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Corporate governance and ethical culture: Do boards matter?

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Abstract

A poor ethical culture has been considered one of the reasons for the emergence of many corporate governance scandals. In this paper, I investigate the link between ethical culture and the composition of the board of directors for a sample of Brazilian companies. My measure of ethical culture is based on a text analysis of around 50,000 employee reviews posted at Glassdoor for over 1,400 terms related to five ethical dimensions: organizational trust, ethical leadership, benevolent orientation, empathy, and speaking out & efficacy. I find partial support for the hypotheses that a higher ratio of independent directors and of women on boards are associated with better ethical culture. My strong results, in turn, refer to a corporate governance feature little discussed in the literature: the percentage of board members appointed by minority shareholders. In this case, all models exhibit a strong negative relationship between the ratio of such directors and ethical culture. To my knowledge, this is the first paper to document a link between ethical culture and corporate governance mechanisms.

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Notes

  1. It is important to note that it is not clear how much these gender differences arise from biological and psychological features at the individual level or by the construction of gender at the social level.

  2. Until June 26th, 2019, Brazil’s subsidiary of Glassdoor was called Love Mondays in Brazil (www.lovemondays.com.br). Love Mondays has been acquired by Glassdoor and, since this date, its name was changed accordingly to match its parent company (the website www.glassdoor.com.br replaced the former one).

  3. The members of Ethical Systems’ culture working group are Michael Brown, Jonathan Haidt, David Mayer, Marshall Schminke, Sean Stevens, Ann Tenbrunsel, Jeffrey Thomas, Linda Trevino, and Siyu Yu.

  4. In the first phase, Ethical Systems’ culture working group conceptualized the relevant constructs of an ethical company, reviewed the literature to gather corresponding indicators, and validated survey measures. In the second phase, they designed a survey for pilot testing their measure of ethical culture and applied it to 1,358 respondents. They subsequently analyzed the data and created composite scores for the constructs assessed with multiple items. More details available at Bulgarella (2018).

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Acknowledgements

I thank Angela Donaggio for valuable comments and insight for the title. All errors and omissions are my own. ©Alexandre Di Miceli da Silveira, 2021. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit is given to the source.

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  1. Alvares Penteado School of Business, Fundacao Escola de Comercio Alvares Penteado (Fecap), São Paulo, Brazil

    Alexandre Di Miceli da Silveira

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Appendix

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Table 8 Dimensions of an ethical culture based on Ethical Systems’ “Two-Factor Model of Ethical Culture”:
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Di Miceli da Silveira , A. Corporate governance and ethical culture: Do boards matter?. Rev Manag Sci 16, 1085–1116 (2022). https://doi.org/10.1007/s11846-021-00476-7

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