Ethical Code of Conduct: Why You Need One, and What it Should Cover

Some business leaders may think that “it goes without saying” that employees should act in an ethical manner, and make every decision with integrity. Unfortunately, countless cases of fraud and other ethical misdeeds have shown that this isn’t always the case. To make matters worse, employees who have been caught up in unethical situations have sometimes claimed that while they knew their behavior was wrong, they thought it was implicitly accepted by their bosses and, in some cases, their company on the whole.

The lesson at the heart of this ethical dilemma is that in business, nothing simply "goes without saying." Otherwise, there would be no need for contracts, partner agreements … even job descriptions. This is why business leaders must look at an ethical code of conduct as an extension of their contract with each employee. It spells out in no uncertain terms what is expected of them in terms of ethical behavior. And, even more importantly, an effective ethical code of conduct communicates the company’s position that behavior outside of those norms will not be tolerated.

Covering all your bases
There are several things to consider when creating an ethical code of conduct. First of all, think about your industry or main focus of business. What are the risks inherent in your organization? A construction firm will have some different risk areas than a retail store, for example. The construction industry must be vigilant in preventing and detecting unethical behavior in the bidding process, and contracting with third-party partners, among other issues. A retail setting provides opportunities for asset misappropriation (goods disappearing from the warehouse, for example) or employees mishandling cash from customer payments. 

In all cases, the goal of the company is to ensure that employees act in a legal and ethical manner at all times. We suggest your ethical code of conduct include the following focal points:

Business values
Your mission and vision serve as a starting point for defining your business values. Often they include aspirational messages like “striving to provide the best customer service” or “always leading with integrity,” etc. This tone should extend to how the company interacts with employees, suppliers, customers and other stakeholders (such as volunteers, if applicable). In the code of conduct, it should be explained that the company conducts business with fairness, honesty and integrity.

Guiding principles
The principles that guide your company likely include customer satisfaction, financial success and profitability, improvement and growth. Your company might also follow policies of corporate responsibility, such as respect for social and environmental issues, and support of the community and/or nonprofit efforts. These should be described and documented in the ethical code of conduct. They set a positive example for employees and help position the company as an ethical leader.

Role of leadership
Defining where company leaders fit in the company’s ethical standards serves two goals: 1) it shows the commitment that the company has toward maintaining an ethical footing, and 2) it is a way to communicate that there will be consequences when employees run afoul of the code. This section of the code of conduct should state that management has clearly endorsed the code, and that employees can approach any manager or executive with ethical concerns or complaints. Furthermore, it should express that company leaders are authorized and prepared to act when unethical behavior is detected.

Regulatory and compliance
This is the opportunity to communicate the organization’s commitment to meeting all compliance requirements, from OSHA and EPA to Sarbanes-Oxley and Dodd-Frank. By explicitly defining the importance of maintaining (and exceeding) such standards, leadership makes it implicitly clear that employees are expected to act diligently and ethically to uphold those standards, as well.

Employee responsibility
Last but not least, the ethical code of conduct should make a point to explain every employee’s personal responsibility toward upholding the ethical standard defined in the code. This should extend to contractors and volunteers, as well. Part of this agreement means reporting violations. The code should make clear that if unethical behavior is detected, turning a blind eye or deciding “it’s not my problem” is unacceptable. That, in itself, is a breach of the ethical code. Unethical behavior, including fraud and other malfeasance, is everyone’s problem, and it must be prevented, detected and reduced.

After the ethical code of conduct is approved by company leadership, it should be read and signed by all employees (with the signed copies kept on file by the organization). And it should be displayed prominently in the office.