Corporate Governance (Code of Ethics)

 

• A code of ethics is not the same as a code of conduct and must not be referenced interchangeably with a code of conduct; a code of ethics should assist in enabling employees to make positive and beneficial decisions about themselves and the enterprise, hopefully involving to some extent the aspirational values of the enterprise promulgated in the code of ethics, rather than being merely about behavioral situations, which are better-left to the code of conduct; although a code of conduct may be derived from a code of ethics (whereas a code of ethics will never be derived from a code of conduct), and the two codes may function together simultaneously within the enterprise (covering different situations), and may sometimes even be combined together into a single document (such as a “code of conduct and ethics”, or the like), the code of ethics is more of an aspirational document, whereas the code of conduct is more of a practical document.

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• The code of ethics aims to address the decision-making processes of employees in situations involving what might be considered important moral dilemmas, whereas the code of conduct is intended to address certain behaviors of employees in response to less-important day-to-day situations; at a minimum, every business entity should have a code of conduct, but it would be far more prudent for every business entity to have both a code of conduct and a code of ethics.

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• Solving a situation covered by a code of conduct may require only a very simple, yes-or-no, black-or-white decision, whereas solving a situation covered by a code of ethics may require many shades of grey to arrive at an extremely-nuanced decision.

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• Thus, no matter how clear and detailed the language in any code of ethics may be, it is only the result of words on paper (or these days, a bytes of data on an HTML page) strung together into some hopefully coherent exhortation, by an author who may or may not necessarily believe in the power of that exhortation; attempting to teach behavior and conduct may be successful in many cases, but attempting to teach ethics is rarely successful; so the noble aspirations embodied in any code of ethics will only ever resonate with those people who may already have some well-developed sensitivity for common sense and basic morality.

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• The general concept of “ethics” may have three (3) basic components: values – meaning the importance a culture may assign to a concept, such as the importance of working to keep yourself free; ideals – examples of perfection, for which we should always strive to achieve, but which we will probably never fully attain, such as “knowledge”, “truth”, “patience”; ethical principles – various combinations of values and ideals that have developed over the millennia into universal standard frameworks for problem-solving, to be used as subconscious guidance for overcoming the vicissitudes of daily life.

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• This interrelationship of concepts, if expressed in the format of a mathematical equation might be: values + ideals = ethical principles.

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• Ethical principles in modern life are the foundations for different levels business governance, such as for: codes – idealized aspirational guidelines applicable to various industries, operations and professions, which are not mandatory, but do provide valuable practical information; policies – more-structured than codes, and generally applicable within business environments, when approved formally, pursuant to whatever protocols may govern the particular business environment; laws, regulations, rules, statutes and the like – formal, mandatory requirements, enacted by governmental entities, applicable under pain of civil or criminal prosecution and penalties to whatever entities may be specified therein – most-commonly used to regulate business activities, such as the Sarbanes-Oxley (SOx) Act, which mandates that certain types and sizes of enterprises must promulgate codes of conduct (but does not require such enterprises to promulgate codes of ethics).

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• Authoring a code of ethics for the enterprise may have various theoretical benefits, such as: creating a general framework for positive attitudes towards fellow employees and the work of the enterprise; defining the intellectual and social culture of the enterprise; generating more opportunities for self-analysis and introspection among employees when making decisions; increasing brand awareness in the local community and global community due to the enthusiasm of those associated with or within the enterprise; outlining acceptable and non-acceptable employee thought patterns that may be applicable to behaviors in various situations; promoting higher moral standards within the enterprise than might be probable without such a code of ethics.

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• The most-common ethics-related company ethical principles provisions in modern enterprise codes of ethics may be those regarding: accountability; being decisive; collaboration; conflicts of interest; continuous improvement; criminal acts (such as: bribery; corruption; deference to all people; embezzlement; theft; violence; and the like); customer support excellence; diversity; honesty; inclusion; innovation; integrity; non-discrimination; employee treatment; fair wages; having a positive impact; inter-employee relationships; persistence; self-improvement; sexual harassment; teamwork; transparency; trust; whistleblower treatment; willingness to learn.

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• A code of ethics for a socially-responsible enterprise would promote core values defined subjectively by the Board of Directors and senior management, that would include not only standard core ethical values espoused by other enterprises, but also many unique social values not included in other types of businesses, such as: avoidance of conflicts of interest; commitment to diversity; compliance with all applicable laws (as in a code of conduct); confidentiality when appropriate; consideration for all viewpoints; developing cooperative and positive local and global community relations; ensuring safety for consumers and employees in the products and services produced by the enterprise as well as in all work areas; fair compensation; fostering a culture of inclusivity; freedom of employee expression (generally in the social responsibility context of activities such as charitable giving, community improvement, environmental cleanup, and the like); freedom of employee speech (generally in the political context); honest treatment of all those in business relationships with the enterprise; integrity in all situations; projecting a demeanor of civility and respect towards all; promotion of beneficial local and global community relationships; protection of intellectual property (IP); protection and restoration of the environment; reporting all violations of the ethics to the proper external or internal authorities; respecting cultural differences; respect for privacy; responsible money management; responsiveness; safety in methods, products, processes and operations of the enterprise; social responsibility; sustainability; transparency in all required reporting; trustworthiness.

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• When commencing the task of authoring a code of ethics, some of the practical considerations might be to: reflect on the format you envision for the code, the goals you want to compile, and the scope of the research you want to perform; create a committee or “task force” if necessary, to canvass external subject matter experts (SMEs) as well as people of all ranks internally, for ideas and suggestions; seek approval from the Board of Directors and senior management at critical steps (such as the first draft, comments, second draft, and the like, until the final draft is ready for dissemination to all stakeholders); employ simple, clear, plain English, rather than legalese; be prepared to constantly revise and update the code as new issues arise.

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• A code may include as many sections as may be appropriate for the particular enterprise, but at a minimum, there should be sections such as: title (both formal and informal), version number, date and any other identification attributes; a management letter from the Chairman of the Board, CEO, President and any other relevant officials, expressing their unqualified approval of the code and signed by all; a table of contents; introduction and prologue; enumeration of all the company core values included in the code; identification and location for supplemental materials (including but not limited to treatises on ethics, morality and philosophy) that employees may freely-access in order to broaden their knowledge of the issues contained in the code; sections on conflict of interest, use of enterprise assets, relevant human resources (HR) and intellectual property (IP) policies, all corporate policies, and the like; and importantly, a detailed section about punishments for any violations of the code, as well as sections on how to report all violations of the code, whether by anonymous hotline, email, phone call, text.

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• A simple but effective visual format to employ when defining core principles is to have core principle act as the title of its own section, by first stating thecore principle in bold, skip a line, then state briefly the intent of that core principle, skip a line, and then proceed with text explaining whatever you may feel is important to understand the core principle.

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• Depending on the size of the enterprise, an NR professional could be given the responsibility for being the ethics officer for the enterprise, to whom employees could address ethics questions whether directly by call, email or text, or anonymously through the ethics hotline; the ethics officer would also be tasked with providing ethics seminars and training as required.

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• Two very useful tools for constantly improving an enterprise code of ethics (and the enterprise itself) may be: a positive feedback loop (PFL) – which is an internal enterprise protocol, using emails, meetings or the implementation of an employee engagement software platform (software that allows employees to provide feedback on issues within the enterprise, take surveys, plan seminars and the like) to allow employees to provide feedback on the code of ethics implementation; and, a negative feedback loop (NFL) – which is an external enterprise protocol, using emails or the implementation of a software comments and rating platform to allow customers to provide feedback on the code of ethics implementation, or the products and services of the enterprise, or anything on which they may choose to comment; of course, both such loops become moot if management does not act on all the constructive criticism and suggestions from both as soon as practicable.

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• Compiling, drafting and negotiating codes of ethics and all code of ethics-related documents, and ethics training.

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