The Asian Journal of Shipping and Logistics 38 (2021) 1–9

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The Asian Journal of Shipping and Logistics

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Determinants and effects of using ethical management system in

Korean logistics companies☆
Jungwoo LEE, Hyuksoo CHO⁎
Chungnam National University, Republic of Korea

A R ticl E INfo A bst RACt

Article history: Ethical management is not a choice for companies, but a necessity. This study, therefore, filled a need for
Received 2 October 2021
further research into ethical management. We looked at the factors involved in a company’s employment of
Accepted 1 November 2021
an ethical management system and relationships between factors to determine how the subordinate
variable, the ethical management system, affects the performance of an enterprise.
In specific, this study identified internal and external factors involved in ethical management systems in
Korea’s domestic shipping and port logistics companies. We investigated the impact of these factors on
organizational performance variables and each level of the ethical management system.
According to empirical findings, only internal factors such as openness and internal integrity, and ex-
ternal factors such as normative and cognitive environments, had positive effects on the use of an ethical
management system. On the other hand, transparency, which is an internal factor, and regulatory en-
vironment, which is an external factor, had no positive impact.
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1. Introduction Ethical management cannot be realized by a CEO alone. It re-

The global marketplace is in a process of strengthening its ethical
standards in response to frequently occurring large-scale
incidents. Various international organizations are presenting new
standards for business ethics, and a new ethical paradigm in
corporate and social circles has been implemented as an
international standard in the form of ISO 26000. As the new
paradigm takes hold, ethical expectations for corporate activities
are higher than ever. 'Ethical management' has become an
essential competitive business ele- ment, and there is growing
interest in the impact of ethical man- agement on organizational
performance through the development of ethical leaders and the
institutionalization of ethical management systems. Compared to
advanced economies, whose businesses tend to regard ethical
management as an important core principle, Korean companies face
challenging circumstances when it comes to prac- ticing ethical
management.
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Logistics, Inc.".
⁎
Corresponding author.
E-mail addresses: opelman12@naver.com (J. LEE), hscho@cnu.ac.kr (H. CHO).
quires a considerable amount of time, awareness, attitude, and
practice on the part of every company member. Seo and Bae (2011)
stated that considering only the traditional tenets of efficiency
and competitiveness in business management neglects the values
of humanity and sociality that underscore an ethical approach.
Similarly, Chesbrough (2006) emphasized that management in-
volves both efficiency and ethical considerations. The goal of a
corporation should be to improve economic efficiency and pro-
ductivity while also creating a social environment that is aimed at
coexistence between society and nature. Advanced companies are
making efforts to enhance their corporate brand image through
policies that enhance transparency, environmental protection,
and community service. Dahlander and Gann (2010) pointed out
that, although positive short-term results can be achieved from
unethical conduct, such conduct is not beneficial in the long run.
Unethical business practices can be damaging to a company’s re-
putation and financial standing and lead to the incursion of legal
and ethical entanglements.
This study identified internal and external factors involved in
ethical management systems in Korea’s domestic shipping and
port logistics companies. We investigated the impact of these
factors on organizational performance variables and each level of
the ethical

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 J. LEE and H. The Asian Journal of Shipping and Logistics 38 (2021)

management system. We examined both the internal factors

2.2. Importance of an ethical management system
(transparency, openness, and internal integrity) and external factors
(regulatory environment, normative environment, and cognitive
Lee (2007) stated that ethical management is limited by the
environment) involved in a company's ethical management system.
problems of the members of a company. In other words, ethical
We examined how an ethical management system affects the per-
management cannot be implemented properly unless various in-
formance of a company and assessed whether it plays a mediating
stitutional and systematic guidelines are followed. Therefore, the
role. Finally, we examined whether corporate financial or non-fi-
basis of ethical management depends on how faithful the system is
nancial performance is most affected by an ethical management
to ethics principles. To ensure the reliability and transparency of
system.
ethical activities and to practice ethical management faithfully, the
The objectives of the study were threefold. The first was to
most important task is to innovate and standardize business prac-
identify the impact of an ethical management system on the cor-
tices and processes efficiently so that they persist over time. Lee
porate performance of shipping and port logistics companies by
(2009a, 2009b) stated that, even if a company has good business
deriving factors for such systems and examining whether they op-
performance, a lack of ethical management or awareness can result
erate efficiently under the actual working environment of the port.
in a loss of customers and social trust. Companies that emphasize
The second was to identify components of an ethical management
the importance of ethical management can be viewed as healthy
system that enhance functionality. The third objective was to
members of society who fulfill their social responsibilities.
reveal the role of an ethical management culture in generating high
Oh (2008) showed that the implementation of an ethical man-
com- pany performance by suggesting effective operational
agement system requires value judgment standards and the nur-
measures to executives and employees while also providing
turing of an ethical organizational climate. The level of success of
strategic points for overall management.
an ethics management system depends on how pervasive and
accepted the ethical climate is within an organization. Park (2002)
2. Ethical management system
empha- sized that not only should the ethics of managers be
considered in the decision-making processes of an organization
2.1. The concept of an ethical management system
but also that the day-to-day activities of an organization’s
members must establish ethical values officially and clearly through
Laursen and Salter (2014) identified two approaches for practi-
two-way communication stated that an ethics management system
cing corporate ethics: law-abiding and value-sharing. The law-
is designed to ensure that a company’s code of ethics is practiced
abiding approach allows companies to practice ethical behavior by
in the daily conduct of its members. A company's ethical standards
faithfully following laws enacted by the government. In contrast, a
of conduct serve as guidelines for decision-making, from the CEO
value-sharing approach is a way to practice ethics through voluntary
to those at the bottom of the organization, by specifying the overall
actions, even if not outside regulations. As companies grow and
value system and purpose of the company while at the same time
complexify, corporate ethics are difficult to practice if doing so
presenting more specific normative principles. It is difficult to
relies on the management philosophy or values of one CEO. Teece
expect ethical behavior without dedicated personnel and
(2007) suggested it is necessary to institutionalize business ethics
processes to oversee im- plementation, monitoring, evaluation,
so that entire enterprises are trusted by society over time.
and ongoing education.
Pavitt (1984) stated that all members of an organization must
Yoo (2007) identified several reasons why ethical management
share the ethical values of the organization and internalize them as
systems are necessary for the institutionalization of corporate ethics.
their own code of conduct. This sort of strategic, value-sharing ap-
First, if a company does not create an overall framework for business
proach is embodied in the ethics management system. Cho (2013)
ethics, there are limits to the voluntary ethical behaviors of in-
argued that an ethics management system refers to the establish-
dividuals. Second, companies as a whole ought to be held accoun-
ment and operation of an effective ethical system that is practiced
table for ethical behavior. Third, for an organization to be recognized
in the decision-making and actions of all executives and members,
as an ethical entity, the purpose of its actions and decision-making
including the CEO. Han (2003) described an ethics management
must be clarified. Fourth, corporate behavior should be formalized.
system as an integrated system that is designed to effectively
And finally, an enterprise acting as a social being should publicly
achieve ethical management objectives and goals in connection
state its normative principles.
with the overall management of a company. Kim (2018) asserted
To these ends, Shin (2005) asserted that organizations should
that the practice of ethical management requires a consistent
make specific efforts to establish ethical codes and rules of conduct
system that leads to shared values and the creation of consensus
that set the standard for ethical behavior. Therefore, the successful
among mem- bers. Hwang (2007) said it is an ethical management
introduction of an ethical management system involves the estab-
system that enables the institutionalization of corporate ethics as
lishment of an operating system and a confident CEO. Yoon (2005)
part of routine corporate management. An ethical management
stated that an ethics policy should be formally defined in writing. A
system is an in- dependently established, in-house system to
department that introduces and implements ethics management
implement the ethical code of conduct that is the core of the
should be created alongside ethics education (Park, 2003a, 2003b).
entity's decision-making and corporate behavior. This means that,
Rather than lectures, it is more effective to educate on a case-by-case
even if a CEO does not con- sciously emphasize ethical practices,
basis, focusing on issues that are frequently encountered in daily
the actions, structures, and systems of the company ensure that
work. Ethical management should be part of the corporate culture
ethical behavior is routinely practiced. Jang (2014) emphasized
(Wi, 2005), and ethics management audits should be conducted.
that, to implement such an ethical management system, it is
Lee (2012a, 2012b) recommended plans to incorporate ethical
important to pursue ethical man- agement at the highest level of
management across all areas of an organization, including creating
the value system, such as corporate ideology and creed, and to
and evaluating consensus. Ban (2017) stated that without various
establish a foundation that can influence decision-making. This can
forms of institutional and systematic support, ethical management
be facilitated by an ethical code of con- duct and the designation of
cannot be properly implemented within the broader field of man-
departments and officials to handle ethical issues (Seo & Bae,
agement. Effective implementation depends on well-designed
2011). Many companies are seeking to internally institutionalize
principles and support systems to ensure that ethics management
corporate ethics, including ethical stan- dards of conduct,
is faithful to its core tenets. This requires innovative and
establishing a department of ethical practice, monitoring ethical
standardized work practices and processes that are systematized
practices, and implementing in-house education.

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 J. LEE and H. The Asian Journal of Shipping and Logistics 38 (2021)
for continuous use, regardless of individual turnover. Von Hippel
(1988) spoke of a

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 J. LEE and H. The Asian Journal of Shipping and Logistics 38 (2021)

Fig. 1. Conceptual model of this study.

corporate culture in which aspects of ethical management are objectives by

naturally embedded within the organization. This includes high-
caliber ethical and moral qualities and a system that supports
members of the organization in practicing ethical management
holistically.

3. Determinants and effects of using ethical management system

The use of an ethical management system (also called a com-

pliance program) has the advantages of sharing and managing in-
formation among related tasks (departments), simplifying and
standardizing management tasks, identifying and following man-
agement controls, and ensuring integrated information management
and reliability. Companies are now routinely expected by society to
engage in ethical management. This has been spurred by
increasing instances of corporate mishaps such as accounting
fraud, slush funds, embezzlement, and breach of trust. Companies
have the right to freely design and work with risk factors that may
arise in the pursuit of profit, but they should still be committed as
an entity to ethical management and the establishment of control
systems. In principle, such controls cannot be left to an entity's
discretion.
Considering the characteristics of an ethical management
system, the internal and external factors of the system’s operation
were grouped as shown in Fig. 1. The theoretical background and
prior research were reviewed to establish independent variables that
could affect the system. In summary, this research aimed to
analyze the internal factors of ethical management systems, how
in- dependent variables corresponding to external factors affect
the strategic utilization of an ethical management system, and how
the effects of a system's intermediation ultimately affect the
financial and non-financial performance of the corporation.

3.1. Internal factors and use of ethical management

3.1.1. Transparency
The independent variable ‘transparency’ reflects how much a
company aims to enhance external competitiveness through fair and
transparent management by posting details of its fair-trade index
or budget on its website. Park and Shin (2002) stated ethical
manage- ment can enable an entity to achieve its management

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 J. LEE and H. The Asian Journal of Shipping and Logistics 38 (2021)
ethical means that are transparent, fair, reasonable, and in ac-
cordance with business standards, thereby promoting growth.
Shin (2005) stated that the ethical guidelines of trust, transpar-
ency, honesty, and human rights are key elements of corporate
ethical management that are widely shared. Lee (2017) argued that
companies lacking in management transparency – such as Enron,
well-known for accounting fraud – are shunned by consumers.
stated that, although systematic empirical analysis is limited be-
cause of the difficulty in identifying a proxy for the comprehensive
measurement of corporate transparency, more systematic discus-
sions are needed because assessments of corporate transparency are
expected to be used and to have a significant impact on tax avoid-
ance and corporate value. Going further, transparency in
accounting is an important indicator that reflects the quality of
accounting in- formation, especially accounting information
disclosure. Transpar- ency in accounting information refers to the
extent to which an entity discloses timely, reliable, understandable,
and sufficient ac- counting information to users of such information
(Lee, 2006). Achieving accounting transparency in this sense
requires disclosure of not only the content of accounting information
but also the pro- cess of accounting (Lee, 2006). Based on literature
reviews, this study hypothesizes a positive relationship between
transparency and the use of ethical management:
H1-1. There is a positive relationship between transparency and the
use of an ethical management system.

3.1.2. Openness
Teece (2007) stated that the environment facing enterprises is
changing more rapidly than ever. Companies must constantly in-
novate and develop new products to survive. Companies must ad-
vance technology for innovation and, in the process, leverage outside
ideas. This can be defined as open innovation (Chesbrough, 2006).
Previous studies have highlighted the importance of knowledge
sources in horizontal and vertical relationships for utilizing external
knowledge to innovate.
Chesbrough, Vanhaverbeke, & West, (2006) argued that a com-
pany’s internal knowledge and resources are always limited, and
that external knowledge and resources are necessary for innovation.
Dahlander and Gann (2010) stated that the open innovation model,
which proposes that enterprises should strategically utilize
external

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 J. LEE and H. The Asian Journal of Shipping and Logistics 38 (2021)

knowledge, has become a new trend in research. However, research

Table 1
is lacking in the forms of openness in open innovation. Openness is a Demographic analysis of respondents.
variable that reflects the extent to which an entity can accept ex-
Variable Category Frequency Percentage
ternal policies, such as an ethical management system. In other
words, it is a variable that observes whether external systems can Age 20s 41 14.9
30s 52 18.9
replace internal systems/rules.
40s 80 29.1
Hofstede (1997) observed that more open entities are more in- 50s 59 21.5
novative and adapt better to new environments than closed entities. Above 60s 43 15.6
Denison (1984) stated that the values of the members of an orga- Education High school or below 35 12.7
nization differ depending on whether the culture is open or closed, Bachelor 127 46.2
Master 75 27.3
and that organizational values are reflected in its structure, policies, P 38 13.8
and procedures. Today, organizational members are expected to be Position Staff 116 42.2
flexible, creative, and to cooperate with external organizations. Thus, Assistant manager 43 15.6
many companies are striving to build open corporate cultures. Based General manager 51 18.5
Executive manager 39 14.2
on literature reviews, this study hypothesizes a positive relationship
CEO 26 9.5
between openness and the use of ethical management as follows: Working Area Production/Technician 84 30.5
Sale 47 17.1
H1-2. There is a positive relationship between openness and the use
Office/Management 68 24.7
of an ethical management system. Research/Development 26 9.5
Transport/Delivery 33 12
etc. 17 6.2
3.1.3. Internal integrity Working Period Less than 3 years 109 39.6
Lee (2012a, 2012b) argued that the term integrity has come to 3–5 years 82 29.8
be used as a corruption index. Academic studies have examined the 5–10 years 18 6.5
subject of internal and public integrity, and various terms such as 10–15 years 43 15.6
More than 15 years 23 8.4
national integrity, institutional integrity, internal integrity, Company Field Manufacturing industry 137 49.8
external integrity, private sector integrity, corporate integrity, and Distribution business 39 14.2
political integrity have emerged. Jeon (2019) posited that integrity Construction 9 3.3
refers to the traditionally desirable and clean image of public Finance/Insurance 27 9.8
Business of service 52 18.9
officials with good character and conduct and no greed. Integrity in
etc. 11 4
a passive sense is not a violation of the social obligations
prescribed by sta- tutes and rules, but in an active sense, anti-
corruption conforms to these social obligations. Transparency,
fairness in assigning tasks. Therefore, this study hypothesizes a po-
then, is a disclosure of the decision-making processes and results
sitive relationship as follows:
of government and social organizations, and responsibility
includes all efforts to function without the abuse of authority H1-3. There is a positive relationship between internal integrity and
under occupational ethics. the use of an ethical management system.
Lee (2011) stated that a measure of integrity is generally referred
to as clarity with regard to the internal domain. Integrity in the past
has referred to the extent to which there was no 'traditional cor-
ruption', such as bribery, embezzlement, or conflict of interests. 3.2. External factors and use of ethical management
However, as public expectations have risen along with social de-
velopment, integrity has expanded from a concept of anti-corruption 3.2.1. Regulatory environment
to a concept of transparency. Transparency reveals information The fourth variable, ‘regulatory environment’, refers to external
about results, including decision-making processes and responsi- sanctions. Cho (2013) stated that, according to Article 542-13 of the
bility. This means that public officials fulfill their responsibilities for revised Commercial Act, certain listed companies are obliged to
performance and are dedicated to the high level of ethics required of appoint compliance support personnel based on outsiders rather
them. Yoon (2005) described the traditional conception of integrity than insiders. If companies operate their internal control monitoring
as having a narrow sense, as opposed to integrity in the broad sense systems without following the Act, they will be subject to various
that involves dedication to high standards of ethics, as demanded by disadvantages, such as sanctions and fines from the government.
public office. Thus, the regulatory environment was selected as an independent
Bae (2005) stated that the Anti-Corruption and Civil Rights variable among the external factors.
Commission defines integrity as, ‘The degree to which public officials argued that the regulatory environment can be interpreted as
handle their work transparently and responsibly without engaging strengthening compliance management and social responsibility
in corrupt acts.’ Lee (2009a, 2009b) stated that this Commission via commercial law. Financial institutions have law-abiding
defines external integrity as the degree to which public officials do monitors, but large companies are not aligned with the global
not engage in corrupt acts, such as receiving bribes or entertainment, trend of strengthening ethical management due to the lack of a
from a public perspective. Internal integrity is the employee’s as- law-abiding system. Park (2017) pointed out that, after Korea’s
sessment of the integrity of an organization from the perspective of financial crisis in late 1997, the concept of an internal control
an insider. Possessing internal integrity means to investigate the system, which was first introduced in the U.S., was suddenly
level of corporate integrity related to internal work, such as the in- introduced in Korea and a consensus was formed around it. As
tegrity culture and work integrity of an organization, from the per- interest in internal control systems grew, other countries have
spective of insiders and corporate members. In other words, been encouraged to mandate their use within companies.
employees assess the extent to which an entity's internal affairs are stated that ethics and compliance management can be
transparent and fair from an insider’s perspective. Specifically, as neglected in the face of the so-called profit-seeking system. From
shown in Table 1, Kim (2018) described the Integrity Culture Index in the per- spective that business management should not operate
terms of organizational culture and an anti-corruption system; the outside the boundaries of the law, ethical management is a
Integrity Index refers to personnel affairs, budget execution, and business obligation, not a right. Nevertheless, many companies

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continue to disengage

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with ethical management, either deliberately or ignorantly, and to
skirt the law.
Lee (2012a, 2012b) stated that there are ways to comply with
ethical management through autonomous judgment and to
improve it through batting average regulation [what does this
mean?]. The fact that ethical management ultimately helps to
create profit and manage risk, as shown by much research, means
that ethical man- agement is not a matter of choice but is
indispensable. Therefore, this study hypothesizes the following
relationship:
H2-1. There is a positive relationship between the regulatory
environment and the use of ethical management system.
3.2.2. Normative environment
The fifth variable, ‘normative environment’, refers to the en-
vironment in which an entity operates. Park (2017) stated that
companies employing an ethics management system can benefit
from improving their corporate image by preventing corruption and
risk in advance. Shin (2005) argued that the concept of corporate
social responsibility and business ethics can have fundamentally
different meanings. Whereas corporate social responsibility is re-
lated to a kind of contract between businesses and society, corporate
ethics is a kind of normative pledge requiring that organizations and
individuals abide by the law.
Lee (2006) argued that ethical management has established itself
as a rapidly changing management norm and new survival strategy
for companies in the 21st century that cannot develop without ac-
tively coping with change. Kang (2012) stated that an atmosphere in
which members can participate in and communicate freely about
the ethical activities of an enterprise promotes the practice of ethical
management. Ethical management can be sublimated into a nor-
mative organizational culture when there is an open atmosphere
where members can actively discuss and find solutions with each
other and superiors. Therefore this study hypothesizes a positive
relationship between normative environment and logistics perfor-
mance:
H2-2. There is a positive relationship (+) between a normative
environment and the use of ethical management system.
3.2.3. Cognitive environment
The independent variable ‘cognitive environment’ pertains to the
content and operation of an ethical management system. Yoon
(2016) discussed that such a system is meaningful only if the
questions of why the system is needed and what its positive effects
might be are raised.
Hwang (2007) proposed a research model using factors that af-
fect accounting transparency. Decisions by small and medium-sized
enterprises regarding accounting transparency were confirmed to
vary depending on the individual factors of business managers
(cognitive and moral development), the situational factors of ac-
counting transparency (importance of results, proximity, and social
consensus), organizational characteristics (acquisition, maintenance,
repair), and industrial characteristics. To recognize the need for
ethical management in a corporate organization and actively in-
troduce ethical management accordingly, small and medium-sized
enterprises need to have a finger on the pulse of the ethical con-
sciousness of their members, identify ways to correct unethical at-
titudes, and encourage ethical behavior. Jang (2014) asserted that
ethics management satisfaction refers to the degree to which the
organizational members are satisfied with the company's ethical
management system and practices. Oh (2008) said that performance
and job satisfaction are better when members of a company engage
in certain tasks within a recognized cognitive environment. There-
fore, this study hypothesizes the following relationship:
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The Asian Journal of Shipping and Logistics 38 (2021)
H2-3. There is a positive relationship between the cognitive
environment and the use of ethical management system.
3.3. Use of ethical management and firm performance
The final variable, ‘corporate performance’, can be divided into
financial and non-financial performance when the ethical manage-
ment system (a dependent variable) has a significant impact. Seo
(2012) stated that the financial and non-financial distinction be-
tween corporate performance is primarily due to the difference
between financial and non-financial results. Financial results can
include increased sales, sales performance, and the attraction of
potential customers due to improved image. Non-financial results
refer to those such as an ethical organizational culture, employee
satisfaction, and improved performance. Lee (2011) argued that
performance is generally understood as a concept that includes
productivity, quality, timing, responsiveness, and effectiveness. Cho
(2013) said that since performance is the result of management
activities, and different emphases are placed on different manage-
ment functions, then methods and factors for measuring perfor-
mance vary depending on the management function and are
important variables to consider in determining management
strategy.
According to Porter & Lawler, (1968), management perfor-
mance is expressed as results that an organization can objectively
measure. In other words, performance refers to the degree of
execution of a task to achieve a goal, which can be maintained at a
high level by the efforts of workers (specifically, their abilities and
qualities and perception of their roles within the organization).
Woo and Kim (2004) stated that definitions within the research
differ across financial management, production management,
personnel management, technology management, quality control,
and marketing. Because they represent diverse and comprehen-
sive meanings, studies on conceptual definitions and measure-
ment methods continue to be conducted. Ban (2017) argued that
the assessment index of the performance of local public en-
terprises is a composite index of financial and non-financial fac-
tors, such as business income, per capita facility management
performance, number of safety accidents, and customer
satisfaction.
Jeong (2016), Wi (2005), discussed how the ethical behavior of
managers can improve corporate image and promote pride
amongst members. Pride in an enterprise has been shown to
contribute to quality and productivity improvement resulting from
greater in- terest in one’s work. Based on previous studies, this
study hy- pothesizes the following positive relationship:
H3. There is a positive relationship between the use of ethical
management system and firm performance.
4. Methodology
4.1. Data samples
The criteria for establishing variables were derived through in-
terviews with working-level officials at shipping, logistics, and im-
port and export companies that had experience with ethical
management systems. Questionnaires were used to identify the
number of employees at each company to determine whether the
ethics management system had a mediating effect on the six in-
dependent variables, based on the size of the entity.
Research targets were selected for related port shipping and lo-
gistics companies, focusing on the nation's five major ports. The
questionnaire consisted of 54 questions and was based on the 5-
point Likert scale. We collected 344 of the 1500 distributed
 J. LEE and H. The Asian Journal of Shipping and Logistics 38 (2021)

Table 2
Descriptive analysis.

Variable N Minimum Maximum Mean St. Deviation

Transparency 279 1 5 2.78 0.877
Openness 279 2 5 3.45 0.712
Internal Integrity 279 2 5 3.62 0.674
Regulatory Environment 279 2 5 3.68 0.684
Normative Environment 279 2 5 3.69 0.643
Cognitive Environment 279 2 5 3.67 0.591
Ethical Management System 279 2 5 3.88 0.621
Firm Performance 279 2 5 3.69 0.592

questionnaires. Of them, 279 responses were used to test hypothe-

Table 4
sized relationships. We discarded 65 surveys because of too many Correlation matrix.a
missing values.
X1 X2 X3 X4 X5 X6 M Y
Table 1 shows information about the respondents. We analyzed
company size, manager characteristics, business fields, annual profit, X1 0.848b
X2 .618** 0.800
etc. Most companies that responded were small and medium-sized
X3 .451** .795** 0.804
with less than 50 employees. X4 .408** .687** .761** 0.847
X5 .361** .613** .658** .723** 0.864
X6 .379** .586** .560** .605** .671** 0.885
4.2. Research method
M .287** .506** .479** .559** .614** .768** 0.889
Y .333** .625** .669** .886** .778** .589** .586** 0.857
Analysis was performed using Structural Equation Modeling
* p < .10, ** p < .05, *** p < .001.
(SEM) with Statistical Package for Social Sciences (SPSS) and Analysis a
X1: Transparency, X1:Openness, X3: Internal Integrity, X4: Regulatory
of Moment Structures (AMOS). We used two main procedures for Environment, X5: Normative Environment, X6: Cognitive Environment, M: Ethical
hypothesis testing. First, the reliability of each variable was mea- Management System, Y: Firm Performance.
b
sured using Cronbach alpha with SPSS. To verify the validity of each The diagonal value expressed in bold is the square root of AVE.
independent variable corresponding to the internal and external
factors, we used a confirmatory factor analysis that can normally be The Cronbach alpha coefficients of all constructs represent accepted
considered in the structural equation model. This is because a con- reliability, the minimum level specified by Nunnally and Bernstein
firmed factor analysis can prove the validity of the data to express (1994). Table 3 shows Cronbach alpha of all latent variables.
causality or a causal relationship. The results of the exploratory Table 4 represents correlation coefficients of all variables. A corre-
factor analysis can be verified by the confirmatory factor analysis so lation Pearson correlation analysis was conducted to identify the re-
that the conclusion that was intended to be reliable and explored lationships between variables. First, looking at the relationship
can be reached. In other words, this process can be seen as a factor between transparency and openness, the correlation coefficient was
analysis conducted in a single step for model analysis in a structural 0.618, showing statistically significant correlation. Looking at the re-
equation. Second, a convergence validity test was conducted to lationship between openness and internal integrity, the correlation
measure whether there was a high correlation between the values coefficient was 0.795, showing statistically significant correlation.
measured differently for the same concept and to determine the Before proceeding with structural equation model analysis,
selection of variables according to the values in the test. Third, we Confirmatory Factor Analysis (CFA) was performed to determine
reconstructed a research model with variables derived from prior whether the observational variables that comprised each potential
research and practitioner interviews into a structural equation variable were properly constructed (see Table 5). The suitability of
model. the model was evaluated through the Comparative Fit Index (CFI),
Tucker-Lewis Index (TLI), and Root-Mean Square Error of Approx-
imation (RMSEA), where the criteria for the conformity assessment
4.3. Empirical results
index were established. The higher the CFI and TLI values among the
incremental fitted indices, the better the model is considered to be.
A technical statistical analysis was conducted to show descriptive
A good fit is considered to be approximately 0.9 or higher. Con-
characteristics of collected data. Table 2 shows the descriptive
versely, the smaller the RMSEA value, the better the model fit. A
analysis.
RMSEA < 0.05 = excellent value, a RMSEA < 0.08 = pretty good value,
a RMSEA < 0.10 = average value, and a RMSEA > 0.10 = unacceptable
4.3.1. Reliability and validity tests value (Browne and Cudeck, 1993). A standardized RMSEA below
We used reliability verification or Cronbach alpha verification 0.05–0.08 is interpreted as an appropriate value (Hu and Bentler,
to see if repeated measurements of the same concept were likely to 1999). TLI showed a reference value of 0.9, and the CFI was also
result in the same measurement. Typically, 0.7 or higher is reliable. higher than the reference value of 0.9. SRMR is appropriate if it is
less than 0.1. The absolute fitted index, RMSEA, showed a lower value
Table 3 than the benchmark of 0.10 and seemed to be a good fit overall.
Cronbach alpha of latent variables. Therefore, the confirmatory factor analysis model was judged to be
Variable Number of questions Cronbach`s Alpha suitable. Of course, the absolute standard has not yet been
Transparency 6 0.855
Openness 6 0.864 Table 5
Internal Integrity 5 0.856 Confirmatory factor analysis.
Regulatory Environment 5 0.896
χ2 df p TLI CFI RMSEA
Normative Environment 5 0.876
Value Lower Upper SRMR
Cognitive Environment 5 0.802 Bound Bound
Ethical Management System 6 0.905
Firm Performance 6 0.766 1249.307 491 0 0.94 0.96 0.063 0.054 0.081 0.051

9
 J. LEE and H. The Asian Journal of Shipping and Logistics 38 (2021)

Table 6
Table 8
Factor loadings of observed constructs.a
Results of structural equation modeling.a
Variable Estimate S.E. β C.R. P
Variable Estimate S.E. β C.R. P Result
X16 <- X1 1 0.578
X15 <- X1 0.979 0.088 0.534 11.071 > 0.01 M <– X1 -0.11 0.102 -0.047 -1.082 0.279 Reject
M <– X2 0.13 0.065 0.148 1.993 0.046 Accept
X14 <- X1 1.249 0.131 0.706 9.52 > 0.01
M <– X3 0.1 0.038 0.122 2.648 0.008 Accept
X13 <- X1 1.438 0.14 0.8 10.308 > 0.01
M <– X4 0.087 0.052 0.105 1.659 0.097 Reject
X12 <- X1 1.496 0.143 0.811 10.434 > 0.01
M <– X5 0.111 0.053 0.128 2.094 0.036 Accept
X11 <- X1 1.319 0.136 0.713 9.721 > 0.01
M <– X6 0.667 0.044 0.715 15.156 0 Accept
X24 <- X2 1 0.737
X23 <- X2 1.098 0.084 0.736 13.105 > 0.01 Y <– M 0.559 0.047 0.54 11.824 0 Accept
X22 <- X2 0.955 0.074 0.64 12.925 > 0.01 Chi-square/df = 1142.997/500, CMIN/df = 2.285, RMR= 0.048.
X21 <- X2 1.261 0.12 0.672 10.503 > 0.01 GFI = 0.911, AGFI = 0.906, CFI = 0.909, NFI = 0.900, IFI = 0.908, RMSEA = 0.052.
X34 <- X3 1 0.742 a
X1: Transparency, X1: Openness, X3: Internal Integrity, X4: Regulatory
X33 <- X3 0.938 0.037 0.761 25.439 > 0.01 Environment, X5: Normative Environment, X6: Cognitive Environment, M: Ethical
X32 <- X3 1.12 0.033 0.852 33.693 > 0.01 Management System, Y: Firm Performance.
X31 <- X3 0.844 0.042 0.674 20.082 > 0.01
X42 <- X4 1.053 0.033 0.867 31.967 > 0.01
X41 <- X4 0.865 0.045 0.718 19.019 > 0.01 this convergent feasibility, the factor loadings of observed constructs
X53 <- X5 1 0.784 and average variance extractions for each variable were measured
X52 <- X5 1.029 0.04 0.795 25.856 > 0.01 (see Table 7). Convergence validity is high if the factor loading is 0.6
X51 <- X5 1.036 0.033 0.856 30.933 > 0.01
or higher and the average variance extraction value is 0.5 or higher.
X63 <- X6 0.935 0.039 0.795 24.098 > 0.01
X62 <- X6 1.04 0.037 0.833 27.742 > 0.01 Discriminant validity means that there must be a clear difference
X61 <- X6 1.066 0.041 0.813 25.729 > 0.01 in the measurements between different variables. To test these
M4 <- M 1 0.717 discriminant equivalents, the average variance extraction (AVE) for
M3 <- M 1.084 0.032 0.861 33.912 > 0.01 each variable was measured and the correlation between the vari-
M2 <- M 1.027 0.025 0.908 40.451 > 0.01
M1 <- M 0.97 0.029 0.852 32.918 > 0.01
ables was calculated. The criterion for assessing the validity of the
Y2 <- Y 0.956 0.045 0.753 21.072 > 0.01 discriminant is that the value of the correlation coefficient between
Y1 <- Y 1.121 0.041 0.827 27.038 > 0.01 each variable should not exceed the square root of AVE. According to
a
X1: Transparency, X1: Openness, X3: Internal Integrity, X4: Regulatory Table 4, there was no abnormality in the discriminative measure. In
Environment, X5: Normative Environment, X6: Cognitive Environment, M: Ethical the case of discriminant validity, verification among all variables is
Management System, Y: Firm Performance. difficult if there are numerous variables, so the conceptually similar
correlations between variables are typically selected and validated
as representative. The reason for choosing correlation between the
Table 7
highest variables is that the higher the correlation, the more likely it
Average variance extraction (AVE) of latent variables.
is to be less discriminative.
Variable AVE

Transparency
Openness
Internal Integrity
Regulatory Environment
Normative Environment
Cognitive Environment
Ethical Management System
Firm Performance
statistically stated, but the above criteria are generally considered to
be appropriate (Tables 5–7).
To determine whether each observant variable did a good job of
reflecting the potential variable, factor load-carrying capacity was
conducted (see Table 6). Results showed that all path coefficients
were significant, and observation constructs were shown to reflect
the potential variables well. Most standardized path coefficient (β)
was 0.6 or higher, satisfying the convergent validity.
Convergent validity means that there must be a high correlation
between values measured in different ways to measure the same
concept. In other words, convergence verifies to what extent mul-
tiple questions measuring the same concept are consistent. To test
0.719
0.638 4.3.2. Structural equation modeling test
0.647
Table 8 below shows the results of the Structural Equation
0.717
0.746 Modeling (SEM). Looking at goodness of fit, RMR = 0.048, GFI = 0.911,
0.784 AGFI = 0.906, NFI = 0.90, RMSEA = 0.052, CFI = 0.909, and CMIN/
0.79 DF = 2.285. Overall, the figures are almost above the goodness-of-fit
0.736 threshold. Based on conformity, CMIN/DF should normally be less
than two when CMIN/DF, RMR, GFI, AGFI, CFI, NFI, IFI, and RMES are
used (all acronyms should be explained). RMR should usually be
less than 0.05; GFI, AGFI, CFI, and NFI are usually less than 0.9; and
RMSEA is less than 0.05. Of course, 0.1–0.05 is acceptable. The ab-
solute standard has not yet been statistically stated, but the above
criteria are generally considered to be appropriate. In other words,
depending on the study, some criteria are relative.
In this study, six independent variables and one dependent
variable, including prior research and related theoretical back-
ground, were set up, and seven hypotheses were set to determine
the effect of dependent variables affected by independent variables
on the final dependent variable. As shown in Table 8, the value of
the regression coefficient can be determined as the result of the
analysis of the structural equation. Accordingly, as shown in
Table 9, this

Table 9
Results of testing hypothesized relationships.

No. Relationship Result

H1-1 There is a positive relationship between transparency and the use of ethical management system. Rejected
H1-2 There is a positive relationship between openness and the use of ethical management system. Accepted
H1-3 There is a positive relationship between internal integrity and the use of ethical management system. Accepted
H2-1 There is a positive relationship between regulatory environment and the use of ethical management system. Rejected
H2-2 There is a positive relationship between normative environment and the use of ethical management system. Accepted
H2-3 There is a positive relationship between cognitive environment and the use of ethical management system. Accepted
H3 There is a positive relationship between the use of ethical management system and firm performance Accepted

1
 J. LEE and H.
research would like to clarify the adoption and rejection of the hy-
pothesis.
5. Conclusion
In today’s highly competitive world, ethical management is not a
choice for companies, but a necessity. This study, therefore, filled a
need for further research into ethical management. We looked at the
factors involved in a company’s employment of an ethical
management system and relationships between factors to determine
how the subordinate variable, the ethical management system, affects
the performance of an enterprise. The impact of an ethics
management system on corporate performance was verified through
empirical research into employees of the nation's five major
shipping and port logistics companies.
The internal and external factors of the ethics management
systems were used as independent variables, and employment of
ethics management systems as subordinate variables. The relation-
ship between these two variables was set up as a model so that the
ethics management system would serve as having a mediating effect
on corporate performance. A subjective evaluation was conducted to
assess the quality aspects of ethical management systems and to
reveal the relationship between the system and corporate perfor-
mance. The importance of ethical management was highlighted by
designating the subject of analysis as the shipping and logistics in-
dustry, to represent strategic competitive factors and the competi-
tive advantage of ports. To our knowledge, this is the first research
into ethical management in the domestic and foreign shipping and
logistics sectors.
The results of the study are as follows. First, in the case of H1-1, H1-
2, H1-3 which was designed to analyze the internal factors of system
op- eration and the impact of external factors on the employment of
an ethical management system, the sub-components affecting the
depen- dent variable were transparency, openness, internal integrity,
regulatory environment, normative environment, and cognitive
environment. Only internal factors such as openness and internal
integrity, and external factors such as normative and cognitive
environments, had positive ef- fects on the use of an ethical
management system. On the other hand, transparency, which is an
internal factor, and regulatory environment, which is an external
factor, had no positive impact.
These results suggest that, for Korea's shipping and logistics
companies, actively accepting external policies and taking the in-
itiative with regard to personnel fairness, legitimate business op-
eration, and an ethical normative environment are important factors
in the operation of an ethical management system. In other words,
ethical management can be successful if a CEO strongly embraces it
and encourages participation with stakeholders. The verification
results show that transparency and regulatory environment do not
significantly affect the use of an ethical management system because
the number of empirical analysis samples was relatively small and
Korean shipping and logistics companies are still at a rudimentary
stage in implementing ethical management.
Second, the analysis confirmed that ethical management systems
have a significant impact on corporate performance. It can be said
that such institutional management is indispensable in the creation
of high performing corporations. Companies can use an ethical
management system to meet international standards and gain in-
ternational recognition.
Acknowledgements
This work was supported by BK21 FOUR Program by Chungnam
National University Research Grant, 2021.
1
The Asian Journal of Shipping and Logistics 38 (2021)
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