Corporate Values, Codes of Ethics,
and Firm Performance: A Look
at the Canadian Context
Han Donker
Deborah Poff
Saif Zahir
ABSTRACT. In this empirical study, we present two
new models that are corporate ethics based. The first
model numerically quantifies the corporate value index
(CV-Index) based on a set of predefined parameters and
the second model estimates the market-to-book values of
equity in relation to the CV-Index as well as other
parameters. These models were applied to Canadian
companies listed on the Toronto Stock Exchange (TSX).
Through our analysis, we found statistically significant
evidence that corporate values (CV-Index) positively
correlated with firm performance. The results are even
more significant for firms with low market-to-book val-
ues. Our empirical findings suggest that corporate ethics is
vital for management, employees, shareholders, stake-
holders, and the community at large. In addition, we have
tested and confirmed five hypotheses that are used to
illustrate corporate ethics behavior and performance.
KEY WORDS: codes of ethics, corporate values, ethical
values, firm performance
Introduction
The classical theory of a market economy assumes
the naive belief that the pursuit of economic effi-
ciency and entrepreneurial dynamism are automati-
cally linked with the common good. Due to this
assumption, it is also assumed that the market merely
follows a logic of means (maximizing the use of
resources measured by profit) and not a logic of
ends, purpose, or raison d’e
ˆ
tre. As Milton Friedman
(1970) articulated this perspective, the sole respon-
sibility of business is to maximize profit for the
shareholder and obey the law. Many articles in the
business ethics literature have examined what impact
codes of ethics have on an organization. Do codes
have an impact on organizational behavior? Do they
influence leadership or employee decision making?
Do they have an influence on consumer behavior?
Do they provide prescriptive normative language
that sets a moral standard independent of economic
considerations?
In this article we draw upon the literature that is
particularly germane to our current study, namely,
those articles which look at the business case for the
inclusion of ethical values in codes of ethics and the
impact that the inclusion of those values has on firm
performance. As well, we discuss some related and
relevant articles on corporate social responsibility
and financial performance.
Langlois and Schlegelmilch (1990) defined a code
of ethics as a corporate statement that registers cor-
porate principles, ethics, rules of conduct, codes of
practice, or company philosophy concerning
responsibility to stakeholders, the environment, or
any other aspects of society external to the company.
Kaptein (2004) states that a code of ethics clarifies
the objectives the company pursues, the norms and
values it upholds and what it can be held accountable
for. A code of ethics contains the company’s
responsibilities, principles, values and/or norms. A
code of ethics thus demonstrates a company’s
awareness of ethical issues and indicates how it will
deal with such topics.
Despite the fact that many teachers of business
ethics teach that business ethics is good for business,
to the extent that codes of ethics are indicators of
business ethics, much of the general literature on the
impact of having codes of ethics on decision making
within organizations has been disappointing. In
reviewing a number of empirical studies, Lere and
Gaumnitz (2003, p. 365) note ‘[t]he evidence from
those studies that have been conducted suggests that
Journal of Business Ethics (2008) 82:527–537 Ó Springer 2007
DOI 10.1007/s10551-007-9579-x