Abstract
Research by Li et al. (2021) empirically validates the notion that firms with stronger corporate cultures achieve greater operational efficiency and higher market values. However, it remains uncertain whether these economic benefits disadvantage other stakeholders or whether a robust corporate culture can generate advantages for all stakeholders simultaneously. To address this gap, our study focuses on employees, a key corporate stakeholder who may be adversely affected by shareholder wealth maximization, particularly in the context of workplace safety. By examining the interplay between corporate culture and employment-related violations, this research aims to contribute to a more in-depth understanding of how corporate culture impacts various stakeholder groups.
This project will investigate the relationship between corporate culture and employment-related violations, offering both research and practical implications. Employment-related violations refer to violations committed by companies that breach labour laws, workplace standards, or employee rights (Haga et al., 2024). These include, but are not limited to, retaliation, labour relations violations, discrimination and harassment, as well as wage and working hour violations. Using a machine learning-based measure of corporate culture and content analysis of employee-related violations, the study focuses on whether FTSE 100 firms with stronger corporate cultures are less likely to experience such violations between 2015 and 2021. Strong corporate cultures often promote ethical behaviour, transparency, and accountability, which can lead to better compliance with labour regulations and a more engaged workforce. Furthermore, a positive corporate culture can foster a sense of responsibility amongst employees and management, reducing the likelihood of misconduct or neglect of employee rights.
Additionally, we examine the moderating role of the 2018 Corporate Governance Code, which places an increased emphasis on the monitoring of corporate culture by the board of directors (Cordina et al., 2024). Specifically, we aim to assess whether, following the adoption of the 2018 Corporate Governance Code, firms with stronger corporate cultures have seen a significant reduction in employment-related violations. While prior studies have largely focused on the benefits of a strong corporate culture for shareholders (Li et al., 2021), this research contributes to the literature by emphasising the positive impact of corporate culture on employees as key stakeholders.
Research on workplace safety increasingly emphasises the role of corporate culture in mitigating employment-related violations and promoting safer work environments. While many of the previous studies on this topic have focused on industrial relations, recent articles illustrate how capital market pressures and organisational culture impact workplace safety outcomes. For instance, Cohn and Wardlaw (2016) find that higher levels of financial leverage correlate with increased illness and injury rates among employees, while Caskey and Ozel (2017) indicate that pressures to cut discretionary spending can compromise safety. This connection between culture and firm performance is further explored by Amin et al. (2021), who argue that local religiosity influences managerial attitudes toward workplace safety. Importantly, studies suggest that strong corporate cultures foster ethical behaviour, accountability, and transparency, which can lead to a reduction in employment-related violations. Evidence from Haga et al. (2024) indicates that powerful CEOs promote safety, while safety-oriented cultures contribute to a decrease in workplace incidents. By reallocating resources toward employee safety, firms may align shareholder and stakeholder interests, ultimately enhancing employee satisfaction and reducing operational disruptions, which benefits all parties involved.
The 2018 Corporate Governance Code marked the first formal inclusion of corporate culture within the framework of corporate governance, responding to mounting evidence of corrupt and unethical practices in various companies. This updated Code introduced new principles and provisions that necessitate a heightened focus on the board's role in relation to leadership, purpose, strategy, and culture. The incorporation of two complementary principles and two supporting provisions pertaining to leadership and corporate culture underscores the urgency for change and highlights that corporate culture, along with the board's responsibilities, should not be dismissed as a temporary trend or secondary issue in corporate governance. Specifically, Provision 2 of the 2018 Corporate Governance Code states that "The board should assess and monitor culture. Where it is not satisfied that policy, practices, or behaviour throughout the business are aligned with the company’s purpose, values, and strategy, it should seek assurance that management has taken corrective action. The annual report should explain the board’s activities and any actions taken. Additionally, it should detail the company’s approach to investing in and rewarding its workforce" (FRC, 2018, p.4). This emphasis on corporate culture is crucial, as it plays a significant role in addressing employment-related violations, ensuring that organisational values align with ethical behaviour and employee well-being (Cordina et al., 2024).
Our sample focuses on FTSE 100 listed firms from 2015 to 2021, specifically encompassing three years before and after the introduction of the 2018 Corporate Governance Code. This timeframe allows us to more effectively examine the moderating role of the 2018 Corporate Governance Code on the relationship between corporate culture and employment-related violations. To quantify employment related violations, we initially utilise a dataset from Violation Tracker UK, produced by a Washington-based non-governmental organisation called Good Jobs First which emphasises corporate accountability. This records fines associated with corporate violations sanctioned by regulators. Subsequently, the cases from this dataset will be cross verified with the sanction reports available on regulators' websites to ensure accuracy and comprehensiveness. This two-step verification process will enhance the reliability of our analysis. Our independent variable, corporate culture, is measured using a machine learning approach. Specifically, we employ Word Embedding, an artificial neural network-based natural language model that captures context-specific meanings of words and phrases, as highlighted by Li et al. (2021). Through this model, Li et al. (2021) propose an innovative semi-supervised machine learning technique that facilitates the generation of a culture vocabulary and the measurement of corporate culture values.
This research has implications for a broad range of stakeholders. For investors, the project offers insights into how corporate culture influences employment-related violations, potentially affecting a firm's risk profile and overall reputation. Understanding these dynamics can help investors assess the long-term sustainability of their investments, as firms with strong corporate cultures may be better positioned to manage employee relations and maintain regulatory compliance, thereby reducing reputational risks associated with violations.
For employees, the study examines how corporate culture shapes their workplace environment, including ethical behaviour. A strong corporate culture can contribute to improved working conditions and job satisfaction, positively influencing their overall experience and engagement within the organisation. For regulators, the project provides insights into how corporate culture affects employment-related violations, which could inform regulations aimed at promoting ethical corporate behaviour. Stronger monitoring and evaluation of corporate culture, as emphasised by the 2018 Corporate Governance Code, can serve as an effective tool for mitigating non-compliance risks. The findings may also guide future policymaking, helping regulators like the Financial Reporting Council shape corporate governance codes and regulations that encourage healthier workplace environments and enhance accountability.
This project will investigate the relationship between corporate culture and employment-related violations, offering both research and practical implications. Employment-related violations refer to violations committed by companies that breach labour laws, workplace standards, or employee rights (Haga et al., 2024). These include, but are not limited to, retaliation, labour relations violations, discrimination and harassment, as well as wage and working hour violations. Using a machine learning-based measure of corporate culture and content analysis of employee-related violations, the study focuses on whether FTSE 100 firms with stronger corporate cultures are less likely to experience such violations between 2015 and 2021. Strong corporate cultures often promote ethical behaviour, transparency, and accountability, which can lead to better compliance with labour regulations and a more engaged workforce. Furthermore, a positive corporate culture can foster a sense of responsibility amongst employees and management, reducing the likelihood of misconduct or neglect of employee rights.
Additionally, we examine the moderating role of the 2018 Corporate Governance Code, which places an increased emphasis on the monitoring of corporate culture by the board of directors (Cordina et al., 2024). Specifically, we aim to assess whether, following the adoption of the 2018 Corporate Governance Code, firms with stronger corporate cultures have seen a significant reduction in employment-related violations. While prior studies have largely focused on the benefits of a strong corporate culture for shareholders (Li et al., 2021), this research contributes to the literature by emphasising the positive impact of corporate culture on employees as key stakeholders.
Research on workplace safety increasingly emphasises the role of corporate culture in mitigating employment-related violations and promoting safer work environments. While many of the previous studies on this topic have focused on industrial relations, recent articles illustrate how capital market pressures and organisational culture impact workplace safety outcomes. For instance, Cohn and Wardlaw (2016) find that higher levels of financial leverage correlate with increased illness and injury rates among employees, while Caskey and Ozel (2017) indicate that pressures to cut discretionary spending can compromise safety. This connection between culture and firm performance is further explored by Amin et al. (2021), who argue that local religiosity influences managerial attitudes toward workplace safety. Importantly, studies suggest that strong corporate cultures foster ethical behaviour, accountability, and transparency, which can lead to a reduction in employment-related violations. Evidence from Haga et al. (2024) indicates that powerful CEOs promote safety, while safety-oriented cultures contribute to a decrease in workplace incidents. By reallocating resources toward employee safety, firms may align shareholder and stakeholder interests, ultimately enhancing employee satisfaction and reducing operational disruptions, which benefits all parties involved.
The 2018 Corporate Governance Code marked the first formal inclusion of corporate culture within the framework of corporate governance, responding to mounting evidence of corrupt and unethical practices in various companies. This updated Code introduced new principles and provisions that necessitate a heightened focus on the board's role in relation to leadership, purpose, strategy, and culture. The incorporation of two complementary principles and two supporting provisions pertaining to leadership and corporate culture underscores the urgency for change and highlights that corporate culture, along with the board's responsibilities, should not be dismissed as a temporary trend or secondary issue in corporate governance. Specifically, Provision 2 of the 2018 Corporate Governance Code states that "The board should assess and monitor culture. Where it is not satisfied that policy, practices, or behaviour throughout the business are aligned with the company’s purpose, values, and strategy, it should seek assurance that management has taken corrective action. The annual report should explain the board’s activities and any actions taken. Additionally, it should detail the company’s approach to investing in and rewarding its workforce" (FRC, 2018, p.4). This emphasis on corporate culture is crucial, as it plays a significant role in addressing employment-related violations, ensuring that organisational values align with ethical behaviour and employee well-being (Cordina et al., 2024).
Our sample focuses on FTSE 100 listed firms from 2015 to 2021, specifically encompassing three years before and after the introduction of the 2018 Corporate Governance Code. This timeframe allows us to more effectively examine the moderating role of the 2018 Corporate Governance Code on the relationship between corporate culture and employment-related violations. To quantify employment related violations, we initially utilise a dataset from Violation Tracker UK, produced by a Washington-based non-governmental organisation called Good Jobs First which emphasises corporate accountability. This records fines associated with corporate violations sanctioned by regulators. Subsequently, the cases from this dataset will be cross verified with the sanction reports available on regulators' websites to ensure accuracy and comprehensiveness. This two-step verification process will enhance the reliability of our analysis. Our independent variable, corporate culture, is measured using a machine learning approach. Specifically, we employ Word Embedding, an artificial neural network-based natural language model that captures context-specific meanings of words and phrases, as highlighted by Li et al. (2021). Through this model, Li et al. (2021) propose an innovative semi-supervised machine learning technique that facilitates the generation of a culture vocabulary and the measurement of corporate culture values.
This research has implications for a broad range of stakeholders. For investors, the project offers insights into how corporate culture influences employment-related violations, potentially affecting a firm's risk profile and overall reputation. Understanding these dynamics can help investors assess the long-term sustainability of their investments, as firms with strong corporate cultures may be better positioned to manage employee relations and maintain regulatory compliance, thereby reducing reputational risks associated with violations.
For employees, the study examines how corporate culture shapes their workplace environment, including ethical behaviour. A strong corporate culture can contribute to improved working conditions and job satisfaction, positively influencing their overall experience and engagement within the organisation. For regulators, the project provides insights into how corporate culture affects employment-related violations, which could inform regulations aimed at promoting ethical corporate behaviour. Stronger monitoring and evaluation of corporate culture, as emphasised by the 2018 Corporate Governance Code, can serve as an effective tool for mitigating non-compliance risks. The findings may also guide future policymaking, helping regulators like the Financial Reporting Council shape corporate governance codes and regulations that encourage healthier workplace environments and enhance accountability.
Original language | English |
---|---|
Publication status | Published - 9 Jan 2025 |
Event | Alternative Accounts Europe - University College Cork, Cork, Ireland Duration: 9 Jan 2025 → 9 Jan 2025 https://bafa.ac.uk/subgroups/special-interest-groups/interdisciplinary-perspectives/events/upcoming-events/7th-alternative-accounts-europe-conference-2025.html (Link to Conference Website) |
Conference
Conference | Alternative Accounts Europe |
---|---|
Country/Territory | Ireland |
City | Cork |
Period | 9/01/25 → 9/01/25 |
Internet address |
ASJC Scopus subject areas
- Business, Management and Accounting (miscellaneous)