How Have Corporate Codes of Ethics Responded to an Era of Increased Scrutiny?

Forthcoming in the Journal of Business Ethics

40 Pages Posted: 19 Jul 2021 Last revised: 15 Mar 2022

See all articles by Tim Loughran

Tim Loughran

University of Notre Dame

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance

James Otteson

University of Notre Dame

Date Written: March 13, 2022

Abstract

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 percent more words (about 1,760 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.

Keywords: Code of Ethics; Textual Analysis; Corporate Scandals; ESG Rating; Sustainability.

JEL Classification: G02, G10, G18

Suggested Citation

Loughran, Tim and McDonald, Bill and Otteson, James, How Have Corporate Codes of Ethics Responded to an Era of Increased Scrutiny? (March 13, 2022). Forthcoming in the Journal of Business Ethics, Available at SSRN: https://ssrn.com/abstract=3887743 or http://dx.doi.org/10.2139/ssrn.3887743

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Bill McDonald

University of Notre Dame - Mendoza College of Business - Department of Finance ( email )

University of Notre Dame
Notre Dame, IN 46556-0399
United States
574-274-2333 (Phone)

HOME PAGE: http://sites.nd.edu/bill-mcdonald

James Otteson

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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