The Effect of Country and Culture on Perceptions of Appropriate Ethical Actions Prescribed by Codes of Conduct: A Western European Perspective among Accountants

Abstract

Recognizing the growing interdependence of the European Union and the importance of codes of conduct in companies’ operations, this research examines the effect of a country’s culture on the implementation of a code of conduct in a European context. We examine whether the perceptions of an activity’s ethicality relates to elements found in company codes of conduct vary by country or according to Hofstede’s (1980, Culture’s Consequences (Sage Publications, Beverly Hills, CA)) cultural constructs of: Uncertainty Avoidance, Masculinity/Femininity, Individualism, and Power Distance. The 294 individuals, who participated in our study, were from 8 Western European countries. Their responses to our 13 scenarios indicate that differences in the perceptions of ethicality associate primarily with the participants’ country as opposed to their employer (i.e., accounting firm), employment level, or gender. The evidence also indicates that these country differences associate with Hofstede constructs of Individualism and Masculinity.

Appendices

Appendix

Questionnaire scenarios

1. Unfair treatment

An employee of this company believes that she has been treated unfairly by the company. She will frequently tell stories about the company to anyone who will listen. These stores are partially true but they convey a very negative image of the company to the general public. Assume that the listeners do NOT have any direct significant influences over the company, such as major customers or governmental officials.

2. Exclusive dealer

This company is the exclusive dealer and only realistic alternative supplier for a specialty product needed by certain customers. The sales manager has told his staff to take whatever action within the law that is needed to maximize sales. He recently scolded one of his workers for wasting time trying to be considerate and respectful of customers. “They need to buy from us and this is not going to change. You␣are wasting company time with your efforts of trying to treat them with respect. We offer them a good product at a fair price. That is all we have to do.”

3. Toxic waste

This company’s manufacturing process does have some leakage of toxic waste into the environment, but it is at a level slightly below that which would violate government laws.

4. Competitive advantage

Our company has a policy of prohibiting its employees from seeking out private (secret) information of its competitors. However, if a competitor’s employees volunteer to give their company’s secret information to our company (for whatever reason), Company A’s management would see nothing wrong in accepting it, especially if it would give our company a competitive advantage.

5. Bad debts

Realizing that many estimates are required for financial statements such as for bad debt allowances, this company’s management always provides to the auditors pre-audited financial estimates that are overly optimistic in the company’s favor. Their president said “After all, why not try to get away with it? The auditors cannot check everything. And if they catch it, we will just record the adjustment at that time.”

6. Husband

The husband of an employee of this company is a tax accountant with a private practice. He has an excellent reputation for the quality of his work and the fairness of his fees. During the course of the workday, this employee, who is in contact with many different vendors of this company, frequently suggests that these vendors should bring their personal tax work to her husband.

7. Person of the year

This company has a strict policy prohibiting its employees from receiving large gifts from suppliers or customers. Last year, one employee was awarded the honor of being named the “Person of the Year” by the company’s customers for his “extraordinary services.” This award was accompanied by a valuable prize.

8. Jack

When Jack was not present, his supervisor said the following to a group of fellow workers: “We all want to promote good ethical activities in our company. But don’t you think that Jack is just going to far? It is one thing to follow the spirit and the letter of the company code of conduct. Yet Jack is constantly worried about the ethical aspect of each of his actions. While his concerns never interfere with the goal of making a profit, I am glad that you are not like him.”

9. Executive promotion

An executive, who has the authority to grant or deny promotions to many employees, claims to have the policy of promoting individuals who show “good decision making skills.” It has become evident to everyone, however, that he defines “good decisions” only in terms of how much they agree with his personal opinions. If he knows that two alternative decisions would create equal profit amounts, he will only classify the one that he would personally select as being a “good decision.”

10. Government inspection

This company operates within an industry that requires frequent government inspections in order to protect the local environment. The company president has made it very clear that while the company MUST MEET all environmental laws, the employees should limit their cooperation with the government officials to just the level necessary to avoid fines for lack of cooperation.

11. Ill patients

One of the product lines distributed by this company is special medical equipment needed for recovery by serious ill patients. If the company discontinued carrying this particular produce line, the customers would be forced to buy them from other distant distributor at a much higher cost. This extra cost will not be covered by insurance. Because of the limited customer base, this product line earns a very low profit rate that affects this division’s profit ratios that are reported to headquarters. Accordingly, the local division manager is considering dropping this product line. It would NOT free up any company resources that could be used for other purposes. It would simply mean that one less product line but a higher overall reported return on sales for this division.

12. Small vendors

It has become evident that this company has developed the following policy when buying supplies from smaller vendors. After negotiating a specific price with these suppliers and accepting delivery, this company will vigorously try to renegotiate a lower price on these products, knowing that the vendor probably will accept the lower price instead of having to take back the goods or upsetting this company’s buyers.

13. Employee after hours

An employee of this company often comes to the company’s offices after working hours to use their expensive computer programs to design products that he personally sells to customers of his personal business. His use of these computer programs will not effect their life cycle. He has never asked for permission to use the programs and the company does not know that he does it. His personal business is NOT in competition with the company.

Additional scenarios used as Validity-Check (VC) questions*

VC1 kid scholarship

This company has traditionally provided full scholarships for the children of its employees to attend a local university. For the first time in many years, this university recently raised its fees by a significant amount. Management and labor agreed that the new additional costs should be shared equally by the employees and the company.

VC2 Charitable contributions

This company has been making a major annual charitable contribution for many years to a specific local music concert program for children. When that program recently ended its operations, the company developed a new policy of rotating its annual contribution among different types of charitable organizations.

*Note: The two Validity Check (VC) scenarios should be given a score of “1” or “2” on the 7-point Likert scale

Notes

• 1 By using subjects who have been deeply involved with multiple organizations (when conducting audits of multiple clients), we hope that we can reduce, to a limited extent, undue influence of the culture of the subjects’ current employing organization on their responses.

• 2 As a validity check, two addition scenarios were added, each of which provided a situation which clearly did not involve an unethical action. All subjects responded to these scenarios in an anticipated manner, thus eliminating the need to discard their response sheet.

• 3 We used multiple ordering of the placement of the cases within the instrument and did not observe any order effect of responses.

• 4 Because of practical distribution problems based on the size of the sample and the geographic dispersion of the various accounting offices through out Europe, it was necessary that the contact person select and identify the individual participating subjects within their office and to distribute the instrument directly to them. Each subject was then instructed to return the instrument in a sealed envelope to the contact person’s secretary who forwarded them, unopened, to the authors. The authors did not specify when the instruments were to be completed (i.e. during working hours or after working hours). The authors did, however, request that the contact person not discuss the content of the instrument with participants and the participants were instructed not to discuss the instrument with others. The authors relied upon the professional integrity of the contact person at the accounting firms to follow the prescribed distribution and collection procedures.

• 5 By using the same number of subjects from each country, we eliminated the problem of bias produced by variation in country size in the overall population. The subset of 72 subjects produced a sample of approximately 25% of the total population deemed adequate for identification purposes.

• 6 We also found that scenarios 1, 2, 3, 4, 6, 7 and 10 were not significantly different from the 3.11 average for scenario 11. Scenarios 8 and 9 were significantly different from the 5.15 of 5 and the 3.11 of 11. Therefore we saw three distinctive groups: 5, 12 and 13 on the high end, 8 and 9 in the middle and the rest on the low end.

• 7 Since the results using the subset of 72 subjects produced the same result as when using the entire population of 294 subjects, it was not necessary to delete the 72 subjects when conducting further analysis for this research question.