Transferring a code of conduct within a multinational enterprise and its challenges: a qualitative study based on the MNE PALFINGER AG / submitted by Lisa-Maria Mair

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JOHANNES KEPLER UNIVERSITÄT LINZ Altenberger Straße 69 4040 Linz, Österreich www.jku.at DVR 0093696 Submitted by Lisa-Maria Mair Submitted at Department of International Management Supervisor

a.Univ.Prof.in Dr.in Erna Szabo MBA

Submission September 2018

TRANSFERRING A

CODE OF CONDUCT

WITHIN A MNE AND ITS

CHALLENGES

A qualitative study based on the MNE PALFINGER AG

Master Thesis

to obtain the academic degree of

Master of Science Global Business

in the Master’s program

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SWORN DECLARATION

I hereby declare that I have written this master thesis independently and without the aid of unfair or unauthorized resources. Whenever content was taken directly or indirectly from other sources, this has been indicated and the source referenced.

This master thesis is identical with the assessed thesis and the thesis which has been submitted in electronic form.

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ACKNOWLEDGEMENTS

First and foremost, I would like to thank my family for their unconditional and personal support since the first day of my studies – whether I was in Austria or abroad. Special thanks are also directed towards my friends, who supported me throughout the writing process of this thesis. May it be via proof-reading, advising or by simply cheering me up in challenging times. Thanks a lot!

In addition, I would like to thank my thesis advisor Professor Dr. Erna Szabo from the Institute of International Management at Johannes Kepler University (JKU) in Linz for supporting me throughout this entire writing-process. Prof. Dr.in Erna Szabo did not only facilitate during the initial phase of “topic finding” but in addition, provided valuable insights, ideas and advice, which turned out to be essential for the creation of this publication.

As a matter of fact, I would also like to thank my interviewees of PALFINGER AG for taking the time to talk to me individually and thus providing essential input to my empirical study. Due to these interviews, it was possible to extent this thesis to an empirical study and provide more literature within the Austrian MNEs field. In this regard, I would also like to thank Christina, the expatriate manager, who helped me to select my target group and assisted in coordinating the interviews. Furthermore, I would also like to thank Hannes, the company’s spokesperson, for supporting me in this thesis.

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ABSTRACT

This thesis analyzes the transfer process of a code of conduct (COC) within an Austrian based multinational enterprise (MNE). Potential challenges, accompanying this transfer process, will be outlined and linked to suggestions, mentioned in already existing literature. However, the purpose of this thesis is to shed light on Austrian businesses and to address the issue of cross-cultural differences. Especially when introducing a standardized document such as the COC. In order to analyze and evaluate a COC, which is in line with the intra-company values, a qualitative approach was chosen: Namely semi-structured interviews in combination with an analysis of the corporate website and the already existing COC.

The data collected supports the theoretical assumption, that the main challenges within the transfer emerge during the implementation process, local adaptations, and the degree of the code embeddedness. Additionally, language is considered to be a main challenge. As literature suggests, translations are a crucial element, since they can change the meaning of a message completely – if not done correctly. Moreover, distinct languages complicate the process, since it is more difficult to assure whether the audience understood the content correctly. Beyond doubt, cross-cultural differences influence this fact significantly.

Local adaptations to COCs are suggested by literature but proof to be different in a practical setting. The findings show, that local adaptations are not permitted if they would violate the code. Furthermore, a COC is meant to be global; thus, adaptations would make the code more decentralized. Nevertheless, the code has to be adapted – at least partly –to norms such as the legal framework of a country.

While addressing the challenges that emerge during the transfer process, constant trainings, feedback-rounds, and updates are necessary to embed the code into the entire organization.

Keywords: Code of conduct, multinational enterprises, international management, cross-cultural challenges, transfer process

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LIST OF FIGURES

Figure 1 Implementation-Framework ... 22

Figure 2 Reception patterns of corporate values ... 39

Figure 3 Hofstede's Dimensions - Canada ... 60

Figure 4 Hofstede's Dimensions - China ... 60

Figure 5 Hofstede's Dimensions – Brazil ... 61

Figure 6 Hofstede's Dimensions – Russia ... 61

Figure 7 Hofstede's Dimensions – USA ... 61

Figure 8: Languages on PALFINGER's website ... 68

Figure 9: Clipping COC and video on the website ... 69

LIST OF TABLES

Table 1 Summary of code conditions ... 29

Table 2 Challenges of translating principles ... 47

Table 3 Summary of the sample ... 59

Table 4 Procedure summary ... 65

INDEX OF ABBREVIATIONS

COC Code of conduct

CSR Corporate Social Responsibility e. g. “exempli gratia”, for example etc. “etcetera”, and so on

FoA Freedom of Association

i. a. = “inter alia”, among other things i. e. “id est”, that is to say

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1. Introduction

Globalization plays an essential role in the current century. The strong presence of multinational enterprises (MNEs) has evolved over the last decades notably because of the potential formation of the competitive advantage when launching subsidiaries in different countries worldwide (Björkman, Barner-Rasmussen, & Li, 2004). The increase in international trade has led to large global supply chains connecting various unrelated corporate entities, which act simultaneously as suppliers and further outsource the production until, finally, factory workers receive the orders. This buyer-driven supply chain business model is widely used among retailers or large brand names, as it is an efficient cost saving method (Harpur & Peetz, 2011). However, these supply chains support the increase of so called sweatshops and ignore safety standards by abusing workers (Cooney, 2004). Sweatshops are defined as small factories where people are employed under bad working conditions such as low wage, high number of working hours and low safety standards (Cambridge Dictionary, 2004).

The negative image of western companies pursuing buyer-driven supply chains and perhaps the change in consumer behavior towards demanding more transparent supply chains have influenced the increase of corporate social responsibility (CSR) strategies. Simultaneously they have forced companies to implement a tool not only to proof their commitment to CSR (Harpur & Peetz, 2011) but also to enhance their employer branding image. In order to guarantee fair working conditions and fair practice, such as no child labor or no corruption, MNEs have introduced a code of conduct as a concrete tool to tackle these issues (Mamic, 2004). A code of conduct (COC), also known as business code, is a written document including prescriptions to guide behavior inside as well as outside of the company and of its stakeholders (Kaptein & Schwartz, 2008).

COCs are typically transferred within a MNE. Notably, existing literature mainly discusses potential challenges of North American companies transferring COCs to European subsidiaries (D'Iribarne, 2002; Palazzo, 2002; Barmeyer & Davoine, 2011a). One reason for this particular research focus might be cultural differences between headquarters and subsidiaries. Moreover, COCs are typically formulated at headquarters and are thus, partially influenced by the sending institution’s values. As a result, the receiving institution, typically a subsidiary, might adapt to, adopt or resist to the transferred COC (Nakhle & Davoine, 2016).

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Given these challenges, the literature conducted for this thesis outlines possible problems when directly transferring COCs to other countries. This is particularly evident in cases of cultural differences such as an Austrian located headquarters and subsidiaries in Asia or South America. Cultural aspects, such as understanding and interpreting the codes, are only some of the reasons for such challenges (Zakaria, Garanča, & Sobeih, 2012). Consequently, codes could be adapted country-wise. Since available literature mainly discusses the effects of US-based companies with subsidiaries overseas, mainly in Europe, further research needs to be conducted in other countries. European based companies have introduced COCs over the last decades and transferred them to their subsidiaries in other continents (United Nations Global Compact, not dated,a). The narrow focus of existing literature and current European trends provide the potential for analyzing the European situation with regard to COCs and comparing it with the literature about US companies.

The conducted literature mainly deals with the apparel industry as child labor and sweat shops are typically found within this particular business area. However, such issues might also occur in other industries. Therefore, the aim of this thesis is to investigate a different industry to examine whether COCs are successfully implemented outside the realm of textile industries.

Little attention has been devoted to the impact of transferring a COC within a MNE and its subsidiaries. MNEs typically have subsidiaries in various countries and thus, are confronted with distinct cultures. Different cultures may complicate the standardization of a document that is valid within the entire cooperation. Therefore, this thesis scrutinizes the main challenges of transferring a COC from headquarters to subsidiaries and analyzes how these challenges are linked to the COC implementation process. It further examines whether COCs are adapted by cultural standards. This would suggest that different COCs based on distinct countries exist. In addition to cultural differences, this thesis investigates potential sections of adaptations. The research questions will be outlined in the following chapter.

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1.1. Research questions

The aim of this thesis is to identify the challenges entailed in transferring a common COC within an Austrian based MNE.

Therefore, the research question is formulated as follows:

Main research question:

Exemplified by Austrian-based PALFINGER AG, what are the main challenges when transferring a code of conduct (COC) within an MNE and how can they be met?

Sub-research questions:

Sub-question 1: What does the (initial) COC implementation process, i.e. transferring a COC from headquarters to subsidiaries abroad, look like?

Sub-question 2: What are the reasons for local adaptations to a COC and which geographical as well as content-related areas are mainly concerned?

Sub-question 3: What is (and could be) done to ensure that a COC is embedded within the entire organization?

Given the conducted literature, this thesis will contribute to exploring how COCs are managed in practice. Furthermore, it will analyze whether and how codes are adapted country-wise in practice. These results will assist in comparing literature with practice and outline similarities and differences between existing literature and current practice.

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1.2. Thesis structure

This thesis is structured into two parts: A literature review and a qualitative research study. The theoretical foundation reviews selected literary works to present current topics, viewpoints and arguments of other academics and researchers. It also serves as a reference for the results of the qualitative study, underlines the development of COCs in general including their content and functions and discusses main challenges of transferring a COC within a MNE. The situation of US-based companies regarding the COC transfer is discussed and the literature review is concluded by a short summary of the main points.

The second part of this thesis focuses on the empirical study. The chapter on methodology contains the research method, sampling, data collection, and analysis. And is followed by the findings and results of the qualitative study. The main findings are summarized, followed by a discussion of existing literature with the findings of this study. The empirical study is concluded by the limitations of this thesis and an overall conclusion of this thesis.

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2. Globalization, MNEs and CSR

Globalization, which can mainly be seen as an economic process that is characterized by MNEs, has increased over the last decades. It has not only affected the development of MNEs (Frenkel, 2001), it has also changed geopolitical agreements. MNEs typically invest in other countries, thus, governments of developing countries aim at attracting MNEs for foreign direct investment (Sethi, 2011). However, the increase in globalization and consequently in MNEs has also transformed the influence of international institutions, as they actively seek to address social and environmental issues and involve MNEs in order to respond to these issues. These institutions include the United Nations (Verboven & Vanherck, 2016), the World Bank and the International Monetary Fund (Sethi, 2011). For instance, the United Nations developed the sustainable development goals (SDGs) in 2015 to address international issues such as poverty or inequality. The 17 SDGs should be achieved by 2030 on a global scale, which implies that governments and MNEs should include these goals in their CSR-strategy and act according to them (Campagnolo, Eboli, Farnia, & Carraro, 2018). This campaign shows the influence of international institutions in macro as well as micro economic decisions, as these institutions hold companies and governments responsible for social and environmental issues and request them to act upon these topics. However, these goals are set on a voluntary basis and thus, the company and the government decide if and how these goals are achieved.

Over the last decades a trend has evolved: Companies have moved away from owning factories and subsidiaries in different markets and now rather rely on a supplier network and outsourced production. These so-called buyer-driven supply chains are characterized by a retailer, typically from a developed country, outsourcing production to developing countries due to low labor costs. This supply chain business model is common within the textile or shoe industry. Digitalization and the elimination of trade barriers have influenced the increase of this trend. Additionally, the major change in business strategy to rely on national resources by outsourcing production while retaining strategic planning and product management within headquarters, are further reasons for the rise in this trend (Frenkel, 2001). Consequently, the shift to this business model has affected CSR, as the focus is no longer on the individual company and its subsidiaries but on a broader network including several stakeholders such as suppliers (Mamic, 2004).

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Some countries, especially in Asia and Latin America, lack work regulations, trade unions and international standards regarding labor and safety (Mamic, 2004). This results in a conflict of MNEs which are using a buyer-driven supply chain business model, because it keeps production costs low while outsourcing production to several suppliers who further outsource production (Harpur & Peetz, 2011). Having this massive net of contractors and sub-contractors prevents headquarters from gaining an overview of current labor conditions at factories, since contractors regularly change suppliers, and cheaper suppliers are often found in foreign countries. Certainly, these buyer-driven supply chains have increased the number of sweatshops. On the contrary, the emerging trend of keeping inventory low due to high inventory costs as well as just-in-time production have forced suppliers to produce a whole contract within a short time period. This means that workers have to manufacture the same amount of products in less time, which results in longer working hours (Mamic, 2004) and in most cases without receiving paid overtime (Yu, 2015)

Although some researchers argue that the negative consequences of buyer-driven supply chains, such as sweatshops or child labor, have influenced the increase in corporate CSR-strategies and likewise COCs (Harpur & Peetz, 2011), others emphasize the growth of COCs after the second world war and link it to the cruel experiments carried out during war (Pritchard, 2012). Both statements about buyer-driven supply chains and the second world war reveal negative situations that should be avoided. In summary, negative aspects have led firms to take actions and introduce strategies in order to guide behavior of the organization, its members and its partners.

Having different assumptions about the events that have led to an increase in COCs, scholars share the opinion that a change in human behavior, such as a stronger awareness of human rights and better a knowledge of personal rights, forces institutions to create and display COCs and revise existing ones (Harpur & Peetz, 2011; Pritchard, 2012).

To put it briefly, the rise in globalization is connected with the presence of MNEs and the increase in CSR-strategies. However, a simple CSR-strategy is insufficient. Consequently, companies have started to introduce COCs. This will be elaborated on in the next chapter.

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3. Code of conduct (COC)

COCs were first established in the United States. The US Common Law did not cover topics such as rights and liabilities of employees and employers. Therefore, a separate document, the COC, was introduced to cover such topics. Consequently, the structure and the idea of COCs are deeply rooted in the country’s culture and institutional context (D'Iribarne, 2002; Barmeyer & Davoine, 2008; Barmeyer & Davoine, 2011b). The growth in international trade and the increase in acquisitions overseas have resulted in a transfer of codes from the mother company in the US to other subsidiaries overseas. Other countries have covered such topics separately under civil law or labor law, as it is the case in Europe under European law (Barmeyer & Davoine, 2008). Therefore, such codes may not achieve the expected results in behavior due to the fact employees overseas interpret the code differently. This is only one of the challenges that comes along with implementing and transferring a COC within a MNE. The following sub-chapters will discuss the definition and its effectiveness as well as the implementation and the transfer process.

3.1. Definition and status quo of COC

Researchers have been extensively debating definitions of a code of conduct. Before analyzing different suggestions, attention should be paid to the various names that scholars use to refer to a COC such as business code (Kaptein, 2004; Kaptein & Schwartz, 2008), corporate code of labor practice (Barrientos & Smith, 2007), code of conduct (Arnold, Bernardi, Neidermeyer, & Schmee, 2007; Egels-Zandén & Lindholm, 2015; Harpur & Peetz, 2011; Nakhle & Davoine, 2016; Sethi, Veral, Shapiro, & Emelianova, 2011), or code of ethics (Yallop, 2012, October). Lacking a universal name and definition of a COC confuse the readers, as it complicates the comparison of various studies of different scholars who apply different names or definitions. Kaptein and Schwartz (2008) argue that confusion exists due to various names that exist for a COC and because of missing definitions within a research project. Nonetheless, Schwartz (2002) cites several studies in his project which reveal the percentages of COCs used within specific countries such as the USA, which has the most corporations with COCs followed by Canada, UK, Germany, and France. These percentages are cited from different studies, which means that e. g. the percentage of COCs in Canada was published in a different study than the percentage of COCs used in Germany. Therefore, it is doubtful that all of these studies use the same definition of a COC and it is in question if these

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percentages can be compared on a country level. In order to avoid confusion, COC, as it is used within this thesis, will be defined at the end of this chapter.

Kaptein and Schwartz (2008) define business code as “a distinct and formal document containing a set of prescriptions developed by and for a company to guide present and future behavior on multiple issues” (Kaptein & Schwartz, 2008, p. 113). Moreover, they indicate that the company’s management and all employees are responsible of acting in accordance with such guidelines. All members of a company have to follow the code within the organization and when reaching out to external stakeholders or society in general. Kaptein and Schwartz (2008) elaborate on the individual terms “code” and “business” before outlining their own definition for business codes without considering definitions of existing studies (Kaptein & Schwartz, 2008). This approach lacks comparisons and developments of existing definitions, especially since a similar definition was discussed a few years earlier by Schwartz (2002). Schwartz (2002) defines a corporate code of ethics as “a written, distinct, formal document which consists of moral standards used to guide employee or corporate behavior“ (Schwartz, 2002, p. 28). It is debatable why this definition was not considered in Kaptein and Schwartz’s (2008) study.

Pritchard’s (2012) definition is similar to Kaptein and Schwartz’s (2008) definition regarding guiding behavior of members. However, Pritchard (2012) states that not only “members of a profession” (p. 494) but also from a different group have to act in accordance to the behavioral guidelines in order to stay a member of that group (Pritchard, 2012). Although misbehavior is neither stated nor defined within that study, it can be speculated that a consequence of non-compliance might be the elimination of that person from a specific group. Group is not defined in the whole study, and it remains unclear whether this noun can be linked to a company, institution or an aggregation of people in general. However, the use of nouns such as professionals, employees and clients implies that the author most likely refers to a company when using the noun group.

Zakaria et al. (2012) merely focus on the relationship between a company and its first-tier suppliers when defining a COC. They expect that these suppliers require the same standards and behavior of their suppliers to ensure such guidelines throughout the whole supply chain.

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Other researchers focus mainly on COC within MNEs. They define a COC as an instrument of control to regulate behavior of subsidiaries or suppliers and to assist in shaping a global organizational culture (Barmeyer & Davoine, 2011a). For MNEs it is particularly challenging to introduce a common culture, because the values and statements are typically formulated at headquarters in due consideration of all subsidiaries and their cultures on a national level (Schneider & Barsoux, 2011).

Some researchers do not differentiate between the various names that refer to a COC by calling it code of ethics (Yallop, 2012, October). However, other academics distinguish between a code of ethics, code of practice and code of conduct (Pritchard, 2012), whereas others only differentiate between a code of ethics and a code of conduct (Fisher, 2001). Codes of ethics are created for an internal use, which means they exclude customers. Although codes of conduct aim at guiding behavior of members within a group, the content is more detailed and specified than code of ethics. This means that they typically include specific situations and how to act upon it. A specific situation could be how to act in case of emergency. Codes of practice are similar to codes of conduct regarding the content. However, they are not only formulated for internal use but also for external partners such as clients (Pritchard, 2012). Likewise, Fisher (2001) describes codes of conduct as more detailed and containing a set of rules whereas codes of ethics are aimed at the moral capability. However, he does not differentiate based on internal or external use but generally outlines both defintions.

International governing bodies such as the United Nations or the European Union advise companies to introduce their own COCs (Kaptein, 2004). Therefore, the United Nations publish guidelines for companies to develop their own code, and these guidelines are published as “The ten principles of the UN Global Compact” and replace the name COC (United Nations Global Compact, not dated,b).

Taking all afore-mentioned definitions into account, this thesis defines a COC as follows: A COC is a written and formal document revealing prescriptions in

order to guide behavior of all stakeholders of a company, including management, employees but also customers and suppliers.

This definition combines the most important ideas of the descriptions of COCs cited in this sub-chapter.

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3.2. Implementing COCs

The first step of implementing a COC is to define its content (Nijhof, Cludts, Fisscher, & Laan, 2003). COCs are typically established by various cooperating parties i. e. several members across different departments of an organization (Coughlan, 2005). Previous research has shown that a COC should take into account several factors. A code should, i. a., vary in the language used, meaning that it should contain instructions about anticipated behavior using a positive language such as “It is desired to…”. Simultaneously, a code should include guidelines stating prohibited behavior by using negative language such as “It is prohibited to…”. Furthermore, a code should address the behavior of every single employee as well as the overall performance of the company. Moreover, the content describes the distribution of responsibility throughout a corporation and the code should be introduced as a tool to improve CSR (Nijhof et al., 2003).

Zakaria et al. (2012) do not narrow down the exact content of a COC. Rather, they argue that the explicit content depends on the company, as it relies on the scope of a company’s CSR strategy. Typical topics that are covered in a COC consider environmental, corporate governance, and ethical issues. Generally, a COC should be rigorous in order to judge specific cases. At the same time, the content should be broad enough to cover a number of situations (Zakaria et al., 2012). It may seem logical that the content of a COC depends on the company. However, Zakaria et al.‘s (2012) definition does not include international conventions and institutions that provide guidance by publishing standardized guidelines which reduce the amount of differing COCs varying between companies. Therefore, further research has been conducted including international conventions and organizations.

A variety of guidelines and documentations with regard to COCs exists. Research includes all stakeholders on international, national and local levels and presents that reliable sources are international organizations, e. g. the International Labor Organization (ILO), the Organization for Economic Cooperation and Development (OECD) and the United Nations (UN) (Mamic, 2004). While Mamic (2004) favors such international conventions due to its widely accepted legitimacy, Sethi and Emelianova (2006) emphasize such organizations’ dependency on industrialized governments and thus, state the low efficiency of these organizations. This inefficiency partly occurs due to a lack of international policies that should be introduced by governments (Sethi & Emelianova,

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2006). Notably, Mamic’s (2004) study was published by the ILO. This factor questions the overall validity of the study, since Mamic favors the existence of such conventions and values the ILO among others as reliable source. It is doubtful if he would come to the same solution if not being supported by the ILO.

While the OECD provides guidelines for multinational enterprises that were adopted by governments of its member states (OECD, 2017), the ILO, a specialized agency of the UN, was founded after world war I in 1919 to ensure global peace by providing international social justice. It focuses on supporting social justice including human and labor rights as well as eliminating human trafficking which is covered under core labor standards (International Labour Organization, n. d.). The third relevant institution is the UN and its Global Compact which will be outlined in the following sub-section.

UN Global Compact

Although COCs are deeply rooted in the US, research indicates that many non-US companies have been introducing codes of conduct lately. These codes may be less strict and more flexible in adapting to several cultural contexts compared to US-based codes. The increasing use of codes outside the US underlines the importance of such codes on an international level (Kaptein, 2004).

This result might be influenced by the world’s largest corporate sustainability initiative: the UN Global Compact (UNGC). It is a covenant that is contracted between companies and the United Nations and aims at directing globalization towards a more social and ecological way. It states ten principles that should be embedded in a company’s value system, strategies, policies as well as processes and procedures. These principles are more commonly known as an organization’s COC. Furthermore, these principles are partly based on several other agreements, such as the Universal Declaration of Human Rights, the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development and the United Nations Convention against Corruption. Established in 1999, the UN Global Compact currently accounts for more than 9,000 companies in more than 160 countries (United Nations Global Compact, not dated,b).

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The ten principles are divided into four categories: ▪ Human rights

▪ Labor

▪ Environment

▪ Anti-corruption (United Nations Global Compact, not dated,b) The detailed list of the ten principles can be found in the Appendix A.

Freedom of Association (FoA) is one of the ten principles and forms part of ILO’s aims and tasks too (ILO-Berlin, n. d.). Freedom of Association (FoA) is frequently cited by researchers (Anner, 2012; Yu, 2015). Therefore, it is further outlined in the following paragraphs. FoA is defined as the right of workers to arrange and join independent trade unions including strikes and negotiations between union and management (Anner, 2012). Within specific cultural contexts, the significance of this criterion might be questioned. Based on Hofstede’s (2011) dimensions, countries can differ in power distance, which means that a high score on this dimension reveals that people follow strict hierarchies, and power is distributed unevenly. Therefore, it is doubtful that people would stand up against their supervisor or go on strike, especially if the employee’s culture scores high in Hofstede‘s (2011) power distance. Additionally, the points mentioned above in this paragraph address the lack of research investigating the cultural influence on the implementation of COCs and question the probability of transferring a common COC to all countries a company is operating in.

The Reebok case illustrates the challenges of implementing a COC, especially with regard to FoA. The company eliminated child labor and adapted world-wide standards as required by their COC. Nevertheless, in order to meet the target costs, workers needed to work faster, and wages were cut. Additionally, the company set up an employee-elected trade union. However, this group failed to bargain in favor of the workers (Yu, 2015). This raises the question why the trade union failed to negotiate with the management. Linking it back to Hofstede’s (2011) dimensions, one might ask whether the hierarchical status between trade union and management and consequently the national culture influence such negotiations.

The UNGC relies on various supporters, notably because the compact provides i. a. an adequate solution to the challenges of globalization (Williams, 2014). However, the

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compact is criticized for its increasing number of members and its lack of specific code provisions to support its members in improving CSR (Sethi & Schepers, 2014). Thus, research delivers controversial opinions of scholars about the UNGC functions and effectiveness (Voegtlin & Pless, 2014). Instead of criticizing a compact that builds up on CSR values, CSR itself should be analyzed before assessing the UNGC’s effectiveness. A deeper analysis reveals that CSR varies among countries and can be divided into explicit and implicit CSR and thus, providing different objectives. Consequently, critiques about UNGC cannot be directed towards this compact but rather build on issues considering either the explicit or implicit part of CSR (Brown, Clark, & Buono, 2018) The OECD guidelines, the ILO labor standards as well as the UNGC provide voluntary guidelines that are not legally binding (OECD, 2008). Consequently, all COCs are introduced on a voluntary basis (Sethi & Emelianova, 2006). Being considered a start to ensure CSR and to eliminate poverty while securing the world’s peace and protecting the environment, these guidelines are primarily a starting point for change. However, voluntary COCs might not be sufficient. In order to achieve change the main causes of a system have to be changed. A reform of existing guidelines is insufficient, since this would only touch the surfaces of the issues and would not allow an overall change (Chomsky & Barsamian, 1993). Laws and legal forces are required to implement change i. a. regarding international working conditions (Harpur & Peetz, 2011; Sethi & Emelianova, 2006). However, governments of developed countries have hesitated to create political pressure fearing the intervention of other industrialized nations (Sethi & Emelianova, 2006). This reveals an absence of action from industrially advanced countries.

Apart from the discussion whether COCs should be obligatory or not, there exists a debate about individualized vs. institutionalized COCs. Mamic (2004) favors institutional convention’s standards partly due to the fact that they ensure years of experience with regard to implementation and monitoring processes. Likewise, Barrientos and Smith (2007) support this argument by stating that research indicates that COCs should include the six ILO core conventions as a minimum. Therefore, MNEs should further develop and expand sections based on the ILO agreement.

Once the content is fixed, other steps are needed to introduce a COC. COCs can be implemented by applying distinct methods. The following paragraphs will introduce and

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compare two approaches: the assessment method of Nijhof et al. (2003) based on the EFQM model and the implementation framework of Mamic (2004).

The mere act of implementing a COC does not change the behavior of employees or the organization in general. Therefore, a COC comes with six stages of implementation that contribute to responsible behavior of an organization. Within these six stages embeddedness of a company’s COC can be measured, as every section can be individually analyzed and further developed in case of a low degree of embeddedness. It is the responsibility of management to look into these processes and act upon them if required. The collaboration of employees is also necessary in order to receive positive results (Nijhof et al., 2003). To ensure such moral commitment, employees sign the COC within the recruitment process (Barmeyer & Davoine, 2011a). This means that the implementation process is essential for the successful practice of a COC within a company.

By introducing six processes, Nijhof et al. (2003) argue that the first step of implementing a COC is to analyze the environment regarding risks for the company and identify obstacles that hinder responsible behavior. Afterwards, information and experience regarding a variety of situations in daily practice should be collected. Next, personal as well as corporate values should be identified and compared. Later, step number one, i. e. an analysis of the environment regarding risks and obstacles, should be repeated. The next step focuses at employees and assists them in consulting whether their behavior is in accordance with the principles of the code. This is followed by monitoring internal risks and addressing them in case of non-conformity with the code. The final task of the company is to communicate the activities in order to achieve responsible behavior. Additionally, it should be analyzed how it is publicized to the company’s stakeholders. Lastly, the level of transparency of this process should be investigated (Nijhof et al., 2003). The second approach, namely the implementation framework of Mamic (2004) is illustrated in Figure 1. Introducing a COC requires the commitment of top management. Therefore, it is essential to share a vision and communicate it in order to gain commitment of employees and stakeholders, as it can be seen in Figure 1 (Mamic, 2004; Wood & Rimmer, 2003). Furthermore, training should assist employees to better understand the COC and its responsibilities.

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Figure 1 Implementation-Framework

Source: (Mamic, 2004, p. 70)

Having defined the content of a COC, the next step is to analyze a company’s structure and decide whether there are sufficient departments that take accountability over the COC or whether new departments have to be created. Afterwards, several processes have to be considered, such as the integration of COC content into the evaluation system. This enables manufacturing managers of a MNE to evaluate if the principles of the COC are met annually and compare the results with previous years. Furthermore, the COC should be integrated in the purchasing department to rely on its content when placing an order or searching for new suppliers. Besides, the COC responsibilities should be part of job descriptions of positions that are included in the COC implementation process. Furthermore, these responsibilities should be integrated in user manuals and in all processes in an organization. Human capital methods, such as recruitment and training, as well as the legal framework of a company have to be adapted according to COC standards (Mamic, 2004).

Monitoring and auditing are essential factors that should be integrated in the COC implementation process. Internal and external audits should assist in identifying problem areas which will help managers to address inadequate behavior. Equally important is constant communication with employees, workers and stakeholders in general to ensure compliance regarding workers’ rights, freedom of association and collective bargaining. A company should provide open communication channels to stakeholders to receive

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feedback (Mamic, 2004). This could be achieved by installing an internal telephone line that can be used without charge. Consequently, employees can announce any situations of misbehavior (Barmeyer & Davoine, 2011a).

Finally, COC management should be integrated in the whole company’s system. These steps should be fulfilled by a MNE as well as its suppliers. Therefore, suppliers need to integrate a MNE’s vision of a COC into their vision in order to fully implement a COC on behalf of the MNE (Mamic, 2004). The last point guarantees ethical behavior throughout a MNE’s supply chain. However, there are drawbacks to this viewpoint. Assuming that one supplier has several clients, this would mean that this supplier has to integrate all COCs of all individual MNEs. This would not be problematic if all MNEs use a standardized version of a NGO or international institution. Issues may arise when MNEs formulate their own COC without relying on international standards, as it complicates the integration process on behalf of the suppliers.

While the implementation process suggested by Nijhof et al. (2003) focuses mainly on the values of employees and the company, Mamic’s (2004) approach provides a step-by-step method with clear tasks. Both studies outline that the implementation process is time-consuming and can stretch over several years. Furthermore, they argue that monitoring and auditing tasks are essential to ensure a code’s effectiveness. Equally important are communication channels to ensure the involvement of a company’s stakeholders and to provide an instrument to receive constant feedback (Mamic, 2004; Nijhof et al., 2003). While both approaches reveal useful, comprehensive and partly overlapping information considering the implementation process of a COC, Mamic (2004) offers a more detailed approach which provides the basis for the current thesis. Therefore, this thesis will rely on the implementation process of the following steps:

▪ Commitment of top management: formulating a shared vision for employees and stakeholders

▪ Training for employees to ensure knowledge of responsibilities

▪ Analysis of a company’s structure: assign department(s) to take accountability over the COC or create a new one

▪ Integration of COC into evaluation system (job description, annual ratios, purchase procedures, legal framework, user manuals etc.)

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▪ Development of monitoring and auditing processes (internal and external audits) ▪ Introduction of open communication channels to receive feedback of stakeholders ▪ Integration of COC management within the whole corporation

▪ Optional: Integration of COC management on behalf of suppliers

Based on Mamic (2004) COC management should not only be integrated within the corporation but also within its suppliers. As mentioned earlier, this suggestion has some drawbacks. Therefore, it has been added as an optional point. To be clear, companies which can ensure an integration of their COC standards on behalf of their suppliers may be leading in that task. Certainly, the amount of suppliers in general will have an impact on this task which means it might be easier to manage a low number of suppliers.

Although the analysis of each step to ensure embeddedness of a COC is part of Nijhof et al.’s (2003) study, it can be applied to the steps defined for this thesis as well. Therefore, all of these steps can be analyzed individually, and all of them should be embedded in the company’s system. In case of low embeddedness in one area, this step should be analyzed and further developed.

With regard to auditing and monitoring, MNEs have started to use external agencies or NGOs to audit ethical compliance, including a company’s COC. This reveals a new trend, because only financial data has been audited by externals. Nevertheless, there are some factors to consider when auditing non-financial data. Some MNEs conduct internal audits and hand over the results to an external agency for review. This is the same approach that is used for financial data audits. However, the difference is that accounting standards have existed for decades and provide a basis for audits while ethical compliance lacks these standards (Mamic, 2004). It has to be stated that it might be easier to compare numbers, such as financial data, rather than values, such as the behavior based on a COC. Furthermore, this method of auditing does not guarantee that all areas of the code are equally covered, since management tends to focus on visible aspects of the code and less likely involves workers or their representatives. The main focus on visible aspects leads to a better analysis of outcome standards, such as working hours or salaries, rather than process rights (Barrientos & Smith, 2007), which include discrimination or the power of trade unions (Anner, 2012).

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With regard to the trend of using external parties to audit ethical compliance, Mamic (2004) argues that the results of an audit might be invalid since agencies or NGOs might refuse to publish insufficient results that might damage the image of a company, as they fear losing a future contract with the company. This underlies a conflict of interests (Mamic, 2004). While this argument provides strong evidence for the situation in practice, it questions the assignment of external parties in general. Regardless of whether the subject of the audit is financial data or non-financial data, this conflict of interest reflects the published results of an audit and lowers its credibility in general.

This reveals that there is a difference between auditing and good auditing. Facing the issue of double-record keeping that is widely used in South East Asia, it has to be considered that employers will deduct the costs of the workers wage in case of non-sufficient audit results. Therefore, an audit firm should obey the local laws and conduct an auditing in the local language (Zakaria et al., 2012). Simultaneous internal and external audits might reduce this obstacle.

To sum it up, implementing a COC is a long-term process that requires the commitment of top management, workers, employees, and suppliers. Once a COC is implemented, the next step is to analyze its effectiveness, which will be discussed in the following sub-chapter.

3.3. Effectiveness and conditions of COCs

While a COC can be seen as an instrument to enhance CSR (Nijhof et al., 2003), it is widely known as a standardized regulation to guide behavior (Zakaria et al., 2012). Besides, there exist controversial opinions as arguing, for instance, that the main function is to enhance the corporate image, rendering COCs ineffective. The purpose of introducing a COC is critically reviewed by Marnburg (2000). He is questioning a document with common-sense guidelines about behavior, because he doubts that such omnipresent principles would change the behavior of a fraudulent person. To clarify, a corrupt person will not act ethically only because it is stated in voluntary principles (Marnburg, 2000). Ladd (1985) argues compellingly in favor of this point of view. He even states that a COC is ineffective, since „those to whom it is addressed and who need it the most will not adhere to it anyway, and the rest of the good people in the profession will not need it because they already know what they ought to do” (Ladd, 1985, p. 11). This

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statement questions a COC’s overall function. This study was carried out decades ago, when COCs emerged. Marnburg’s (2000) study was carried out almost two decades later and provides an additional good example of supporting the opinion that COCs are ineffective in general.

Scholars in general have controversial opinions about the effectiveness of COCs. While some argue that COCs are ineffective (Ladd, 1985), disconnected from ethics (Robin, Giallourakis, David, & Moritz, 1989) and superficial in dealing with behavior in a company (Warren, 1993), others rely on COCs as crucial (Coughlan, 2005), valuable and an important starting point to enhance ethical behavior (Wood & Rimmer, 2003) or emphasize its success (Dobson, 2005). This controversy might derive from different methodologies applied in different studies: some measure the actual effectiveness of a COC whereas others focus on the potential effectiveness of a COC (Kaptein & Schwartz, 2008).

Interestingly, older studies mainly deliver negative opinions about COCs (Ladd, 1985; Robin et al., 1989; Warren, 1993) while more recent ones present positive results (Coughlan, 2005; Dobson, 2005; Wood & Rimmer, 2003). The increase of COCs, their further developments as well as other factors might have impacted this change in opinion. Notably the research method and purpose of the study can influence such different results, as stated earlier.

It is challenging to measure a code’s effectiveness, which is partly due to different definitions of codes and partly because the factor that is measured, namely behavior, is intangible. This leads to a wider spectrum of difficulties. Besides, it is questionable whether research provides appropriate results, since many studies may measure random subjects. To clarify, some studies focus on interviewing respondents on dilemmas about their own opinion. However, it should be considered that situations can be interpreted differently and thus the results will differ consequently. Therefore, attention should be paid to the sample of a study (Kaptein & Schwartz, 2008).

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A critical analysis of existing research reveals that the following factors should considered when measuring a COC’s effectiveness:

▪ “Expectations of stakeholders and meso- and macrocodes ▪ Environmental and organizational characteristics

▪ Objectives of the organization ▪ Development process ▪ Content ▪ Sub-codes ▪ Implementation ▪ Personal characteristics ▪ Internal context

▪ Conduct and consequences” (Kaptein & Schwartz, 2008, pp. 118–120)

Most studies only analyze parts of the above-mentioned factors and do not consider all of them in one study. Consequently Kaptein and Schwartz (2008) have developed a model that integrates all of these factors and provides a basis for analyzing the effectiveness of COCs.

A different study reveals that COCs complicate exceptional circumstances and are somehow contradictive. This is partly due to the code’s high degree of bureaucracy. The following example provides some clarification: A nurse gives prescription medication to an accompanying person of a patient, because this person has a sudden asthma attack. Based on the COC, the nurse acts the wrong way because prescription medication can only be handed out by a doctor. However, the nurse acts correctly regarding efficiency, as the person might have passed out while waiting for a doctor (Fisher, 2001). This situation shows drawbacks when a COC is formulated too specifically. Thus, there should be a balance between the broadness and the number of details of a COC (Zakaria et al., 2012), otherwise it will lessen the code’s effectiveness as the example above reveals. Furthermore, situations such as described in the nurse example generally raise the question about a COC’s effectiveness. However, other factors, e. g. culture and a nations identity, might influence how a COC is perceived, lived and these factors consequently affect the code’s effectiveness. According to different culture studies, humans have different behaviors, traditions and customs based on their culture (Hofstede, 1994; House,

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Dorfman, Javidan, Hanges, & Sully de Luque, 2014; Schwartz, 1994). This can be linked to the code’s effectiveness as well, since the content of the code should not contradict personal values, otherwise it will lower the degree of success. Furthermore, various factors, such as culture or gender, can influence decision making processes regarding ethical topics (Kaptein & Schwartz, 2008). Such situations as in the nurse example do not only take place in the medical industry but occurs in other industries where various cultures work together, too. Thus, a deeper theoretical and practical analysis is needed. Apart of Kaptein and Schwartz’s (2008) study, which provides a model for measuring a code’s effectiveness, Brinkmann and Ims (2003) argue that it is impossible to simply assess the effectiveness of a COC, as other factors influence the code’s effectiveness. A prior analysis of the conditions regarding the COC itself but also its environment is necessary in order to determine if and to what extent the code has positive and/or negative conditions. Brinkmann and Ims (2003) divide the conditions into three main sections, namely “[c]onditions which further positive code effects, i. e. code functions, such as openness and honesty, simple and abstract elements or stimulation of dialogue” (Brinkmann & Ims, 2003, p. 268). Another section includes “[t]ypes of mediating conditions (understandable as a sequence of stages), such as organization climate, code intentions & objectives, creation & procedure, content and implementation, use & administration” and the last one is about “[c]onditions which further negative code effects, i. e. code dysfunctions, such as pessimism, administrative, detailed or blocking of dialogue and problem sharing” (Brinkmann & Ims, 2003, p. 268). Some of these conditions may vary country-wise based on different cultures (Brinkmann & Ims, 2003). Although COCs are widely accepted within the US, other countries such as France reveal a lower presence of COCs and their acceptance (Barmeyer & Davoine, 2011a; Langlois & Schlegelmilch, 1990). Linking this to cultural reasons, the cultural dimensions of Hofstede (1994) should be considered. According to Brinkmann and Ims (2003) countries that reveal a high score in power distance and uncertainty avoidance but are considered feminine, meaning a low score on the dimension masculinity are generally more willing to accept a code.

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In the following table, the functions outlined above are summarized:

Table 1 Summary of code conditions

Conditions which further positive code effects, i. e. code functions Types of mediating conditions (understandable as a sequence of stages) Conditions which further negative code effects, i. e. code dysfunctions

Openness and honesty Organization climate Pessimism, cynicism Idealistic, inner-directed Code intentions &

objectives

Defensive, reactive, outer-directed Participatory, bottom-up Code creation &

procedure

Administrative, top-down

Simple and abstract elements

Code content Sophisticated, detailed elements

Stimulation of dialogue Code implementation, use & administration

Individual lop-service adjustment, blocking of dialogue and problem sharing

Source: (Brinkmann & Ims, 2003, p. 268)

Generally, it is essential that the code is communicated clearly. Especially when transferring the code to other countries emphasis should be put on “training with sensitivity towards regional or local dialects, non-verbal expression, traditions of interpersonal communication, and the nuances associated with translation and interpretation as well as gender, age, religion or tribal customs” (Mamic, 2004, p. 72). Ensuring commitment is a continuous process that requires several years and starts with verifying whether the code is understood and accepted or not (Mamic, 2004).

The evidence suggests, therefore, that measuring the effectiveness of a COC remains a complex task. Existing research partly contradicts and lacks a universal method which allows measuring the effectiveness of several COCs in order to provide comparable results. This may be linked to the fact that measuring behavior is intangible and thus, it remains difficult to compare the outcomes.

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4. Transferring COCs

MNEs have international subsidiaries which typically show distinct internal processes, systems and actors (Sharpe, 2003). Developing a strong global corporate culture is the key to uniting headquarters and all subsidiaries in one organization. Creating this universal corporate culture is related to various benefits such as enhancing the international cohesion of all units and thus, decreasing costs. In most cases the corporate culture, developed at headquarters, is transferred to all subsidiaries (Barmeyer & Davoine, 2006). However, these subsidiaries differ in leadership styles, communication patterns and behavior, notably by different cultural values. These differences challenge the daily business environment and lead to internal clashes within the MNE (Blazejewski, 2006; Sharpe, 2003; Hofstede, 2011; House et al., 2014). Consequently, transferring behavioral guidelines, such as a COC, is connected to potential complications.

Research reveals a higher level of potential conflicts in a MNE and its various international subsidiaries compared to cultural homogeneity (Ayoko, Härtel, & Callan, 2002; Chevrier, 2003). Therefore, it is assumed that transferring as well as implementing organizational behavioral guidelines across a MNE causes conflicts. Additionally, it should be considered that actors from distinct cultural groups address and settle a conflict differently, which results in a more complex situation of problem identification and solving (Blazejewski, 2006).

Thus, it is argued that a COC should be adapted to the receiving institution’s culture including its institutional context. Otherwise it may suffer from ineffectiveness in terms of invalidity or resistance (Barmeyer & Davoine, 2011a; Kostova & Roth, 2002). Focusing on national identities strengthens ethical decision making (Helin & Sandström, 2008). Nevertheless, a company should aim at balancing cultural relativism and universalism when transferring a COC (Helin & Sandström, 2008). This theory resembles the theory of convergence and divergence within the cross-border merging literature (Barmeyer & Davoine, 2006). Both theories roughly imply that companies should decide before implementing, i. e. transferring, a COC whether they want one single COC for the entire organization, which presents an universalistic or convergent view, or if they want to introduce several codes based on each subsidiary’s interests, which represents a relativistic or divergent view (Thorne & Saunders, 2002; Robertson & Fadil, 1998).

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Corporate culture influences this decision-making process. If a country’s culture is part of the corporate culture, it challenges the standardization process and thus, leads to a rather relativistic view. Adapting the code to national norms might be necessary in order to ensure its effectiveness (Langlois & Schlegelmilch, 1990). Interestingly, transferring a COC to various subsidiaries typically causes cross-cultural challenges and partly disregards enhancing business ethics in general (Helin & Sandström, 2008).

The next chapters will focus on the situation of US-developed COCs and discuss challenges of transferring COCs.

4.1. Situation of US-based companies

The concern about business ethics and consequently the urgency to address this topic in the academic field started in the US decades ago. Scholars focused on topics such as social responsibility (Stone, 1975), economic justice (Rawls, 1971) and ethical decision making in marketing (Ferrell & Gresham, 1985). Additionally, journals such as the “Journal of Business Ethics” were introduced to address various topics like business ethics (Langlois & Schlegelmilch, 1990).

The increase in discussions about business ethics in academic research fields inspired companies to change their focus on this topic. Consequently, the US were pioneers in introducing COCs (Langlois & Schlegelmilch, 1990). Besides the general interest in improving business ethics, scandals in the US financial market forced companies to introduce COCs. Companies such as Enron, Tyco and WorldCom have become synonyms for ethical misbehavior. Additionally, new technologies challenge daily business routines, since news spread faster (Krumsiek, 2004). Furthermore, a virtual society has developed internationally presenting a wider spectrum of people who are addressed and receive information (Chang, 2012). Thus, ethical misconduct can be made publicly within a short time and damage a company’s reputation (Krumsiek, 2004). In the Enron case, the scandal led to new laws such as the US-American Sarbannes-Oxley Act (SOX). Thus, scandals in the US and consequently new laws have increased the presence of COCs within the US (Helin & Sandström, 2008). Additionally, non-governmental organizations (NGOs) in the US and other developed countries have pressured MNEs to address poor working conditions and a lack of safety standards in subsidiaries oversea (Sethi, 2002). A COC is, therefore, a protector on behalf of the company and is based on

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risk-aversion (Helin & Sandström, 2008). Notably, companies with emphasis on CSR and ethical behavior seem to be governed better (Krumsiek, 2004).

The recent increasing number of European COCs is linked to the fact that US-based parent companies transfer their COCs to European subsidiaries. Thus, COCs can be seen as a US practice transferred to Europe (Langlois & Schlegelmilch, 1990). However, the number of COCs is increasing internationally. It seems like a trend that companies are indirectly forced to introduce COCs, because the public aims attention at ethical behavior, and customers require transparent business processes and demand direct communication channels. Companies lacking CSR activities and thus a COC miss the opportunity to enhance the company’s image. Certainly, companies with consumer products, such as the toy or textile industry, are more affected and pressured to focus on CSR activities. Companies from other industries can take the opportunity and be one step ahead by introducing a COC (Krumsiek, 2004).

COCs, in their original US sense, set the basis for ethical behavior within MNEs (Barmeyer & Davoine, 2011a). Certainly, these transferred guidelines are value-infused by the country of origin, i. e. the US. Business ethics differs country and even region-wise (Enderle, 1997) and challenges the code transfer to subsidiaries worldwide, which has an impact on the code’s effectiveness (Tréguer-Felten, 2017).

Linking it back to the laws and scandals that resulted in an increase in COCs within the US, US codes are filled with detailed information and concrete behavioral guidelines in order to protect the company from potential scandals. Attention should be paid to which country the COC is transferred, since the receiving institution might perceive the code as too detailed. Furthermore, it can result in the opposite reaction, namely a rejection of the code, if the subsidiary perceives that the code contains guidelines that are taken for granted in that country. It can also cause employees of the subsidiaries to feel less intelligent, especially when values and norms that are rooted in that culture are explicitly mentioned in the code (Helin & Sandström, 2008).

Furthermore, the implementation process should be considered as well. US-companies have disregarded cultural differences among subsidiaries and thus, suffered from COC’s ineffectiveness. Local adaptations are not permitted. However, signatures of all employees are required in order to control whether all employees have seen the code and

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these employees thereby agree to act in accordance to the COC. Such a conservative procedure consequently leads to resistance or disregard on behalf of the receiving institution, typically the subsidiary (Helin & Sandström, 2008). Previous studies have mentioned the inefficiency and the non-existing possibility of transferring US codes to e. g. German subsidiaries, especially if no adaptations are being made (Palazzo, 2002). In summary, existing literature indicates that the process of transferring COCs is related to potential challenges that come along with that process. Therefore, the next chapters will provide an in-depth analysis on potential challenges.

4.2. Challenges

A challenge in a MNE and its subsidiaries is introducing corporate and global standards to unite subsidiaries while responding to local norms in order to ensure each subsidiary’s success and efficiency (Thorne & Saunders, 2002).

It is assumed that guidelines about behavior, such as a COC, are equally meaningful across cultures. Although agreement might be achieved in matters of content (Thorne & Saunders, 2002), the internal COC implementation and transfer processes and mechanism have to be considered as well, since these can differ cross-culturally (Helin & Sandström, 2008; Thorne & Saunders, 2002). Therefore, emphasis should be put on such mechanisms in order to ensure global ethical compliance within a MNE (Thorne & Saunders, 2002).

One of the challenges when transferring a COC, is the implementation stage of a COC in general (Sethi, 2002). As various cultures are represented within a MNE, it is essential to involve representatives of the respective nations in the development process to ensure its global effectiveness (Thorne & Saunders, 2002). Frequently, various managers and employees are not informed about the existence and content of the company’s COC and thus, are not able to commit to such guidelines. The company’s structure might be problematic, since the COC is not embedded within the reward system, corporate culture or operative activities. Furthermore, it is argued that companies lack communication channels to publish success stories to employees and external stakeholders (Sethi, 2002). Therefore, companies have started to report sustainability matters such as “triple bottom-line reporting” or the “global reporting initiative (GRI)” and consequently communicate

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efforts regarding COC objectives (Painter-Morland, 2006). Lacking reporting standards and commitment of COC weaken the overall COC transfer process (Sethi, 2002).

Having subsidiaries worldwide weakens the transfer of a COC within a MNE, especially if the COC should not become superficial. Adapting the COC to cultural norms might be a solution. However, the corporate culture needs to be focused. If a company’s culture excludes national identities of subsidiaries, this facilitates the process of transferring a standardized document. Nevertheless, if the corporate culture includes national identities, it certainly complicates the transfer process of standardized guidelines, as adaptations might be needed in order to ensure its effectiveness (Langlois & Schlegelmilch, 1990). Hence, COCs need to be adapted to cultural as well as legal standards, as the case of a French subsidiary shows: The US-based COC does not allow any alcoholic beverages at the workplace and thus, the wine tavern at the subsidiary in France was closed under heavy protests of the French employees. However, the US firm did not succeed, since under French law alcoholic beverages are prohibited with the exception of beer, wine and cider (Barmeyer & Davoine, 2008). Zakaria et al. (2012) also argue that COCs are perceived differently depending on the context and country (Zakaria et al., 2012). They mention several contexts such as legal, local or cultural contexts. However, they do not define in what context COCs are perceived differently, which may result in misleading assumptions on behalf of the reader.

Apart from culturally related challenges, there are non-compliance attempts. Especially in South East Asia double-record keeping is a common phenomenon. This means that employees have the right books ready when internal or external audits are conducted, and such practices are aligned with local law (Zakaria et al., 2012).

It has already been emphasized that it is questionable whether COCs can be directly transferred to other countries. Scholars debate that especially North American companies implementing the code in European subsidiaries might encounter difficulties or high resistance (D'Iribarne, 2002; Palazzo, 2002; Barmeyer & Davoine, 2011a), partly due to the fact that ethical conceptions differ country-wise. A study of French managers, for instance,reveals concerns about control measures, such as COCs, as they negatively affect one’s privacy and personal believes (D'Iribarne, 2002). From a French perspective, everyone knows how to act the right way and mutual trust is expected, whereas guidelines