What Is a Code of Ethics?
A code of ethics acts as an integrity map which helps direct employees on how to make decisions within their workplace. A code like this builds trust in the company and establishes credibility with key stakeholders, such as customers and investors.
The purpose of a code of ethics is to outline the principles governing how a company should act in its day-to-day operations. It covers how employees behave behind the scenes, how they treat customers, and even how the organization picks its stakeholders, from suppliers to business partners.
Several specific topics can be covered in a code of ethics. Some examples are:
- Insider trading
- Employer-employee relations
- All types of discrimination
- Working conditions
- Environmental issues
- Social responsibility
It’s worth noting that sustainability issues have become increasingly important. They have a big impact on how organizations are viewed by the public. They are often given extra consideration in codes of ethics.
As society continues to evolve, other issues will likely be accorded extra weight in future codes of ethics. It makes sense to regularly refine an organization’s code of ethics to keep it up to date with societal expectations.
As a basic definition, a code of ethics governs broad decision-making – whereas a code of conduct is more focused and governs practical actions. Codes of conduct are often quite specific, laying out rules about discrimination, harassment, accepting business gifts and more.
Sometimes new situations might occur for which there are no rules in the existing code of conduct. In this case, the code of ethics would be referred to so that the omission can be addressed.
Therefore, it’s helpful to view a code of ethics as an umbrella set of guidelines that can be mapped or applied to the practical code of conduct. The new rule, once decided, would then be added to the existing code of conduct, to help govern future actions for employees.
Both codes of ethics and codes of conduct aim to promote ethical behavior within organizations. Often, both types of codes are combined into a single document to make it easier to access.
The document may begin with the company’s basic ethical principles before continuing to more focused situations regarding specific employee behavior and how to deal with occasions of questionable conduct.
A code of ethics can be referred to in various ways. Terms such as core values or mission statement might be used interchangeably to cover a company’s ethical stance on key issues.
Ethics guidelines are often established via legal and industry norms, but a business can exceed these norms to ensure that their employees are better supported. For example, they may offer pay above minimum wage, when such an action is not expected or mandated within an industry.
Different industries will have variations in their codes of ethics and some might be considered 'better' than others. For example, non-profit organizations usually value inclusion, fairness and community above focusing on the interest of shareholders as for-profit organizations might.
Simply put, organizations have different priorities, depending on their stakeholders. Some will value the bottom line, while others are more focused on people and values. Codes of ethics reflect this.
All businesses have certain legal rules they must follow regarding fair hiring and safety standards. For some industries like banking and finance, there are further legal obligations regarding business conduct. This is sometimes referred to as a ‘compliance-based’ code of ethics, set by external forces.
These bodies not only set guidelines for conduct within an industry but also determine specific penalties (such as suspension or termination) for violations of the rules. Because they can get quite detailed, employees usually take formal training to learn these codes of ethics. There can even be a compliance officer within organizations to ensure adherence to the rules.
Because of the external nature of these rules, having compliance-based codes of ethics can result in a culture of ‘tick-boxing’, where employees don’t necessarily develop an internal compass or buy in to a moral climate. Care must be taken in these instances to ensure that the corporate workplace does not inadvertently become hostile.
In contrast, value-based codes of ethics are often more consciously considered, with team input and internal motivation. There are unlikely to be compliance officers tasked with keeping people aligned with value-based codes of ethics, therefore there is a greater reliance on self-regulation.
In these cases, codes of ethics are usually voluntarily adopted by senior leadership teams, and there are various options around creating these. As well as the key topics mentioned in the introduction, others usually include privacy and confidentiality, as well as caring and consideration policies to ensure everyone is treated fairly.
If you need to create a code of ethics, first aim to demonstrate your company's goals and vision with transparency, then focus on particular issues relevant to your organization.
You can get input from your current team and also hire a human resources specialist to make sure you’re covering all bases. It’s also worth drawing inspiration from others by looking at their codes of ethics.
Depending on the field you're in, you can learn from similar organizations and their codes of ethics. Certain professions have their own specific bodies they are accountable to.
Certified public accountants adhere to a set of rules set out by the American Institute of Certified Public Accountants (AICPA).
Similarly, financial advisers have a legal requirement to adhere to the code of ethics known as ‘fiduciary duty’ when they are registered with the Securities and Exchange Commission (SEC). This duty specifically requires them to act first in the best interest of their clients.
The Chartered Financial Analyst Institute (CFAI) which is a global body, also has a widely adopted code of ethics containing six main requirements of members and candidates:
- Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets.
- Place the integrity of the investment profession and the interests of clients above their own personal interests.
- Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.
- Practice and encourage others to practice professionally and ethically that will reflect credit on themselves and the profession.
- Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
- Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals.
Financial bodies are not the only useful examples, though they are often the strictest. Teaching is another profession for whom ethical codes of conduct are important. Teachers are expected to show impartial behavior and integrity to all – watching out for and removing examples of bullying, for instance.
Teachers’ codes of ethics are designed to protect the rights of all students and can vary from school to school or between states, but the basics remain the same.
An example from the National Education Association (NEA) covers two main principles:
- Commitment to the student
- Commitment to the profession
The preamble to the NEA code of ethics is as follows:
The educator, believing in the worth and dignity of each human being, recognizes the supreme importance of the pursuit of truth, devotion to excellence, and the nurture of the democratic principles. Essential to these goals is the protection of freedom to learn and to teach and the guarantee of equal educational opportunity for all. The educator accepts the responsibility to adhere to the highest ethical standards.
The educator recognizes the magnitude of the responsibility inherent in the teaching process. The desire for the respect and confidence of one's colleagues, of students, of parents, and of the members of the community provides the incentive to attain and maintain the highest possible degree of ethical conduct. The Code of Ethics of the Education Profession indicates the aspiration of all educators and provides standards by which to judge conduct.
Some bodies get very detailed with their codes of ethics. The AMA (American Medical Association) code of medical ethics includes nine different principles, including:
- A physician shall be dedicated to providing competent medical care, with compassion and respect for human dignity and rights.
- A physician shall support access to medical care for all people.
As a detailed example of a voluntary code of ethics, the National Council for Voluntary Organisations (NCVO) has developed a strong overall set of principles. It draws upon existing codes and includes participation and consultation from a wide range of charities.
Their principles are detailed in four sections:
- Beneficiaries first – Charities have a responsibility to carry out their purposes for the public benefit. The interests of their beneficiaries and the causes they work for should be at the heart of everything charities and those who work and volunteer in and with them do.
- Integrity – Charities, and those who work and volunteer in and with them should uphold the highest level of institutional integrity and personal conduct at all times.
- Openness – Charities should create a culture and space where donors and supporters, as well as the wider public, can see and understand how they work, how they deal with problems when they arise and how they spend their funds.
- Right to be safe – Every person who volunteers with, works for, or comes into contact with a charity should be treated with dignity and respect, and feel that they are in a safe and supportive environment.
It can take some time to design and maintain a professional code of ethics, but it’s worth the investment. It will help your employees work with integrity and create an organizational environment of trust.
Having a code of ethics sets the right work culture from the start. It can also help avoid the occurrence of scandals that damage company reputations – as has been seen recently in some high-profile cases.
A code of ethics is internally valuable to an organization, not only as a professional guide for its employees but also as an external statement of its values and mission as a company. A strong code of ethics can help build a reputation, add a competitive edge to your organization and confer financial advantages in recruiting the best personnel and getting the most out of them.
In conclusion, codes of ethics are useful to show the purpose and ideals of your company. It's always worth including one in your company literature and paying attention to those of your stakeholders and competition.
If all organizations were to adopt codes of ethics, it would go a long way toward promoting positive social change.