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Keywords: Although ethical management would seem to be a must in todays business climate, research and practi-
Codes of ethics cal applications in the services industry and in developing economies remain scarce. Hence, the purpose
Corporate philanthropy of this study is to investigate the effects of codes of ethics and corporate philanthropy on the Korean
Engagement
services industry. The results demonstrate that, overall, a code of ethics directly affects corporate philan-
Turnover intention
thropy and organizational engagement. Corporate philanthropy, in turn, positively relates to employee
Services
engagement and turnover intention. Turnover intention is explained by job and organizational engage-
ment. The strategic importance of ethics management and the following philanthropic activities in the
hospitality services are illustrated from the ndings of this research.
2014 Elsevier Ltd. All rights reserved.
1. Introduction (Lee et al., 2009). South Koreas corruption index remains steady
(ranked 45 out of 174 nations, those with low numbers enjoy
Good ethics is simply good business (Koonmee et al., 2009; less corruption) and various public scandals put some Korean
Lantos, 2001). Socially responsible marketing rms act with the businesses in an unfavorable light. Subsequently, Korean rms
realization that their actions affect many stakeholders, including linked publicly with unethical behavior openly provide charity and
customers, employees and society at large (Madden-Hallett, 2009). support as public retribution for potentially ill-gotten material
All organizations sometimes face ethical scrutiny, even at times due gains. These acts also ght against a prevailing anti-corporation
to circumstances not entirely under their control. The Bhopal gas public sentiment (Lee et al., 2009).
tragedy (1984) in India, the Exxon Valdez oil spill disaster (1989) Given the potentially deleterious consequences (Jose and
and the Enron scandal (2001) give us lessons about the diversity of Thibodeaux, 1999), many rms are attempting to institutionalize
and potential ethical consequences associated with business envi- good ethics by establishing a formal code of ethics, credos, ethical
ronments. values statement, and/or codes of conduct (Ki et al., 2012). Codes of
Even a cursory examination of worldwide corruption indices ethics can play key roles in demonstrating the organizations moral
(http://cpi.transparency.org/cpi2012/results/) suggests that concern, transmitting ethical values to organizational members,
weaker economies and lower standards of living tend to go along and impacting the ethical behavior of organizational members. If
with high corruption. South Korea provides a case study of sorts effective, an organizations ethical work climate improves and the
given the remarkable transition from among the worlds poorest rm can respond better to external demands and pressures from
countries in 1950 to one of the worlds leading economic forces stakeholders (Raiborn and Payne, 1990; Wotruba et al., 2001). In
today. South Korea has been a G20 member since 1999. The addition, companies openly associate with social causes as a way
Korean government promoted the growth of large corporations by of enhancing their reputation, which in turn, may produce pos-
subsidizing bank loans to provide capital at below market rates and itive effects on sales and market share (Papasolomou-Doukakis
providing discounted government land use, among other things et al., 2005). Accordingly, corporate responsibility activities can be
a source that helps a rm to create resources and capabilities from
resource-based view (Branco and Rodrigues, 2006; McWilliams
Corresponding author. Tel.: +82 31 740 7256. et al., 2006). Although the effectiveness of ethics codes have been
E-mail addresses: yongki2@sejong.ac.kr (Y.-K. Lee), jwchoi@ksu.edu (J. Choi), mixed and controversial (Ki et al., 2012), it has become a fact in
bymoon@eulji.ac.kr (B.-y. Moon), bbabin@latech.edu (B.J. Babin).
1
todays business world (Chonko et al., 2003). We believe that the
Tel.: +82 2 3408 3158.
2
Tel.: +1 785 532 2213. adoption of a corporate code of ethics is particularly meaningful in
3
Tel.: +1 318 257 4012. South Korea where public displays strongly shape image.
http://dx.doi.org/10.1016/j.ijhm.2014.02.005
0278-4319/ 2014 Elsevier Ltd. All rights reserved.
98 Y.-K. Lee et al. / International Journal of Hospitality Management 39 (2014) 97106
Ethics codes often encourage corporate philanthropy (CP) activ- Singhapakdi, 2008). Questionnaire and telephone survey target-
ities (Sharma et al., 2011; Wood, 1991). CP activities demonstrate ing the top 200 Korean companies in 2009 showed that the key
corporate social responsibility (CSR). CP activities may even build contents of formalized charters of ethics are compliance with
competitive advantages and increase employee morale (Porter internal standards of operation and regulations, followed by fair
and Kramer, 2002) and commitment (Collier and Esteban, 2007). trade and legal compliance, social contribution, and then other
From this perspective, cause-related marketing strategies can be things (KCCI, 2010). However, employees often are unaware of the
implemented through willingful employee participation (Liu et al., existence or unfamiliar with the content of organizational codes
2010). Such action enhances job and organizational engagement of ethics (Wotruba et al., 2001). Hence, awareness of the codes
(Brammer et al., 2007; Lim, 2010) and decreases turnover (Lee contents can help in establishing explicit rules and guidelines for
et al., 2012a,b). Employees as internal customers then become lead- ethical behavior (c.f. Singhapakdi and Vitell, 2007).
ers and encourage customers, suppliers, and community groups to Ethics-oriented corporations can be protable. A corporate
communicate a rms socially responsible message (De Bussy et al., endorsement of high levels of ethical standards can be encour-
2003). aged by developing a code of ethics. Sims (1991) pointed out
Service rms are particularly keen on creating an ethical image that such codes of ethics not only help develop a CEOs commit-
as they inevitably interact closely with customers. For a hospitality ment, but they also help retain public trust, stress managerial
rm, the institutionalization of ethics manifests itself in the actions professionalism, encourage employees to abide by established
of its front-line service providers. Frontline personnel, including laws and protect stakeholders against employee misconduct. A
salespeople, are particular susceptible to ethical dilemmas due code of ethics should do more than espouse a minimally accept-
to conicting demands that they routinely face in their bound- able type of behavior to keep abreast of ethical global trends
ary spanning roles (Babin and Boles, 1998; Dubinsky et al., 1986). (Weeks and Nantel, 1992). Establishing a code of ethics, or at least
Frontline employees who toil in a less than ethical work climate the perception of ethical behavior, seems mandatory for public
experience greater on the job conicts, which in turn contributes corporations.
to increased turnover (Levy and Dubinsky, 1983). An ethical work
climate can be promoted through numerous means not the least of
which is the adoption of codes of ethics and policies that promote
a sense of responsibility among workers (Babin et al., 2000; Porter 2.2. Corporate philanthropy
and Kramer, 2002).
Overall, very little is known about ethical governance in Korea or According to social institutional theory, a rm is viewed as a
emerging economies. Lacking a more formalized approach includ- public institution sanctioned by the state for some social good
ing a code of ethics, some South Korean rms rely exclusively (Boatright, 2000, p. 248). As such, corporations, not just nonprot
on a formalized whistle-blower system. Moreover, research about institutions, exist to serve society in some way and to promote soci-
ethics and corporate responsibility in hospitality is still in its etal advancement (Carroll, 2009; Davis, 1983). Firms that do well
infancy. Very little hospitality research reviews issues related to from a marketing standpoint should also work to promote a fair
codes of ethics (c.f. Coughlan, 2001; Payne and Dimanche, 1996). and just marketplace.
The purpose of this study is to examine the role played by explicit CSR should generally meet four societal expectations: eco-
forms of codes of ethics and corporate philanthropy in changing the nomic, legal, ethical, and philanthropic (Carroll, 1999). Among
work environment among Korean service rms. In particular, the those, philanthropy derives from the Greek roots meaning the
work sheds light on the link between formalized ethical procedures love of humans. A companys economic, legal, and ethical duties
and employee responses including job engagement, organizational are mandatory, whereas philanthropic responsibility is volun-
engagement and turnover intentions among service employees. tary and desirable (Carroll, 2009). As illustrated by Lantos (2001,
This paper takes steps in bridging the research gap by grounding p. 20), If possible, do good. A philanthropy-based company
itself in the code of ethics and CP literature and providing empirical may work to minimize public problems (e.g., poverty, illiteracy,
evidence of their outcomes. As such, the work offers an opportu- crime, underfunded educational institutions, chronic unemploy-
nity to develop theory in this important area and make practical ment, environmental pollution) to improve societal welfare and
recommendations for implementation. enhance the quality of life (Brenkert, 1992; Jamali et al., 2008;
Velasco, 1996).
In Korean culture, the notion of philanthropy resonates. Korean
2. Literature review culture is seen as a giving culture captured in Korean by the
word, jeong, which translated into English means affection and
2.1. Codes of ethics sharing for one another (Yang, 2006). In addition, collectivistic Con-
fucianism prevails in Korea and values obligations to others over
A code of ethics is a written expression of an organizations self-interest, and gives priority to harmony between group mem-
ethical norms and values (Valentine and Barnett, 2003, p. 359) bers (Markus and Kitayama, 1991; Miller, 1994; Yang, 2006). Miller
providing useful guidelines for managerial policy and employee (1994) refers to it as intrinsic benevolence, charity, and virtue.
decision-making (Sims, 1991). The Code should inuence decisions Although CP is relatively new in Korea, dating back only
about all manner of issues including supervisor-employee behav- about two decades (Lee et al., 2009), companies are embracing
ior, customer treatment, consideration of societal concerns and the concept by increasing charitable giving (Korea Herald, 2011).
public stakeholders, not the least of which deals with customer According to the Community Chest of Korea, total charitable giv-
and public safety and welfare. ing from 2005 to 2010 was approximately 1.3 trillion won with
The need to institutionalize ethics is alluded to in Brenners 844 billion won (65%) given by Korean corporations (Korea Herald,
(1992) study saying that most ethics programs are implicitly 2011). As indicated above, some rms are trying to rebrand them-
inherent within the organizational culture, but are not explic- selves by publically participating in CSR (Kahn et al., 2012). Others
itly developed. A code of ethics manifests itself in the form of ignore the inuence of social activities and solely focus on sales and
policy manuals, formal ethics training and instructional materi- prots (Flores, 2001). Despite rising public awareness, CPs impact
als, employee orientation programs, ethics audits and committees on service rms specically remains unexplored (Holcomb et al.,
(Callan, 1992; Dean, 1992; Trevino and Nelson, 1995; Vitell and 2007).
Y.-K. Lee et al. / International Journal of Hospitality Management 39 (2014) 97106 99
Table 2
EFA and CFA results.
EFA CFA
EFA: KMO = 0.934, Bartletts test of sphericity (2 = 5724.475, df = 210, p < 0.001), Cronbachs : Codes of ethics (0.966); Philanthropic CSR (0.944); Job engagement (0.922);
Organizational engagement (0.946); Turnover intention (0.820).
CFA: 2 = 332.510, df = 160 (2 /df = 2.078), p = 0.000, NFI = 0.940, CFI = 0.968, GFI = 0.898, AGFI = 0.866, PNFI = 0.792, RMSEA = 0.061.
a
Items were deleted during EFA procedure.
b
Item was deleted during CFA procedure.
102 Y.-K. Lee et al. / International Journal of Hospitality Management 39 (2014) 97106
the room and food & beverage restaurant managers of 20 ve-star Table 3
Construct intercorrelation, mean, and standard deviation.
hotels listed in the Korea Hotel Association directory and explained
the purpose of this study. Twelve of the 20 ve-star hotels agreed 1 2 3 4 5 Mean SD
to participate in the research. 1. Codes of ethics 1.00 5.06 1.28
The survey was conducted in June of 2011. A letter introduc- 2. Corporate 0.679 1.00 5.35 1.17
ing the purpose of this research and a top executives cooperation, philanthropy
encouraging participants to complete and return the questionnaire 3. Job engagement 0.459 0.566 1.00 5.23 1.09
4. Organizational 0.579 0.541 0.710 1.00 5.07 1.20
was enclosed. A total of 330 questionnaires was distributed and
engagement
316 completed questionnaires were returned. Participants who 5. Turnover 0.432 0.419 0.496 0.542 1.00 2.64 1.32
completed the survey were given a small gift. Of those collected intention
questionnaires, 26 were excluded since they had not been fully Note: All coefcients were signicant at p < 0.01.
completed. After elimination, 290 questionnaires with an effective
response rate of 87.9% were coded and analyzed for further analysis. extracted in each measure exceeded the respective squared corre-
Table 1 is a summary of respondents proles. lation estimate, showing evidence of discriminant validity.
To check common method bias, we additionally employed Har-
mans one-factor test (Bauer et al., 2006; Lee et al., 2011; McFarlin
3.2. Measures
and Sweeney, 1992). This test was done by comparing the t of
the proposed model (i.e., multidimensional model) against the t
All constructs were measured with multiple item scales devel-
of a one-factor model. If the t of the single-factor model is bet-
oped and tested in previous studies. Each item was measured on
ter than the proposed model, common method bias may indeed be
a 5-point Likert-type scale anchored by strongly disagree and
present (Podsakoff and Organ, 1986). The one-factor model yields a
strongly agree (see Table 2). Back-translation (with the material
2 residual of 2127.4 with 170 df (compared with the 2 = 332.510
translated from English into Korean and then back into English,
and df = 160 for the ve dimensional measurement model). The t
the versions compared, and any discrepancies resolved) was used
is considerably worse than the unidimensional model, suggesting
to ensure consistency between the survey items and the original
that common method bias is not a serious threat to the study. Cor-
scales (Mullen, 1995; Singh, 1995).
relations between the constructs, means, and standard deviations
Code of ethics was assessed the awareness of organizations
are presented in Table 3.
explicit institutionalization of ethics using 9 items adopted from
Singhapakdi and Vitell (2007). CP which the organization engages
4.2. Structural model and hypotheses testing
in explicitly CP activities in terms of public-serving and reactive
motives was measured by 5 items adopted from Lee et al.s (2009)
Table 4 displays t statistics and maximum likelihood estimates
work. Employee engagement was measured by 14 items adapted
for the model parameters. The multiple model t indices suggest
from the work of Saks (2006) to assess employees perceptions
that the model ts the data well: 2 = 357.4 (df = 161, p < 0.01),
of their job (8 items) and organizational engagement (6 items).
GFI = 0.908, CFI = 0.974 and RMSEA = 0.058.
Lastly, turnover intention was measured by 2 items indicating
Hypotheses 13 state that awareness of ethics codes inuences
plans to leave the company in the near future (Babin and Boles,
CP, job engagement, and organizational engagement. As shown
1998). Pretesting of the questionnaire was performed on several
in Table 4, awareness of the rm code of ethics signicantly and
hotel employees to test and improve the questionnaire design. The
positively inuences CP ( 11 = 0.787, t-value = 17.4, p < 0.01) and
pretesting led to minor changes in wording, the ow of the ques-
organizational engagement ( 31 = 0.306, t-value = 5.18, p < 0.01) but
tionnaire and interpretation of the questions.
does not affect job engagement ( 21 = 0.107, t-value = 1.45, n.s.).
Thus, the results support H1 and H3 but not H2.
4. Results Hypotheses 46 posit that awareness of CP inuences both
job and organizational engagement as well as turnover intention.
4.1. Measurement model The results suggest that CP affects job engagement (21 = 0.604,
t-value = 7.70, p < 0.01) and organizational engagement posi-
Exploratory factor analysis (EFA) using SPSS 18.0 and conrm- tively (31 = 0.306, t-value = 5.18, p < 0.01), but CP affects nega-
atory factor analysis (CFA) using AMOS 18.0 were performed to tive turnover intention negatively (41 = 0.159, t-value = 2.41,
further verify the identied dimensions and to check unidimen- p < 0.05). Therefore, Hypotheses 46 are all supported.
sionality and validity. Hypothesis 7 states that job engagement relates positively
Principal components analysis with varimax rotation was used to organizational engagement. As hypothesized, job engagement
to initially identify the dimensions of a code of ethics, CP, job has a signicant positive effect on organizational engagement
engagement, organizational engagement, and turnover intention. (32 = 0.631, t-value = 10.88, p < 0.01), thus supporting Hypothesis
Eight items were eliminated because of low factor loadings of less 7.
than 0.4 and a couple of cross loadings on two factors. EFA identied Hypotheses 8 and 9 propose that job engagement and organi-
ve factors with 21 items (Table 2). All ve factors had eigenvalues zational engagement relate negatively to turnover intention. As
greater than 1, accounting for 83.52% of the total variance. hypothesized, job engagement (42 = 0.232, t-value = 2.52,
CFA results assess the validity of the measures and overall mea- p < 0.05) and organizational engagement (43 = 0.377, t-
surement quality. Several items that had factor loadings lower than value = 4.20, p < 0.01) have a signicant negative effect on
0.5 were dropped to maintain the proper level of discriminant turnover intention. Hence, H8 and H9 are supported.
and convergent validity. As shown in Table 2, the CFA results sug- Fig. 3 summarizes the results of testing hypotheses and the esti-
gest good t; GFI = 0.898, CFI = 0.968, PNFI = 0.792, RMSEA = 0.061, mates.
and a 2 = 332.5 (df = 160, p < 0.01, 2 /df = 2.078). All AVEs and con-
struct reliability estimates are adequate. Discriminant validity was 4.3. Mediating testing
checked by comparing the proportion of variance extracted in each
construct to the square of the coefcients representing its corre- The mediating effects of CP, job engagement, and organiza-
lation with other factors (Fornell and Larcker, 1981). The variance tional engagement on the relationship between codes of ethics
Y.-K. Lee et al. / International Journal of Hospitality Management 39 (2014) 97106 103
Table 4
Standardized structural estimates.
SMC (R2 )
Corporate philanthropy 0.619 (61.9%)
Job engagement 0.478 (47.8%)
Organizational engagement 0.715 (71.5%)
Turnover intention 0.495 (49.5%)
2 = 357.361, df = 161, p = 0.000, NFI = 0.955, CFI = 0.974, GFI = 0.908, AGFI = 0.880, PNFI = 0.809, RMSEA = 0.058.
*
p < 0.05,
**
p < 0.01,
Table 5
Results of mediating role estimation of corporate philanthropy, and job and organizational engagement between codes of ethics and turnover intention.
Paths of mediating role Indirect effects 95% bootstrap CIs Z-values Mediating roles
LL CIs UL CIs
Codes of ethics Corporate philanthropy Job engagement 0.475* 0.346 0.582 6.992** Full mediator
Codes of ethics Organizational engagement Turnover intention a 0.514* 0.602 0.399 3.282** Full mediator
Corporate philanthropy Job engagement Organizational engagement 0.381* 0.253 0.506 6.267** Partial mediator
Job engagement Organizational engagement Turnover intention 0.238 0.446 0.036 3.835** Partial mediator
*
p < 0.05,
**
p < 0.01,
Note: The direct effect of code of ethics on turnover intention is not presented in Table 4, but when the direct path from codes of ethics to turnover intention is conducted, it
was not signicant.
and turnover intention are examined with the Aroian version of Table 5 shows the results that CP signi-
the Sobel test (see Table 5; see also Appendix) and the BC boot- cantly mediates the effect of codes of ethics
strapping method (Preacher and Hayes, 2004). MacKinnon et al. ( codes of ethics corporate philanthropy job engagement ; 0.475, p < 0.01;
(2002) suggest that this combined approach to mediation anal- 95% bootstrap CI = 0.34L CI , 0.582UL CI ; Z = 6.99, p < 0.01) on job
ysis is more powerful than traditional single mediation analysis engagement. The direct effect of codes of ethics on job engage-
approaches (e.g., Lee et al., 2012a,b). The Aroian version of the ment is not signicant ( codes of ethics job engagement ; 0.107, n.s.).
Sobel test presents the level of signicance of the indirect effect This result indicates that CP plays a full mediating role in the
of the independent variable on the dependent variable through a relationship between codes of ethics and job engagement.
mediator (see Preacher and Leonardelli, 2003). Job engagement signicantly mediates the effect of CP
Other studies view CSR as a mediator of the codes of ethics ( corporate philanthropy job engagement organizational engagement ; 0.381,
(i.e., ethics programs) job satisfaction relationship (e.g., Valentine p < 0.01; 95% bootstrap CI = 0.25L CI , 0.506UL CI ; Z = 6.27, p < 0.01)
and Fleischman, 2007). Others treat engagement as a modera- on organizational engagement. The direct effect of CP on organi-
tor of relationships between antecedents (i.e., job characteristics, zational engagement ( codes of ethics organizational engagement ; 0.306,
rewards and recognition, perceived organizational and supervisor p < 0.01) also is signicant. This result indicates that job engage-
support, perceived justice, withdrawal) and consequences (i.e., job ment plays a partial mediating role in the relationship between CP
satisfaction, organizational commitment, intentions to leave, and and organizational engagement.
organizational citizenship behavior) (e.g., Saks, 2006; Schaufeli and Organizational engagement signicantly
Bakker, 2004; Sonnentag, 2003). mediates the effect of codes of ethics
( codes of ethics organizational engagement turnover intention ; 0.514,
p < 0.01; 95% bootstrap CI = 0.60L CI , 0.399UL CI ; Z = 3.282,
p < 0.01) on turnover intention. Additionally, the direct effect
of codes of ethics on turnover intention is not signicant
( codes of ethics turnover intention ; 0.107, n.s.). This result indicates
that organizational engagement fully mediates the relationship
between codes of ethics and turnover intention.
Finally, organizational engagement signi-
cantly mediates the effect of job engagement
( job engagement organizational engagement turnover intention ; 0.238,
p < 0.01; 95% bootstrap CI = 0.44L CI , 0.036UL CI ; Z = 3.835,
p < 0.01) on turnover intention. The direct effect of job
engagement on turnover intention is also signicant
( job engagement turnover intention ; 0.232, p < 0.05). Thus, orga-
nizational engagement plays a partial mediating role in the
Fig. 3. Estimates of model tests. relationship between job engagement and turnover intention.
104 Y.-K. Lee et al. / International Journal of Hospitality Management 39 (2014) 97106
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