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How To Prepare a Code of Ethical Conduct?  

A Guide to a More Responsible and Ethical Business Practice 

 

This paper has been designed as a practical guide to assist management and employees consider their organisation’s efforts towards responsible and ethical business practice.  After describing the principles on which a Code of Ethical Conduct is based it will take the reader through ten simple steps that need to be made in order to develop a Code of Ethical Conduct.  It describes a structure to follow and also by giving practical examples helps identify further actions that can be taken to strengthen the organisations ethical behaviour, enhance its reputation and as a result improve performance. 

At the end of this section, a number of examples of best practice in Code of Ethical Conduct are provided in order that the reader can learn from multi-national organisations that clearly show that they are serious about ethical and responsible practice.    

 

 

 

What is a Code of Ethical Conduct: 

A Code of Ethical Conduct, sometimes called a code of ethics, is a management tool for setting out an organization’s values, its responsibilities and ethical obligations. The Code of Ethical Conduct provides managers and employees with a structured approach for handling difficult ethical situations related to the organisation itself.  It provides a focus on issues relating to the community within which the organisation operates.  It can also be used to make people aware of the importance of environmental issues and set bench marks against which the organisation can measure its performance.

Organisations develop their own Code of Ethical Conduct, based on their core values, and no two codes are the same.  To be truly effective, the Code of Ethical Conduct must be embedded in the organisation.  All the people in the organisation should know how it applies to them and where possible should be engaged in the whole process from design to endorsement and finally in implementation.

Many studies have proved that having a Code of Ethical Conduct for responsible social behaviour will result in a more efficient and effective organisation, producing better products or delivering better services and thereby achieving value for money for the stakeholders.  It has also been proved that if an organisation believes in and practices its ethical values and through good communication embeds these values in its employees this will result in having an even greater impact.

Organisations around the world and their stakeholders are becoming more and more aware of the need for them to behave in a socially responsible way.  The way an organisation performs in relation to its community and the operational impact it has on the environment have become critical parts of measuring its overall performance and its ability to continue operating effectively and contribute to sustainable development.   

The current perception and reality of an organisation’s performance on social responsibility may have an effect on its competitive advantage, reputation, ability to attract and retain workers or members, customers, clients or users.  It can have a direct effect on employee’s morale, commitment and productivity.  Investors, owners, donors, sponsors and the financial community give consideration to the social and ethical behaviour of an organisation when considering investing or granting support. 

Organizations with strong Codes of Ethical Conduct experience less misconduct, less failure to report misbehaviour and less conflict on the job. It is universally accepted that improvements in ethical behaviour can positively impact business performance. Thus, one way to view a Code of Conduct is as a type of preventative medicine. Without it, a business is vulnerable because it has neglected to take business ethics seriously.

Organisations around the world and their stakeholders are becoming more and more aware of the need for them to behave in a socially responsible way.”

 

Core Code of Ethical Conduct Areas:  

There are four core areas of interest that define a framework for responsible and ethical management in any type of organisation.

01

The People Who Work for the Organisation 

02

Customers, Suppliers and Business Partners 

03

Relationship and Local Community 

04

Making the Environment a Better Place to live

 

Studies have proved that ethical behaviour in each of the above areas will contribute to an organisation’s success.

The People Who Work For the Organisation 

 

The long term success of an organisation depends on the knowledge skills, talent, creativity and especially the motivation of its employees.  As the organisation grows, it will need people who can be relied on and delegated to.

Compliance with legislation covering employment, health and safety at work ensures that the organisation provides people with basic needs but the Code of Ethical Conduct should ask for more.  The Code of Ethical Conduct should reflect a commitment to the improvement of employee’s job satisfaction, their career development and personal welfare.  In this way the leaders in the organisation will show that they value their employee’s contribution to the organisation.  Involving them will allow the leaders to get more from the people in the organisation in terms of creativity, commitment and loyalty and thereby making the organisation more effective and efficient.  This is in fact what Investors in People is exactly about.

 

 

The long term success of an organisation depends on the knowledge skills, talent, creativity and especially the motivation of its employees

If managers ensure that they communicate their values and a socially responsible way of working to all employees they will feel a part of the organisation and this in turn will help them better manage change as the organisation evolves.

There should be trust between the managers and employees.   This trust is built and reinforced through an open and transparent approach to consultation and cooperation with employees and where management show a genuine interest in an employees career development and in exploiting their full potential.   

Through an effective relationship between managers and employees an organisation achieves better flexibility, responsiveness and ability to share knowledge between all the people within the organisation.   It is a well known fact that motivated staff leads to a stable and contented workforce and in turn builds a better reputation for the organisation.

 

Customers, Suppliers and Business Partners: 

 

Organisations are basically made up of people working together striving for a common goal.  They rely on a web of internal and external relationships which are vital for mutual success.  The way in which these relationships are managed contributes directly to the success of the organisation.  In other words good partnerships and relationships with customers and suppliers bring rewards for both parties.  It’s a “win-win” situation.

A good way to improve an organisation’s performance is to share experiences with suppliers, customers, other like minded organisations and also the local community.   In order to maintain an organisation’s reputation it is important to consistently do the right thing in all your working relationships.  In practice an organisation can achieve a good reputation by satisfying customers, settling invoices on time and maintaining commitment to ethical business practices.   This reputation is crucial to ensure success in the marketplace as a whole.

A good way to improve an organisation’s performance is to share experiences with suppliers, customers, other like minded organisations and also the local community.”

Relationship With the Local Community: 

 

There is a clear connection between healthy and profitable organisations and the well being of the community around it. Most small organisations are an integral part of their community and have an active involvement and local aspirations and activities.

Such organisations enjoy benefits such as valuable networking and links with other local organisations and businesses.They achieve increased recognition and esteem from their customers or clients and enhance their reputation or image.Through this they also achieve improved staff recruitment and retention.

 

 

 

Such organisations enjoy benefits such as valuable networking…They achieve increased recognition and esteem from their customers or clients and enhance their reputation or image.

Being a good neighbour is not just about having respect for others in your immediate vicinity.Community support can include anything that benefits the community, such as sponsorship or the provision of time or expertise.It might cover participation in local sporting, educational or cultural initiatives.Helping to tackle social issues such as crime-prevention or long term unemployment in your area may help the long term success of your organisation.

An organisations positive engagement in its local community can also help it identify new markets, customers or business opportunities, make contacts with local authorities and opinion leaders and facilitate new partnerships with other organisations on community projects.

 

Making the Environment a Better Place to Live: 

 

Environmental degradation is both a global and a local problem of increasing concern throughout society. This means that it also should be a concern amongst those people who make up society including an organisation’s employees, partners, customers, suppliers, and owners. Looking after and protecting our environment often make direct financial sense. Energy efficiency, pollution prevention, waste control and recycling can all result in significant cost reductions for the organisation besides ensuring compliance with environmental regulations and improving your relationship with the local community. It will also contribute to motivating employees in the organisation and achieve customer loyalty. All these benefits clearly contribute to the long term sustainability and success of your organisation whilst at the same time contributing to sustainable development as a whole.

 

Looking after and protecting our environemnt often make direct financial sense… it will also contribute to the long term sustainability and success of your organisation

All organisations, however large or small or in whichever sector can have a positive or negative impact on the environment. Negative impacts can be caused by over-consumption of energy and resources, by generating waste unnecessarily, creating pollution or destroying natural habitat.

Every organisation can reduce the negative impact on the environment by reducing energy consumption, by minimising waste and by recycling materials. Even modest improvements can result in a massive difference when all effort is added up together.

A Code of Ethical Conduct is Based on Organisational Values: 

 

Small organisations often reflect the current values of the owner/manager or leader but few put their values into a Code of Ethical Conduct, a statement of good business practice or even a set of simple rules describing the company’s values, its responsibilities and ambitions.

Defining, writing down and communicating the organisation’s values to their employees will help the organisation to achieve their aspirations and help build its reputation.  In this way the organisation will be making a statement of intent to the people and partners it deals with and provide a tool against which management can assess how well all the people in the organisation adhere to the values.  People like to work for and with people who share their values and in so doing this will help the organisation attract employees, customers, suppliers and investors who admire their principles.

The organisation’s values should reflect its persona.  It should promote high standards in the workplace over and above the legal requirements and deal positively with the interests and concerns of its employees, customers, suppliers and the local community.   

 

Defining, writing down and communicating the organisation’s values to their employees will help the organisation to achieve their aspirations and help build its reputation.”

 

Having clearly defined values is a starting point.  The organisation’s values should provide clear and consistent guidance on how to deal with situations that arise from conflicts of interest.

The organisation will get the best results if it can convince others of their commitment to the organisations stated values by their leaders and managers being a consistent role model, by engaging people in dialogue and by communicating the organisations values both internally and externally.

An organisations values and principles and its commitment to them are inextricably linked with its reputation and its image both to the employees and externally.

 

Commitment from Leaders is Paramount: 

 

The leader in an organisation must embrace and just as importantly be seen to embrace the principles of honesty, integrity and ethical behaviour.  They must in fact set the example.  Good leaders in an organisation will inspire and endorse any changes that are necessary to ensure that the organisation conforms to the letter and the spirit of the Code of Ethical Conduct.    

For a Code of Ethical Conduct to be an effective tool it must be embraced by all managers and employees within the organisation.  This will only be achieved if the leadership promotes the principles of ethical behaviour enthusiastically and uses every opportunity to communicate its importance to all the people in the organisation. Once the Code of Ethical Conduct is written, the Leader and governing body should approve it.  The organisation can then incorporate the Code of Ethical Conduct into the induction process, orientation and training programs and the intermittent appraisal procedure.

 

The leader in an organisation must embrace and just as importantly be seen to embrace the principles of honesty, integrity and ethical behaviour.”

 

Ten Practical Steps for Implementing

a Code of Ethical Conduct:

01

Commitment from The Top

The Chairman or Managing Director discusses with managers the implementation of a Code of Ethical Conduct, achieves buy in from managers and sets out the principle tasks in a strategy for implementation.  The Chairman or Managing Director delegates to and empowers appropriate manager to take responsibility for tasks and actions to be achieved in the development and implementation of a Code of Ethical Conduct within an agreed time frame.  A change champion who will lead, inspire and enthuse people during the implementation process should be chosen.    

The Chairman and Managing Director agree to draft a letter which will be inserted at the beginning of the Code of Ethical Conduct document.  This letter will set the stage for establishing ground rules in the spirit of shared responsibility and cooperation.

02

Identify the Topics You need to Cover 

The second step is to find out what topics employees feel they need guidance on, for example, bullying, bribery or addressing work-life balance and so on. The code also must take into account needs of shareholders, customers, suppliers and the local community. To do this, the company can employ surveys and formal and informal discussions. The code should include a way for employees to report violations anonymously, and a way for employees to get advice about ethical issues or concerns.  A focus group made up of a cross section of the employees could be formed to discuss the relevant topics and set about developing the structure details of the Code of Ethical Conduct.

03

Review Goals and Values

By reviewing stated goals and values prior to drafting the standards of conduct the members of the Code of Ethical Conduct development team will be in a better position to understand the reason behind each standard.  Understanding why is a necessary step towards commitment and ethical behaviour.

04

Set out a Draft Code of Ethical Conduct Standards 

When establishing Code of Ethical Conduct standards include those topics that reflect your values.  Structure and leadership roles, acceptable versus unacceptable behaviour, consequences for unacceptable behaviour, resources available for training are common topics in a Code of Ethical Conduct.  There are many examples at the end of this report that you can use as an aid memoir but remember personalise it and include things that may be unique to your organisation.  

05

Final Code of Ethical Conduct Prepared 

After a process of consultation and review prepare the final version of the Code of Ethical Conduct.  The final version will be more effective if the writing takes on a less formal approach.  For instance, do not use legal jargon if possible and write in a clear and concise easy-to-read style.  The more formal the writing style the more judgemental the code will sound.  Writing focusing on values rather than straightforward fact will bring heart and sincerity to your code.  The Code of Ethical Conduct narrative content should be as simple as possible and no longer than five pages for an average size organisation.       

Insert at the end a place for the reader to sign and date it and also a space for the organisations representative to acknowledge receipt.   A legal expert should ensure that the document addresses legal issues such as for example relating to sexual harassment.

 

06

Circulate the Code of Ethical Conduct 

Distribute the Code of Ethical Conduct to all existing and any new employees. Both the employee and the organisation should have a copy of the signed Code of Ethical Conduct agreement.  Send the code to all employees in a readable and portable form and give it to all employees joining the company.  This could be done by including the Code of Ethical Conduct as part of the induction process documentation.

Give all employees the personal opportunity to respond to the content of the code. An employee should know how to react if he or she is faced with a potential breach of the code and is in doubt about a course of action involving an ethical choice.

 

07

Agreement, Consent and Compliance  

Collect the signed copies of the Code of Ethical Conduct from all employees and file them.  Have a procedure for managers and supervisors to regularly state that they and their staff understand and apply the provisions of the code and raise any matters relating to it or even matters not covered by it if applicable.   

Consider making adherence to the Code of Ethical Conduct obligatory by including reference to it in all contracts of employment and linking it with disciplinary procedures.

 

08

Reinforce and Review the Ethical Code of Conduct 

Have a procedure for regular review and updating the code.  The first sight of the Code of Ethical Conduct for a new employee should be in the induction pack of information.   During the induction process the new employee should be asked if they have any questions about the code.

A six monthly or yearly appraisal interview with employees is an ideal time for the subject of Code of Ethical Conduct to be raised.  The open and transparent atmosphere in an appraisal meeting presents a good opportunity for the manager to can ask the employee whether there are any issues they wish to raise.  At the same time the manager can encourage the employee to perhaps get involved with a community project or raise awareness about environmental issues.  Those responsible for company training programmes at all levels could include issues raised by the Code of Ethical Conduct in their programmes.

Employees and others should be aware of the consequences of breaching the code.   See that the code is translated for use by overseas partners, supply chains or subsidiaries in countries where English is not the principal language.

Many companies also use an audit or internal review to measure the effectiveness of their code. 

 

09

Distribute the Code of Conduct to all Stakeholders 

If the organisation believes in its Code of Ethical Conduct it will want to let everybody know through its own internal and external public relations strategy.  If for example the organisation has a great idea about helping its local community then why not shout about it in the press and media.  The Code of Ethical Conduct document should be circulated to its partners, sub-contractors, suppliers and even customers.   A well presented Code of Ethical Conduct can only enhance the organisation’s reputation.  Have a look at some of the examples of best practice Code of Ethical Conduct at the end of this report and see the “feel good” factor.

 

10

Include Code of Ethical Conduct in the Annual Report 

Reproduce or insert a copy of the Code of Ethical Conduct in the Annual Report so that shareholders and the wider public know about the organisation’s position on ethical matters.

 

Leszek Jakubowski is author of “Fighting for Survival” a book about life and the trials and tribulations of business failure. He is a Fellow of The Chartered Governance Institute (ICSA), Past Chairman of CambsTEC Training and Enterprise Council, Past President of Cambridge and District Chamber of Commerce and Past Chairman of British-Polish Chamber of Commerce. In 1991 Leszek was advisor to the Polish Prime Minister on Business support infrastructure and the development of entrepreneurship.

 

 

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How To Survive Business Failure.  

Help for small businesses through the Coronavirus Pandemic 

 

In the present critical stage of the Coronavirus pandemic and the highly probable, if not inevitable, economic impact resulting in many business failures, the struggle for survival will become a part of many business individuals working lives. The experiences of those who have had to deal with the stress, anxiety, trauma, and financial distress caused by the ultimate collapse of their business can give valuable insight into the process of business failure and also the subsequent struggle for survival. At present, there is little practical help of this sort available. 

 

Small and medium-sized enterprises are the wealth creators of the economy and prolific providers of employment. People who have the inspiration, skills, stamina and courage to set up in business with dreams of success are sometimes faced with insurmountable challenges that lead to business failure. This is a fact of business life and the factors that bring down a business are sometimes totally out of the control of the business owner.

 

 

 

“The highly probable, if not inevitable, economic impact resulting in many business failures, the struggle for survival will become a part of many business individuals working lives..”

The Importance of Helping Small Businesses: 

 

The prosperity and well-being of our country has always relied, and will rely in the future, on those people who have the initiative, courage, and entrepreneurial spirit to set up and develop businesses. There is therefore an urgent need to ensure, through the provision of help and support, that this entrepreneurial spirit is not extinguished altogether in those who have suffered business failure and in those who are in the last stages of fighting for the survival of their businesses.

In the free market economy, some businesses are bound to fail. To a large extent, failure is an inevitable consequence of the way the free market operates. Businesses grow by gaining a competitive advantage over other businesses and taking some of their market share. Sometimes businesses will disappear as a result of other factors such as products being superseded by new technology, fashions changing, or unforeseen factors that result in a sudden economic downturn. The ideal scenario is to be prepared to close down before losing money and to have a new business ready to meet the new opportunities which are always appearing. But this is not always possible.

 

Help for Small Business Owners and their Workforce

 

If a business fails many of those who have worked closely with the business, investing their time, skills, energy and money, are likely to feel a deep sense of personal loss and failure, over and above the financial loss. But they should not feel so discouraged that they will not start again, or so that they feel their prospects of building up another livelihood have been severely damaged by the experience. There are many lessons that can and should be learned from the failure of one business which makes it more likely that people who have been through failure and survived with their confidence intact will succeed better next time. The first lesson of survival is to detach the personal from the commercial.

Organisations such as Federation of Small Businesses which provide help to businesses when they are starting up and which encourages and gives valuable support to them in order that they grow successfully ought also to give them help when they are failing or have failed. On some occasions, the help they give may prevent business failures. In others, the experience of failure can be mitigated, commercial lessons learnt and the individuals involved can be helped to overcome the consequences of failure in a positive way.

 

Business Man in suit looking to combat business failure

 

 

“If a business fails many of those who have worked closely with the business, investing their time, skills, energy and money, are likely to feel a deep sense of personal loss and failure, over and above the financial loss.”

Business failure can affect any business, from a small solicitor’s practice to a large manufacturing firm. In the current uncertain economic climate, due in large part to the coronavirus pandemic, business failure will be an increasingly common part of business life but those who suffer it are mostly ignorant of the consequences and the procedures that form a part of it. When embarking on a new venture business people and their backers do not approach the question of failure. The fact is that banks are supportive financially and commercially in the good times when a business is expanding or at starting-up stage, but much less supportive when difficulties are encountered.

There is a complete lack of impartial help with the personal trauma and also for dealing with creditors, receivers, liquidators, and the banks as they make increasing demands on personal assets. The lack of advice about business failure is not restricted to those starting out in business but continues throughout the life of the business and beyond.

What Small Business Owners say:

 

In a study on business failure, carried out by  Leszek Jakubowski where the sample interviewed were those who owned businesses that had failed the following comments were made;

  

 

Coronavirus Pandemic sign - Businesses welcoming customers back

 

“I wish there had been someone to give impartial advice and who was not personally involved in the business, didn’t have a vested interest in the collapse, and had been through a similar situation.”

 “I felt a victim of circumstances which were beyond my control.”

 

“After our business collapsed there was nowhere to go for help. We were on our own, confused, and didn’t know where to turn.”.

 

 

 

“The business failure resulted in great personal anxiety and I wish I had someone who had been through the same situation to share it with” 

 

“A training programme that teaches the crisis management style necessary to deal with extreme situations in a rapidly changing and unknown business or personal environment would have helped.” 

 

“I am trying so hard within myself to ensure that the entrepreneurial spirit lives on.”

 

“Life is the world’s greatest teacher and the experience of failing has made me stronger, more determined and a great deal wiser.”

The Key Themes of Business Failure: 

There are four key themes when considering the provision of help for those who have or are experiencing business failure.

01

Businesses Need to Understand the Consequences of Business Failure before Small Businesses Experience It. 

People in business need to know about the consequences of business failure before they experience it. The “it couldn’t happen to me” attitude among people who have had the confidence both in themselves and in the market to set up their own business makes them unwilling to admit defeat. People naturally continue to strive, sometimes to the detriment of their personal interests, until the arrival of the liquidator. If they were made more aware of business failure as part of their introduction to running a small business, it would not be such a shock and they would be in a better position to employ some of the coping and surviving techniques.

02

Businesses Require Training in Crisis Management 

Businesses and advisors need training in crisis management, which by its nature is out of the ordinary run of the business. What is required is fast, decisive advice on how to deal with the particular problems which can cripple a struggling business.

03

Small Business Owners need Help Dealing with Personal Anxiety

The individuals trying to cope with business failure need help to deal with the personal and mental consequences both for themselves and for their workforce. Counselling on the psychological stress of business failure and help with dealing with the personal anxiety would enable those involved to come to terms with their loss and feel less personally liable.

04

Business Failure isn’t The End 

Once a business has been abandoned those involved often feel demoralised and rejected. In Britain there is still a stigma attached to having failed in business and particularly in becoming a bankrupt. Whilst this has been mitigated purely by the vast number of businesses that have failed or people who have become bankrupt in previous recessions it is important to let people know that there is “life after death”. The identification of those who have recovered or are recovering after failure could be used as role models proving that it can be done.

How to Combat These Issues: 

The issues described above could be met by a number of possible courses of action: 

Possible Actions: 

Local & Regional Survival Revival Forums:

 Set up local and regional “survival and revival forums” providing a channel for people who have failed in business to contact and meet others who have been through a similar experience. There would be enormous therapeutic value in developing a community of those who have failed in business in order to provide moral support for each other.

Government to Include a Module on Business Closure

A module on business closure should be included in all government sponsored diagnostic business health-check type training programmes for start-ups and existing businesses. This module should be about the mechanics of business closure and not about personal failure.

Training Programmes on Crisis Management 

Offer a training programme for advisers on crisis management and how to advise businesses in a dangerous or critical state.

 

“A module on business closure should be included in all government sponsored diagnostic business health-check type training programmes …Module should be about the mechanics of business closure and not about personal failure.”

Small Businesses Help through Effective & Impartial Advice 

Set up a “life support” service, using specially registered and trained advisors, to help businesses in serious difficulty; the advisors would be independent (unlike receivers) and would need to have specialist skills to give effective and impartial advice.

Leszek Jakubowski is author of “Fighting for Survival” a book about life and the trials and tribulations of business failure. He is a Fellow of The Chartered Governance Institute (ICSA), Past Chairman of CambsTEC Training and Enterprise Council, Past President of Cambridge and District Chamber of Commerce and Past Chairman of British-Polish Chamber of Commerce. In 1991 Leszek was advisor to the Polish Prime Minister on Business support infrastructure and the development of entrepreneurship.

 

 

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