It is common practice for companies to copy others’ ethics codes, sometimes word for word, according to research by University of Notre Dame finance professors Tim Loughran and Bill McDonald and finance associate professional specialist Margaret Forster. But is that ethical?
The professors presented a talk on the topic of copying ethics codes on Nov. 6 at a conference titled “Ethical Dimensions in Business: Reflections from the Business Academic Community.” The two-day conference was sponsored by the Institute for Ethical Business Worldwide and was held at Notre Dame’s Mendoza College of Business.
When the professors created a database of ethics codes comparing 2.5 billion sentences, they found that more than half of publicly traded companies had sentence correlations greater than 75 percent. The database is located at http://www.nd.edu/~ethicsdb.
In part, copying is understandable: Public firms must disclose whether they have adopted a code of ethics for management or explain why not. Lawyers drafting the legalistic portion tend to see strict replication of language as a “best practice.” But the professors also saw much borrowing in the values-based portion, and argue that this should be held to a higher standard of originality.
Loughran sees the ethics-code requirement as a good intention watered down to a waste of time. “I would like them to start all over. Companies that care would do it right and actually provide something, and others would just drop out of the process and not simply plagiarize others’ ethics reports.”
“I think companies should think about what they are writing,” Loughran said. “Some do take it seriously and should be applauded.”
The Ethical Dimensions conference, now in its sixth year, increases the scholarly attention to the breadth of important ethical issues and methodologies by bringing together multiple disciplines in the academic community, said Ann E. Tenbrunsel, management professor and co-director of Institute for Ethical Business Worldwide.
What’s special about this conference is the input from many disciplines, she added. “We are able to see different issues from different perspectives.”
The conference includes presentations on ethics topics by Mendoza faculty members and other experts, as well as a dissertation competition where Ph.D. candidates present research that furthers the understanding of the ethical issues facing the business community. In this year’s dissertation competition, four students gave talks on topics ranging from the role of personal character in organizations, to ethics in economic decision making, to the relationship between regulatory policy and corporate environmentalism. The winner was Adam Yore of Drexel University, whose research on personal misdeeds of managers found that an indiscretion committed by a top executive (sexual misadventure, substance abuse, violence, or dishonesty) erodes the entire firm’s value and performance.
Other topics presented during the conference in addition to the study of ethics codes include whether some mutual funds stretch the truth in their fund name. Jennifer Marietta-Westberg, financial economist, U.S. Securities and Exchange Commission, said there is evidence that select mutual funds hold stocks outside their fund objectives, such as a large-cap stock in a fund with “small cap” in the name. The problem is, she said, “if an investor used the name of a fund as a basis to diversify his portfolio, he may not have proper diversification.”
Also, accountancy professor Tom Frecka and adjunct accountancy instructor Margot Cleveland presented a talk on efforts to reduce corrupt business practices. Bribery is considered a fact of life in conducting business in most countries, Frecka said, with about one person in 10 having paid a bribe last year, according to Transparency International’s Global Corruption Barometer survey. But the practice distorts market competition, lowers business efficiency, and increases market uncertainty. Bribery is considered morally repugnant in most societies, Frecka added, and the trend is toward greater prosecution.
The United States took a stand in 1977 with the Foreign Corrupt Practices Act, which prohibits companies and individuals from making bribes to foreign entities. This year, many members of the Organization for Economic Co-operation and Development agreed to pass local statues to prohibit engaging in foreign corruption. “This is a huge step forward,” Cleveland said.