Creating an Effective Code of Conduct (and Code Program)

[Editor's Note: This is the fourth post in an ongoing series on Codes of Conduct by Jason Lunday. Follow this link to view all of Mr. Lunday's articles in his Codes of Conduct featured column series.]

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A strong code of conduct offers real value to a company. Developing and sustaining such a code occurs through a broad-based, managed process that includes attention to the organization’s mission, values and other key considerations. With a little foresight and focus, a company can develop a new code or enhance an existing code to reap the numerous benefits it can provide.

Corporate codes of conduct have been around now en masse for over two decades, and with growing attention focused on them.  In the latter 1980s the US Defense Industry Initiative on Business Ethics and Conduct and its member companies’ very public adoption of codes of conduct served as a precipitating factor. The 2002 US Sarbanes-Oxley Act made codes mandatory for US publically-traded companies’ directors and senior officers, and the NYSE and NASD raised the bar by making employee codes required – and made publicly available – for their listed companies.  This has had a large influence on global companies’ adoption of codes of conduct since the United States accounts for over forty percent of Business Week Global 1000.

It appears that the corporate code of conduct is here to stay and likely will received increased visibility – and scrutiny.

codes-of-conductA corporate code of conduct serves as both the principal statement regarding the way that a company conducts its business and its ethics and compliance program’s chief communication.  A code generally embodies the standards that a company sets itself and possibly other standards that others encourage it to adopt.  Chief among these standards are the ethics and compliance risks that a company seeks to prevent, detect and mitigate, should a violation occur.

Many companies make their codes available to outside stakeholders and may even use them as a way to set expectations for the organization’s business partners.  Further, with the role that it plays within an ethics and compliance program, the code of conduct can set the stage for the program’s future success or, alternatively, get the program off to a poor start.  Given all of these roles that a code can play, it makes sense to get the code right.

If moral behavior were simply following rules, we could program a computer to be moral.

~Samuel P. Ginder

Codes come in all shapes, sizes and levels of quality. Given the level of attention devoted to them, each code will have a different impact on the organization it serves.  A few companies appreciate the vital role that a code can play, such as with respect to the company’s mission, values and other aspects of culture.  For these companies, the effort to develop an effective code can constructively impact its employees, customers, business partners and other stakeholders. A strong code stands the chance of reinforcing leadership’s good intentions and efforts.

Conversely, a poorly conceived and developed code is likely to hurt the company’s efforts and weaken leadership’s good intentions.  Many companies still do the bare minimum required by Sarbanes-Oxley or the exchange listing standards. This is surprising given the relatively little that is needed to develop a truly impactful code of conduct. It also is a mistake: a poor code marginalizes the importance of a company’s standards of conduct, negates leadership’s focus on its standards, and sends to employees the message that the company’s code is just one of the many “corporate documents” they can ignore.

What a Code Can Help to Accomplish

A quality code of conduct can go a long way in improving a company’s success.  Companies that view a code merely as a way to communicate legal rules miss much of the value that a code can provide. A well-developed code can help a company to:

  • Prevent legal and regulatory violations.  This is the first objective that most companies attach to a code of conduct. When violations do occur, a code can help to detect them and mitigate their effects.
  • Foster greater employee loyalty and retention.  When employees feel included and engaged in the company’s culture and success, they feel more committed.
  • Encourage greater customer loyalty and retention. When customers learn about and then experience in practice a company’s high standards of conduct, customers are more likely to show their appreciation.
  • Build stronger relationships with suppliers and other business partners.  As with employees, the more that they understand what the company expects of them – and what they can expect from the company – the stronger the alliance.
  • Strengthen trust and respect of other stakeholders, such as local communities, regulators, NGOs, even from competitors.  As codes become publicly available publications, more outside stakeholders are reviewing them and setting their expectations of the company partly based on its code.  The more that a company lives up to the expectations that it has established, the greater goodwill it engenders.
  • Build a stronger reputation for integrity by helping the company to do what it says it will do.

How a Code Works

A quality code of conduct helps a company’s leadership to accomplish its strident objectives because of how the code functions.  As part of an overall code of conduct program, a code works because it:

  • Articulates leadership’s expectations. Simply establishing these expectations regarding what leadership expects is worthwhile.  It provides clarity and transparency so that staff does not have to guess at leadership’s expectations.
  • Establishes leadership’s commitment. Much as been addressed regarding the importance of “tone at the top”; regarding expectations of responsible conduct, this tone rises in importance.
  • Provides staff with a roadmap and tools for their daily work. With clarity regarding leadership’s expectations that an employee can easily and regularly reference, staff can act with consistency.  Further, employees can turn to the code for guidance on questions or concerns.  It is especially important to help employees to make good decisions when they face ambiguous situations or other issues that the code does not directly address.
  • Provides staff with comfort and confidence. As ethics consultant Frank Navran puts it, a code can provide staff with comfort that the company will support them when they act according to the code and confidence that the decisions they make when they are in line with the code.
  • Encourages staff to serve the company’s aspirations. A good code can encourage employees to strive to achieve the company’s mission, vision and values in a constructive way.

Elements of an Effective Code

A code of conduct publication does not work in a vacuum.  Important factors for a successful code include:

  • Foundations that support a successful code program.
  • Components of a successful code program.
  • Dimensions for an effective code publication.

Foundations for a Program

These foundations serve as important considerations for a successful code of conduct program. While not all of the foundations are mandatory – and in fact they will exist in each company in varying forms – the more firmly that they are established, the more likely that the code (and the larger ethics and compliance initiative) will lead to success.

  • Leadership commitment to the program – Without senior leadership’s commitment, any code initiative is unlikely to truly engage employees and demonstrate to them the “tone at the top” that is so critical to any business initiative – especially one focused on ‘doing the right thing.’
  • Ethics and compliance processes – Leadership’s commitment means so much more when the organization can point to procedures and processes that support a code standards and expectations. Otherwise, employees are right to wonder about how leadership expects to achieve adherence to the company’s standards and address concerns.
  • Company culture – A company culture focused around an enduring mission or vision and supported by lasting values sets the best foundation for a proper focus on long-term value and success. These core foundations help a code rise about a narrow focus only on the law to other commitments, promises and aspirations that the company seeks to achieve.
  • Understanding of risk – A company’s awareness of the ethics and compliance risks that it faces is central to a code of conduct.  With the hundreds of issues that a code could possibly address, a more targeted risk identification and assessment effort helps to focus the code’s contents to those issues that are most important to the company’s operations and that will provide it with a higher chance of success.
  • Coordination with policies – A company’s policies often provide the detail underlying its expectations.  Policies also can provide the initial framework for a new code of conduct and serve as additional resources to support a code’s standards.  Where policies exist, they provide important context for a code development or revision effort.

A Code Program

Before beginning development of a code, it behooves a company to understand how it fits into a larger code program.  This is because some of the choices for the code development can impact how the code is introduced, and visa versa.  The five components of an overall code of conduct program include:

  • Code publication – The publication is the starting point for a successful code program.  But a document alone will not achieve the goal of making its standards live in the hearts and minds of employees.
  • Code introduction – How the code is delivered to employees and others establishes an important precedent for how the company and its leadership will reinforce and support the code and employees’ actions regarding it.
  • Code education – Leadership should not assume or expect that employees will instinctively understand, appreciate and know how to apply the code simply from reading it.  To obtain the best value from the code, a company should effectively education employees (and others) to it.
  • Ongoing reinforcement – Just as with an ethics and compliance program, leadership must continue to reinforce the code – its purpose, importance, application – and the systems that support it for it to maintain lasting value.
  • Metrics & improvement – In the end, a code and its related programs can be assessed for effectiveness and improvement opportunities. Just as business continues to change, a code program should respond to these changes to ensure it remains viable in a changing business environment.

Dimensions of an Effective Code Publication

The following fourteen dimensions provide a framework to help to ensure that development or revision of a code of conduct is most likely to be successful:

  • Leadership commitment and support
  • A publication type that fits the workforce’s characteristics and needs
  • Reflects and reinforces culture
  • Reflects operations
  • Concept that unites content and connects to culture and code’s purpose
  • Affirmative, aspirational and inspirational
  • Clear expectations of compliance
  • Compelling underlying principles for code and its content
  • Addresses the organization’s risks
  • Coordinates with policies and other guidance tools
  • Includes topic and code concept utilities (famous quotes, employee quotes, values reminders)
  • Decision tools
  • Writing style
  • Visual style

1. Demonstrates Leadership Commitment and Support

First and foremost, a code of conduct must communicate company leadership’s commitment to its purpose and contents in a compelling way. Why should employees believe in the code of conduct if the people who set and evaluate expectations of them do not do the same – in a demonstrable way?

Within a code, the chief articulation of leadership’s commitment comes in the introductory chief executive message.  This message should be clear, simple, compelling and reflect the executive’s style and perspective.  In addition, where the code clarifies the duties that the company and its leaders at all levels have to employees, this likely will also help employees appreciate the commitment to leadership at all levels.

Further, where the code provides information about any ethics and compliance-related processes and the company’s commitment to their success, this likely will further support employees’ belief in the company’s commitment.

2. Employs a Format that Fits the Workforce’s Characteristics and Needs

Most companies rely on a single-document code of conduct, and this may be generally appropriate.  But in some organizations, a different approach to the code may be most useful.  Many global companies translate a base code of conduct into languages for their local workforces.

Also, enterprises with operating companies with widely divergent brands, cultures and operations may want codes for each entity – or at least slightly different versions that better reflect the local operations. Sometimes, a large enterprise will develop a slightly different version of its base code for business units serving different markets. A company also may develop distinct codes for various constituents of its extended enterprise – contractors, agents, suppliers, to name a few.

best practices code of conduct3. Reflects and Reinforces the Company’s Culture

A successful code will reflect the organization’s culture – at least its positive and aspirational qualities. This helps the code to reinforce these positive cultural elements.  It also means that employees can better identify with the code as it seems to emanate from the organization rather than be thrust upon it.  Key elements of the culture include:

  • Mission and vision – The organization’s purpose
  • Values – The organization’s collective beliefs
  • Heritage – Where the organization comes from
  • Style – The way in which things are done
  • Priorities – What is important to leadership and the rest of the organization.
  • Rituals – Activities employees engage in that reflect a uniqueness of the business.
  • Heroes – Individuals and their feats that others hold in high regard.
  • Branding – How the company presents itself
  • Perspective – The company’s point of view

A company’s culture can be identified in its communications, stories, perspectives and ways in which staff acts and responds to situations.

4. Addresses the Organization’s Operations

The more that a code reflects the company’s operations, the better that employees will understand the relevance of its standards to daily work and how to apply the standards.  Stating that the company is committed to health and safety has little impact if it does not also discuss what may be unsafe conditions or how staffs’ health specifically can be compromised.  Addressing operations, in essence, gets to “what we do, where we do it and how we do it.”

Reflecting the company’s operations into the code as well helps to address the realities of daily business and where employees need to be especially aware of risks.  Cues to this may come from either industry issues or the company’s past issues.

5. Incorporates a Unifying Concept

The better codes of conduct incorporate a multi-faceted concept that pervades the document.  This concept helps to unify the code’s disparate topics.  It aligns the code to its overriding purpose and connects it to the company’s culture and sometimes.  The code may even reflect the ethics and compliance program’s brand or identity.

This concept strengthens the code’s aspirational qualities and helps employees to appreciate the code on a higher order.  The concept likely is most evident in the code’s title.  It also can be evident in the code’s structure, section and topic titles, the basis for the code and its topics and visual design.

6. Sets an Aspirational Tone

Most people do not respond well to a list of what not to do.  So it is with a code of conduct.  Better codes set an aspirational tone that is affirmative and inspirational. This tone connects responsible conduct to the company’s and the employee’s success.  Such a tone can inspire employees to appreciate the code’s role in the company’s success and ow the employee, by following it, can help make a profound difference.

7. Provides Clear Expectations of Compliance

Let’s not forget that a code of conduct also is an important communication regarding compliance – with the law, regulations, company polices or even values. It needs to effectively inform employees of expectations regarding their conduct and the consequences of non-compliance. In doing so, it provides clarity regarding expectations that employees can take comfort in.

They can expect to be assessed on this compliance and that their peers also will be held to the same standards.  Such a code helps remove ambiguity and inconsistency regarding business conduct from daily work.  The code also may state what an employee can expect from the organization in how he or she will be treated or supported, such as in seeking guidance or reporting concerns.

8. Based on Compelling Principles

A code and its standards should be based on underlying principles of good conduct, such as integrity, fairness, responsibility and care, to name a few.  This basis may relate back to the company’s values and tie to what constitutes business success for the enterprise.  Such a basis helps employees to understand the code and its standards and appreciate their purpose.  It can elevate the standards up off the law to higher considerations that tie to the company’s commitments and other duties to customers and other stakeholders.

Many codes simply tie a standard back to a specific law and do not connect the underlying principle on which the law itself resides.   This basis also can connect with the code’s overriding concept and many of the other dimensions of an effective code.

9. Addresses the Organization’s Risks Regarding Business Conduct

A code of conduct serves as a principal tool to address business risk.  Risk may be anything that leads to a legal violation or keeps a company from meeting its identified ethics and compliance business objectives, such as the company’s reputation as a responsible employer.  With literally hundreds of issues that a company may include in its code of conduct, it must identify and prioritize risk issues to find the right balance of topics and each topic’s appropriate level of content.

10. Coordinates with policies and other guidance tools

Almost always, a code’s content will relate to topics that a company’s policies address.  So, the code should coordinate with these policies to ensure that employees receive consistent direction. Typically, a code’s standards are written at a higher level than are policies, essentially providing the “capstone” of the company’s standards.  It is then helpful to provide employees with reference to the related policies for additional guidance.

11. Supported with Topic and Code Concept Utilities

It is helpful to provide employees with additional guidance in understanding, appreciating and applying the code and its standards. For such instances, utilities can provide the appropriate assistance:

  • Topic Utilities can include Questions & Answers, Frequently Asked Questions, Risk Areas, and many other devices.
  • Code Concept Utilities can help employees to appreciate the code and its contents in light of the code’s overriding concept.  These tools may include quotes or statements from famous individuals, company leaders and other staff, reminders regarding the company’s values and other types of content.

It is important to carefully construct these utilities.  Codes that incorporate them can err with utilities that are mismatched to content, are excessively wordy or lessen clarity to the code’s contents.

12. Provides Guidance for Decision Making

A code cannot cover every conceivable topic or issue that an employee likely will encounter. Sometimes a standard relevant to an employee’s concern will not provide enough clarity to help that employee resolve the matter. And even where an employee may understand what do do, actually taking the responsible action may be difficult. To this end, a good code of conduct includes decision guidance that help employees in such situation.  This decision guidance can include frequently asked questions, questions to ask oneself, common topical risk areas, suggestions of how to apply the company’s values and a host of other approaches to resolve a difficult or unclear situation.

13. Incorporates an Effective Writing Style

How well a code is written bears strongly on employees’ acceptance and understanding and its usefulness.  At a minimum, the code should be free from punctuation and grammar errors.  Grammatically, the writing style should be consistent, such as align with the company’s style guidelines, if any.

Also, the code should be easy to read, with shorter sentences, easy-to-understand words, terms and phrases.  The level of writing should fit the workforce’s reading level. The code also should use terms commonly used in the company and its industry.  This step ensures that the code’s standards are developed to address the company’s daily operations.

The writing style also should fit with the company’s culture and style; some companies use certain words, phrases or terms to describe aspects of the way that they do business. Finally, the writing style should fit with the audience’s larger societal culture.  For instance, a code for a global company might be written in International English instead of the UK or US English style of the home office.

14. Utilizes a Compelling Visual Style

A code’s visual design is critically important – it is the first feature of the code that employees see and so it sets the perspective through which they will view the code – if they bother to pick it up at all.  First, a visual design should be interesting, enough that an employee is motivated to open it up and find out what is inside.

The design also should ease navigation through and understanding of the code’s contents. A well-designed code simply is easier to use. The design should align with the company’s branding and identity guidelines so that the code is seen as a company document, not a generic one that could fit with any company.

Next, the design should reflect the company’s culture: this step helps to ensure that an employee will readily identify with the document and recognize that it emanates from the company, not that it is imposed from elsewhere. Finally, the design should excite some interest; it should create a compelling look that encourages employees to want to look inside and throughout the code because it is interesting.

Summary

Today, practically all companies have codes of conduct. But the quality among them varies substantially. As a code is a company’s chief articulation and communication of its commitment to high standards of conduct, it is surprising that so many companies do not take basic steps to ensure that their code fits its role.

A strong code of conduct serves multiple functions, chiefly in how it communicates just how important responsible conduct is to a company’s leadership and the assistance leadership are willing to provide to their employees to underscore this importance.  But good codes do not grow on trees; they must be developed through a managed process that addressed numerous elements and dimensions that make for a great code.

This is not an insurmountable task; it is simply a managed one, and one that is achievable by any company with the true to commitment to a workplace of integrity.

About the Author

Jason Lunday

Jason Lunday is principal consultant with The Ethical ElementTM, a professional services firm based in Washington, DC. Jason has worked in the ethics and compliance field for over twenty years, both inside companies and as a consultant to them.  His work has involved supporting corporate values initiatives, developing and revising codes of conduct and related policies, conducting organizational risk, culture and program assessments, developing and delivering live training, building monitoring systems and auditing compliance systems and activities. He has worked in or consulted with companies in a broad range of industries, including banking and insurance, manufacturing, industrial and consumer products, utilities and energy, healthcare and telecommunications. Noteworthy experience includes:

  • Held significant roles in corporate culture and ethics and compliance risk assessments and ethics and compliance program evaluations for companies in financial services, telecommunications, healthcare, life sciences and industrial manufacturing and involving document review, executive interviews, employee focus group and enterprise surveys.
  • Led development and of a consulting practice’s service line focused on written codes of conduct development and revision, and managed all client engagements.
  • Co-managed development and delivery of the corporate trust division of a large financial institution’s initial ethics and compliance global training initiative involving training needs assessment, program development and delivery of over 100 classroom workshops.
  • Developed a corporate ethics and compliance self-monitoring program designed to increase business line compliance responsibility and oversight and minimize corporate compliance work processes while ensuring adherence to the company’s ethics and compliance standards.
Jason’s past experience includes director of ethics and compliance at Premier, Inc., consultant in Arthur Andersen’s Ethics and Responsible Business Practices Consulting group, compliance analyst at Goldman, Sachs & Co., senior consultant in the Ethics Resource Center’s Advisory Services group and knowledge leader at LRN Corp. In addition, he has authored/co-authored numerous articles and papers on business ethics issues. Jason holds an MBA from the University of Virginia’s Darden Graduate Business School, with a focus in business ethics and organizational behavior, a BA also from the University of Virginia and additional business coursework at the New York Institute of Finance. Jason can be contacted via email at: jason.lunday [at] ethicalelement [dot] com. Follow the link to view Jason's Code of Conduct featured column on CCI.

3 Comments

  1. July 6, 2010

    Thank you for the article, is there any code of conduct article about the food industry specifically?

  2. CCI
    July 6, 2010

    We have not published one about the food industry, but we’d certainly be willing to.

  3. July 10, 2011

    How can I go about convincing my mgt that it’s current code (currently in the form of an Ethics Policy) is not sufficient to achieve all the benefits you have listed here? I doubt most employees use the Ethics Policy as a handbook on behaviors to be considered moving forward.