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.
