Academic journal article The Journal of Business and Economic Studies

The Effects of Codes of Ethics on the Supply Chain: A Comparison of LEs and SMEs

Academic journal article The Journal of Business and Economic Studies

The Effects of Codes of Ethics on the Supply Chain: A Comparison of LEs and SMEs

Article excerpt


This paper focuses on comparing the experiences of Large Enterprises (LEs) and Small and Medium Enterprises (SMEs) in the U.S. to determine whether codes of ethics have (a) created ethical environments that lead to good behaviors, (b) been shared with members of the supply chain, and (c) impacted behaviors of members of the supply chain. The research utilized survey methodology. We used ANOVA and Factor Analysis as the tools for analyzing the data in the study. Results showed that most LEs and SMEs have formal codes of ethics, communicate their codes to employees, and provide training on these codes. However, the beneficial impact of ethics codes is more pronounced when codes are formally communicated to others and when management and employees are perceived as committed to responsible behaviors. More LEs share codes with members of their supply chains than do SMEs. However, sharing one's code of ethics has limited impacts on the behaviors of either vendor or customer employees. The extant research on the effectiveness of ethics codes has concentrated on experiences of LEs and has not been conclusive. Research addressing the experiences of SMEs is severely limited and primarily relates to European firms. These are critical shortcomings because: (a) the majority of firms in the U.S. and Europe are SMEs, and (b) the characteristics, structures, and operations of SMEs are different from those of large firms, thus making extrapolation to SMEs inappropriate. Our research is original because it addresses these two issues specifically in the context of the supply chain function.

Keywords: Codes of Ethics, Supply Chain, Large Enterprises, Small and Medium Enterprises JEL Code: M14


The issue of unethical and illegal activities in the business environment is one that no business can afford to take lightly. The results of corporate misconduct (intentional and unintentional) have already had dramatic negative impacts on society and on corporate performance. In the late 1990s, Estes (1996) estimated that the social costs associated with unethical and socially irresponsible corporate decisions were approximately 2.5 trillion dollars annually. Now, more than a decade later, the costs are inevitably higher.

The need for strong ethical standards and actions is greater now than ever before. Today's global business environment is even more heavily impacted by corruption, high taxes, and intense competition, making firms vulnerable to unethical or illegal actions and practices (e.g., bribery, inappropriate labor practices, etc.) (Salam, 2009). In addition, in difficult economic environments, the pressures to survive (individually as well as organizationally) often result in ethical concerns being ignored (Vykarnam, Bailey, Myers, & Burnett 1997). To address these concerns, increasing numbers of firms are adopting formal measures to regulate themselves by creating corporate codes of ethics (Center for Business Ethics, 1992; Ethics Research Center, 1990, 1994).

Early attempts to define ethics approached the concept as a field of study related to deliberate behaviors of individuals that could be evaluated on the basis of their causes (Barry, 1979) or their correctness (Thomas, 1984). Subsequent definitions of ethics centered on the appropriateness of individuals' decisions and choices from the perspective of whether such decisions and consequent actions were perceived as being good or bad (Chonko, 1995; Thompson, 2005). In the context of the business environment, ethics is viewed from the perspective of how individuals' behaviors and actions affect organizations or as the set of principles that should serve to influence individuals' behaviors within the business organization (Ferrell, Fraedrich, & Ferrell (2005).

Codes of ethics are referred to by a variety of names in the literature, including codes of conduct, codes of practice, corporate credos, mission statements, and values statements (Schwartz, 2001). …

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