The Importance of the Code of Conduct

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Codes of conduct have been part of American business culture since the World War II era. Johnson & Johnson was an early adapter, publishing a company creed in 1943 that supported corporate responsibility. Today a code of conduct is an organization's pledge to conduct itself in a reputable, trustworthy fashion. Legislation and the need for accountability across international borders gives the code of conduct added importance.

Behavior Road Map

An organization’s code of conduct, or code of ethics, outlines the standards of behavior for employees, vendors and the management team. This performance framework defines acceptable and unacceptable actions in a variety of situations with the intent of maintaining the organization's integrity and legal compliance. Ideally it removes doubt that might cloud employee and executive judgement concerning topics that include:

  • Business and personal use of the organization's property
  • Record keeping and disposal
  • Conflicts of interest
  • Information security
  • Gifts, entertainment and meals
  • Electronic files, email and Internet
  • Harassment
  • Financial integrity, and
  • Political contributions

The existence of a code of conduct does not prevent fraud. However, without a specific policy for job performance, employees might be more apt to act in ways that tarnish the company's reputation and legal standing, according to Inside Indiana Business.

Tip

  • A survey performed by LRN, a global ethics consulting firm, showed that 82 percent of employees apply their company's code of conduct on the job and 63 percent believe it "helped alter behavior or direct decisions."

Evaluation Tool

No company can afford to inherit ethical problems when merging with or acquiring another firm. A code of conduct can be the first pre-acquisition investigative point a corporate buyer uses to evaluate the risk potential of a target company. Other stakeholders turn to the code of conduct to gather information about an organization. For example, prospective employees, vendors and suppliers can look at the code of conduct to learn company expectations for their partners and workforce and to decide if it's an organization with which they want to associate. Communities and industry watchers such as labor unions can judge an organization's commitment to issues that concern them such as political relations and conservation by reviewing the code of ethics points on those issues. Investors and employees can evaluate management’s decision-making and values by comparing their actions to the code of conduct.

Legal Mandate

Since February 2003, public companies in the U.S. must abide by the code of ethics rules set forth by the Securities and Exchange Commission for compliance with the Sarbanes-Oxley Act of 2002. The law requires each to publish a code of ethics for its chief and financial executives on its website and in its annual report. NASDAQ and the New York Stock Exchange expanded this requirement for listed firms to include a code of conduct for the board of directors and entire workforce, while the Federal Sentencing Guidelines for Organizations issued by the U.S. Sentencing Commission in 1991 requires businesses to train employees on the code of conduct.

Public Trust

Codes of conduct are not exclusive to businesses. Many agencies within the federal government have a code of conduct to instill public trust. The U.S. Office of Government Ethics has its Standards of Ethical Conduct for Employees of the Executive Branch, while the U.S. Department of the Interior has an Ethics Guide for DOI Employees. The U.S. Department of Justice's Do It Right ethics program covers 14 principles ranging from outside employment to procurement.

Professional associations, particularly those that issue certifications, also use a code of conduct to instill integrity among members and promote respect and trust with the audiences they serve. For example, the American Dental Association, the National Society of Professional Engineers and the American Bar Association have rules for professional conduct against which a member can be held accountable.

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