UNETHICAL CULTURE AND COMPANY PERFORMANCE BASED ON EMPLOYEE REVIEWS

Silveira, Alexandre Di Miceli da

doi:10.1590/S0034-759020230206

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ARTICLES • Rev. adm. empres. 63 (2) • 2023 • https://doi.org/10.1590/S0034-759020230206 copy

UNETHICAL CULTURE AND COMPANY PERFORMANCE BASED ON EMPLOYEE REVIEWS

Cultura antiética y desempeño corporativo según las evaluaciones de los empleados

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

I investigate the relationship between unethical culture and financial performance based on a text analysis of over 100,000 employee reviews posted at Glassdoor in Brazil. An original measure of unethical culture is created based on five ethical dimensions companies need to avert for an ethical culture to flourish. After creating an original list of around 1,400 terms, I find that companies scoring higher in unethical culture are less profitable and that this relationship is likely to be economically relevant. Of the five dimensions that make up an unethical culture, organizational unfairness, lack of awareness, and fear of retaliation are the three most strongly negatively related to performance. To my knowledge, this is the first paper to document a link between (un)ethical culture and corporate performance using online reviews. For investors, this paper contributes by showing that ethical culture measured by employee reviews is a value-relevant source of information.

Keywords:
Ethical culture; organizational culture; intangible assets; online reviews; firm performance

Year	Number of firms	Number of reviews	Average n reviews/company
2014	206	11,768	57.1
2015	417	33,907	81.3
2016	312	15,137	48.5
2017	337	16,627	49.3
2018	413	23,370	56.6
SUM	1,685	100,809	59.8

#	Disqualifier	Definition	Examples of words or terms associated with each dimension employed in the text analysis
1	Organizational Unfairness	Being treated unfairly by the organization is likely to foster unethical behavior as a result of a sense of resentment and injustice stemming from the employee’s perception of how the organization distributes its resources, outcomes, as well as implements its processes and policies.	• Work environment / work climate / work culture that is difficult / bad / unprofessional / unhealthy; • Presence of cliques / favoritism / nepotism; • Absence of meritocracy / dependence on friendship / lack of professionalism; • Privilege relatives / appointment of relatives; • Politicking / prevalence of politics / need to flatter / lots of gossip; • Lack of recognition / Low recognition of the employee / worker; • Do not feel valued; • Lack of respect / disrespect / do not respect the people / employees; • There is no trust in the organization / low level of trust / mistrust / distrust.
2	Abusive Managerial Behavior	Abusive managerial behavior can be described as extreme behaviors that can result in a subordinate or work group being plagued by uncertainty, anxiety, and fear. They include arbitrary decisions, diminishing or humiliating subordinates, intolerance with divergent views, shouting at people, use of derogatory terms, etc.	• Managers / bosses / superiors / leaders who: abuse; are aggressive / narcissistic / Machiavellian / psychopaths / cruel / despotic / tyrannical; are dishonest / egocentric / with an inflated ego / emotionally or psychologically unstable / unbalanced / immoral / unethical / inhumane / intolerant / offensive / toxic; • Abuse of power; • Sexual or moral harassment / bad jokes / disrespectful jokes; • Create emotional distress / stress; • Lack humanity / humanization / absence of a human management; • Management is apathetic / arbitrary / distant / absent / difficult to access / inaccessible; • Leadership based on fear / fear-based philosophy / management based on conflict.
3	Selfish Orientation	Selfish orientation means putting self-interest always ahead of the collective good. In a culture with such sense of direction, people tend to become more defensive, individualistic and primarily concerned with the protection of their ranks and personal outcomes. This is likely to increase the likelihood of unethical behaviors.	• Silo mindset / mentality; • Presence of fiefdoms / tribes; • Existence of strong rivalry / quarrels / competition between areas / teams / departments; • Highly competitive place / high internal competition / competitiveness among people; • Atmosphere of war / disputes; • Culture of internal competition / war; • People / employees / teams are aggressive with each other; egocentric / have inflated egos; are unfriendly; excessively competitive; selfish; cheat on others; conspire against others; promote intrigues; are individualistic.
4	Lack of Awareness	Moral awareness is the ability of an individual to recognize that his/ her potential decision or action could affect the interests, welfare, or expectations of the self or others. If employees are not able to perceive the ethical nature of the situations they face, then the organization will have much more difficulty in developing a strong ethical orientation.	• Company only thinks / only aims / is solely focused / is focused only on profits / financial results / numbers / money; • A place where the end justifies the means / reaching the numbers is all that matters / reaching the results regardless of the means; • Workload is exhaustive / exaggerated / absurd / extreme; • Need to hit the numbers at any cost / at any price / frantically search for the results; • People are emotionally disturbed / sick / depressed / anxious / overwhelmed / ill; • Code of ethics / conduct does not work / is not practiced / is not implemented / is not followed; • Culture is only in the rhetoric / discourse / it is not applied / is not followed / is not adopted; • Does not follow rules / its own policies / its own culture.
5	Fear of Retaliation	Retaliation occurs when an employer takes adverse action against an employee for opposing an unlawful or illegal practice. Fear of retaliation, in turn, means creating an environment in which people sense they will suffer negative consequences if they report behavior problems or unethical behaviors. When fear of retaliation is present, employees are less likely to question others’ behaviors.	• Fear of speaking out / fear of reprisal / fear of retaliation / fear of being fired / afraid of being dismissed; • It is a high tension / very tense environment; • There is a high degree of terrorism in the working environment; • Management is based on threats / threatening management; • There is a climate of fear / terror / intimidation; • You cannot open your mouth / no one speaks out / you have to be silent; • You cannot confront / disagree / diverge; • Everybody is afraid of exposing their points of view / you must be careful about what is said; • Whistleblowing / ethics channel does not work / it is only on paper.

Variable	Type	Acronym	Operational definition	Firm-year observations
Return on assets	Dependent	ROA	Operating income/total assets.	1,467
Return on equity		ROE	Net income/shareholders’ equity.	1,467
Net profit margin		PROFIT_ MARGIN	Net income/net revenues.	1,505
Unethical culture	Explanatory	UNETHICAL_ CULTURE_P	Sum of the probability of occurrence of a word or term associated with the five unethical culture dimensions	1,685
Organizational unfairness		ORG_INJUSTICE_P
Abusive managerial behavior		ABUSIVE_MANAG_P
Selfish orientation		SELFISH_ORIENT_P
Lack of awareness		LACK_AWAREN_P
Fear of retaliation		FEAR_RETALIAT_P
Firm size	Control	SIZE	Natural logarithm of total assets.	5,599
Financial leverage		DEBT_LEV	Gross debt (short-term debt and current portion of long-term debt + long-term debt)/total assets.	5,599
Country source of the company’s capital		COUNTRY	“1” for with Brazilian capital; “0”, otherwise.	6,000
Region of the company’s headquarters		SOUTHEAST_ REGION	“1” if the firm’s headquarters is located in Brazil’s Southeast region (the most developed, accounting for about 60% of Brazil’s GDP); “0”, otherwise.	6,000
Industry		IND_ DUMMIES	Twenty-seven industry dummy variables using the Valor 1,000 newspaper classification.	6,000
Time		YEAR_ DUMMIES	YEAR(t) =1 in the t-th year and otherwise, with t = 1,...,5 (2014,..., 2018).	6,000

Variable	Acronym	Obs.	Mean	Standard Deviation	Min	Median	Max
Return on Equity	ROE	1,467	11.5%	31.1%	-58.3%	8.4%	92.9%
Return on Assets	ROA	1,467	6.1%	8.9%	-10.6%	5.3%	27.6%
Net Profit Margin	PROFIT_MARGIN	1,519	3.3%	10.2%	-22.9%	3.1%	23.0%
Unethical Culture	UNETHICAL_ CULTURE_P	1,685	71.1%	22.8%	0%	70%	180%
Organizational Unfairness	ORG_UNFAIR_ P	1,685	38.9%	13.8%	0%	37.7%	92%
Abusive Man. Behavior	ABUSIVE_MANAG_ P	1,685	9.1%	6.6%	0%	8.3%	45.4%
Selfish Orientation	SELFISH_ORIENT_ P	1,685	5.3%	4.8%	0%	4.7%	33.3%
Lack of Awareness	LACK_AWAREN_ P	1,685	11.0%	7.9%	0%	10%	56.5%
Fear of Retaliation	FEAR_RETALIAT_ P	1,685	6.8%	5.8%	0%	5.9%	35.7%
Firm Size (Total Assets in BRL Million)	SIZE	1,510	11,646	52,331	48.4	2,435	900,135
Financial leverage (Gross debt/assets)	DEBT_LEV	1,510	0.17	0.27	0.01	0.05	0.99
Source of the capital (Brazil = 1)	COUNTRY	1,685	0.67	0.47	0	1	1
Headquarters region (Southeast=1)	REGION	1,685	0.74	0.44	0	1	1

	UNETHICAL_ CULTURE_P	ORG_ UNFAIR_P	ABUSIVE_ MANAG_ P	SELFISH_ ORIENT_ P	LACK_ AWARENESS_ P	FEAR_ RETALIAT_P
UNETHICAL_CULTURE_P	1
ORG_ UNFAIR_P	0.7413***	1
ABUSIVE_MANAG_P	0.5231***	0.1216***	1
SELFISH_ ORIENT_P	0.4629***	0.1696***	0.1288***	1
LACK_ AWARENESS_P	0.4969***	0.0279	0.2560***	0.1699***	1
FEAR_ RETALIAT_P	0.5034***	0.2138***	0.1643***	0.2067***	0.0843***	1

	UNETHICAL_ CULTURE_P	ORG_ UNFAIR_P	ABUSIVE_ MANAG_P	SELFISH_ ORIENT_P	LACK_ AWARENESS_P	FEAR_ RETALIAT_P
ROA	-0.098***	-0.112***	0.089	-0.051*	0.030	-0.106***
ROE	-0.095***	-0.079***	-0.044*	-0.028	-0.020	-0.075***
PROFIT MARGIN	-0.080***	-0.058**	-0.020	-0.050*	0.013	-0.128***

Dependent Variable	ROA				ROE				NET PROFIT MARGIN
Method	OLS	Dynamic OLS	Fixed-Effects	GMM-SYS	OLS	Dynamic OLS	Fixed-Effects	GMM-SYS	OLS	Dynamic OLS	Fixed-Effects	GMM-SYS
Model	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)
UNETHICAL_ CULTURE_P	-0.044* (-3.44)**	-0.046* (-2.57)**	-0.027* (-1.69)	-0.053* (-1.89)	-0.170* (-4.18)**	-0.158* (-2.67)**	-0.162* (-2.93)**	-0.197* (-1.95)	-0.046* (-3.16)**	-0.061* (-3.09)**	-0.035* (-1.90)	-0.066 (-2.28)**
FIRM SIZE	-0.005* (-2.67)**	-0.001 (-0.11)	-0.033***	-0.023***	-0.009 (-1.29)	0.007 (0.68)	-0.086* (-3.26)**	-0.046 (-1.49)	-0.004 (-1.59)	0.001 (0.51)	-0.009 (-1.05)	0.005 (0.61)
FIRM SIZE	-0.005* (-2.67)**	-0.001 (-0.11)	(-4.70)	(-2.91)	-0.009 (-1.29)	0.007 (0.68)	-0.086* (-3.26)**	-0.046 (-1.49)	-0.004 (-1.59)	0.001 (0.51)	-0.009 (-1.05)	0.005 (0.61)
FINANCIAL_ LEVERAGE	-0.009 (-0.62)	0.031 (1.56)	0.021 (1.07)	0.024 (0.70)	0.041 (0.66)	0.198 (2.20)**	-0.064 (-0.56)	-0.012 (-0.08)	-0.044*** (-3.26)	0.007 (0.38)	0.009 (0.40)	0.029 (0.83)
BRAZILIAN CAPITAL	-0.007 (-1.29)	-0.006 (-0.86)	-0.021 (2.01)**	-0.017 (-1.54)	0.028 (1.38)	0.022 (0.85)	-0.028 (0.80)	-0.013 (-0.39)	0.007 (1.15)	0.008 (0.88)	0.003 (0.22)	0.006 (0.46)
SOUTHEAST REGION	-0.004 (-0.70)	-0.002 (-0.32)	-0.007	-0.001	-0.015 (-0.77)	-0.006 (-0.24)	-0.022 (-0.62)	-0.009	-0.005 (-0.74 )	-0.001 (-0.10)	0.001 (0.08)	0.001
SOUTHEAST REGION	-0.004 (-0.70)	-0.002 (-0.32)	(-0.68)	(-0.05)	-0.015 (-0.77)	-0.006 (-0.24)	-0.022 (-0.62)	(-0.24)	-0.005 (-0.74 )	-0.001 (-0.10)	0.001 (0.08)	(0.04)
LAGGED_ PERFORMANCE (ROAt-1, ROAt-1, PROFIT_MGt-1)		0.238* (5.16)**		-0.035 (0.50)		0.182* (3.31)**		0.062 (0.76)				0.009 (0.12)
INDUSTRY DUMMIES	YES	YES	NO	YES	YES	YES	NO	YES	YES	YES	NO	YES
YEAR DUMMIES	YES
Constant	0.165* (7.37)**	0.092* (2.96)**	0.363* (6.27)**		0.268* (3.51)**	0.042 (0.41)	0.934* (4.27)**		0.113 (4.80)**	0.300* (6.56)**	0.134 (1.99)**
Number of observations	1,326	719	1,443	719	1,329	723	1,445	723	1,335	740	1,454	740
Number of groups			605	313			605	314			607	321
Prob > F	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000
Adjusted R-squared	0.086	0.082	0.016		0.047	0.102	0.015		0.081	0.096	0.010
AR(1) test p-value				0.000				0.000				0.000
AR(2) test p-value				0.535				0.185				0.841
Hansen test p-value				0.169				0.376				0.086
Diff-in-Hansen tests p-value				0.102				0.327				0.371

Dependent Variable	ROA				ROE				NET PROFIT MARGIN
Method	OLS	Dynamic OLS	Fixed-Effects	GMM-SYS	OLS	Dynamic OLS	Fixed-Effects	GMM-SYS	OLS	Dynamic OLS	Fixed-Effects	GMM-SYS
Model	(25)	(26)	(27)	(28)	(29)	(30)	(31)	(32)	(33)	(34)	(35)	(36)

UNETHICAL_ CULTURE (WORD COUNT)	-0.024* (-3.25)**	-0.024 (-2.18)**	-0.016 (-1.60)	-0.026 (-1.60)	-0.078* (-3.20)**	-0.068* (-1.87)	-0.081 (-2.34)**	-0.072 (-1.19)	-0.020* (-2.32)**	-0.026 (-2.04)**	-0.020* (-1.67)	-0.026 (-1.45)
FIRM SIZE	YES
FINANCIAL_ LEVERAGE	YES
BRAZILIAN CAPITAL	YES
SOUTHEAST REGION	YES
LAGGED_ PERFORMANCE	NO	YES	NO	YES	NO	YES	NO	YES	NO	YES	NO	YES
INDUSTRY DUMMIES	YES	YES	NO	YES	YES	YES	NO	YES	YES	YES	NO	YES
YEAR DUMMIES	YES
Constant	YES

Number of observations	1,326	719	1,443	719	1,329	723	1,445	723	1,335	740	1,454	740
Number of groups			605	313			605	314			607	321
Prob > F	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000
Adjusted R-squared	0.087	0.131	0.016		0.043	0.099	0.014		0.079	0.167	0.010
AR(1) test p-value				0.000				0.000				0.000
AR(2) test p-value				0.611				0.215				0.995
Hansen test p-value				0.176				0.230				0.067
Diff-in-Hansen tests p-value				0.080				0.460				0.324

Fundação Getulio Vargas, Escola de Administração de Empresas de S.Paulo Av 9 de Julho, 2029, 01313-902 S. Paulo - SP Brasil, Tel.: (55 11) 3799-7999, Fax: (55 11) 3799-7871 - São Paulo - SP - Brazil
E-mail: rae@fgv.br

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[1] CONFLICT OF INTEREST

The authors have no conflicts of interest to declare.