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Does Your Business Need a Code of Ethics or Conduct?

business.com editorial staff
business.com editorial staff

Does your business need a code of ethics, a code of conduct, or both? What's the difference?

  • A business usually decides to write up either a code of ethics, code of conduct or a combination of both. A code of ethics and code of conduct have differences that relate to specific behaviors at work.
  • Creating a code of ethics and/or a code of conduct is not required by law. However, these documents help improve company culture.
  • While writing your code of ethics or code of conduct, make the language clear and concise. You should include examples to help strengthen the rules.

Does your business need a code of ethics, a code of conduct, or both? What’s the difference?

The difference is that an ethics code provides guidance about decision-making, while a code of conduct defines specific behaviors that are required as well as those that are prohibited.

According to the Small Business Index created by the Houston Chronicle, large corporations typically have both (and frequently combine them into a single governing document) to set a consistent standard of employee behavior throughout multiple departments that cross national, and in many cases, international boundaries.

But while small companies can go about their business without any formal code, creating one is a good practice for several reasons. A code of conduct and/or ethics: 

  • Helps define the company culture

  • Sets standards and expectations for employee behavior

  • Serves as a marketing tool for potential customers and partners who prefer to do business with those who share similar values

So while keeping in mind you probably should develop both kinds of codes, let’s take a look at each kind of code.

A code of ethics accomplishes the following, according to Ethics Web:

  • It defines acceptable behaviors

  • It promotes high standards of practice

  • It provides a self-evaluation benchmark

  • It establishes a framework for professional responsibilities

  • It promotes/enhances your brand

In essence, your ethics code reflects your core values. It contains broad statements that reflect your company's commitment to such concerns as:

  • Protection of intellectual property

  • Commitment to diversity

  • Promotion of good community relationships

  • Respect for cultural differences and how to respond when customs and laws in other countries conflict with our standards and expectations

  • Environmental responsibilities and actions

  • Safety practices

  • Financial and accounting maintenance and reporting practices

  • Compensation standards

  • Regulatory  compliance

  • Professional standards and expectations

As pointed out in Buzzle, "Business ethics is a very subjective issue, which creates various dimensions and interpretations to formal conduct … as an employer who holds authority over the workforce, you need to identify these ethical conflicts and resolve them with absolute objectivity to foster a healthy environment and an efficient workforce.”

Examples of business codes of ethics

 Your code of ethics should include easy-to-interpret language with clear parameters on how you expect employees to remain ethical while at work. Here are a few examples that may appear in your code of ethics:

  • Be inclusive: Foster an environment where all employees from all backgrounds are supported and made to feel welcomed.

  • Ensure the safety of employees and customers: Always make the safety of those around you a top priority.

  • Conduct yourself professionally at all times: Never act in a way where your actions could be construed as harassment or exclusionary.

  • Be lawful and just: Always follow the rules and regulations at the local, state, and federal levels. Remain objective and fair in all business dealings.

How a code of conduct differs from a code of ethics

If a code of ethics is more of a philosophical statement, then a code of conduct spells out whether specific behaviors or actions are acceptable or not acceptable. 

Why is this necessary? After all, don't we all know right from wrong?

We'd like to think so, but sometimes the dividing line isn't quite clear. You shouldn't have to point out that "borrowing" money for personal use from company coffers without authorization is stealing.

But, ponder this question: Is it ethical for you to partner with a company in a culture where some kind of "extra payment" to a senior manager is a routine part of doing business?

In this country, we call that giving a bribe. Put that way, it's obvious (or at least it should be obvious) it is unethical behavior. In other countries and cultures, however, such payment just part of doing business. That's where a code of ethics comes in.

There can be no ambiguity about a policy that states: "We do not enter into side agreements that are not clearly stated in the contract terms. Terms and amounts of all payments are completely specified and transparent. We do not enter engage any 'off-the-book' payments under any circumstances. If a contractor, partner or customer requests such an arrangement, we will decline, even if it results ultimately in losing the business."

The code of conduct should also spell out how to report a violation of company policy or ethics as well as the consequences for not report a violation or providing false information in an attempt to conceal the violation.

Writing on LinkedIn's Pulse blog, Frank Bucaro points out that in addition to reinforcing positive behavior, a code also needs to spell out behavior that is not tolerated and must be prevented. It includes such behaviors as:

  • Taking shortcuts to attain goals that may cause adverse side effects

  • Treating people disrespectfully, or in a biased manner based on race, gender, social class, or religion

  • Incivility towards colleagues and customers

  • Use of corporate resources for personal use

Why do you need a code of ethics and a code of conduct?

Instituting both a code of ethics and a code of conduct has numerous benefits. These codes provide:

  • Consistent standards of conduct that promote teamwork, collaboration and mutual respect

  • Legal protection against actions that exploit gray areas or other ill-defined practices

  • A framework for employees to formulate decisions that align with shared values and are resolved openly, fairly and responsibly

  • Common ground to interact with customers, suppliers, partners and other stakeholders
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