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ASIA PACIFIC JOURNAL OF MANAGEMENT, VOL. 17, 493-5 18 (2000)
An evaluation of Hong Kong’s corporate code of ethics initiative
ROBIN STANLEY SNELL’ AND NEIL C. HERNDON, JR.’
’ Department of Management. Ltngnan University, 8 Cade Peak Road, Tuen Mun, Hong Kong E-mad: robin@ln.edu.hk
’ Department of Management, Marketing~ and International Business, College of Business, Stephen E Austin State University, P.0. Box 9070, SFA Station, Nacogdoches.
TX 75962-9070, USA E-mail: nherndon@sfasu.edu
A campaign by the Independent Commission Against Corruption, begun in 1994, led to over 1,600 Hong Kong companies and trade associations adopting codes of ethics by December 1996. This study analyzed motives for code adoption; code content; how codes were developed, supported and enforced; and code impact. Primary data was collected through cross-sectional and longitudinal surveys, semi-structured interviews, observation, and document analysis. Press cuttings and published statistics were also used. Main findings were that some best practice prescriptions for code adoption were not followed, but that codes nonetheless helped preserve ethical standards and an anti-corruption image. Directions are suggested for further research into cultural effects on business ethics policy, practice and effectiveness.
1. INTRODUCTION
As Hong Kong’s 1997 transition to sovereignty approached, reports of bribery in
cross-border trade with the Chinese mainland (Chew 1993; Dobson 1993; Torode
1994) rekindled fears of corruption returning to Hong Kong (Anonymous 1996;
Kraar 1995; Sinclair 1993; Schoenberger 1996). Many felt that the achievements of
the Independent Commission Against Corruption (ICAC) (McDonald 1994) were in jeopardy. In October 1993, Governor Chris Patten directed ICAC to launch an anti-
corruption in business campaign. ICAC and six chambers of commerce convened a
conference on business ethics in May 1994, urging business organizations to adopt codes of ethics. Twelve months later, the Hong Kong Ethics Development Centre
opened, housing many codes developed during the intervening year (Chan and Leung
1995), and joining ICAC’s Community Relations Department in advising companies on how to develop their own codes of conduct and improve ethics standards.
The purpose of this paper is to assess how effectively such codes were developed,
disseminated, and supported by Hong Kong companies during the extensive government-led campaign in the run-up to the July 1997 return to China.
CCC 0217-45611001040493-26
0 2000 BY JOHN WILEY 81 SONS (ASIA) LTD
494 R. S. SNBLL AND N. C. HEKNDON, JR.
2. CODES OF ETHICS AND THEIR EFFECTIVENESS
Corporate codes of ethics present formal company policies on appropriate ethical
behavior for employees (Ferrell and Fraedrich 1994: 170). Codes are often advocated
as means of influencing employee behavior, but both practitioners (Bennett 1988) and academics (DeGeorge 1990: 391; Kjonstad and Willmott 1995; Matthews 1987)
have questioned their effectiveness. Empirical studies of the effectiveness of corporate
codes of ethics have shown mixed results. Ferrell and Skinner (1988) found codes had a positive impact on ethical behavior, while Akaah and Riordan (1989) and Cleek
and Leonard (1998) found that they had no impact on ethical behavior and decision-
making, respectively. Below, we review various considerations raised and prescriptions
offered regarding code effectiveness in the business ethics literature.
INFLUENCES ON CODE EFFECTIVENESS
Informal corporate cultures
Organizational cultures predispose employees towards certain kinds of action and are
sources of rationalizations and justifications for such actions (Trite and Beyer 1993: 75). They include informal social control systems that prescribe and proscribe behavior
in relation to ethical issues (Sims 1998; Weaver et al. 1999). In Chinese societies,
which incline toward collectivism rather than individualism, group norms are especially
likely to influence ethical conduct (Lu et al. 1999). In some organizations, the informal corporate culture may condone unethical behavior and thus encourage it
(Ferrell and Weaver 1978). Employees who believe their organization has relatively few ethical problems tend to be less tolerant of unethical behavior than those who
believe their organization has many ethical problems (Akaah and Riordan 1989).
Given the influence of corporate culture on ethical decision-making (Nwatchukwu and Vitell 1997), statements in a code of ethics are empty unless they are integrated
into organizational norms, or become so (Farrell and Cobbin 1996; Weaver 1995).
Actions and mentality of top management
Senior managers are prominent role models for ethical (or unethical) behavior;
their management style and mentality embodies a moral outlook transmitted to subordinates (Murphy and Enderle 1995). They encourage ethical behavior if they
frequently communicate in both words and actions that unethical behavior will not
be tolerated (Trevino and McCabe 1994: 412). Executives who have relatively long time horizons, are ‘people orientated’, have people skills, are not numbers-obsessed
(Lincoln et al. 1982), and openly discuss ethical problems with others when they
arise in daily work (Nielsen 1990) tend to convey a more positive ethical influence (Hunt et al. 1984).
AN EVALUATION OF HONG KONG’S CORPORATE CODE OF ETHICS INlTIATlVE 495
The business environment of particular industries may influence the effectiveness of codes of ethics. Staw and Szwajkowski (1975) found that in less munificent
environments, organizations will exert more effort to obtain resources by engaging
in legally questionable activities. Highly competitive markets may encourage unethical behavior (Sethi and Sama 1998).
Local cultural values
Integrative social contracts theory (ISCT) holds that ‘hypernorms’ apply universally,
but leave space for different local norms (Donaldson 1993; Donaldson and
Dunfee 1994; Fritzsche, 1997: 43-47). ISCT also suggests rules to settle matters when local norms conflict. Global codes of ethics have been advocated (Payne et al.
1997, Smeltzer and Jennings 1998), but corporate cross-cultural implementation
requires concerted effort (DeGeorge 1993; Jackson 1997). Since the local cultural environment affects perceptions of and reasoning about ethical problems (Armstrong
1996; Fritzsche et al 1995; Husted et al. 1996; Schlegelmilch and Robertson 1995),
employees around the world may not be equally receptive to a single global code developed at HQ (Singhapakdi et al. 1995). Laczniak and Murphy (1993: 218-221)
recommend that ethics codes of transnational companies should have a core based on
universal values, plus a peripheral element tailored to local norms, but consistent
with core values. Cultural values may also influence code development. In the U.S., individualistic
values favor freedom from top-down organizational controls (Trite and Beyer 1993: 56-58); accordingly, Collins and O’Rourke (1993) suggest developing codes bottom-
up. In democratically oriented Sweden, some companies developed codes by consultation
throughout the entire company (Brytting 1997: 673, 680). In contrast, Hong Kong is characterized by high power distance (Wong and Birnbaum-More 1994), by ruler-
subject relationship patterns (Tu 1998: 125-126), and by filial piety (Redding 1990:
61-64). This legitimizes orders by the organizational head (Westwood and Chua
1992) and emphasizes subordinates’ duty to obey (Westwood and Chan 1992). It follows that as a matter of loyalty (Hansen 1994: 72) and proper conduct (Steidlmeier,
1997: 135), Chinese staff would respect written codes imposed top-down, even
though codes are not part of traditional Chinese management. Special care would be required in Hong Kong subsidiaries of foreign multinationals, however, to ensure
congruent interpretation of core code items.
Code content
Even where top-down moral governance is assumed, codes’ effectiveness may be enhanced if senior management consults with employees about code content.
496 R. S. SNELL AND N. C. HERNDON, JR.
This enables work-related moral problems to be addressed (The Business
Roundtable 1988). Codes have no constructive value if readers do not understand them (Stevens
1994). Yet, codes are characteristically difficult to read (Sanderson and Varner 1984).
Codes should be relevant to the ethical issues actually arising at work (Doig and Wilson 1998), but it is inappropriate to fill them with predetermined rules, for
these cannot regulate behavior where members’ tasks are complex and unpredictable
(Cassell et al. 1997: 1082). Payne et al. (1997: 1732) advise that codes should, instead, have a positive tone, and be based on ‘Theory Y’ assumptions. Thus, codes
may seek generally to guide and inspire individuals to make their own moral decisions
(Farrell and Farrell 1998), and encourage employees openly to discuss ethical dilemmas as they arise (Munro 1997: 104).
As mentioned above, consistency with regard to core organizational values is
important. This applies between business functions (Trevisan 1986) and across hierarchical levels, as well as between locations. While some employees may be more
hostile toward codes, no one should be exempt (Bennett 1988).
Anti-corruption is an important focus, but various sources argue that codes should also encourage wider social responsibility and good citizenship, by addressing
environmental protection, safety, community impact, and so on (Blodgett and
Carlson 1997: 1369; Cressey and Moore 1983; ICAC undated; Payne et al. 1997: 1730-1731).
Implementation of codes
Rewarding conformity to codes may be more effective than punishing nonconformity,
even if such rewards implicitly acknowledge the existence of unethical conduct within the organization (Purcell 1982; Trevifio and Youngblood 1990). Either way,
employees should not be disadvantaged by or penalized for adhering to a code. Codes
that are not systematically enforced or integrated into organizations have limited
impact (Donaldson 1992: 80; Ferrell and Pride 1981). Enforcement should include discipline commensurate with the degree of the ethical failure (Kaikati and Label
1980), and be equally applicable at all organizational levels. Codes should be clearly
and widely promoted (Cleek and Leonard 1998: 627) and formal training provided for employees at all levels (Laczniak and Murphy 1985; McDonald 1998; Raiborn
and Payne 1990).
SUMMARY OF FACTORS TENDING TO ENHANCE CODE EFFECTIVENESS
Table 1 summarizes prescriptions of ‘best practice’ in the literature on codes of
ethics. The effectiveness of Hong Kong’s mid 1990s codes of ethics initiative may
reflect the degree to which these factors were present or absent.
AN EVALUATION OF HONG KONG’S COKPORATE CODE OF ETHICS INITIATIVE 497
Table 1 Factors tending to enhance the effectiveness of codes
Factors Key Elements
Informal corporate culture
Informal organization supports the code’s values Existing ethical problems are limited Co-workers are perceived to behave ethically
Actions and mentality of top management
External business environment
Regularly express and demonstrate intolerance of unethical behavior Long time horizons ‘Theory Y’ and people skills oriented Not exclusively concerned with ‘the numbers’ Inspire shared ethical dialogue and questioning
The industry supports the code’s values Business environment is reasonably munificent
Local cultural values
Consultation
Code content
Societal culture supports the code’s values Assumed duty to obey officral prescriptions
Consultation as needed to confer legitimacy and relevance
Reasonably readable Covers relevant potential problems and issues Offers clear guidance for personal judgements Encourages open discussion of ethical dilemmas Applicable at all seniority levels and in all roles Consistent regarding core values Covers anti-corruption and social responsibility
Implementation of codes
Linked to reward systems Enforced through disciplinary procedures Widely and clearly publicrsed Code content explained and reinforced by training
3. THE RESEARCH STUDY
RESEARCH QUESTIONS
Our research questions were as follows:
1. What impact did the mid-1990s codes of ethics campaign in Hong Kong have
on moral behavior, moral climate, and employees’ moral development?
2. How effective did the following items support or impair the adoption of codes of ethics: code development processes? Code content itself? Code-related
supporting arrangements? Corporate culture? Top management mentality? Broader cultural values? The business environment? Other elements particular to Hong
Kong?
3. What lessons can be drawn regarding the use of codes of ethics as means of assuring ethical business conduct?
498 R. S. SNELL AND N. C. HERNDON, JR.
RESEARCH DESIGN
We adopted a multi-method, naturalistic research design, combining various qualitative
and quantitative approaches, studying code adoption and code implementation, and the underlying reasoning. We arranged longitudinal assessment, but not a quasi-
experimental research design, which would have measured moral behavior and moral atmosphere before, during, and after code adoption. This was ruled out by the pace,
complexity, and uncontrollability of events, involving many organizations and actors,
by the sensitivity of the topic, and by the time required to gain research access.
METHODOLOGY
Initial questionnaire survey
In late 1995, survey questionnaires were mailed to managing directors in 3,326
Hong Kong companies listed in the ‘Directory of Business Code of Conduct’ (Hong
Kong Ethics Development Center 1995), the Hong Kong Stock Exchange, and the Federation of Hong Kong Industry Members’ Directory 1995, or referred by trade
or professional associations; 220 trade/professional associations were also surveyed.
Prepaid reply envelopes were provided. The survey investigated (a) whether the
organization had a code, (b) reasons for adoption or non-adoption, and (c) related ethics policies and arrangements. The companies were invited to provide copies of
their code, and to volunteer for further research. Just over 5% of the companies (153
code adopters, 18 non-adopters) and just over 14% of trade/professional associations (31 code adopters) replied. A total of 17 companies, all code adopting, volunteered
for further research. These lower than desirable response rates are explained by the reticence that companies often have to discuss sensitive topics such as ethics (Churchill
1995: 67O), and the difficulty of reaching company ethics officers, who were not
listed in directories. They are, at least in part, compensated by the multi-method
approach (Flick 1992: 194).
Focal companies
The 17 focal companies hosted semi-structured interviews and a longitudinal
questionnaire study. Reflecting the Hong Kong economy’s services orientation, six
were in property/real estate, two manufacturers, two in transport, two in import/
export, two in hospitality or catering, and one each in insurance, energy and
communication. They employed from 30 to over 11,000 employees. There were
nine subsidiaries or joint ventures of foreign-owned companies, reflecting Hong Kong’s international ethos, but most had less than 5% expatriate staff and none had
above 30%.
AN EVALUATION OF HONG KONG'S CORPORATE CODE OF ETI~ICS INITLUI~E 499
Semi-structured intemiews
Between June and September 1996, semi-structured, face to face or telephone interviews
were conducted with two managers from each focal company (just one in the 17th),
selected by the company’s code administrator as ‘ordinary’ but well informed. Most, with permission, were tape-recorded. Of the 33 interviewees, all bar one were Hong
Kong Chinese. Their median length of service was five years. In January 1999, an
additional informal interview was carried out with a code administrator in the 18th company. Most interviewees were departmental managers or their deputies, four
were in director or deputy director posts. Open-ended questions were asked about
(a) company moral climate or atmosphere, (b) code development, (c) arrangements
to support the code, (d) effects of code adoption on behavior, relationships and company image.
Analysis of code content
Two researchers content analyzed 41 company codes and a model code developed by
ICAC, which was widely available to assist in code development. Of the company codes, 15 came from focal companies and 26 were randomly selected from other
surveyed companies. Survey replies indicated that 19 of the 41 codes had been
‘tailored specifically to the Hong Kong office’ and 20 had been ‘borrowed from the ICAC model code’. The 41 companies comprised seven manufacturers, five from
banking and financial services, five from real estate, four from communications or
publishing, four from hospitality or catering, and 16 providers of various other services. They were thus a heterogeneous cross section of Hong Kong industry. The
researchers analyzed the codes independently (using the English version if available),
item by item, according to (a) content theme, (b) inferred company motivation, and (c) moral appeal. Levels of initial agreement for these three types of categorization
were 91%, 89% and 92%, respectively, for company codes. The percentage of line
space occupied by the various categories was calculated for each code. To assess content themes, the researchers began with 21 preordained thematic
categories drawn from previous research, adding another 11 as they arose, thus
ending up with 32 categories. To assess inferred company motivation, five categories emerged. These were: (a)
corporate self defence, emphasising protecting the company against loss, damage or
legal liability; (b) guiding and supporting the workforce, explaining how to meet the company’s moral expectations, especially in situations that are ambiguous,
embarrassing or uncomfortable; (c) professional standards of quality and responsibility,
stressing compliance and positive outcomes; (d) wider social responsibility, obligation toward the broader community; (e) serving customers, caring for their needs and
satisfaction.
500 R. S. SNELL AND N. C. HERNDON, JR.
For assessing moral appeal, the coding protocol derived from Kohlberg’s six-
stage model of moral reasoning (Kohlberg 1981, 1986; Kohlberg and Ryncarz 1990; Snarey 1985). This is summarized in Table 2. While the model is usually taken to
represent a theory of developmental sequence, here the focus was for analyzing moral
reasoning expressed in written documents. We defined the ‘moral appeal’ of a code item or part thereof, as the primary moral stage or stages in readers to which the
item was apparently aimed or directed.
Table 2 Coding rationale to assess company codes’ moral appeal
Moral stage Emphasis and tone
Threat of punishment. Dismissal, penalties, disciplinary or legal action.
Instrumentality. Reminder or implication that it is in one’s best interest to comply.
Meeting expectations. Stress on company reputation, loyalty, harmony, co-operation, not upsetting clients, etc. Presentation of rules as to what the company expects of dutiful employees.
4 Formal, rystemutic. Setting out the formal ‘ethics processing machinery.’ Code items are presented as a means of ensuring effectiveness, professionalism, stability, order and consistency.
5 Public-q&ted. Mentioning deeper moral principles, such as justice, welfare, care and service for the wider commumry, benefit to a variety of stakeholders.
6 f@en and reflerzue. Encouraging widespread moral conversation and questioning, inviting critical reflection on ethical issues as they arise, calling for questions of deeper principle co be raised at any time.
Longitudinal questionnaire survey
The contact person in each focal company provided a list of up to 50 managers
(topped up with supervisory or professional staff), from which an initial random selection of 25 was made, to whom longitudinal survey questionnaires were sent.
Where less than eight replies were received from a company, more random selections
were made. From mailings to 472 managers, 197 replies to the first round of
questionnaires were received from December 1995 to March 1996. For each company, the second round was mailed out 7-8 months after the first, with 112 replies
received between July and December 1996. The use of aliases permitted the
identification of 73 pairs of questionnaires from managers across 16 of the focal companies who replied to both rounds of the survey.
The questionnaire included five Likert scale items with nine rating points. The
items covered (a) honesty, (b) avoidance of harm, (c) accuracy of records, (d) taking responsibility, and (e) fair treatment of business partners. Also included was a 9-item
moral ethos questionnaire (MEQ) based on the Kohlberg stages, not measuring individual
moral reasoning, but yielding a profile of the relative strengths of the six stages within the organization’s moral atmosphere (see Snell et al. 1996, 1997). MEQ items
AN EVALUATION OF HONG KONG’S CORPORATE CODE OF ETHICS INITIATIVE 501
present six sub-items corresponding to the moral stages for rank ordering according
to perceived match with typical organizational behavior.
The second round longitudinal questionnaire was identical to the first, except that an extra item asked respondents to indicate on a 7-point Likert scale the extent
to which they agreed or disagreed that moral conduct in their company had improved
in the previous seven month period.
The Cormption Perception Index
Published statistics were examined to establish the pattern of Hong Kong’s scores
on the Corruption Perception Index (CPI) and their overall position on the CPI
among a group of nations over the period 1980 to 1998 (Transparency International
1999a; Internet Center for Corruption Research 1999). The CPI is a ‘poll of polls’ presented as a standardized index of perceived corruption, with a score of 10 indicating
‘total integrity’ and 0 indicating the worst possible level of corruption (Transparency International 1999b, 1999c, 1999d).
4. MAIN FINDINGS
ADOPTION OF CODES
Year of adoption, and incidence
Figure 1 shows that there was a dramatic increase in code adoption in the mid-
1990s. Other sources corroborate this increase. In May 1994, only 20 out of 182 companies listed on the Hong Kong Stock Exchange had codes (ICAC 1994). Around
1,000 trade associations and companies had adopted codes by May 1995 (Hong
Kong Ethics Development Center 1995), a figure that reached 1,611 by the end of December 1996 (Hong Kong Ethics Development Centre 1997).
1990 and before
Fig. 1 Date of code adoption
unknown
502 R. S. SNELL AND N. C. HERNDON, JR.
Administration and dissemination
Responsibility for code administration remained at director level in 20% of the 153
companies, and was delegated to a single manager or officer below director level in 76% of the companies. The job function of the code administrator, identified by
83% of the companies, was most often human resources or personnel (34% of companies), general management (22%), administration or secretarial (18%), and
audit, finance or accounting (7%). Most companies (70%) indicated that they had
circulated their code to all staff, 5% circulated to senior staff only, 5% displayed the
code on notice boards only, and a further 4% included it in their staff handbook.
Support, enforcement and training
The initial questionnaire survey indicated that 49% of the companies had code-
related disciplinary procedures, 10% had an ethics committee, 6% had an ethics
counsellor or ombuds-person, and 20% had organized ethics training. Interviews suggested that ethics training tended not to be comprehensive, and did not involve
all levels of staff. Interviewees indicated, nonetheless, that ethics training activity
had increased from early 1996 (i.e. after the initial survey), typically presentations for new recruits by officers from the ICAC community relations department. Some
interviewees indicated that their companies had drawn attention to their code by
issuing reminder letters, or by publishing items on ethics in the company newsletters.
Reasons for code adoption
Figure 2 summarizes replies to Likert-scale questions in the initial survey, concerning why codes had been adopted (5 = strongly agree, 3 = neutral, I = strongly
disagree). Ratings suggested that code-adopting companies had not been reluctant
to adopt codes and had envisaged many potential advantages in having them. Table 3 summarizes the main reasons for code adoption, given in interviews, and in response
to an open-ended question preceding the Likert-scale items in the initial survey. Two
researchers independently content analyzed these open-ended replies, either matching them to the Likert scale items or creating new categories as appropriate, reaching
initial agreement on 87% of categorizations of company replies. The open-ended
replies indicated that the main reasons for adopting codes were in order to control employees’ ethical behavior, to provide legal protection to the company, and to
maintain company image and reputation.
AN EVALUATION OF HONG KONG’S CORPORATE CODE OF ETHICS INITIATIVE so3
Maintain ethlcal standards
Legal protection
Image or reputation
Better service
Protection to staff
Quality of working life
Expected by government agency
Changes in Hong Kong
Expected by head office
Fashionable
Fig. 2 Rated reasons for code adoption
Table 3 Given and perceived reasons for codes
Reasons for adoption 56 of o/c open-ended mentions in
company replies interviews (N = 80) (N = 64)
Raising awareness, explaining expectations, moral guidance
To maintain the image or reputation of the company
Regulating, controlling, ethical compliance by employees
To protect the company against unlawful action by staff
To improve the quality of working life for staff
To ensure fair dealings with suppliers or subcontractors
Generally maintain ethical standards in the company
To protect staff against unfair pressures or demands
To provide a better service to clients or customers
Expected by government/ICAC/regulatory body co have one
Expected by head office to have one
To reflect changes in Hong Kong’s circumstances
It is fashionable to have a code of ethics
Other reason
Total
20
18
14
12
5
5
5
4
4
4
3
2
1
3
100
42
3
28
13
6
0
2
0
0
0
0
0
3
100
504 R. S. SNELL AND N. C. HERNDON, JR.
How codes were developed
One interviewee reported:
‘An officer from the district office of the ICAC community relations department
contacted my boss, the human resources director, saying that they were urging all listed companies to adopt codes of conduct. The ICAC officer knew my boss
well, as they had previously jointly organized social activities for our employees.
She came to meet me three times in order to help draft our code of conduct, and we also had some telephone conversations about it. My boss was at the first
meeting, and delegated the job of drafting the code to me, though I had to get
his final approval, and that of our chairman and managing director. The ICAC
officer brought a copy of the model code, and suggested that we base our code on it. I wrote a number of changes on a copy of the model code and gave them
to her for amendments. In the end, we changed quite a few things and added some others, in order to suit our company’s circumstances and organizational
structure. After I had agreed a final draft with the ICAC representative, whose
office did all the secretarial work, she gave me a soft copy of our code. Our company must be rather unusual, because our chairman and managing director
agreed that the items on social responsibility were very important and should
be included. He even said that they should not come so near the end, as they
were in the model code, so we changed the order.
The company featured above indicated in the initial survey that it had ‘borrowed
from the ICAC model code without significant changes’, as did 50% of initial survey respondents and more than half the focal companies. Inspection of a sample of
borrowed codes (see below) suggested that companies took cues from the model code, but borrowed selectively by paraphrasing, deleting and adapting rather than
direct copying. In the initial survey, a further 9% of companies indicated that they
had ‘borrowed from the parent HQ outside Hong Kong’ and only 28% indicated
that their code had been ‘tailored specifically to the Hong Kong office.’ Unlike the case quoted above, most interviewees, although middle managers,
had neither been involved in nor consulted about the development of the code. Many
appeared not to know how it had actually been developed. In seven focal companies there was no known involvement below director level in the code development. In
a further six focal companies, involvement was confined to directors and the human resources department. Wider involvement was indicated in only four companies.
Code development appeared to be an opaque process with codes essentially imposed
from the top down.
AN EVALUATION OF HONG KONG’S CORPOKATE CODE OF ETHICS INITIATIVE 505
CONTENT OF CODES
Content themes covered
Table 4 lists the 12 themes given most coverage in company codes, in order of
median proportion of code space occupied. The top 12 themes were the same whether
codes were ‘tailored’ or ‘borrowed’, and their rank order was highly correlated (Spearman’s Y = 0.785, P < 0.01, N = 12; Kendall’s J b = 0.595, P < 0.01, N = 12). As
suggested in the far right-hand column of Table 4, however, company codes tended
to have their own idiosyncratic emphases.
Company codes, whether ‘borrowed’ or ‘tailored,’ focused more sharply on corruption prevention than did the ICAC model code. For example, the median
coverage of bribery, extortion and kickbacks was 36% compared with the model
code’s 17%. Companies often quoted the government ordinance on giving and receiving advantages and dwelt upon various ways (e.g. bribery, theft, fraud) in which employees
might break laws, distort official roles, and exploit company resources for private
benefit at the expense of others, including the company. Correspondingly, company codes tended to neglect social responsibility, with median coverage of 0% for
discrimination/harassment (included in six codes), duties to the community (five),
employee safety (five), ‘green’ issues (four), labour relations (four) and product/service
safety (three). Each of these social responsibility themes occupied at least 2% of space in the ICAC model code.
Table 4 Main themes in the ICAC model code and in company codes of conduct
Themes Median % Inclusion in % of ICAC Highest % space in how many model code space in a
company codes? space company codes (N = 41) code
Extortion, kickbacks or bribery
Conflict of interest
Breach of code/agreement/contract
Disclosure or use of insider information
Gambling with business associates
Moonlighting
Accuracy of records
Misuse of corporate assets
Due Process in enforcing/updating code
General purpose of the code
Channels for complaints
Proper treatment of customers
36 40
15 36
6 36
5 37
5 28
4 34
4 32
3 28
1 24
0 18
0 16
0 10
17
13
2
67
56
37
32
13
21
37
12
16
31
11
16
506 R. S. SNELL AND N. C. HERNDON, JR.
Interviewees were invited to comment on their code’s theme coverage. Nearly half, 48%, mentioned particular themes that had been useful inclusions. Among these,
bribery was mentioned by 33% of respondents, but themes other than the 12 listed
in Table 4 were mentioned by only 9%. Only 15% identified themes that they believed had been inappropriately omitted. Interviewees thus generally appeared to
regard the theme coverage and emphasis of their company’s code as reasonably
complete and appropriate.
Inferred company motivation
Median space oriented to corporate self defence was 46% among borrowed codes and 54% among tailored codes. As shown in Table 5, company codes tended to emphasize
guiding the workforce next, but neglected serving customers and wider social
responsibility. Table 5 shows that compared with company codes, the ICAC model code was oriented less toward corporate self-defence and more toward professional
standards of quality, and was less neglectful of customers and social responsibility.
These differences in inferred moral motivation between company codes and ICAC model code were confirmed by a x2 test (x2 = 25.1, d.f. = 3, p ,< 0.0001).
Table 5 Company moral motivations manifest in code items
Moral motivation
Corporate self-defence
Guiding & supporting the workforce
Professional standards of quality
Wider social responsibility
Serving customers
Median % No. of codes % of space Highest of code expressing it in ICAC 9% of any
space (N = 41) model code code
48 41 32 101)
25 38 20 91
13 36 38 66
0 5 6 14
0 4 4 27
Visual comparison of Table 5 with Table 3 (above) suggests that except for revealing
an emphasis on corporate self defence, code content analysis was broadly consistent with replies in the interviews and to the open-ended question in the initial survey
regarding reasons for code adoption. Visual comparison of Table 5 with Figure 2
suggests the code content analysis was also inconsistent with initial survey replies to two Likert scale items on reasons for code adoption, i.e. ‘better service’ and ‘quality
of working life.’ It is possible that company replies to these Likert scale items were
influenced by social desirability response bias.
Moral appgadl
Cognitive socio-moral development theory holds that the moral content of material pitched at the moral stage attained by readers is comprehensible, material pitched
AN EVALUATION OF HONG KONG’S CORPORATE CODE OF ETEIICS INITIATIVE 507
one stage higher is still morally comprehensible but is developmentally challenging,
while material two stages higher may result in moral confusion and rejection (Weber and Green 1991). We would add that material pitched lower than the developmental
stage reached by code readers may be rejected as patronizing or unnecessarily legalistic,
and may in some cases be difficult to understand on the grounds of legalistic jargon. Table 6 shows that 48% of the ICAC model code appealed to stage 4 and 36%
to stage 3. In comparison, the median stage appeal to stage 4 among company codes
was much lower (17%) and to stage 3 much higher (61%). Some space in the model code (8%) addressed stage 5, while most company codes did not do so at all.
Although many companies derived code items from the ICAC model code, they
tended not to adopt the same pattern of moral stage appeal. There was little difference between the 19 tailor made codes and the ICAC-derived codes in terms of stage
emphasis, with median code space appealing to stage 3 at 63% among the former
and 62% among the latter.
Table 6 Target moral stage appeal of codes
Moral stage Company code space targeting
particular stages (Median 5%)
No. of codes appealing to
particular stages (N = 41)
9% of ICAC model code targeting
particular stages
Stage 1 10 37 7
Stage 2 0 13 1
Stage 3 61 41 36
Stage 4 17 41 48
Stage S 0 4 8
Stage 6 0 0 0
Two considerations are important when interpreting findings about moral appeal.
The first is the likely moral development stages of the readers who were subject to
its contents. Most adults reach moral stages 3 or 4 (Hersh et al. 1979), and it may be reasonable to assume that that was the case among staff in the 41 companies. If
so, then most readers would have comprehended the moral reasoning of the model
code and most company codes, and would not have felt patronized by them. The second consideration is whether codes were part of a deliberate strategy to develop
readers’ moral reasoning. Among companies, this is unlikely, given the lack of emphasis on ethics training, but it may have been one of the intentions of the
community relations department of the ICAC. Accordingly the stage 5 aspects of the
model code would have challenged most readers, whereas in general the company
codes are unlikely to have been developmentally challenging to their readers.
508 R. S. SNELL AND N. C. HERNDON, JR.
OVERALL IMPACT
Interviewees perceptions of code impact
Two researchers discussed each recorded interviewee response and agreed each
categorization of perceived impact as ‘significant or direct’, ‘moderate’, ‘slight or
indirect’ or ‘none’. All interviewees’ mentions of impact were favorable, except one (‘a relationship might be ruined if one staff reports the improper behavior of another
to the boss’). As shown in Table 7, the greatest impact was perceived to have been
on employees’ behavior, where most perceived at least moderate impact (69%). Many
(82%) mentioned at least a slight or indirect impact on company image but most felt there had been no impact on relationships.
Table 7 Perceived code impact (% mentions)
Perceived Impact Employees’ Company behavior image
Relationships with business
associates
Staff relationships
Significant or direct 39 15 12 3
Moderate 30 12 0 3
Slight or indirect 18 55 30 18
No impact 12 18 58 76
Total (N = 33) 99 100 100 100
Perceived changes in moral conduct and moral atmosphere
Figure 3 compares matched mean ratings of five aspects of moral conduct by 73 managers on the first and second rounds of the longitudinal survey. Inspection
suggests little change. Five paired t tests (N = 73, d.f. = 72) checked if changes
in perceived honesty, avoidance of harm, accuracy, responsibility and fair treatment
were significant. The results were, respectively: t = -0.19, P = 0.85; t = -0.25,
P = 0.80; t = -0.39, P = 0.70; t = -1.16, P = 0.25; t = +0.28, P = 0.78,
indicating no significant changes. Longitudinal questionnaire responses indicated no
consistent pattern of change in moral conduct in any of the focal companies. Superficially, interviewees’ perceptions that codes positively affected employees’
behavior gave a contrary picture. A possible explanation may be that interviewees
believed that conduct would have got worse in the run-up to the 1997 transition of sovereignty, had it not been for the codes. Another explanation is that codes required
more transparency, and that staff, feeling that their actions were under closer scrutiny,
made sure to be seen not to do wrong. One interviewee reported:
AN EVALUATION OF HONG KONG’S CORPORATE CODE OF ETHICS INITIATIVE 509
9
8
7
6
5
4
3
2
1
Honesty Avoid damage to society or environment
Accuracy Responsibility
Fig. 3 Changes in perceived moral conduct
‘At festival times such as Chinese New Year staff may receive items up to HK$
500 in value or hi see courtesy gifts up to HK$lOO in cash. Every time gifts
above these amounts are offered, staff must complete a form asking permission
from the human resources director. After the code was distributed, we were amazed how many forms were submitted; nearly all were unnecessary, since the
gifts were mostly well below these amounts, but I think staff were playing safe.’
Figure 4 compares aggregate MEQ profiles of moral atmosphere from the two rounds of the longitudinal survey. The MEQ requires respondents to rank order stages, so
non-parametric statistics were used to test whether the changes had been significant.
Results of six two-tailed Wilcoxon matched pairs signed ranks tests for stages 1-6
respectively, were: 2 = +1.17, P = 0.24; 2 = +0.29, P = 0.77; 2 = -0.64,~ = 0.95; Z = -1.58, P = 0.11; Z = -2.41, P = 0.02; Z = -1.16, P = 0.25. Thus,
there had been significant change (P < 0.05) in the relative strength of stage 5, but
no other significant changes. There were significant increases in the balance of ‘lower’ relative to ‘higher’ moral stages in one local and three foreign-owned companies,
reflected in interview comments that codes made staff cautious and anxious to do the right thing, to avoid punishment.
510 R. S. SNELL AND N. C. HERNDON, JR.
Stage 1 Stage 2 Stage 3 Srage 4 Stage 5 Stage 6
Fig. 4 Change in moral ethos
Follow-up Survey Perceptions of Code lmpuct
Table 8 summarizes perceptions from the second round survey, of whether moral
conduct had improved over seven months. Only 39% agreed that there had been improvement, whereas 42% neither agreed nor disagreed and 20% disagreed. This
balance of opinion supports the analysis presented above that codes were perceived
to have had positive impact by inducing a greater sense of surveillance, thus perhaps
helping to prevent a decline in moral conduct, but that actual standards of moral conduct had not improved.
Table 8 Whether perceived conduct improved
% of Respondents (N = 106)
Strongly agree 2
Agree 14
Slightly agree 23
Neither agree nor disagree 42
Slightly disagree 9
Disagree 8
Strongly disagree 3
Chunges in Hong Kong’s CPI scores und position
The continuous line in Figure 5 charts CPI ‘poll of polls’ scores for Hong Kong from
1980-85 to 1998. Built-in smoothing of index scores, which attribute polls taken
in a previous three-year period to a particular year (Transparency International 1999d),
AN EVALUATION OF HONG KONG’S CORPORATE CODE OF ETlIICS INITIATIVE 511
means that the drop from 1995 to 1996 may reflect events before most company
codes were introduced in 1995. Improvements in Hong Kong’s CPI scores in 1997 and 1998 therefore suggest that the introduction of codes of conduct in the mid
1990s may have had longer-term positive impact on Hong Kong’s level of perceived corruption. The dotted line in Figure 5 shows that in 1998, Hong Kong ranked
16th among 85 nations and cultural areas, its highest over the entire period, ahead
of the U.S. in equal 17th position.
Index
8
7.6
7.2
6.8
6.4
6
1980-1985 198X-1992 1995 1996 1997 1998
Fig. 5 Hong Kong’s corruption perception index scores and rankings
6. CONCLUSIONS
CODE ADOPTION AND IMPLEMENTATlON
Most companies responded to the campaign, authoring codes with little internal
consultation but with ICAC support. The codes emphasized corporate self-defence
and behavioral prescription and control, rather than employee empowerment. Staff appeared to accept this as a natural, legitimate managerial prerogative, possibly
because of cultural assumptions of high power distance, and found code content relevant and comprehensive.
Company codes tended not to meet the campaign’s criteria for ‘fully-developed’
codes (ICAC 1994: 3), which would have entailed including items on quality, product
safety, occupational safety, equal opportunity, green issues and community service. In
512 R. S. SNELL AND N. C. HERNDON, JR.
focusing narrowly on corruption-prevention but neglecting broader social responsibility,
they appear to reflect community norms in Hong Kong. Public support for anti-
bribery legislation has been sustained by extensive community education and public broadcasting by the ICAC (McDonald 1994), but there has been no similar groundswell
of public support for other areas of business ethics, such as equal opportunity (Ng 1986) or environmental protection (Bar-On and Ng 1994).
Most codes were reasonably readable and uncluttered by legalistic jargon, but
by emphasising stage 3 rather than stage 4 conventional moral reasoning, they are less likely to have stimulated moral development than ICAC’s own model code.
The campaign had a higher profile in the media than in companies themselves.
Most code-adopting companies circulated their code to all staff, many developed
related disciplinary procedures, and some arranged ethics training, although mostly not as comprehensive as the company exemplars featuring in the Hong Kong Ethics
Development Center’s (1995-8) newsletters. Staff were reported as aware their company
had a code of ethics, and anxious to be seen not to violate it.
CONTEXTUAL FACTORS
Baseline levels of moral conduct (see Figure 3) and the baseline pattern of moral
atmosphere (Figure 4) in the focal companies suggest that corporate culture was not characterized by misconduct or preconventional morality at the time of code adoption.
Thus, there appear to have been no obstacles to the operation of codes of conduct
posed by company culture. However, reports of moral inspiration from or moral dialogue with top management were conspicuous by their absence from interviewees’
reports. Top management followed ICAC, gave ethics just enough attention for
codes to be noticed, but did not themselves act as moral leaders. Factors other than company ethics policy, such as widespread public support
and acclamation for the ICAC (McDonald 1994), and continued economic growth
up to mid 1997 may have served as major factors fostering the maintenance of Hong Kong’s image as a place for ethical business.
OVERALL EFFECTIVENESS
In 17 focal companies, interviewees felt that codes had favorably influenced behavior, largely due to clearer expectations and greater transparency. An isolated questionnaire
item suggested conduct had improved, but longitudinal analysis of questionnaire
ratings revealed no change in conduct and even suggested some decline in moral atmosphere. Codes may have helped sustain acceptable moral behavior by inducing
a greater sense of surveillance, but did not advance moral development. During
1996-98, through transition of sovereignty to China, Hong Kong consolidated its
favorable position on the CPI. The overall evidence suggests that ethical standards
AN EVALUATION OF HONG KONG’S CORPORATE CODE OF ETHICS INITIATIVE 513
were maintained at generally high levels through the transition of sovereignty, despite best practice recommendations on code adoption and implementation not being
fully implemented (compare Tables 1 and 9).
Table 9 Evident pattern of causal and contextual factors
Factors Positive (+) ot Negative (-1 Elements
Corporate cultures + Staff agreed with code items + Few hints of prior corruption + Co-workers were rated as reasonably ethical + ‘Preconventional’ morality was not predominant
Top management ? actions and mentality -
- -
Unknown actual intolerance of unethical behavior Espousal of ‘Theory Y’, enactment of ‘Theory X’ Remained preoccupied with ‘the numbers’ No sign of inspired ethical dialogue
Business environment
Broader cultural values
Consultation
Code content itself
Implementation of the codes
+ +
-
Industry associations adopted codes The economy prospered up to the 1997 transition Political uncertainty encouraged short-termism
Public appreciation of ICAC’s role & contribution Obedience to official prescriptions
Little sign of consultation for relevance
Reasonably readable Items seen as relevant by staff Appeared to apply to all employees Collaboration with ICAC encouraged consistency Developmentally unchallenging Oriented to corporate self-defence More oriented to control than open discussion Little coverage of social responsibility issues
Some linkage to disciplinary procedures Some publicity in companies and in the media No apparent linkage to reward systems Little effort to reinforce by training
FURTHER QUESTIONS
Possible explanations for best practice recommendations not being followed may
reside in local cultural factors. Regarding neglect of social responsibility, Redding (1990: 194) notes that Chinese morality ‘is based on what serves the welfare of a
specially circumscribed set of people’ and has a ‘lack of concern with societal good.’ Downplaying of ethical dialogue or open discussion may reflect what Redding (1990:
130) terms ‘aloofness and social distancing within the hierarchy.’ Codes’ emphasis on
corporate self-defence, the tendency to rely on free training by ICAC, and the apparent
lack of rewards for ethical behavior may all reflect cultural valuing of ‘frugality’
(Redding 1990: 7 1). Further cross-cultural comparative research, perhaps replicating
514 R. S. SNELL AND N. C. HERNDON, JR
this study, could identify how local cultural factors affect company ethics policies
and practices, and how ethical corporate cultures are developed, communicated, and
maintained. Since this study was conducted during a time of prosperity it might also
be interesting, as the work of Staw and Szwajkowski (1975) suggests, to replicate the
study in Hong Kong during a period of economic downturn to see what effect this
may have on company ethics policies.
LIMITATIONS
Besides the low response rates to the initial survey and to the invitation for further
research, there are at least two limitations of this study that future research might
address. One is that the statistics used are associative, not causal. Casual models
using items from empirically validated scales would help to further inform academics
and managers by connecting the effects of codes causally to employee behavior. The
second is that we were not able to study companies that were not adopting codes of
ethics. Future research should examine these organizations to understand what barriers
exist to code adoption and compare such corporate contexts to those in code-adopting
organizations.
ACKNOWLEDGMENTS
We thank the Research Grants Council, Hong Kong, for financial support via grant
no. 9040120 and Hong Kong Ethics Development Center for background information.
We also thank Ms. Almaz M-K Chak and Ms. Jess W-H Chu for conducting interviews,
questionnaire surveys, content analysis of written codes and related statistical analyses.
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