Does your business need a code of ethics, a code of conduct or both? What's the difference? Learn more about both.
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.
Related Article: Truth and Transparency: The Importance of Ethics in Finance
Code of Ethics
A code of ethics accomplishes the following, according to Ethics Web:
- Defines acceptable behaviors
- Promotes high standards of practice
- Provides a self-evaluation benchmark
- Establishes a framework for professional responsibilities
- 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 an 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.”
Related Article: 6 Lessons in Corporate Ethics from the GM Recall
Code of Conduct
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 Codes of Both Ethics and 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
- Framework for employees to formulate decisions that align with shared values and are resolved openly, fairly and responsibly
- Enhanced brand image that distinguishes the company as trustworthy, ethical, fair and open in company dealings with employees and customers
- Common ground to interact with customers, suppliers, partners and other stakeholders