Whenever I think of ethics I am reminded of the ancient quote of sufi poet Jallaludin Rumi – “Out beyond the ideas of right doing or wrong doing, there is a field, I shall be waiting for your there.” We are in life, sometimes facing ethical dilemmas and are on this gray field not knowing which direction to take and where it will lead us. Our personal ethics define our personal value systems, character and behavior. In the present world, with organization having an identity of its own, it requires a code of business ethics with which people can identify its value system and expected behavior.
Business ethics defines a code of moral conduct for the business, which specifies that the business should achieve growth and profits in a socially and legally responsible manner and is accountable for their decisions to the internal and external stakeholders and public at large. Institute of Business Ethics, London defines it as – “Business ethics is the application of ethical values to business behavior. It applies to any and all aspects of business conduct, from boardroom strategies and how companies treat their employees and suppliers to sales techniques and accounting practices. Ethics goes beyond the legal requirements for a company and is, therefore, about discretionary decisions and behavior guided by values. Business ethics is relevant both to the conduct of individuals and to the conduct of the organization as a whole.”
In most countries, the accounting and stock exchange institutes have mandated that each organization should have a code of conduct implemented within the organization. There is no standard code of ethics, and broad guidelines are given which can be adapted according to the organization culture and business requirement. Each organization Ethics & Compliance department is required to prepare a written Code of Conduct and implement the same within the organization.
The section below gives the procedure for developing, implementing and monitoring a Code of Conduct. The main step has been mentioned with a brief narration and key activities required:
1. Mandate & commitment from top management: The Code of Conduct defines the core values of the organization thus impacting the organization culture. It also has an impact on the reputation of the organization as it specifies the organizations stance towards corporate social responsibility. Involvement of senior management is a must to provide direction, funding and resources.
Obtain a formal commitment from the management and board of directors to establish the Code of Conduct
Approval for budgets for development, implementation and regular monitoring is required.
Approval for staffing the department and establishing the reporting lines is need.
2. Preparation of the policy document: The main policy document contains the values of the organization, management commitment to the same, details of the ethics program, and the monitoring process. Additionally all supporting policies are mentioned. For example, if the code specifies fair and just treatment for employees, there should be additional policies relating to workplace aggression, diversity, sexual harassment, equal opportunity etc.
The core areas for the policy document needs to be identified.
The main policy document needs to be supported by additional policies to ensure proper coverage and implementation.
Benchmark the policy document with other organizations policy documents.
Incorporate the legal requirements for the policy document
3. Approval of draft policy document: After completion of the policy document and supplementary policies the same should be approved by the senior management.
The draft policy document needs to be formally approved by the top management, audit committee and board of directors.
Obtain feedback from business users to determine if they are going to face any practical difficulties in implementing it.
4. Develop an implementation strategy: An implementation strategy is critical for the success of the program. A project plan should be developed along with the implementation strategy. Involvement of Human Resources department is a must at this stage as they will be responsible for deploying training, incorporating the code of conduct in the appointment letters, establishing the reward system for maintaining ethics and also the reasons for terminating employees on grounds of unethical behavior. The implementation process will require:
Department structure and staff requirements of the Ethics office.
Selection of vendors for hotline and web systems implementation incase it is not being done in-house.
Reward and recognition system to be established by HR. Ethical values should ideally be incorporated in the balance score card of the employee.
Training deployment strategy including the trainers, schedules, material and evaluation system. •Investigation and reporting procedures for minor and major deviances
5. Training & Awareness: Communication is the key to a successful implementation of the Code of Conduct. Various methods and sources of training should be deployed simultaneously to train the staff and external stakeholders. A training calendar should be published for rolling out the training. Explore the following ideas for building awareness and training resources:
Prepare class room training material for educating the staff on the detailed policies.
Develop web based training program which includes ethical tests, case studies and business scenarios.
Publish relevant cases of ethical dilemmas on the intranet
Provide training to existing staff and incorporate the same in induction training for the new staff.
Publish the relevant policies on the web for external stakeholders like suppliers, etc.
Issue checklists for determining how to make decisions while facing ethical dilemmas.
6. Implementing the required hotlines and software to monitor complaints: The organization has an option to develop a web-based reporting tool internally or outsource it. Whichever the case maybe, the final contact details and services should be published throughout the organization to enable staff to report complaints and discuss cases when they are facing ethical dilemmas. Undertake the following two steps for it:
Publish the contact numbers, email ids and websites for reporting complaints
Staff these 24/7 for effective monitoring or as per business requirement
7. Reporting deviances and taking corrective action: Minor and major breaches to the Code of Conduct should be investigated properly. The report should identify people responsible for the breach, the level of it, corrective action to be taken and modifications required to the existing policies, if any. Do the following:
Conduct investigations of the cases reported and submit reports to the audit committee and board of directors.
Perform root cause analysis to determine the reason for deviances, and identify solutions to mitigate the risks.
8. Evaluating commitment to ethical values: Depending on the requirements, periodically, surveys and audits should be conducted to evaluate the adherence to the policies and the overall attitude of the organization towards ethics. One must be aware that having a Code of Conduct does not ensure that it will be followed, hence regular monitoring is required to assess adherence. Adopt the following practices:
Conduct an Organization Survey to evaluate employee understanding and commitment to the Code of Business Ethics.
Periodically audit the practices being followed by benchmarking them against the policy document.
9. Annual update: Policies are dynamic documents subject to revisions on the basis of changing economic and legal requirements. Do an overall assessment of the existing policies on annual basis, and incorporate changes after senior management approval. Also, for all additions and modifications, send formal communication to the staff. Use the following process:
Conduct an annual review of the policies.
Address gaps and deficiencies identified in the policies
Obtain management approval for the same
Roll out the updated policies and provide training to the staff.
The advantage of implementing a Code of Conduct is that it enhances the corporate governance efforts of the organization by establishing a uniform set of core values and behavior for all the staff. The staff know what is the right course of action, whom to approach in a dilemma and what will be the risks of adopting unethical behavior pattern. Due to this, the reputation and legal risks of the organization are also reduced since it is mandatory for employees to follow the law.
Welcome your feedback on the methodology. Please do share best practices if you have participated in establishing a Code of Conduct for an organization.
Sonia Jaspal is a risk management and corporate governance professional with +15 years of working experience. You can visit her blog Sonia Jaspal’s RiskBoard at http://soniajaspal.wordpress.com.