The Cut and Paste Society: Isomorphism in Codes of Ethics

40 Pages Posted: 24 Sep 2011

See all articles by Lori Holder-Webb

Lori Holder-Webb

Western New England University - Department of Accounting and Finance

Jeffrey R. Cohen

Boston College - Department of Accounting

Date Written: September 22, 2011

Abstract

Regulatory responses to the business failures of 1998-2001 framed them as a general failure of governance and ethics rather than as firm-specific problems. Among the regulatory responses are Section 406 of Sarbanes-Oxley Act, SEC, and exchange requirements to provide a Code of Ethics. However, institutional pressures surrounding this regulation suggest the potential for symbolic responses and decoupling of response from organizational action. In this paper, we examine Codes of Ethics for a stratified sample of 75 U.S. firms across five distinct industries and find that content and language converge across organizations in ways undesired by the regulators, and that language is used to minimize the effects of the Code on constraining organizational behavior. There is, however, a noteworthy exception in the sections of the Codes dedicated the ethics of financial reporting. Although this material still contains legalistic boilerplate information it does offer concrete guidance and emphatic language pertaining to the need to maintain the integrity of reporting practices. This suggests that the corporate understanding of the source of the failures is one of fraudulent financial reporting. Aside from the matter of financial reporting, the vague and stylized content of the Codes was a predicted response and constitutes a rational response to the regulation. The regulation, however, clearly states the belief that Codes should vary from firm to firm and that individual firms should determine the specific content of a Code. Aside from financial reporting matters, the observed result suggests that regulatory efforts may have failed to instigate corporate change in attitudes towards and enforcement of higher ethical standards by corporate actors.

Keywords: Code of Ethics, Sarbanes-Oxley, Financial Reporting, Corporate Governance

JEL Classification: M14, M48, D02

Suggested Citation

Holder-Webb, Lori and Cohen, Jeffrey R., The Cut and Paste Society: Isomorphism in Codes of Ethics (September 22, 2011). Journal of Business Ethics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1932442

Lori Holder-Webb

Western New England University - Department of Accounting and Finance ( email )

United States

Jeffrey R. Cohen (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

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