Corporate governance and business ethics in the European Union: a cluster analysis

Purpose - The purpose of this paper is to examine the underlying differences in European Union (EU) country approaches to corporate governance and business ethics given the conformity imposed by the EU's recent standardization directives. Design/methodology/approach - The authors conducted a multivariate statistical analysis, involving a two-stage procedure where hierarchical and non-hierarchical methods are used in tandem, using data from the 27 EU countries and 38 factors from the economic freedom of the world (EFW) index. This method is suitable for structured statistical data and allows for identification of groups that share similar characteristics -in this case among 38 criteria. Findings - Despite the call for standardization by the EU's Transparency Directive, countries within the EU are adapting their governance and ethics practices, according to their own technical, cultural, and political process, creating unintended changes to the directive, especially in the implementation phase. The paper finds that in countries representative of four different clusters derived from the 27 countries making up the EU, specifically Sweden, Spain, Bulgaria, and Greece, have chosen to significantly adapt their ethics and governance protections to their specific context. While these alterations may serve to inhibit the goals envisioned by the convergence and standardization of the EU's directives, they may also present some improvements as well. Research limitations/implications - The paper provides empirical support for the comparative governance perspective at the cross-cultural level for differences in the implementation practices of governance and business ethics across a representative set of four clusters within the 27 EU countries. This paper suggests new avenues of future research for institutional perspectives of corporate governance by suggesting that surface level conformity is only part of the story masking important underlying differences. Practical implications - The paper offers insights for policy makers interested in enhancing the efficacy of corporate governance regimes across diverse regions such as the EU such that allowing for localization may come at the expense of standardization and comparison, foreign investment, job creation and other intended benefits of such policy initiatives but may also create opportunities for improvements to governance models. Originality/value - The paper presents a unique cluster analysis based on the 38-factors used in the EFW index. As such, the authors provide an alternative categorization of countries from previous research in an attempt to capture the current state of corporate governance and business ethics in four detailed case studies in order to move beyond comparisons of two countries which, to date, have dominated the governance research landscape.