakeholders have access
to corporations' codes of ethics.
To remedy this lack of accessibility,
Deloitte and Touche (p. 2) suggests that:
An electronic version of the code can be posted on the corporate
website and concerned parties can be notied of its availability
through printed invoices, brochures, contracts and elsewhere.
(Emphasis added by the authors).
Bondy et al. (2004, p. 466) suggest that burying codes of ethics in
the depths of their websites leads one to question how transparent
and important these codes are actually meant to be. Bondy et al.'s
research, the requirements for codes of ethics by the SOX and the SEC's
listing requirement suggest that codes should be readily available to
all stakeholders.
2.3. SarbanesOxley and website ethics disclosures
In the United States, signicant violations of the public trust typi-
cally involve legislation requiring additional governmental oversight
(Weaver, 2001). The SOX (U.S. Congress, 2002), which required com-
pliance by the end of March 2003, was enacted in response to the
public's growing loss of condence in the accounting profession
(Donaldson, 2003). This is consistent with Schwartz's (2002) belief
that having the corporation's code of ethics on its website is a means
of holding the company accountable for the code's standards. Higgins
and Currie (2004,p. 303) also maintain that corporations should
make a serious commitment to issues beyond the nancial perfor-
mance of the organization. If one follows this line of reason, then
codes of ethics should have the same external accessibility as a
corporation's annual report. For instance, think of howquickly one can
obtain an annual report from a corporation's website; in the most
cases, this can probably be done within two levels of a corporation's
homepage. In response to the requirements of the SOX, the SEC (2004)
conrmed their proposal to require either website disclosure of
corporate codes of ethics or providing a printed copy of their code to
anyone requesting it free of charge for any corporation listed on the
NYSE. Given this, we believe that we should control for the possibility
of a NYSE effect; our rst hypothesis tests whether:
H1. The readily available rate for corporations listed on the NYSE will
be higher than for corporations not listed on the NYSE.
These data came from a two-part question: (1) Does the code of ethics and/or
conduct include a statement regarding obligations to employees, shareholders,
suppliers, customers and the community at large?; and, (2) If yes, is the code of
ethics and/or conduct distributed to all parties listed?
76 R.A. Bernardi, C.C. LaCross / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 7580
2.4. Culture and disclosure
Hofstede (1980) suggests that culture has four dimensions: indi-
vidualism, power distance, uncertainty avoidance, and masculinity/
femininity. Prior accounting research has found associations between
ethics and Hofstede's dimensions of uncertainty avoidance and in-
dividualism, which Hofstede (1984: 8384) describes as:
1. Uncertainty avoidance: The degree to which the members of a so-
ciety feel uncomfortable with uncertainty and ambiguity. Strong
uncertainty avoidance societies (for example) maintain rigid codes
of belief and behavior and are intolerant towards deviant persons
and ideas.
2. Individualism versus collectivism: Individualism stands for a pre-
ference for a loosely knit social framework in society. The fun-
damental issue addressed by this dimension is the degree of
interdependence a society maintains among individuals.
Wingate (1997) found the level of required accounting disclosures
associated with Hofstede's (1980) uncertainty avoidance and individu-
alism constructs. The level of required accounting disclosures increased
as the level of uncertainty avoidance and individualism increased.
Arnold, Bernardi, and Neidermeyer (2001) provide further evidence
of these cultural constructs on accounting outcomes; auditors from
countries with higher uncertainty avoidance scores used lower m-
ateriality levels in their work (i.e., did a more precise audit because they
used a stricter standard).
The data in Table 1 show the uncertainty avoidance and indivi-
dualism scores for the countries in our sample. The data for un-
certainty avoidance indicate that the countries from Europe had a
higher average level of uncertainty avoidance than the countries from
the Pacic (e.g., 50.4 versus 31.0).
Additionally, the data for indivi-
dualism indicate that the countries from Europe also had a higher
average level of individualism than the countries from the Pacic
region (e.g., 70.5 versus 28.0). Wingate's research disclosure and
Arnold et al.'s on materiality estimates suggest that the readily avail-
able rates for codes of ethics will vary between the two geographic
regions shown in Table 1.
H2. The readily available rate for clients' codes of ethics will be higher
(lower) for the corporations headquartered in the European (Pacic)
3. Methodology
3.1. Sample
Our initial sample started with the top 100 internationally-based
corporations listed in the Fortune Global 500 (Fortune, 2002). During
the data gathering period, two of the corporations merged with other
corporations and two corporations nowuse auditing corporations that
were not afliated with Big-4 corporations, which reduced our sample
to 96 corporations. Finally, we eliminated Brazil, Canada, Mexico, and
Venezuela from our sample as these countries do not t into either
of our regional categories (e.g. Europe or Pacic). This further reduced
Table 1
Hofstede's cultural constructs by country.
Corporate headquarters Hofstede's dimensions
Finland 51 63
France 24 71
Germany 45 67
Italy 75 89
Netherlands 35 76
Norway 57 80
Spain 60 69
Sweden 24 51
Switzerland 81 71
United Kingdom 52 68
Average 50.4 70.5
China 50 20
Japan 18 46
South Korea 25 18
Average 31.0 28.0
UA = uncertainty avoidance.
INDIV = individualism.
Table 2
NYSE listing status by country.
Corporate headquarters Listed on the NYSE Not listed on the NYSE
Finland 1 0
France 5 7
Germany 9 8
Italy 2 1
Netherlands 5 2
Norway 0 1
Spain 3 0
Sweden 0 1
Switzerland 2 2
United Kingdom 8 1
Total 35 23
China 1 0
Japan 7 22
South Korea 0 4
Total 8 26
Overall total 43 49
Table 3
Timeline for the evolution of research and legislation on disclosing codes of ethics.
Study Issue relating to this research
Early July Current Initial data gathering point
Late July US Congress SOX passed rms must disclose codes of ethics
October SEC Exposure draft for website disclosure of codes
November Schwartz Suggests codes on websites for outside stakeholders
Late January SEC ruling NYSE requirement for codes on websites
End of March Current Data gathering point at SOX effective date.
Late July Deloitte and
Survey sent out results suggest codes website
November Bondy et al. Question the location of codes on corporate websites.
Early April Current Data gathering point 3rd anniversary of SarbanesOxley
Early April Current Data gathering point 4th anniversary of SarbanesOxley
Early April Current Data gathering point 5th anniversary of SarbanesOxley
For published research, we showthe month of the article's publication and our data
gathering points (highlighted).
The SarbanesOxley Act (SOX) did not require website disclosure of codes of ethics.
The SEC did not specify where ona corporation's website the code had to be disclosed.
In Hofstede's (1980) original work, he encountered difculty with the uncertainty
avoidance construct; the range of scores for this dimension (i.e., from about 196 to just
over 292) was signicantly higher than the ranges for his other three dimensions (i.e.,
from about ve to just over 100). Hofstede's solution to this problem was to subtract
the UA scores from 300; however, when he did this it inverted the scale (i.e., the
highest UA countries had the lowest scores). We restated Hofstede's scale by
subtracting 190 from all the UA scores; for example, our adjusted UA score for France
is now 24 rather than 86 by Hofstedes calculation (i.e., 300 France's raw score of
77 R.A. Bernardi, C.C. LaCross / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 7580
our sample by four corporations (i.e., one per country). Of the re-
maining 92 international corporations in our sample, 43 (49) were
listed (not listed) on the NYSE (Table 2).
3.2. Data gathering procedures
We used the same criteria for readily available codes that we used
in our prior study (LaCross & Bernardi, 2006). Consequently, we again
used the second level as our readily available point for codes, which is
actually the third level for actually reading the code. During our data
gathering, we went to the website of each corporation and searched
for a readily available disclosure of its code of ethics.
Table 3 shows the timeline of the research and government le-
gislation dealing with the disclosure of corporate codes of ethics.
When we started this research, the requirement to disclose codes of
ethics on corporate websites did not exist. Our rst two data points at
the beginning of July 2002 and end of March 2003 are from our earlier
research (LaCross & Bernardi, 2006). We also examined the corporate
websites at the beginning of April in 2006, 2007 and 2008 (i.e., on the
third, fourth and fth anniversaries of SOX).
3.3. Variables
The rst piece information that we collected for each corporation
was whether the corporation had a readily available code of ethics on
the corporate website; this was our dependent variable and was coded
as one (zero) for corporations that had (did not have) a readily avail-
able code of ethics on the corporate website.). For our rst hypothesis,
we gathered data on whether the corporation was listed on the NYSE;
this variable was coded as one (zero) for corporations (not) listed on
Fig. 1. Rate of disclosure: listed versus not listed on the NYSE.
Fig. 2. Readily available rates by NYSE status and geographic area.
78 R.A. Bernardi, C.C. LaCross / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 7580
the NYSE. For our second hypothesis, we recorded data for the country
in which the individual corporation's headquarters was located. The
data in Table 1 show the breakout by geographic region of our sample
of 92 internationally-headquartered corporations in either Europe
(58) or the Pacic (34). This variable was coded one (zero) for cor-
porations with headquarters in the Pacic (Europe).
4. Analysis
4.1. NYSE effect (H1)
While the corporations listed on the NYSE (squares) had a higher
readily available rate than the corporations not listed on this exchange
(triangles) for the July 2002 and March 2003 data points, these
differences were not signicant. By April 2006 (i.e., three years after
the effective date of SarbanesOxley), the number of corporations
with readily available codes had more than tripled since our March
2003 observation (Fig. 1). At this point, 30 of the 43 corporations
(69.8%) listed on the NYSE had readily available codes, while only 14 of
the 49 corporations (28.6%) that were not listed on the NYSE had
readily available codes (pb0.00). In April of 2007, 34 of the 43 cor-
porations (79.1%) listed on the NYSE had readily available codes, while
only 18 of the 49 corporations (36.7%) that were not listed on the
NYSE had readily available codes (pb0.00). Finally, in April of 2008, 36
of the 43 corporations (83.7%) listed on the NYSE had readily available
codes, while only 23 of the 49 corporations (46.9%) that were not
listed on the NYSE had readily available codes (pb0.00).
4.2. Geographic area (H2)
As previously indicated, our sample was reduced by four corpora-
tions with headquarters located in the Americas. The data in Table 2
indicate that, while 35 of the 58 (60.3%) corporations with head-
quarters in Europe are listed on the NYSE, only eight of the 34 (23.5%)
corporations with headquarters in the Pacic are listed on the NYSE.
This difference between the proportions of exchange listings is sig-
nicant (pb.00); consequently, we controlled for NYSE listing during
the nal portion of our analysis.
The data in Fig. 2 show a comparison of the groups of clients from
Europe and the Pacic by NYSE listing category. For the corporations
listed on the NYSE (Panel A) there were no signicant differences
between the groups for the rst two observation points; there were
differences in April 2006 (pb.02) and April 2007 (pb.09). However,
this difference was not present for the corporations listed on the NYSE
for the April 2008 observation point. Finally, there were no signicant
differences at any of the observation points for the corporations not
listed on the NYSE.
5. Conclusions
The purpose of this research was to test for the differential use
of technology by corporations on different stock exchanges in making
their corporate codes of ethics available to outside stakeholders during
the timeframe surrounding the enactment and implementation of
the SOX. This research is an empirical extension of Schwartz's (2002)
suggestion to disclose codes of ethics on corporate websites and Bondy
et al.'s (2004) research on the location of codes of ethics on corporate
websites. After our rst two data gathering points, the SEC announced
its requirement for the disclosure of codes of ethics on corporate
websites for corporations listed on the NYSE. While this requirement
would increase the level of disclosure to 100% of the companies lis-
ted on the NYSE, the requirement does not affect our data gathering
because of our requirement for codes of ethics to be within two lev-
els of the corporate homepage, which was not specied by the SEC.
Consequently, this research demonstrates the evolution and current
placement of codes on corporate websites or the fact that codes are
as readily available as corporate annual reports for 79.4% of the
internationally-headquartered corporations listed on the NYSE. How-
ever, the data also indicate that 46.9% of the corporations not listed on
the NYSE have made their codes of ethics readily available. It is im-
portant to note that these corporations are not required to have a code
of ethics let alone have it readily available on their corporate website.
The 2006-through-2008 data also indicate that there was a time
lag between SarbanesOxley and the stock exchange requirements
and the number of corporations with readily available codes. However,
this is not to say that there were any violations of SarbanesOxley or
the SEC's requirements; the data indicate that it has taken nearly six
years (i.e., July 2002 to April 2008) for 79.1 (46.9) of the corporations
listed (not listed) on the NYSE to position their codes of ethics in a
readily available location on their websites. The growing number of
corporations with readily available ethics codes provides support for
Bondy et al.'s premise that important corporate information should
not be buried in the depths of their websites (2004, p. 466). Our data
suggest that the second level is becoming a standard for positioning
codes of ethics on corporate websites.
While the growth in the proportion of readily available codes for
internationally-headquartered corporations has been steadily increas-
ing over the 2006-to-2008 timeframe, it should be taken in context
with the US data (see Footnote
). The proportion of international
corporations listed on the NYSE with readily available codes (79.1%)
still does not match the proportion of readily available codes of
corporations headquartered in US (92.8%), which was set in April of
2006. Finally, while we did nd signicant differences in the readily
available rates of codes of ethics between European and Pacic
corporations for April of 2006 and 2007, this nding should be taken
in the context of the number of rms listed on the NYSE for each
region. While each 35 European corporation represents 2.9% of their
sample, each of the eight Pacic corporations represents 12.5% of its
sample (i.e., a four-fold difference).
A limitation of this research is the sample composition, which was
made up of 92 of the top 100 internationally-headquartered cor-
porations from the Fortune Global 500. Another limitation is our
search process for readily available data to investors, which we de-
ned as being within two levels of the corporation's homepage. Future
research should examine the use of technology for making codes of
ethics available to outside stakeholders for a broader sample and at
various levels within corporations' websites. Future research should
also examine the extent to which corporations have, more or less, very
similar codes of conduct in the post SOX era.
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