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Cultural Values and International Differences in Business Ethics

Article in Journal of Business Ethics · February 2007

DOI: 10.1007/s10551-006-9252-9 · Source: RePEc

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Journal of Business Ethics (2007) Ó Springer 2007
DOI 10.1007/s10551-006-9252-9

Cultural Values and International Differences Bert Scholtens

in Business Ethics Lammertjan Dam

ABSTRACT. We analyze ethical policies of firms in Kaler (1996), Ferrell et al. (2000), and Crane and
industrialized countries and try to find out whether cul- Matten (2004) discuss that the conduct of business
ture is a factor that plays a significant role in explaining emerges and evolves in response to religious,
country differences. We look into the firm’s human rights philosophical, societal, economical, and institutional
policy, its governance of bribery and corruption, and the concepts and notions. They also point out that
comprehensiveness, implementation and communication
ethical theories can help to clarify the different moral
of its codes of ethics. We use a dataset on ethical policies
of almost 2,700 firms in 24 countries. We find that there
presuppositions of the various parties involved in a
are significant differences among ethical policies of firms decision or action (e.g. Chapter 3 in Crane and
headquartered in different countries. When we associate Matten, 2004). As such, ethical theories are being
these ethical policies with Hofstede’s cultural indicators, applied to business ethics (see also De George, 1999;
we find that individualism and uncertainty avoidance are Ferrell et al., 2000). Then, we find that business
positively associated with a firm’s ethical policies, whereas ethics, as part of culture, does not happen in vacuum
masculinity and power distance are negatively related to or isolation. It takes place in a social and cultural
these policies. environment that is being governed by a complex set
of laws, rules and regulations, formal values and
KEYWORDS: business ethics, codes of ethics, cultural norms, codes of conduct, policies, and various
values organizations (see Hofstede, 1991; Scott, 2001;
JEL: G300, L210, M140
Trompenaars, 1993). Ethical theories can be used to
analyze the (changes in) ethics and ethical policies of
business in time and among countries and industries.
Introduction Berkert (1995) contends that corporations differ
from individual agents with respect to their suscep-
Are there differences with respect to the ethical tibility for moral responsibilities. In his view, it is a
policies of firms that are headquartered in different special set of values, principles and ideas which
countries? And are there differences among firms regulates behavior in business. As ethical conduct of
that belong to different industries? Chryssides and individuals and organizations is part of and very
much intertwined with culture and society, it is
Bert Scholtens received his Ph.D. at the Universtiy of quite common to assume that the ethics of firm
Amsterdam. Since 1999 he has been working at the behavior too will be subject to change (see also
Department of Finance of the University of Groningen, the McInnes, 1996). While various explanations have
Netherlands. His research particularly looks into the inter-
been offered to explain these societal differences, an
action between financial institutions and corporate social
ever-growing body of literature argues that cultural
responsibility. He has published in, among others, Ecolo-
gical Economics, Journal of Banking and Finance, differences between countries are one of the main
Finance Letters, Journal of Investing, Sustainable drivers of a nation’s level of economic and entre-
Development, and Journal of Business Ethics. preneurial conduct (McGrath et al., 1992; Thomas
Lammertjan Dam is a Ph.D. student at the Universtiy of and Mueller, 2000). Recognizing the critical role
Groningen. He expects to defend his thesis about the in- that culture plays in determining corporate behavior,
tegration of corporate social responsibility in economic valua- several scholars have called for future research
tion in Summer 2007.
 Bert Scholtens and Lammertjan Dam

addressing the impact of national culture on corpo- and sometimes also the UK. This study was com-
rate activity. For example, Sethi and Sama (1998) plemented by Schlegelmilch and Robertson (1995)
argue that in order to investigate ethical business who went into the ethical perceptions of senior
conduct, both corporate and industry structure has executives in the US, the UK, Germany, and Austria.
to be considered (see also Zahra et al., 1999). They Their study also showed that the country has a
assess industry sectors on the basis of their structural significant impact. Kaptein (2004) investigates the
and institutional opportunities towards exploitation. content of the codes of conduct of 200 multinationals
However, they do not test their framework. Thus, it in 17 countries. He reports what elements are
is not clear how culture is related to the ethical included in these codes and what stakeholder prin-
conduct of firms in practice. ciples are addressed. Kaptein (2004) concludes that
Fortunately, much empirical research in this the companies specifically differ in what they include
direction already has been undertaken. For example, and exclude from their codes and inthe wording that
in an empirical study after the adoption of voluntary is used. There is much research that finds that
codes of conduct, Bondy et al. (2004) find that there country origin is an issue in the content and design of
are significant differences between the UK, Ger- ethical codes. For example, Wood (2000) for the US,
many, and Canada. Sanyal (2005) finds bribery differs Canada, and Australia, Hood and Logsdon (2002) for
significantly among countries and that it is both the US, Canada, and Mexico, Maignan and Ralston
economic and cultural factors that are important (2002) for the US, the UK, France, and the Neth-
explanatory factors of bribery. Many studies focus on erlands, Reich (2005) for Germany, Japan, and the
particular aspects of ethical codes or on the use of US, Lindfelt (2004) for Finland, Singh et al. (2005)
codes in specific industries. For example, Koehn for Australia, Canada, and Sweden, and Melé et al.
(2005) treats integrity of the firm as an important (2006) for Argentina, Brazil, and Spain. We will try
business asset (see also Pearson (1995) for a similar to bring this line of research one step further by
approach). Diller (1999) focuses on the improvement analyzing the key attributes of ethics in different
of customer relationships. As customer interaction countries and industries.
differs per industry, this might be a determinant of Our purpose is to come up with an assessment of
the differences among industries. King and Lenox the business ethics of a large number of firms in the
(2000) analyze the role of peer pressure in the tradition of Langlois and Schlegelmilch (1990). To
chemical industry. Boatright (1999) goes into the role this extent, we will use data from EIRIS to find out
of ethics in finance (see also Statman, 2004) and Van whether there are significant differences in the
Tulder and Kolk (2001) analyze the sporting goods assessment of ethical policies of firms in different
industry. O’Higgins and Kelleher (2005) analyze the countries and industries. We use data for almost
ethical orientations of human resources, marketing 2,700 firms from 24 countries and 35 industries. In
and finance managers, whereas Stevens et al. (2005) this respect, our paper differs from other quantita-
investigate the impact of ethics codes on financial tively oriented approaches as that of – among others –
executives’ decisions. Sanyal (2005) who focuses on macro (country) data.
The approach taken in our study is in line with a Furthermore, we investigate how culture is to be
tradition that started with Langlois and Schlegelmilch associated with ethical conduct in different countries.
(1990). These authors investigated codes of conduct To this extent, we use the Hofstede (1980, 1991) data
for a large number of companies from different to find out whether and how culture matters in this
countries. They analyze 189 companies from the respect. The Hofstede database gives us detailed
UK, (Western) Germany, and France and compare information about key dimensions of culture. As
them with 174 firms from the US. Langlois and such, we analyze firms’ ethical policies on an inter-
Schlegelmilch focus on large, predominantly indus- national level from a micro perspective. We look into
trial companies. They find that US firms have more the different attributes of the firm’s relation with
codes of ethics than firms from Europe. When going ethics and investigate whether and how they differ
into the content of the codes, Langlois and Schle- between firms operating in different countries. Hood
gelmilch find various significant differences between and Logsdon (2002) and Singh et al. (2005) included
the US firms and those from France and Germany Hofstede’s dimensions in their analyses and found
 Cultural Values and International Differences

them relevant. However, they did not try to estimate ‘‘we do not promote on particular view on ethical
the extent of the impact of cultural values on business issues’’, but ‘‘companies are judged fairly against
ethics. As such, to our knowledge, this paper is the common standards and meaningful comparisons can
first to engage in a quantitative analysis of the asso- be made between them’’ (see http://www.eiris.org).
ciation between international differences in business The survey was conducted in late 2004 and EIRIS
ethics and cultural values. analyzes independent sources of information on
We build on the findings of Langlois and companies, including regulatory authories’ databases.
Schlegelmilch (1990), Hood and Logsdon (2002), For some research areas, where external sources are
Kaptein (2004), and Singh et al. (2005). But there not available, they rely on company responses to
are some important differences. First is that we do their questionnaires.
not use a questionnaire but we base our data on an Given the nature of this paper, we focus on ethics.
investigation that also uses other sources about the This is compatible with the approach proposed by
ethical codes of the firm. Second is that the quality of Krajnc and Glavič(2005) who suggest a procedure for
the codes is taken into consideration. Third is that assessing companies on different aspects of sustain-
we include more firms and more countries in our ability. We find that ethics is one of these aspects. As
analysis. Fourth is that our firms are evenly spread such, we look into the firm’s governance of bribery
across the whole spectrum of the economy. A fifth and corruption, human rights and the systems or
difference is that we relate ethical codes to cultural comprehensiveness, communication, and imple-
values on the basis of a quantitative model. The mentation of their ethical codes. EIRIS assigns grades
contribution of this paper is that it not only estab- on specific attributes in the different areas. This
lishes the existence of important differences in the procedure implies that some subjectivity is involved
ethical conduct of firms in a large group of countries in assessing the ethics of the firms. However, given
and industries, but it also aims at advancing the the ways in which the topics and questions are framed
theoretical discussion of the character and direction (see also below), we are convinced that the research
of cultural differences in business ethics. by EIRIS results in valid measures. Furthermore, we
The structure of the remainder of this paper is as are very well aware of the fact that firms’ ethical
follows. We first come up with a description of our policies may differ from their performance in this
dataset. Then, in Countries, we analyze firms’ ethical respect. An ethics code itself does not guarantee
policies at the country level. In Culture and ethical ethical behavior (Kitson and Campbell, 1996; see also
conduct, we relate ethical policies at the country Svensson and Woods, 2005). However, to our
level to Hofstede’s measures of culture. The con- knowledge, there is no database that assesses the
clusion is in last section. ethical performance of a large number of firms in
different industries and countries. Therefore, we stick
to the information about ethical policies and will
Data and methodology refrain from deriving conclusions about their ethical
behavior. To assess the firms, EIRIS has a scoring
This section introduces the data about codes of table which consists of six scales or grades. EIRIS
ethics and cultural values that are subject to our does not provide an overall assessment or rating of the
analysis. The data about codes of ethics are derived companies. Therefore, we give a score of three to the
from Ethical Investment Research Service (EIRIS). high positive grade, 2 to med positive, 1 to low
EIRIS is a charity set up in the UK in 1983. EIRIS positive, )1 to low negative, )2 to med negative, and
covers over 40 different areas including animal )3 to high negative. With respect to the five key
testing, military, environmental performance and items, EIRIS answers the following questions:
human rights. It gathers the data on the basis of a
questionnaire and a survey of the firms in six dif- 1. Governance of bribery and corruption: Does
ferent areas: Environment, governance, human the company have policies and procedures on
rights, positive products and services, stakeholder bribery and corruption? Here, the firm can
issues, and ethical concerns. The philosophical either have a clear policy and procedures, it
background of EIRIS is not very clear; it argues that has adopted or it has no policy disclosed.
 Bert Scholtens and Lammertjan Dam

2. Systems of the codes of ethics: The first ques- Thomas and Mueller, 2000). The fact that the data
tion about the firm’s code of ethics is are more than 30 years old is not a main concern
whether the company does have a code of under the assumption that culture changes very
ethics and, if so, how comprehensive is it. slowly over time. Another reason to use these data is
The answer is either no, limited, basic, inter- that they pertain to general features of culture for the
mediate or advanced. countries in the sample. This suits our research
3. Implementation of the codes of ethics: The objective since we want to emphasize the role of
second question is whether the company does cultural values that are general and not specific to
have a system for implementing a code of certain markets or transactions. Hofstede (1980)
ethics and, if so, how comprehensive is it. defines the following societal or cultural indicators:
The answer is either no, limited, basic, inter-
mediate or advanced. PDI: Power distance is defined as the extent to
4. Communication of the codes of ethics: The which the less powerful members of institutions
third question is whether the company has and organizations within a country expect and
adopted a code of ethics or business principles accept that power is distributed unequally. As
by which it communicates to all employees. such, it measures societal inequality.
The answer is either no evidence of, has IDV: Individualism pertains to societies in which
adopted, or clearly communicates. the ties between individuals are loose: everyone
5. Human rights policy: What is the extent of is expected to look after himself. Collectivism
policy addressing human rights issues? The pertains to societies in which people from birth
answer is either no evidence of, has adopted, onwards are integrated into groups, which
or clearly communicates. throughout their lives continue to protect them
in exchange for unquestioning loyalty.
In our sample, we have that most of the firms are MAS: Masculinity; this property shows the
from the US and the UK (about 25% each). Japan desirability for assertive behavior against the
ranks third with about one fifth of all the firms. The desirability of modest behavior. It appears that in
other 21 countries harbor the remaining 30% of the some societies there are strong differences in
firms. Half of them are represented by less than 1% answers given by men or women. In the modest
of the total number of firms. Luxembourg has only countries the differences in gender are weak, but
3 firms in the sample and Portugal 8 (see Appendix in assertive countries differences are strong.
1). Firms based in Luxembourg were not assessed UAI: Uncertainty avoidance is defined as the
with respect to their human rights policy. Industries extent to which the members of a culture feel
that are very well represented are the banks, media threatened by uncertain or unknown situations.
and entertainment, and support services (see It is more general than risk avoidance, which is
Appendix 2). These three each have more than 5% defined with respect to a certain object.
of all the firms. However, it appears that our sample
is quite well spread across the business sectors. There
are two industries with less than 1% of all the firms: Countries
tobacco and water.
Data for cultural values are derived from the In this section, we analyze whether the firms differ
Hofstede (1980, 1991) studies. His work consists of from one each other with respect to human rights
survey data about the values of people working in policy, governance of bribery and corruption, and
local subsidiaries of IBM in more than 50 countries. the comprehensiveness (i.e. the actual systems in
The actual surveys used in Hofstede (1980) date place), implementation, and communication of their
back to the 1970s. Updates and extensions have codes of ethics in case the firms are clustered by
re-affirmed its main conclusions (see Hofstede, country. As such, we try to find out whether there
1991). These data are used a lot in social and eco- are significant differences in ethical policies along
nomic research (for example, see Garretsen et al., different countries. First, we discuss the scores of the
2004; Licht et al., 2003; McGrath et al., 1992; firms in the different countries.
 Cultural Values and International Differences

Table 1 reveals that the average EIRIS-score on Ireland rank lowest. As to the implementation of
the governance of bribery and corruption is 1.97. the codes of ethics, it is again US firms that receive
In this respect, firms from the US and Norway the highest ratings from EIRIS. Firms from
perform best. Companies from Australia, Italy, the Luxembourg, Singapore, and Hong Kong perform
Netherlands, and Finland also perform well. Firms worst. The average firm score on human rights
from Luxembourg, Singapore, Hong Kong, Spain, policies is 0.31. Here, the 3 companies from
Portugal, and Ireland perform weak on their gov- Luxembourg were not given a score. Firms from
ernance of bribery and corruption. The average Finland, Norway, and Sweden got on average the
firm score on the extent and quality of the systems highest score on their human rights policies. Firms
of the codes of ethics is 0.25. As to these systems, from Ireland, New Zealand, Portugal, and Singa-
US, Australian, and Dutch firms perform best. pore scored lowest. In all, it appears that firms
Here, firms from Luxembourg, Singapore, and based in the US and Scandinavia, and – excluding
Hong Kong perform worst. With respect to the human rights policies – those from Australia and
communication of the codes of ethics, the average New Zealand did receive the highest scores on the
firm score is 2.38. Here, firms from the US, Aus- five attributes of business ethics. Firms from Lux-
tralia, and New Zealand top the ranking. Those embourg, Singapore, Hong Kong, Ireland, and
from Luxembourg, Singapore, Hong Kong and Portugal show the poorest results. In Culture and

TABLE 1
Mean score of firms in the 24 countries on the five attributes of business ethics

Number Governance Codes of Communication Implementation Human

of firms of bribery ethics of codes of ethics of codes rights
and corruption systems of ethics policies

Australia 115 2.30 0.97 2.86 1.97 )0.11

Austria 13 1.69 0.00 2.00 0.15 1.00
Belgium 15 1.87 0.53 2.27 0.93 0.00
Canada 85 2.11 0.65 2.55 1.28 0.50
Denmark 15 1.80 0.13 2.33 0.67 1.50
Finland 16 2.25 )0.06 2.44 1.44 1.88
France 79 2.09 0.22 2.39 0.91 1.54
Germany 89 1.87 )0.39 2.17 0.30 0.72
Greece 15 1.60 )0.67 2.07 )0.07 0.50
Hong Kong 106 1.26 )1.36 1.54 )0.98 )0.85
Ireland 16 1.50 )0.81 1.81 )0.25 )1.00
Italy 54 2.30 0.17 2.41 1.37 0.40
Japan 487 1.64 0.40 2.21 0.28 )0.19
Luxembourg 3 1.00 )2.00 1.00 )2.00
Netherlands 38 2.26 0.84 2.61 1.68 1.32
New Zealand 23 2.17 0.43 2.70 1.52 )1.00
Norway 13 2.46 0.77 2.54 1.54 1.80
Portugal 8 1.50 0.38 2.63 1.25 )1.00
Singapore 49 1.10 )1.76 1.55 )1.10 )1.00
Spain 48 1.42 )0.90 2.27 )0.08 0.45
Sweden 42 1.88 )0.24 2.29 0.81 1.65
Switzerland 45 2.09 0.04 2.38 0.98 0.81
UK 656 1.82 )0.18 2.10 0.33 0.92
USA 651 2.49 1.04 2.93 2.17 0.32
All 2681 1.97 0.25 2.38 0.88 0.31
 Bert Scholtens and Lammertjan Dam

ethical conduct, we will try to find out whether firms in 24 countries. This indeed is the case for all five
these international performance differences can be key variables; as the probability of the F-statistic in all
related to differences in cultural values. instances points out that the firms within the various
To find out whether there are significant differ- countries perform significantly different from the
ences in ethical policies in the different countries, we population’s average at the 1% confidence level and
perform an ANOVA (see Pindyck and Rubinfeld, we may reject the H0 that the populations are equal.
1985). The null hypothesis with the ANOVA is that To investigate how different the ethical policies
the population means are identical. Rejection of H0 are among our 24 countries, Table 2 gives the
tells us that not all population means are equal. The number of indicators that are at least two standard
issue in this section is whether the ethical policies of deviations away from the mean score on each indi-
the firms with respect to human rights policies, the cator of all firms (i.e. confidence >95%). For
governance of bribery and corruption, and the sys- example, Finnish and French firms show a signifi-
tems, implementation, and communication of their cantly higher score than the average firm on their
codes of ethics does significantly differ among the human rights policy. Table 2 shows that most

TABLE 2
Differences in ethical policies of firms with respect to countries (
2 standard deviations above the mean = +1;
2
standard deviations below the mean = )1)

Governance of Code of Communication Implementation Human Total

bribary and ethics - systems of code of code rights policy
corruption of ethics of ethics

Australia +1 +1 +1 +1 0 +4
Austria 0 0 0 0 0 0
Belgium 0 0 0 0 0 0
Canada 0 +1 +1 0 0 +2
Denmark 0 0 0 0 0 0
Finland 0 0 0 0 +1 +1
France 0 0 0 0 +1 +1
Germany 0 )1 )1 0 0 )2
Greece 0 0 0 0 0 0
Hong Kong )1 )1 )1 )1 )1 )5
Ireland )1 0 )1 0 )1 )3
Italy +1 0 0 0 0 +1
Japan )1 +1 )1 )1 )1 )4
Luxembourg )1 )1 )1 )1 )4
Netherlands 0 +1 +1 0 0 +2
New Zealand 0 0 +1 0 +1 +2
Norway +1 0 0 0 0 +1
Portugal 0 0 0 0 )1 )1
Singapore )1 )1 )1 )1 )1 )5
Spain )1 )1 0 )1 0 )3
Sweden 0 0 0 0 +1 +1
Switzerland 0 0 0 0 0 0
UK )1 )1 )1 )1 +1 )4
USA +1 +1 +1 +1 0 +4
Total number of differences 11 11 12 8 10 52

2 standard deviations
above / below mean
 Cultural Values and International Differences

countries consistently either outperform or under- Culture is a multifaceted concept. Literally, it

perform the average firm in the sample. Only Japa- means to build on, to cultivate, or to foster. But
nese and British firms score significantly above the many authors have given their own interpretation
average firm on some items whereas they score and various schools of thought concerning the
significantly below average on other items. From concept culture have emerged (see Bodley, 2005, for
Table 2, we conclude that there are substantial an overview). For example, there are the concepts of
differences indeed. Firms from Australia and the US mass culture and popular culture, where it relates to
are significantly outperforming the other firms in taste and values. Alternatively, theories evolved that
most respects. Firms from Hong Kong, Singapore, regard culture as values shared among different social
Luxembourg, the UK and Japan perform worse than groups and classes. Others view culture as a set of
most other firms. Firms from Austria, Belgium, values and characteristics of a given group, the
Denmark, Greece and Switzerland do not signifi- relation of an individual to culture, and his/her
cantly differ from the average firm in the sample. acquisition of those values and characteristics (see
So, we find that there are significant differences in Soley and Pandya, 2003). Hofstede (1980) refers to
the characteristics of ethical policies of firms located this vision as the collective programming of the
in different countries. This finding is in line with mind. Bodley (2005) argues that a crucial feature of
results found elsewhere in the literature (see e.g. culture is that people learn it. A lot of aspects of life
Bondy et al., 2004; Hood and Logsdon, 2002; are transmitted genetically, such as the desire for
Kaptein, 2004; Langlois and Schlegelmilch, 1990; food. A person’s specific desire for milk and cereal or
Lindfelt, 2005; Maignan and Ralston, 2002; Melé for a croissant and coffee in the morning, on the
et al., 2006; O’Higgins and Kelleher, 2005; Reich, other hand, cannot be explained genetically. Cul-
2005; Singh et al., 2005; Stevens et al., 2005; Wood, ture, as a body of learned behaviors common to a
2000). But we established our conclusion on a much given human society, has a predictable form and
larger number of countries and industries and on the content and shapes behavior and consciousness
basis of much more firms. Therefore, we have suc- within society from generation to generation. Then,
ceeded in generalizing the existing observations. according to Bodley (2005), culture resides in
Note, however, that it may be the case that because learned behavior as well as in some shaping con-
of differences in the industrial structure of countries, sciousness prior to behavior. Language, organization,
the industry results are driven by the country dif- and technology are probably the most important
ferences. A simple Chi-square test of independence elements of culture. Cultural differences manifest
rejects the hypothesis that industry and home themselves in various ways. The deepest manifesta-
country are independent variables (Chi-square test tion of culture is the set of values. Values are broad
statistic for independence of industry and country is tendencies to prefer certain states of affairs over
equal to 209, dF = 120, p-value = 1.) Thus, indeed, others. Norms are the standards for values that exist
there is significant dependence between country and within a group or category of people. More super-
industry. Therefore, in the remainder of this paper, ficial differences in culture can be found in symbols
we will focus on the interaction between culture and and rituals. Values are at the core of economic
country differences as to firms’ ethical conduct. This behavior and could help explain differences in the
also has a very practical reason, namely the fact that conduct of firms (Bodley, 2005). For example,
our data about culture are on a country basis and, Zaheer and Zaheer (2006) use cultural values to
unfortunately, not available on an industry basis. investigate international collaboration of business
households, especially trust. Different cultures have
their own mores of what is acceptable and
Culture and ethical conduct unacceptable conduct. And each culture has meth-
ods for dealing with the violation of social norms
In this section, we investigate how culture affects (Svensson and Wood, 2003). Values are affected by
firms’ ethical conduct. First, we will go into the ideas the environment, by the cultural context. In this
about the association between the two and then we respect, Hofstede (1980) defines his four cultural
will perform a simple test. values: uncertainty avoidance, power distance,
 Bert Scholtens and Lammertjan Dam

individualism versus collectivism, and masculinity systems in place to deal with such situations which
versus feminism (see Data and methodology). Hood will, in our opinion, result in more attention being
and Logsdon (2002) as well as Singh et al. (2005) use paid to codes of conduct and ethical policies.
the Hofstede dimensions to assess the international In order to test for these hypotheses, we use a
differences in business ethics. However, both studies simple linear model of the following general form:
only investigate three countries and do not use the
exact scores on the Hofstede indicators in their ETHICSi ¼ ai þ bi CULTUREi þ ei :
analysis.
Now, we try to relate the Hofstede (1980, 1991) Where ETHICSi is the dependent variable reflecting
data to the firms’ scores with respect to ethical the score of the average firm in a country on one of
conduct. Given the discussion above and the the indicators of ethical values (human rights, codes
description of the data in Data and methodology, we of ethics systems, codes of ethics communication,
expect that Hofstede’s indicators are significantly codes of ethics implementation, stance on corrup-
related to the various attributes of firms’ ethical tion), ai and bi are parameters, and CULTUREi is a
policies. We expect that power distance and mas- vector of the explanatory variables. For this vector,
culinity are negatively related to firms paying a lot of we take as independent variables the ones suggested
attention to ethical issues. This is because power by the Hofstede study (uncertainty avoidance,
distance measures societal inequality. We assume individuality, power distance, masculinity), and ei is
that countries that are characterized by relatively an error term. Please note that this approach is a very
more inequality will also be characterized by rela- simple and rough one in which we implicitly make a
tively little attention for ethics. As to masculinity, we lot of assumptions about the dataset. Many of them
expect that firms in countries that are more assertive will not hold. However, the estimations are under-
will regard their ethical policies of little importance taken to arrive at least at some preliminary insights
and that they have a lower score in this respect. On into the association between the ETHICS and
the other hand, we expect that individualism and CULTURE variables.
uncertainty avoidance are positively related to ethi- Table 3 gives the estimation results from our
cal conduct. Individualism puts an agent’s own regressions of this model. All estimations have a
responsibility on the foreground and, therefore, we reasonable explanatory power and the F-test shows
expect that in countries with a relative high score on that the models appear to be adequate descriptors.
this indicator, firms will pay more attention to their However, given the small number of observations,
ethical policies. As to uncertainty avoidance, we we have to be careful with drawing conclusions
expect a positive association because firms in coun- from these results. It appears that power distance and
tries that feel relatively more threatened by uncertain masculinity do have a negative association with the
and unknown situations will want to have the culture variables but in most circumstances, except
TABLE 3
Estimation results (17 countries)

Human rights Ethics systems Ethics Ethics Corruption

communication implementation

Coefficient p-value Coefficient p-value Coefficient p-value Coefficient p-value Coefficient p-value

constant 1.8903 0.02 )1.9534 0.02 1.3768 0.00 )1.5629 0.07 0.9765 0.02
UAI 0.0151 0.02 0.0111 0.07 0.0029 0.31 0.0084 0.20 0.0041 0.20
IDV 0.0021 0.76 0.0266 0.00 0.0133 0.00 0.0348 0.00 0.0146 0.00
PDI )0.0249 0.01 )0.0063 0.43 0.0002 0.95 )0.0014 0.87 )0.0018 0.66
MAS )0.0229 0.00 )0.0021 0.68 )0.0025 0.32 )0.0080 0.18 )0.0036 0.21
adj. R2 0.6974 0.5811 0.5347 0.6126 0.5555
F-sign. 0.0008 0.0049 0.0089 0.0032 0.0069
 Cultural Values and International Differences

for human rights policies, this relation is insignifi- systems of the code of ethics (comprehensiveness), its
cant. Uncertainty avoidance and individuality are governance of bribery and corruption, and its human
positively associated with the ethical conduct vari- rights policies. We find that there are significant
ables. In the majority of the cases this is a significant differences between these attributes in the 24
relationship. Individuality is highly significant with countries and among the 35 industries investigated.
the ethical variables, except with human rights pol- For example, firms from the US, Australia and
icies. Uncertainty avoidance only is significantly Scandinavia perform significantly better than the
positive associated with ethical policies in the case average firm in the sample, whereas those from
of human rights policies and the codes of ethics Luxembourg, Singapore and Hong Kong perform
systems. relatively poor. We can not detect a clear relation
These results in part confirm our hypotheses. The between economic development and firm’s ethical
‘strongest’ finding is for the positive association be- policies. For example, when we associate the ranks
tween individuality and ethical conduct, but not with of the 24 countries on ethical policies with the
human rights policies. Uncertainty avoidance has the countries’ ranks on per capita GDP, we have a
expected positive sign and is significant in two of the correlation coefficient of only 0.24. Please keep in
five cases. Masculinity also has the expected negative mind that we look into firms’ ethical policies, that
sign but is significant in one case only. Power distance are their human rights policies, the governance of
has the expected negative sign in four of the five cases bribery and corruption, and the systems, imple-
but is significantly negative in only one case. Power mentation and communication of their codes of
distance is positive but insignificantly associated with ethics. On the basis of our dataset, it is not possible
ethics communication. to assess the ethical performance or the ‘true’ ethical
The results are in line with those found elsewhere behavior of the firms. Our findings suggest that
in the literature. Especially, they confirm the findings firms’ non-financial conduct is shaped by a combi-
of, among others, Langlois and Schlegelmilch (1990) nation of firm specific, industry specific, country
about the US, the UK, France, and Western-Ger- specific and global factors. Furthermore, each firm’s
many for a much larger sample of countries and firms. unique set of characteristics is seen to shape the
More specifically, our findings extend and generalize responses of the firm to specific challenges.
the observation by others such as Langlois and We also undertook a very preliminary investiga-
Schlegelmilch (1990) and Bondy et al. (2004) that tion into how the ethical conduct of firms might be
there are significant differences in the codes of ethics associated with Hofstede’s societal norms and cul-
to the observation that there also are significant dif- tural values. This analysis was undertaken in a simple
ferences with respect to the quality of these codes as but novel manner. In many cases, we find that
assessed by an external independent rating agency. specific cultural values can be significantly associated
Furthermore, our association between cultural values with ethical policies of firms in the countries under
and different attributes of codes of ethics substantiates investigation. Especially, individualism and uncer-
the ideas put forward by Seth and Samal (1998). The tainty avoidance are positively associated with firms’
results also complement the conclusions derived from ethics, whereas masculinity and power distance tend
sectoral, country, and functional studies by, among to be negatively associated. These observations are in
others, Van Tulder and Kolk (2001), Kaptein (2004), line with those found elsewhere in the literature (see
Lindfelt (2005), and Stevens et al. (2005). Gnyawali, 1996; McGrath et al., 1992; Sanyal, 2005;
Thomas and Mueller, 2000).
For companies, our research implies that they
Conclusion should be well aware of the differences in business
ethics in different countries and industries. This
On the basis of our analysis, we find for our sample especially seems relevant if they want to export or
of almost 2,700 firms in 24 countries that the loca- invest abroad. Incongruence may lead to smaller
tion where the firm is headquartered appears to be a chances of acceptance of the firms’ products and
significant factor when it comes to the assessment of services and/or to higher costs with respect to
the firm’s communication, implementation and the acquiring human or financial resources.
 Bert Scholtens and Lammertjan Dam

The major weakness of our study is that, so far, APPENDIX 1

we lack a clear-cut theory about the exact interac- Continued
tion between ethics and culture. Therefore, we are
unable to actually put hypotheses to the test. Rather, Number of firms % of total
our research results in preliminary findings about the
associations between the two. Furthermore, the Luxembourg 3 0.1
Netherlands 38 1.4
quality and timeliness of the dataset (especially
New Zealand 23 0.9
the culture variables) is a matter of concern.
Norway 13 0.5
To conclude, we have established that there are Portugal 8 0.3
significant international differences in ethical poli- Singapore 50 1.8
cies. Cultural values are an important determinant in Spain 48 1.8
this respect. As such, our analysis of variance has Sweden 42 1.6
confirmed and generalized notions that have existed Switzerland 45 1.7
for long in the literature. The preliminary regression UK 656 24.5
analysis suggests how different cultural values are to USA 651 24.3
be associated with firms’ ethical conduct. Our Total 2,683 100.0
research also gives rise to new questions. For
example, a very interesting and logical question is
whether firms’ attitude towards ethical issues is APPENDIX 2
related to ethical performance. A major challenge we Composition of the data sample with respect to
face is to come up with a theory of how ethics and industries
culture interact. Also, we would love to have access
to better data about societal norms and cultural Sector Number % of
values in a much larger number of countries and, of firms total
especially, industries. Further research will have to
shed light on these matters. Aerospace & Defence 26 1.0
Automobiles & Parts 65 2.4
Banks 184 6.9
Beverages 33 1.2
Chemicals 90 3.4
Construction & Building 117 4.4
APPENDIX 1 Materials
Composition of the data sample with respect to Diversified Industrials 42 1.6
countries Electricity 62 2.3
Electronic & Electrical 96 3.6
Number of firms % of total Equipment
Engineering & Machinery 98 3.7
Australia 115 4.3 Food & Drug Retailers 36 1.3
Austria 13 0.5 Food Producers & Processors 79 2.9
Belgium 15 0.6 Forestry & Paper 27 1.0
Canada 85 3.2 General Retailers 124 4.6
Denmark 15 0.6 Health 84 3.1
Finland 16 0.6 Household Goods & Textiles 76 2.8
France 79 2.9 Information Technology 115 4.3
Germany 89 3.3 Hardware
Greece 15 0.6 Insurance 75 2.8
Hong Kong 107 4.0 Leisure & Hotels 80 3.0
Ireland 16 0.6 Life Assurance 30 1.1
Italy 54 2.0 Media & Entertainment 138 5.1
Japan 487 18.2 Mining 31 1.2
 Cultural Values and International Differences

APPENDIX 2 Brenkert, G. G.: 1995, ÔThe Environment, the Moralist,

Continued the Corporation and Its CultureÕ, Business Ethics
Quarterly 5, 675–697.
Sector Number % of Chryssides, G. and J. Kaler: 1996, Essentials of Business
of firms total Ethics (McGraw-Hill, London).
Crane, A. and D. Matten: 2004, Business Ethics (Oxford
Oil &Gas 95 3.5 University Press, Oxford).
Personal Care & Household 28 1.0 De George, R. T.: 1999, Business Ethics 5(Prentice Hall,
Products Upper Saddle River).
Pharmaceuticals & Biotechnology 103 3.8 Diller, J.: 1999, ÔA Social Conscience in the Global
Real Estate 122 4.6 Marketplace? Labour Dimensions of Codes of Con-
Software & Computer Services 107 4.0 duct. Social Labelling and Investor InitiativesÕ, Inter-
Speciality & Other Finance 123 4.6 national Labour Review 138(2), 99–129.
Steel & Other Metals 37 1.4 Ferrell, O. C., J. Fraedrich and L. Ferrell: 2000, Business
Support Services 137 5.1 Ethics: Ethical Decision Making and Cases 4(Houghton
Telecommunication Services 66 2.5 Mifflin, Boston).
Tobacco 9 0.3 Garretsen, H., R. Lensink and E. Sterken: 2004,
Transport 106 4.0 ÔGrowth, Financial Development, Societal Norms and
Utilities - Other 41 1.5 Legal InstitutionsÕ, Journal of International Financial
Water 2 0.1 Markets, Institutions, and Money 14, 165–183.
Total 2,683 100.0 Gnyawali, D.: 1996, ÔCorporate Social Performance: An
International PerspectiveÕ, Advances in International
Comparative Management 11, 251–273.
Heal, G. M.: 2005, ÔCorporate Social Responsibility? An
Acknowledgements
Economic and Financial FrameworkÕ, Geneva Papers on
Risk and Insurance: Issues and Practice 30(3), 387–409.
We wish to thank EIRIS for sharing their data with us.
Hofstede, G.: 1991, Culture and Organizations: Intercultural
We are very grateful to IMUG – Hannover (Germany)
Cooperation and its Importance for Survival – Software of the
for discussing the EIRIS database. We especially want
Mind (McGraw-Hill, London).
to thank Silke Riedel and Kirein Franck. EIRIS nor
Hood, J. N. and J. M. Logsdon: 2002, ÔBusiness Ethics in
IMUG can be held responsible for the analysis we con-
the NAFTA Countries: A Cross-cultural ComparisonÕ,
duct on the basis of their data. Furthermore, we thank
Journal of Business Research 55, 883–890.
several participants of the international workshop on
Kapitein, M.: 2004, ÔBusiness Codes of Multinational
CSR at London Metropolitan University, October
Firms: What Do They Say?Õ, Journal of Business Ethics
2005, and of on Business Ethics at the Freie Universität
50, 13–31.
Berlin, May 2006, as well as the participants in research
King, A. A. and M. J. Lenox: 2000, ÔIndustry Self-regu-
seminars at the University of Groningen. Especially, we
lation Without Sanctions: the Chemical Industry’s
acknowledge the help and useful suggestions of Johanna
Responsible Care ProgramÕ, Academy of Management
Fernholm, Lise-Lotte Lindfelt, and Elmer Sterken.
Journal 43, 698–716.
However, only the authors are responsible for all inter-
Kitson, A. and R. Campbell: 1996, The Ethical Organi-
pretations and conclusions as well as for all remaining
sation (Ethical Theory and Corporate Behaviour,
errors and omissions.
Chippenham, Wiltshire).
Koehn, D.: 2005, ÔIntegrity as a Business AssetÕ, Journal of
Business Ethics 58, 125–136.
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