Business Codes of Multinational Firms: What Do They Say?

Muel Kaptein

ABSTRACT. Business codes are an oft-cited management instrument. But how common are codes among multinationals? And what is their content? In an unprecedented study, the codes of the largest corporations in the world have been collected and thoroughly analyzed. This paper presents the results of that study. Of the two hundred largest companies in the world, 52.5% have a code. More than half of these codes describe company responsibilities regarding quality of products and services (67%), adherence to local laws and regulations (57%) and the protection of the natural environment (56%). Many codes make reference to principles governing stakeholder relations (e.g. transparency (55%), honesty (50%) and fairness (45%)), corporate core values (e.g. teamwork (43%)), appropriate conduct among employees (e.g. discrimination (44%) and intimidation (43%)) and treatment of company property by employees (e.g. conflict of interests (52%), corruption (46%) and fraud (45%)). Monitoring compliance with the code is addressed in 52% of the codes. Based on this content study, three types of codes are distinguished: the stakeholder statute (72%), the values statement (49%) and the code of conduct (46%). The results of this inquiry present a benchmark for the evaluation and development of both individual and international business codes. KEY WORDS: business code, business principles, code of conduct, compliance, ethics management, international business ethics, mission statement, multinationals, norms, values

Introduction The interest in corporate social responsibility, sustainable business practice, corporate governance, business ethics, and integrity and compliance management has grown markedly in the past decade (Waddock et al., 2002). It is not only stakeholders who expect companies to pay greater attention to norms, values and principles; companies themselves are acknowledging the importance of responsible business practice (Waddock et al., 2002). But what are a company’s responsibilities? And how can the board and management ensure that the company meets its responsibilities? A much recommended management instrument to achieve this is a business code (also referred to as a corporate code of ethics (e.g. Cressey and Moore, 1983), a code of conduct (e.g. White and Montgomery, 1980) or an integrity code (e.g. Petrick and Quinn, 1997)). Scholars (see for example McIntosh et al., 2002), international governing bodies (e.g. the United Nations, the European Union and the Organization for Economic Cooperation and Development), business associations (e.g. the International Chamber of Commerce) as well as special interest groups (e.g. the International Labor Organization and Transparency 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 towards its stakeholders and/or the conduct the corporation expects of employees (Kaptein and Wempe, 2002). A code clarifies the objectives the company pursues, the norms and values it upholds and what it can be held accountable for.

Muel Kaptein is professor of Business Ethics and Integrity Management at the Erasmus University, Rotterdam, The Netherlands. He also works as a consultant for KPMG Integrity, where he assisted about thirty companies in the development of their code of business.

Journal of Business Ethics 50: 13–31, 2004. © 2004 Kluwer Academic Publishers. Printed in the Netherlands.

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Muel Kaptein multinational firms with reference to one or more issues such as bribery, child labor and human rights (see Table II). To date, no research has been conducted to examine the prevalence and full content of business codes of the largest corporations in the world. This paper presents the results of an analysis of the codes of the two hundred largest multinational firms. What do they tell us? What are the most cited issues? Which issues are barely mentioned? What wording do companies choose to express their responsibilities? How uniform and diverse are the codes? Is there a core set of

A code aims to reduce the occurrence of incidents, to improve the extent to which stakeholder expectations are realized, to boost stakeholder confidence in the company and to encourage the authorities to relax regulations and controls (see, for example, Ethics Resource Center, 1980; Raiborn and Payne, 1990). How common are codes among companies? And what is their content? Many studies have been conducted into the prevalence of codes in specific countries (see Table I). Various publications have also appeared on the content of codes in specific countries. Research has also been conducted into the content of business codes of

TABLE I Research conducted on the prevalence of business codes Country Most recent study 1999 2002 Researcher Research method Percentage of codes 78% 77%

United States Canada

Weaver et al. KPMG Canada

Survey of Fortune 1000 with a response rate of 26% Survey of largest 800 companies and 200 public sector organizations with a response rate of 13% Survey of largest 2199 companies with a response rate of 7.2% Survey of largest 800 companies with a response rate of 20% Survey of 1026 public and private organizations with a response rate of 16% Survey of largest 537 companies with a response rate of 42% Survey of largest 350 companies with a response rate of 12% Survey of largest 1000 companies with a response rate of 25% Telephonic survey of all of the largest 100 companies Telephonic survey of all of the largest 100 companies

Japan India South Africa

1997 2002 2002

Nakano KPMG India KPMG South Africa Farrell and Cobbin

37% 78% 71%

Australia

1996

42%

England

1999

London Business School and Arthur Andersen KPMG Germany and the University of Erlangen-Nürnberg KPMG Belgium Employer association VNO-NCW, KPMG and Ethicon

78%

Germany

1999

54%

Belgium Netherlands

2002 2003

53% 54%

Business Codes of Multinational Firms
TABLE II Research conducted on the content of codes Researchers White and Montgomery Cressey and Moore Mathews Schlegelmich and Houston Langlois and Schlegelmich Employer association VNO-NCW, KPMG and Ethicon Lefebvre and Singh Farrell and Cobbin Council of Economic Priorities OECD Year 1980 1983 1987 1989 1990 1991, 1999 and 2003 1992 1996 1997 1998 Object of research 30 codes of U.S. companies 119 codes of largest companies in U.S. 202 codes of 485 companies in U.S. 31 codes of the largest 200 companies in England 189 English, French and West German company codes Respectively, 21, 38 and 54 codes of the largest 100 companies 75 of the largest 500 companies in Canada 95 codes of the largest 537 companies in Australia 71 codes of 360 companies 98 codes of randomly chosen companies

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Themes researched Several issues Several issues Several issues Several issues Several issues Several issues

Several issues Several issues Sourcing Guidelines for Labor Rights Fair business practice, labor rights, environmental stewardship and corporate citizenship Labor rights Several issues Human rights Bribery Child labor Several issues

ILO Van Tulder and Kolk Ashridge Centre for Business and Society Gordon and Miyake Kolk and Van Tulder KPMG Belgium

1999 2000 2000 2001 2002 2002

215 codes of multinationals 13 international companies in the sporting goods industry 52 business codes of Fortune 500 companies 246 codes of international companies 55 business codes of Fortune 500 companies 53 codes of the largest 100 companies

universal norms that multinational firms uphold and, if so, how can they be described? A content analysis of business codes delineates the responsibilities multinationals proclaim. To be sure, the existence of codes does not imply that companies strictly adhere to them (Sims and Brinkmann, 2003), but an analysis of the content

of business codes nevertheless reveals what kind of ethics companies claim to uphold. The results could, among other things, serve as benchmark in evaluating and developing individual and international business codes (e.g. the OECD Guidelines for Multinational Enterprises, the UN’s Global Compact and the Caux Principles).

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Muel Kaptein 2001, the respective company headquarters were contacted by phone with the inquiry of whether the company had a business code. A business code was defined as an independent, companyspecific policy document which delineates company responsibilities towards stakeholders and/or employee responsibilities. Documents that formulate responsibilities towards a single stakeholder (e.g. a code for suppliers), a mission statement that merely formulates economic objectives, or rules of conduct for employees with regard to a single issue (e.g. a code for the use of e-mail and the Internet) were excluded from this definition. In the telephonic contact, a connection with the department of Public Affairs or Corporate Communications was requested. The company representative was addressed in the official local language. Since a range of terms are used to refer to business codes in practice, the company representative was assisted as much as possible with synonyms and different descriptions of a code. If the person in question had doubts, we asked to be put in contact with a colleague (from another department). In some cases, we were put through to Human Resources, Legal Affairs or Corporate Security. The companies that claimed to have a code were requested to send us an original copy. Two companies that claimed to have a code but did not want to make it public due to its confidential nature were not included in the list of companies with a code given that it could not be verified. At the beginning of 2002, the managing directors of the companies that maintained that they did not have a code were contacted by mail to establish whether this was indeed the case. The letters were written in the official language of the country where headquarters was based. Two additional codes were eventually received. Finally, a search was conducted on the web sites of companies that repeatedly stated that they did not have a code and other public resources on company codes were also consulted. This did not yield any additional codes. The search was ended on 1 August 2002. The aim of this approach was to collect as many codes as possible so that the proportion of companies with a code could be represented as

Clearly, it is not to implied here that the moral obligation of companies to include an issue in their codes is directly proportional to the frequency with which an issue presents itself. The moral legitimacy of an ethical standpoint is not determined by numbers (Donaldson and Dunfee, 1999). The frequency with which issues are included in codes does, however, allow us to deduce that the more an issue is mentioned, the greater the number of companies there are who endorse it. It can thus be asserted that the greater the frequency with which an issue is addressed the greater reason a company should have for not incorporating this issue in its business code.1 An examination of the prevalence of codes and the issues they deal with subsequently generates the question of how the similarities and differences among the codes could be explained. In this paper, the collected data will be used to carry out an in-depth analysis of the different code types that can be found in practice. Is there uniformity among business codes with the same objective and target group and what bearing do differences in this regard have on the issues that are addressed? Thereupon, the influence of cultural and continental divisions on code type and content will be examined. This paper aims to give the reader a better grasp of the content of business codes. The empirical effectiveness of business codes, however, falls beyond the scope of this paper (see for example Schwartz, 2001). The content of individual codes is not evaluated either. This paper starts with a discussion of the methodology of the research conducted. Following this, the issues in the analyzed codes are arranged according to theme and prevalence. On the basis of this analysis, we distinguish three types of codes. The paper concludes with an overview of the most significant findings and a number of suggestions for companies to improve their business codes.

Methodology This study focuses on the two hundred largest corporations in the world, using the SCOPE Core Company list (Van Tulder et al., 2001). In

Business Codes of Multinational Firms reliably as possible. This contrasts with a few of the studies listed in Table I that have been conducted. Simply approaching companies with a questionnaire could have an adverse effect on the reliability of one’s findings. Companies with a code are more likely to respond with the result that on the basis of the total response rate, the percentage of companies with a code could appear higher than what is actually the case (see for example the study conducted in England by the London Business School with a response rate of 12%). The Japanese codes that were received were translated into English by a native speaker and checked by a second native speaker. This was followed by a content analysis. In this analysis, an inventory was made of the different items contained in the codes. The corporate integrity model developed by Kaptein and Wempe (2002) served as basis for classification. The model distinguishes between (1) company responsibilities towards stakeholders, (2) principles governing stakeholder relationships, (3) corporate values and (4) employee responsibilities towards the company. In addition, the codes were analyzed for the degree to which they contained references to implementation, compliance and monitoring along with their length and tone. The analysis left aside the distinction that can potentially be drawn between ethical and economical norms and responsibilities (Robin et al., 1989). It is, after all, not possible to deduce from the text of a company’s business code whether the commitment, for example, to deliver high quality products is motivated by ethical and/or economic considerations. This is also why this study employs the concept of business codes rather than codes of business ethics.

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companies, a finding that is consistent with an earlier study of Langlois and Schlegelmilch (1990). The U.S. has a long tradition of business codes (see for example White and Montgomery, 1980). The large number of Japanese companies in the top 200 and the relatively small proportion of Japanese companies with a code lower the total percentage of company codes. The prevalence of company codes by country is outlined in Table III. The vast majority of the analyzed codes (79%) belong to companies based in the U.S., France, Germany and Japan. In the analysis below, we will examine the differences among codes from the Americas (largely represented by the U.S.), Europe (largely represented by Germany and France) and Asia (largely represented by Japan). The titles of the codes diverge strongly, for instance, “Standards of Business Conduct” (Exxon Mobil), “What We Stand For” (BP Amoco), and “Legal and Ethical Policy” (BTR). Of all the titles employed, 36% contain the word “conduct”, 17% “principles/guidelines”, 9% “ethics”, 6% “values” and 4% “integrity”. The size of the different codes varies, as presented in Table IV, from 1 page (e.g. Nichemen) to 79 pages (3M), and from 50 words to almost 18,000 words.

The content of business codes In the following section, the content of the codes of the two hundred largest companies are analyzed and discussed with reference to (I) stakeholder responsibilities, (II) stakeholder principles, (III) corporate values, (IV) internal employee conduct and (V) implementation and compliance. Thereupon, we shall identify the types of codes that can be distinguished on the basis of the content analysis that has been carried out.

The prevalence, title and size of codes How many multinational firms, then, have a code? Of the one hundred largest companies in the world, 58% have a code. Of the successive group of one hundred companies, 47% have a code. This means that of the two hundred largest multinationals, 52.5% have a business code. Business codes are most prevalent among U.S.

I. Stakeholder responsibilities In its “Global Business Standards”, Sara Lee declares that “we have a responsibility to ourselves, to each other, to our consumers, to our

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Muel Kaptein
TABLE III Prevalence by country

Country More than 10 companies in top 200 01. United States 02. France 03. Germany 04. Japan Fewer than 10 companies in top 200 05. Netherlands 06. England/Netherlands 07. England/United States 08. Canada 09. Sweden 10. Switzerland 11. England 12. Italy 13. South Korea 14. Venezuela 15. Mexico 16. Brazil 17. Spain Total

Top 100

Top 101–200

Total

071% 060% 050% 050% 100% 100% 100% 00– 100% 100% 050% 050% 033% 000% 000% 00– 00– 058%

(17/24) (6/10) (7/14) (15/30) (1/1) (2/2) (1/1) (1/1) (3/3) (1/2) (2/4) (2/6) (0/1) (0/1)

066% 033% 038% 027% 100% 00– 00– 100% 00– 067% 100% 100% 00– 00– 00– 000% 000% 047%

(23/35) (4/12) (3/8) (8/30) (2/2)

068% (40/59) 045% (10/22) 045% (10/22) 038% (23/60) 100% 100% 100% 100% 100% 083% 080% 060% 033% 000% 000% 000% 000% (3/3) (2/2) (1/1) (1/1) (1/1) (5/6) (4/5) (3/5) (2/6) (0/1) (0/1) (0/2) (0/3)

(1/1) (2/3) (3/3) (1/1)

(0/2) (0/3)

052.5%

stockholders, to our business partners and to our communities”. But what are these responsibilities? What kind of responsibilities do companies embrace? In Table V, the issues that are addressed in the examined codes are depicted by stakeholder. Most corporate codes, whether extensively or concisely, pay attention to consumers, investors, employees, society and the natural environment. Specifying responsibilities towards competitors

and suppliers is significantly less widespread. Although some issues are frequently referred to (such as delivering quality and achieving returns) the terms in which this is stated may differ. The quality levels companies pledge to deliver to customers are subject to a number of qualifications such as “high quality” (Nestlé), ‘highest quality’ (Merck/HP), “excellent quality” (Coca-Cola) and “customer’s first choice for quality” (British Telecom). Greater divergence can be found in

TABLE IV Number of pages of business codes

Business Codes of Multinational Firms
TABLE V Responsibilities towards stakeholders

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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 Sustaining or enhancing the health and safety of consumers Providing reasonable/competitive/fair prices (and payment conditions) commensurate with quality Continually improving quality of products and services Providing products and services at the right place and time and in the right amount (accurately, timely, continuity) Preventing misuse/abuse of products Helping consumers to use products responsibly Providing customized products for minorities 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 Conserving, protecting and (above-the-market-average/maximize) increasing the owners’/investors’ assets/capital Employees (or personnel, staff, human capital, including applicants and temporary employees) Encouraging/optimizing personal development/growth/use of talents Treating employees with dignity/respect Valuing diversity/equal opportunity Offering productive/responsible/challenging/pleasant/enriching work and working environment Offering good/competitive/excellent terms of employment/compensation Providing stable and secure job opportunities Making the best possible use of each person’s skills, abilities and knowledge Conforming to sound labor standards Refraining from child labor Creating/enabling/guaranteeing a balance between work and private life Suppliers, joint ventures, contractors and distributors Ensuring equal opportunity Seeking mutually beneficial/long-term relationships Paying competitive market prices in timely manner Making reasonable demands

67% 35% 34% 28% 10% 03% 02% 01%

II.

41% 09% 40% 39% 31% 23% 12% 09% 09% 08% 04% 02% 14% 12% 06% 03%

III.

IV.

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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 Being a good corporate citizen through charitable donations, educational and cultural contributions, and employee participation in community and civic affairs Enhancing the quality of life/contributing to sustainable development/improvement Respecting human rights/dignity (of those affected by the activities) and promoting them wherever practicable Supporting public policies and practices that promote human development and democracy 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 Recognizing government’s legitimate obligation to society (legitimizing government authority) Doing business with stakeholders who do not systematically violate national and international social standards Abandoning commercial activities in countries where it is made impossible to promote/respect human rights Setting an example in countries where human rights are seriously and systematically violated Adopting practices that permit the transfer and rapid diffusion of technologies and know-how Timely payment of taxes

57% 36% 18% 11% 8%

7% 6% 4% 2% 2% 2% 1% 21% 2%

VI. Competitors Refraining from seeking access to competitors’ assets through improper means Refraining from casting competitors in a bad light or criticizing them publicly VII. Natural environment (health, safety and environment) Preventing/preserving/restoring the natural environment or treating the environment with due care Offering safe, clean, orderly and healthy working conditions; eliminating/ preventing injuries/incidents 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 Collecting and having waste processed separately and re-using or recycling it where possible Using energy and other natural resources effectively and prudently/efficiently Preventing incidents Promoting development of environmentally friendly products Supporting research and development of environmental technologies Preventing harm to animals and helping to optimize animal welfare

56% 49%

31% 21% 20% 16% 10% 7% 2%

Business Codes of Multinational Firms the level of returns to shareholders: “acceptable” (Shell), “sufficient” (Hewlett Packard), “satisfactory” (Philips), “superior” (Ito Yokado Group), “best possible” (Merck), “excellent long term” (British Telecom) and “maximize long term” (BP). With respect to the natural environment and competitors, there is greater textual uniformity. The terms in which companies express their position towards society are more diverse. A few examples include “a harmonious relationship with society” (Ito Yokado Group), “contributing to the well-being of society” (AT&T), “benefit humankind” (Bayer), “major contribution to development of society” (Deutsche Telekom), “betterment of society” (Coca-Cola), “meeting legal obligations” (Fiat) and “being a good corporate citizen” (Toshiba). Striking is that when the results are analyzed by continent, references to environmental responsibilities appear 45% more in European 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.
TABLE VI Stakeholder principles

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Extent to which it is cited (n = 105) 01. 02. 03. 04. 05. 06. 07. 08. 09. 10. 11. 12. 13. Transparency Honesty/truth Fairness/impartiality Trust Empathy/respect/diversity Stimulating stakeholders to raise concerns Accountability Dialogue/open communication Equality Responsiveness Keeping promises Coherence/uniformity Freedom/autonomy of stakeholders 55% 50% 45% 23% 20% 19% 18% 14% 12% 11% 10% 04% 03%

II. Stakeholder principles In addition to articulating stakeholder interests, a code can also communicate and elaborate on the principles the company upholds. Stakeholder principles are general requirements for company and employee conduct: they govern the relationship between company and stakeholders (Kaptein and Wempe, 2002). Table VI depicts the most cited stakeholder principles. Stakeholder principles generally do not receive as much attention as stakeholder interests. Transparency (55%), honesty (50%) and fairness (45%) are the most cited principles. Fairness, for example, is referred to in connection with the selection of suppliers, the distribution of benefits and burdens and the assessment of employee performance. As Merck declares “. . . we treat our suppliers with honesty, fairness and respect”. Shell applies fairness also to its competitors: “. . . to compete fairly . . . will not prevent others from competing freely . . .” Good stakeholder communication (e.g. transparency,

honesty, dialogue, and responsiveness) is mentioned most. For example, Nestlé “. . . invites government officials, health professionals and consumers to draw its attention to any Nestlé infant formula marketing practices in developing countries which they consider are not in conformity with the above commitment” and BT states that it will “. . . use [its] values and principles in dialogue with other organizations . . .”. Comparing the most frequently mentioned principles in the business codes by continent shows that American codes specifically emphasize the principle of honesty (64% in comparison with 45% in European and 38% in Asian codes); European companies place relative more emphasis on the principles of transparency (68%, compared to Asian 54% and American companies 52%) and the principle of empathy (30%, compared to Asian 21% and American companies 11%); and Japanese companies place somewhat more emphasis on the principle of trust (29%, in contrast with American 22% and European companies 17%). The principle of fairness is mentioned less often in American codes (35%) than in European (50%) and Asian (46%) codes.

22 III. Corporate values

Muel Kaptein The core values cited in the codes diverge strongly. Merck, for example, asserts that “. . . we strive to create an environment of mutual respect, encouragement and teamwork . . .” while AT&T states that “We treat each other with respect and dignity . . .” The most often cited values are teamwork (43%), responsibility (33%), open communication (29%) and innovation (29%). Noteworthy is that the value of effectiveness is seldom mentioned explicitly. Shell is one of the exceptions in asserting that “The most important contribution . . . to the social and material progress of countries . . . is in performing basic activities as effectively as possible.” American codes make comparatively less mention of values than do European codes. Open communication can be found in 35% of the European codes, while it amounts to 25% in American codes. European codes mention teamwork 1.5 times more often than do Japanese and American codes. Humility, harmony, dedication, innovation, creativity and team spirit are largely found in business codes of Asian origin. Innovation and creativity, for example, are respectively mentioned 73% and 46% more in Asian codes than in American and European codes. By contrast, the value responsibility/conscientiousness can be found just as often in American (30%) as in Asian (35%) and European codes (33%).

Apart from stakeholder principles which pertain specifically to stakeholder relationships, organizations also express their core values in a code. Core values refer to those qualities a company deems desirable and which should ground all business conduct and outcomes (Kaptein and Wempe (2002)). Table VII presents a summary of the organizational values that can be found in the examined codes.
TABLE VII Core values of/within the organization Extent to which it is mentioned (n = 105) 01. Teamwork/mutual support/ interdependence/cooperation/team-spirit Responsibility/ conscientiousness Open communication Innovation, creativity, pioneering Customer oriented Flexibility Efficiency Professionalism Entrepreneurship Pride/dignity Loyalty Motivation/enthusiasm/ energy/spirit/encouragement Participation Shared purpose/unity Exchanging ideas/learning Independence Consistent and unequivocal public image Effectiveness Productivity Cost-awareness Discipline Diligence/perseverance/ dedication Courage/daring Harmony Humility

43% 33% 29% 29% 19% 17% 16% 14% 14% 14% 13% 12% 11% 10% 09% 09% 08% 06% 06% 05% 04% 04% 03% 02% 01%

02. 03.

05. 06. 07. 08.

11. 12. 13. 14. 15. 17. 18. 20. 21.

IV. Internal conduct Business codes can also clarify what is expected of employees in their engagement with one another and their treatment of organizational assets. Contrary to the categories discussed above, the latter refers to employee conduct versus the company as opposed to employee conduct on behalf of the company (Mathews, 1987). Table VIII provides an overview of the items referred to in this area. Many codes include a diverse range of rules of conduct employees must obey among themselves (particularly discrimination (44%) and intimidation (43%)) and with respect to the company. Most forms of conduct listed in Table VIII such as engaging in fraudulent practices, leaking confidential information and sexual

23. 24. 25.

Business Codes of Multinational Firms
TABLE VIII Employee conduct towards the company and among themselves Extent to which it is mentioned (n = 105) I. Corporate funds Adherence to sound financial accounting principles No fraud No diversion of funds (embezzlement) No misuse of funds for personal gain No misuse of funds for business purposes Correct handling of expense returns No unjustified billing of hours Corporate equipment Proper use of equipment and goods Protection and conservation of equipment and goods No theft of business equipment or goods Prohibition of or restriction on taking business equipment home for private use Prohibition or restriction on private use of means of communication No neglect of maintenance Corporate information No leakage of confidential information (like trade secrets) No use of insider information when trading shares of other securities No unauthorized use of access codes IV. 46% 45% 19% 18% 16% 08% 07% V.

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Extent to which it is mentioned (n = 105) Authorities No conflicting side-line activities/conflict of interests No corruption or bribery Prohibition or restriction on acceptance of gifts No favoring of family and friends Corporate time No alcohol and drug use No private surfing on the internet during working hours Sufficient effort Keeping to stipulated times No unjustified calling in sick No arms/weapons in the workplace

52% 46% 47% 34% 17% 03% 02% 01% 01% 01% 44% 43% 35% 26% 20%

II.

29% 18% 18%

17%

14% 03%

III.

50%

44% 10%

VI. Staff No discrimination No intimidation/harassment/ threatening Treating one another with respect No sexual harassment Treating one another fairly No unwelcome or unsolicited physical and verbal sexual advances Respect for privacy No racism or racist insinuations No verbal abuse No physical violence No tasteless/obscene jokes/ gestures or material No bullying No gossiping/ridiculing/ insulting No favoritism

16% 14% 12% 11% 11% 10% 10% 06% 03%

intimidation are prohibited. The norms formulated in the codes diverge most with respect to the acceptance of gifts. Acceptance of gifts or

invitations is mostly subject to certain conditions, for example, that the value is below $50 (GTE) or “purely symbolic” (Fiat), that their acceptance

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Muel Kaptein reporting of our performance against these principles.”

is “always agreed with the supervisor” (Deutsche Telecom), “a social courtesy” (NTT), that the “company officer or his/her delegate [has] approve[d] its acceptance” (Kodak), that it is “generally accepted business practices of one’s country and industry” (Sara Lee) or that its purpose is “to create goodwill” (Xerox).

Profiles of business codes The analysis thus far (in keeping with most scientific analyses of codes) has treated business codes as a uniform concept. The question, however, is whether the diversity in the codes’ content is not (partly) the result of the type of code individual companies have in mind. On the basis of the collected and analyzed codes, we can distinguish three clusters of codes: (1) the stakeholder statute/business principles, (2) the values statement and (3) the code of conduct. 72% of the codes formulate responsibilities towards stakeholders (the so-called stakeholder statute or business principles), 49% express the corporate core values in a coherent manner (the so-called values statement) and 46% set down norms and rules for employee conduct (the so-called code of conduct).2 A number of codes integrate two or even three approaches. Each type is elaborated on in Figure 1. The types of corporate codes differ, among other things, in focus (for internal and/or external use), level of abstraction, size, use of pronoun and attention to compliance. Based on a content analysis of codes of business in the U.S., Mathews (1987) concludes that U.S. companies are more concerned with conduct against the company than on behalf of

V. Implementation and compliance A quarter of the codes make reference to implementation of the code. GTE for instance, points out the central role of managers: “GTE supervisors have an additional responsibility for maintaining a climate in which legal and ethical business conduct is the norm; communicating to employees the seriousness of GTE’s commitment to such conduct; encouraging open discussion of employees’ business concerns; accepting and processing reports filed by employees of possible misconduct; and, never compromising GTE’s standards to achieve a goal or objective, no matter how important that goal or objective seems at the moment.” GTE also refers to a Business Conduct Line for employees with questions about interpretation and compliance with the code. Some 52% of the codes indicate that compliance with the code is monitored. British Telecom, for instance, sheds light on its monitoring practices as follows: “We are committed to communicating, measuring and appropriate

Figure 1. Frequency of type of codes

TABLE X Type of codes Objects Level of abstraction Size Use of personal pronoun Often first person plural Predominantly descriptive Tone Compliance paragraph Countries

Focus

Stakeholder statute/ business principles

Internal and external use

Responsibilities and principles towards stakeholders

Mostly high

A single to a few pages

Mostly, in terms of e.g. external reporting and mechanisms for complaints of stakeholders Predominantly descriptive Hardly

Especially European (46%) and Asian (40%) companies

Business Codes of Multinational Firms

Values statement

Primarily for internal use and to a lesser degree for external use

Organizational values

Mostly high

A single to a few pages

Often first person plural

Especially Asian (47%) and European (32%) companies Often second or third person singular Predominantly prescriptive Largely, in terms of e.g. sanction mechanisms and whistleblowers procedures Especially U.S. companies (53%)

Code of conduct

Primarily for internal use

Desirable employee conduct

Mostly detailed

A few to many pages

25

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Muel Kaptein in a written policy document. On the other hand, almost half of the largest multinational firms – at the time of this study – do not have a code. Although a business code is not a statutory requirement, it would appear advisable for companies who do not have a code to (re)consider whether it might be desirable to develop and introduce a business code (Schwartz, 2002). As more companies adopt a code, those who refrain from doing so will increasingly be confronted with stakeholders who will want to know why a code is not viewed a desirable instrument to manage ethics, integrity and social responsibility. This study did not examine the reasons companies may have for not adopting a code. A follow-up study could focus on this question and examine to what extent companies have ethically justifiable reasons for not having a code. This paper has shown that both similarities and differences can be found in the content of codes, both with respect to responsibilities towards stakeholders, stakeholder principles, corporate values, as well as conduct against the company. Codes generally describe the responsibilities a company assumes with respect to employees, customers, capital providers and society as a whole. In general, companies do not employ opposing norms. They specifically differ in what they include and exclude from their codes and the wording that is used (for instance in terms of levels of commitment). Finally, this paper has shown that an important determining factor in the content of a code is the target group the company has in mind: external and/or internal stakeholders. In the case of the former, the code will focus mostly on responsibilities towards stakeholders and the principles that apply. In the case of the latter, the code will mostly formulate rules for conduct. If the analyzed codes are grouped according to type, uniformity in content increases markedly. The diversity in the content of corporate codes (also within countries) is not necessarily a negative sign. It could very well be an indication of the authenticity of the codes in the sense that companies draw up codes to suit their particular circumstances as opposed to merely copying those of other companies, model codes

the company. From this study, it would indeed appear that codes of conduct are a particularly American phenomenon. Asian and European companies, however, choose for a stakeholder statute/business principles or a values statement more often than do American companies. Mathews’s conclusion with respect to American codes is also only a partial reflection of the present state of affairs. Many American codes (74%) address stakeholder responsibilities, stakeholder principles and/or, to a lesser extent, core values. As this is often (64%) accompanied by a detailed explication of the norms and rules for employee conduct in regard to the company, the latter often overshadows the rest (at least as far as number of words and visual impact are concerned). Calculating anew the frequency with which issues are referred to by code type shows that more uniformity can be found especially among codes of conduct. For example, the percentage of codes of conduct that address fraud, bribery, use of confidential information and upholding proper social norms between employees increase by a factor of 1.8 compared to the total percentage of business codes that refer to these items.3 Of all the codes of conduct, 91% address these issues. Regarding business codes which can be defined as values statements, much variation can still be found in the corporate values that are mentioned.

Conclusion This paper consisted of three steps. First, we made an inventory of the codes of the two hundred largest companies in the world. Second, we analyzed the content of the collected codes. Finally, we examined to what extent the content of the codes can be related to the type and origin of codes. It was found that 58% of the hundred largest companies (and 52.5% of the two hundred largest companies) in the world have a code of conduct. On the one hand, this figure can be viewed as positive: more than half of the largest multinational firms acknowledge and define their responsibilities, principles, values and/or norms

Business Codes of Multinational Firms or codes of international institutions. At the same time, a number of topical social issues such as human rights receive slight attention in the codes. This study offers a benchmark for companies to assess their codes against other corporate codes and the items they address. As companies become more international, comparisons with the corporate codes of companies in the countries where they do business become more desirable. Stakeholders judge the quality of individual business codes partly with reference to the quality of other corporate codes in that country. For example, in an Asian country, a typically American code of conduct could be regarded as too comprehensive and forceful while the business principles of a European company could be viewed as too ambitious and abstract. The benchmark that is presented in this paper is neither a proposal for a model code nor does it suggest that uniformity among business codes is necessarily desirable. The benchmark gives companies and stakeholders cause for examining the reasons why a company does not take a stand on a given issue. If a company decides to address an issue in its code, it is important that it uses its own words and tailors it to its own circumstances. This overview is especially useful for companies who do not have a code but who would like to develop such a policy document. One of the first steps in developing a code is to decide on the type of code the company deems fitting (a stakeholder statute/business principles, a values statement and/or a code of conduct), the issues it elects to address and the terms in which the code will be shaped. The benchmark offers stakeholders support in questioning companies on the content of the code: Why does your company include issue X but not issue Y? Why do you, as company, formulate it like this and not like other companies do? Why do you not mention, for example, fair play, knowing that 45% of companies do? For international institutions that have issued a standard for corporations (e.g. the UN and the OECD) this overview offers an aid in evaluating their own standards on comprehensiveness and the extent to which companies have adopted their standard. The more companies embrace a

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given issue, the more reason exists for other companies to ask themselves why they have omitted it. By performing a periodical analysis of the content of business codes, we can track the extent to which there is evidence of further homogenization or diversification in codes (for example in terms of structure, issues and wording).

Recommendations An assessment of content is just one aspect of the overall evaluation of a business code. Another factor concerns the extent to which a code demonstrates a company’s awareness of relevant and topical issues, organizational dilemmas and stakeholder expectations (Kaptein and Wempe, 1998). Judging individual codes merely based on desk-research and just in terms of comprehensiveness is therefore not justified. Moreover, some norms may be so self-evident – for instance the prohibition on killing someone in the workplace – that it need not be included in the code despite the fact that it remains valid. Another significant aspect is the process through which the code is established and institutionalized. A code is nothing, coding is everything (Kaptein and Wempe, 1998). The quality of individual business codes can therefore only be determined by conducting research on these aspects as they manifest in practice. We can, nevertheless, in random order, put forward a number of general suggestions for improving codes. • Accountability: The impact and credibility of a code can be enhanced by making a commitment to stakeholders to periodically account for implementation and compliance with the code, for example in an annual report (Van Tulder and Kolk, 2000). Only 4% of the analyzed codes address external reporting. • Feedback: A company can use a code as a means to invite internal and external stakeholders to share their ideas on improving the code or even its implementation.

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

Business Codes of Multinational Firms codes are established are of chief importance, the appearance of codes also says something about a company’s regard for its code (White and Montgomery, 1980). A glossy publication, for example, can generate suspicion that the company is more concerned about its appearance than its content. On the other hand, taking care with a code’s presentation and style reflects 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 to being a reference). The examined codes vary from being presented in the form of a few standard photocopies to full color text and photos printed on quality paper. • Unique identity: The strength of and commitment to the code is largely reflected in the extent to which the code is tailored to the company’s unique circumstances (Pemberton and Pendergraft, 1990). The texts of the codes display strong similarities particularly with regard to the natural environment and rules of conduct with respect to fraud and corruption. The current growth of international codes increases the likelihood that companies will adopt these texts (almost) literally in their codes. If external stakeholders and employees are to regard the code seriously, companies should avoid appearing to have been led by one or more codes of other companies or international organizations without having thoroughly thought through their position is on the issue at hand. Finally, another important question is whether some types of codes are more effective than others (Schwartz, 2001). A general code that appeals to employees’ sense of responsibility could be more effective than a very detailed code which can easily be interpreted as a vote of no confidence (Treviñio et al., 1999). We may likewise ask what a code actually says about the factual situation. The current growth in sustainability reporting (KPMG, 2002) could perhaps serve as point of departure in formulating an answer to this question. As yet, this study shows that on paper, many companies have an eye for

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the responsible treatment of stakeholders along with the principles, values and norms that ground sound conduct.

Acknowledgement Thanks to the two referents for their very useful comments on an earlier version of this paper.

Notes
1

An analysis of business codes unravels the norms and values companies endorse and provides insight into the extent to which companies actually share the principles that have been developed in the academic field of business ethics. An inventory of so-called micro-norms is also in keeping with the call of Donaldson and Dunfee (1999) to supplement their Integrated Social Contracts Theory with empirical research on the ethics of business. 2 In calculating the prevalence of code types, each code was examined to establish whether it elaborates on at least two specific responsibilities towards stakeholders, values or rules of conduct. Codes were treated for instance as values statements only if the company named the values as such and clustered them as such in the code. If only a few scattered values appeared in the text, the codes were not treated as values statements. 3 This factor was calculated by dividing the number of times an item occurs by the total number of codes of conduct instead of by the total number of business codes as was done earlier. This percentage was then divided by the percentage of this item of the total number of codes as presented in Table VIII.

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Department Business-Society Management, Erasmus University Rotterdam, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands, E-mail: Kaptein.muel@kpmg.nl