Corporate Governance and Ethical Culture : Do Boards of Directors and Ownership Structure Mattter?

A poor ethical culture has been considered one of the reasons for the emergence of many corporate governance scandals. In this paper, I investigate the link between two corporate governance mechanisms – the composition of the board of directors and ownership structure – and ethical culture for a sample of Brazilian companies. My measure of ethical culture is based on a text analysis of around 50,000 employee reviews posted at Glassdoor for around 1,400 terms associated with five ethical dimensions: organizational trust, ethical leadership, benevolent orientation, empathy, and speaking out & efficacy. I find partial support, though far from conclusive, for the hypotheses that a higher ratio of independent directors or of women on boards is associated with better ethical culture. My clearest results refer to a corporate governance feature little discussed in the literature: the percentage of directors appointed by minority shareholders. In this case, all specifications show a strong negative relationship between the percentage of such directors and ethical culture. As minority directors are usually appointed by institutional investors, one conjecture is that the short-term horizon of some institutional investors could lead these directors to prioritize short-term profits instead of focusing on building an ethical culture whose benefits would be mostly reaped over the longer term. Other variables related to the board of directors and ownership structure, such as ownership concentration and the identity of the shareholder of reference, were not significant in explaining ethical culture. To my knowledge, this is the first paper to document a link between ethical culture and corporate governance mechanisms