Corporate Values, Codes of Ethics, and Performance of Russian Top Banks

Abstract

This is a common practice to analyze company performance based on financial results, linkage to the strategy, or analysis of human resources related indicators, such as productivity, employee engagement, etc.. The recent research, conducted in January – June, 2012 among Russian top banks was directed to measure the influence of publicly declarative corporate values and codes of ethics on performance. Based on the analysis of annual and social reports of Russian banks core corporate values were determined. To numerically quantify corporate values CV – Index (corporate value index) was calculated. The research found out statistically significant evidence that corporate values (CV-Index) positively correlates with net profit of top banks. These empirical findings suggest that corporate ethics is vital for management of banks in emerging markets.

Full text

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Abstract—This is a common practice to analyze company
performance based on financial results, linkage to the strategy, or
analysis of human resources related indicators, such as productivity,
employee engagement, etc.. The recent research, conducted in
January – June, 2012 among Russian top banks was directed to
measure the influence of publicly declarative corporate values and
codes of ethics on performance. Based on the analysis of annual and
social reports of Russian banks core corporate values were
determined. To numerically quantify corporate values CV – Index
(corporate value index) was calculated. The research found out
statistically significant evidence that corporate values (CV-Index)
positively correlates with net profit of top banks.
These empirical findings suggest that corporate ethics is vital for
management of banks in emerging markets.
Keywords—Corporate values, organization performance, top
banks, Russian financial industry.
I. INTRODUCTION
HE role of values in business environment has been the
subject of increasing amount of scientific research.
Belohlav and Sussman (1983, p.187) state that this topic has
been investigated since 1960s. Increasingly, companies
around the world have adopted formal statements of corporate
values, and senior executives now routinely identify ethical
behavior, honesty, and social concerns as top issues on their
companies’ agendas (Lee, Fabish, and McGaw, 2005, p.1).
Though corporate values and its influence on firm
performance are well investigated in the developed countries,
it is a quite new topic for Russian Federation. Management of
companies did not pay much attention to corporate values in
Soviet Union environment. Only after 1990s when
international corporations entered the Russian market and
began to successfully compete with local enterprises,
managers became more susceptible to international
experience and began to implement management based on
values (MBV) in their day-to-day activities.
Taking into account a short history of MBV in Russian
companies, there is little research on corporate values in
Russia, especially devoted to the analysis of its influence on
firm performance.
There is no doubt that banking industry plays a central role
in the economy (Moradi-Motlagh, 2011, p. 1). Due to the key
position of financial industry, the present research focuses on
analysis of corporate values of Russian top banks and its
impact on banks performance.
The research is an attempt to answer a couple of questions:
A. Does all banks publically declare corporate values and
how?
B. What corporate values are used by Russian banks?
C. How corporate values influence banks performance?
The study consists of four parts. In the first part an
overview of corporate values, codes of ethics, performance of
banks and links between them is presented. Secondly, the
methods used to investigate the possible correlations will be
described and explained. Third part is devoted to the analysis
of the empirical results. Finally, conclusion on the importance
of corporate values in the developing countries is made.
II. LITERATURE REVIEW
Whereas many articles in the management literature have
examined what impact codes of ethics and corporate social
responsibility have on an organization, there is a lack of
research on the impact of corporate values (Donker, Poff and
Zahir, 2008, p.527). In this article the attention is drawn
upon the research which analyses corporate values and its
influence on firm performance. In addition some relevant
articles on measuring bank performance are considered.
A. Corporate Values and Codes of Ethics
Each year the number of companies, which formulate
corporate values and publicly declare them, is increasing.
There are lots of definitions of corporate values, for example
Thomsen (2004, p. 32) defines it as the weight which
corporate decision makers attach to alternative goals when
making their decisions. More broadly corporate values can be
viewed as a mirror of organization philosophy, ethics and
principles concerning responsibility to different stakeholders.
Companies usually declare their corporate values on their
official websites or in codes of ethics. A code of ethics
demonstrates a company’s awareness of ethical issues and
indicates how it will deal with such topics (Kaptein, 2004,
p.16)
Many studies analyzed the content of codes of ethics and
Corporate Values, Codes of Ethics, and
Performance of Russian Top Banks
Elena Prosvirkina
National Research University “Higher School of Economics”
T
International Conference on Education, Applied Sciences and Management (ICEASM'2012) December 26-27, 2012 Dubai (UAE)
90

corporate values indicated there. This study doesn’t describe
the content of Russian top banks’ codes of ethics, but examine
correlation between the existence of code of ethics and
performance of banks.
B. Corporate Values and Firm Performance
Many scientific papers agree in the fact that corporate
values are positive related with corporate performance, but
the reasons to expect this relationship are not clearly
articulated (Aqueveque, 2005, p.70).
A global study conducted by Booz Allen Hamilton and the
Aspen Institute among 365 senior executives of international
companies found out that most companies believe values
influence such important strategic areas as relationships and
reputation, but do not see the direct link to growth (Lee,
Fabish, and McGaw, 2005, p.5).
As the majority of corporations do not quantify a return on
values, it’s difficult to find empirical confirmation of the
linkage between corporate values and companies outcomes.
Nevertheless, some researchers investigated this topic.
According to the recent research (Donker, Poff and Zahir,
2008, p.536) there is a positive and statistically significant
relationship between corporate values and firm performance.
Based on the results of international researches it is
supposed to find the same linkage between corporate values
and firm performance in Russian Federation. The current
study is devoted to the analysis of the described linkage in one
of the main industries – banking sphere.
C. Measuring Bank Performance
Many studies have recently focused on performance and
efficiency of banking industry. There are lots of methods of
estimating firm performance depending on the level of
analysis. Ketkar and Sett (2009, p. 1009) describe several
approaches for determining firm level human, operational,
and financial outcomes. Though it is possible to use the same
approaches for analysis of banks, it is necessary to choose the
most appropriate indicators as banking industry is very
specific.
Luo (2003) proposes to use revenue, profit, market value,
stock price, and earnings per share (EPS) as the main outputs
of banks. At the same time Asmild and Paradi (2004) rely on
deposits, loans, securities, deposits with other banks and other
non-interest income. There are lots of different approaches,
for example Fethi and Pasiouras (2010) have reviewed 196
studies in assessing bank performance and found out too
many approaches. Literature review demonstrates that usually
the main indicators, which are used for evaluating banks
performance, include total assets, profitability, return on
investment, return on equity, sales growth, financial stability.
All of the mentioned indicators are included in the current
research.
Based on the literature review it is supposed that corporate
values influence bank performance in Russia.
III. METHODOLOGY AND SAMPLE DESCRIPTION
The sample used in this study consists of banks that
appeared in 2011 in The Russian Banking Rating of top 50
list of the largest banks based on total assets. This rating is
published by Banki.ru. Data about publicly declarative values
in Russian banking industry were collected based on the
analysis of codes of ethics, official websites of banks, press
releases, and public presentations of banks leadership.
Performance indicators of banks were collected from different
sources, which are indicated in the Table I.
TABLE I
PERFORMANCE INDICATORS OF BANKS IN RUSSIA
Indicator
Source of information
Total assets and
liabilities
The Central Bank of the
Russian Federation*
Net profit
Financial statements of banks
Financial
indicators
Return on assets
(ROA) and equity
(ROE)
Banki.ru**
Earnings per share
(EPS)
Thomson Reuters***
Risk factor
Ratio of capital and
risk-weighted assets
(N1 Ratio)
The Central Bank of the
Russian Federation
Growth in 3
years during
2009- 2011
Sales,%
Thomson Reuters
Dividends, %
Thomson Reuters
EPS, %
Thomson Reuters
*The data is collected on the official website, http://www.cbr.ru/. All banks
operating on Russian market have to provide the Central Bank of the Russian
Federation with the data from their financial statement.
**Information portal devoted to banking industry in Russia
http://www.banki.ru/.
***http://thomsonreuters.com/.
Numerical values of banks performance indicators were
inputted in SPSS program. To represent data on corporate
values numerically, CV-Index was calculated. This model is
proposed by Donker, Poff and Zahir (2008). To estimate CV-
Index the scientists used the following formula:



т
jij
EIndexCV 1
, where
ij
E
is indicator variable
which equals 1 if bank i states a corporate value j ϵ [0; n]
regardless the number of times
ij
E
is mentioned.
A value of CV-Index was also entered in SPSS. All the
data was analyzed in this program.
IV. EMPERICAL FINDINGS
A. Corporate Values of Russian Banks
To identify whether or not banks declare corporate values
and publish a code of ethics, the websites of Russian top
banks were analyzed. Eighty six percent of banks declare
corporate values. Usually banks in Russia declare their
corporate values on the website (65%), in codes of ethics
(20%) and more seldom in different press releases (12,5%) or
International Conference on Education, Applied Sciences and Management (ICEASM'2012) December 26-27, 2012 Dubai (UAE)
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during public presentations of bank leadership (2,5%).
The research found out a huge variety of formulated
corporate values. All of the identified values were grouped in
the following categories: perfectionism, social responsibility,
initiative and creativity, respect for traditions, reputation,
teamwork, compliance with the law, partnership with
stakeholders, loyalty of employees, effectiveness, moral
values, professionalism, customer focus, openness, and high
standard of doing business. Corporate values not included in
any of the mentioned categories (for example, healthy way of
life, courage or safety) were characterized as other values.
The total number of categories equals seventeen.
To calculate CV-Index of each corporate value the number
of their appearance on banks’ websites and in official
documents was evaluated. The results of CV-index is
presented in the Table II.
TABLE II
CV-INDEX OF CORPORATE VALUES IN RUSSIAN BANKING
INDUSTRY
Number
Corporate Values
CV-Index
1
Trust
130
2
Effectiveness
129
3
Moral values
79
4
Teamwork
75
5
Openness
66
6
Partnership with stakeholders
47
7
Customer focus
47
8
Professionalism
41
9
Respect
36
10
Social responsibility
21
11
Respect for traditions
16
12
Perfectionism
15
13
Reputation
12
14
Compliance with the law
11
15
Initiative and creativity
10
16
Loyalty of employees
7
17
High standard of doing business
5
CV-index demonstrates that the core corporate values in
Russian banking industry are trust, effectiveness, moral
values, teamwork, openness, partnership with stakeholders,
and customer focus. In comparison with the developed
countries other corporate values are the most important. The
research of Donker, Poff, and Zahir (2008) determined the
two main corporate values in Canada: accountability and
compliance with the law. This difference can be explained by
different priorities of the developing and mature markets.
Banks in Russia are oriented on the effectiveness, which
usually is measured by profitability. The priority for banks in
mature markets are compliance with the law, quality of
services, and accountability.
B. CV – Index of Top Banks in Russia
Based on the formula described in the methodology CV-
index of 50 banks was calculated. The number of times when
each corporate value is appeared was analyzed on the basis of
the review of banks’ websites, press releases, and codes of
ethics. CV-index of Russian banks is indicated in the Table
III.
TABLE III
CV-INDEX OF BANKS IN RUSSIA
Rating*
Bank
CV-Index
8
UniCredit Bank
146
42
Absolut Bank
145
47
Novikombank
131
2
Bank VTB
119
1
Sberbank
95
9
Rosbank
43
39
SMP Bank
29
5
VTB 24
27
18
Ak Bars Bank
26
30
VZRZ
25
26
Russian Standard
24
29
HCFB
23
25
Petrokommerz
21
16
Citibank
19
7
Alfa-Bank
18
10
Raiffeisenbank
17
21
ING Bank
16
3
GPB
13
37
OTP-Bank
13
13
TransCreditBank
12
* Rating is indicated based on the total assets according to
http://www.banki.ru/.
CV-index is varied from 1 to 10 for thirty six percent of
banks. It is supposed that banks which mention corporate
values more often build their management system based on
values. If corporate values appear seldom in official
documents and presentations, CV-index is low and it is
supposed that these banks can declare corporate values
following best practices and in fact their management system
is not based on values. Nevertheless, this hypothesis should be
investigated further by interviewing top management of
banks.
C. Corporate Values and Performance of Banks
In order to determine if there is a correlation between
corporate values and performance of banks, the data was
analyzed in SPSS program. The relationship of CV-Index of
banks with all performance indicators and codes of ethics was
analyzed. The research found out only one statistically
significant correlation. CV-index correlates with the net
profit of banks in Russia. Such conclusion was based on the
results of the analysis in SPSS, demonstrated in the Table IV.
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TABLE IV
CORRELATION BETWEEN NET PROFIT AND CV-INDEX
As Pearson correlation equals 0,00 and it is significant at
the 0,01 level (2-tailed), corporate values influence net profits
of banks in Russia. Thus, the hypothesis of correlation
between corporate values and performance of banks is partly
confirmed.
V. CONCLUSION
The research was devoted to the analysis of corporate
values in Russian banking industry. CV-index calculated for
all banks allowed to determine banks, which pay much
attention to corporate values. It was supposed that banks with
the highest CV-index build their management system based
on values, but this hypothesis requires further investigation
with the top management of banks. This can be analyzed in a
new research.
This empirical study found out that the core corporate
values in Russian banking industry are trust, effectiveness,
moral values, teamwork, openness, partnership with
stakeholders, and customer focus. The research finding
suggests a positive and statistically significant correlation
relationship between corporate values and net profit of banks.
This means that leadership of banks should pay attention to
corporate values and ethics in day-today activities.
The current study was based on the analysis of banking
industry in Russia; further research can be devoted to the
analysis of banks in China, India and Brazil. This will allow
determining the main trends in the emerging markets.
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Elena Prosvirkina
National Research University,
Higher School of Economics
20 Myasnickaya str., Moscow
Russian Federation, 101000
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