We create a database of company codes of ethics from firms listed on the Standard & Poor's 500 Index and, separately, a sample of small firms. The SEC believes that "ethics codes do, and should, vary from company to company." Using textual analysis techniques, we measure the extent of commonality across the documents. We find substantial levels of common sentences used by the firms, including a few cases where the codes of ethics are essentially identical. We consider these results in (...) the context of legal statements versus value statements. While legal writing often mandates duplication, we argue that value-based statements should be held to a higher standard of originality. Our evidence is consistent with isomorphic pressures on smaller firms to conform. (shrink)

We examine the occurrence of ethicsrelated terms in 10-K annual reports over 1994-2006 and offer empirical observations on the conceptual framework of Erhard et al. 2007). We use a pre-Sarbanes-Oxley sample subset to compare the occurrence of ethics-related terms in our 10-K data with samples from other studies that consider virtue-related phenomena. We find that firms using ethics-related terms are more likely to be "sin" stocks, are more likely to be the object of class action lawsuits, and are more likely (...) to score poorly on measures of corporate governance. The consistency of our results across these alternative measures of ethical behavior suggests that managers who portray their firm as "ethical" in 10-K reports are more likely to be systematically misleading the public. These results are consistent with the integrity-performance paradox. (shrink)

Over the past decade, corporate scandals have proliferated. These scandals, along with the emergence of the #MeToo movement and Environmental, Social, and Corporate Governance (ESG) mandates, have increased the scrutiny of corporations’ ethics culture. How have companies responded in terms of the language appearing in their public ethics documents? We compare the Code of Ethics in 2008 versus 2019 for a sample of S&P 500 firms. For the vast majority of firms, their Code of Ethics lengthened, with the average 2019 (...) code having 29% more words (about 1760 words) than the 2008 average. The language of the codes has also changed. Words such as _bribery, corruption, sustainability, speak up, bullying, slavery,_ and _human rights_ all saw significantly higher usage in the later period. We review possible reasons for the dramatic changes and suggest what questions remain about the motivations behind them. Whether the changes we observe are primarily intrinsically motivated or simply market responses to public pressures is yet to be determined. What is clear from our findings is that society seems to be entering a new age of increasingly moral—or, at least, moralized—corporate governance. (shrink)

Trust is both ethically important and essential for business but difficult to measure. This paper contributes toward clarifying the nature of trust in a way that is both conceptually helpful for ethical inquiries concerning business and pertinent to the measurement of trust as an element in organizations. Several papers hypothesize that increasing the role of trust in a corporation reduces the need for external monitoring and contracts. Assessing this important hypothesis requires a way to gauge whether a firm has a (...) trusting corporate culture. We develop an objective measure of trust in a firm’s corporate culture by counting the number of times 21 trust-related words appear in an important kind of document: the Management Discussion and Analysis section of the annual report. We report two significant findings: that, contrary to what one might think, firms with a trusting culture frequently use audit and control-type words and that trust is positively linked with subsequent share price volatility. We propose explanations of these findings with the hope of facilitating the objective measurement of trust and enhancement of a trusting atmosphere in corporate culture. (shrink)

Using the emerging technology of large-scale textual analysis, this study examines the use of the term ‘customer satisfaction’ and its variants in the annual reports issued by publicly traded U.S. corporations and filed with the Securities and Exchange Commission as Form 10-K. We document the frequency of the term’s occurrence in 10-Ks over the 1995–2013 period and the differences in usage across industries. We then relate the term’s usage in 10-Ks to subsequent scores from the American Customer Satisfaction Index to (...) determine whether management’s discussion of customer satisfaction in financial disclosures is credible. The commitment of management to shareholders versus, more broadly, stakeholders is a central question in business ethics, and the integrity of management communication is a fundamental construct in the American Marketing Association’s Statement of Ethics. We document a complex relation between management’s discussion of customer satisfaction and subsequently reported satisfaction. We find that the general use of customer satisfaction in 10-K documents is negatively correlated with subsequent ACSI scores. However, for retail firms, when the phrase is located near words indicating measurement or monitoring of the phenomenon, the empirical relation is reversed and becomes positive. (shrink)