Most organizations have a code of conduct, which is a statement of the organization’s values, and standards for proper behavior that coincides with those values. In recent years, an increasing number of organizations began to adopt codes of conduct, after the Sarbanes-Oxley Act was passed in 2002 and the NYSE and NASDAQ made them a requirement for public listing. Codes of conduct identify and proscribe behavior that may expose the organization to legal liability and also define and promote other ethical principles important to the organization. By outlining specific bounds of acceptable conduct, and providing guidance on how to address ethical issues that are likely to arise, a code of conduct makes ethical and legal principles more concrete for those it governs. Here are ten tips for developing an effective code of conduct.
1.Establish a team of drafters and identify the person who will oversee compliance.
A code of conduct is often drafted by in-house counsel with input from a multi-disciplinary team that includes senior management and representatives from human resources, communications, safety, marketing and other relevant departments of the organization. Outside counsel may also be involved. Using a team that represents the different components of the organization will ensure that the code responds to necessary risk areas and accounts for differences across the organization’s departments. In addition, identify someone to oversee compliance with the code once it is finalized and implemented.
2.Include appropriate topics.
Reference to other companies’ codes of conduct may be a good starting point, but your code of conduct should be tailored to your organization’s industry, culture and values. While it should be developed to match the needs and situation of your organization, certain topics must almost always be included, such as rules governing accuracy of business records, antitrust, bribery, confidentiality, conflicts of interest, discrimination and harassment, fraud and misrepresentation, insider trading, proper use of company assets, records retention and compliance with other laws that apply to your organization. A variety of other topics are often addressed as well, such as guidelines related to reporting violations of the code, workplace safety, workplace violence, crisis management, alcohol and drug abuse, political involvement, privacy and security, relationship with the community and respect for diversity. In addition, most codes begin with a declaration of the organization’s mission and values, and also include a statement from senior managements that establishes and reinforces the importance of the document and the organization’s commitment to it.
3.Write for your reader.
A code of conduct will only make an impact if the standards of behavior are effectively communicated to your organization’s members. Accordingly, the code should be clear and understandable to every employee at every level. Use simple and concise language, and avoid unnecessary legal jargon. In addition, the code should be tailored to your organization’s industry, culture and values. Consider that if outside counsel participate in the drafting process, they are less likely to be completely familiar with the company’s culture and particular pressures that may exist within it, so revisions or suggestions from within the organization may be necessary. Also, you may need to translate the code into other languages if your organization operates outside of the United States, but be aware that a literal translation may not capture local nuances and cultural differences.
Rather than simply including conceptual ethical principles, identify and address specific situations that employees are likely to encounter in their daily work. Providing examples of appropriate behavior as well as violations of the code will make your organization’s code of conduct more concrete, and easier to understand and remember. Examples can be tailored to your organization’s industry and, as discussed below, should be reinforced in subsequent training programs. Finally, provide a listing of additional resources and make it clear who should be contacted with questions or concerns.
4. Include avenues to report violations and seek guidance.
An avenue to report violations of the code is an important ingredient to its success. Include information in the code about how to report suspected violations and seek additional guidance on how the code applies. There are a variety of possibilities, such as an anonymous hotline, email address, website or suggestion box. Encourage the use of these reporting mechanisms by providing members with the assurance that they will be protected and will not be retaliated against for reporting a violation.
5.Make the code available to everyone.
The code of conduct should be distributed to all members of the organization. It can be disseminated as a print document or in an electronic format, such as an online posting. Putting it online provides the advantage of making it easily accessible to everyone, while allowing an organization to efficiently make changes or revisions without reprinting paper versions. No matter how the code is disseminated, however, require employees to acknowledge they received it and have reviewed and understand its contents. Note that simply distributing and requiring an acknowledgement of receipt is not enough to ensure that employees actually understand how the code applies, however. As discussed below, the use of a training program is an important way to educate the members of your organization about the contents of the code and to reinforce its standards.
6.Establish a commitment to ethics at the highest level of the organization.
When the code is complete, announce its existence to the organization. Make it clear that senior management, like everyone else, is governed by the code and will be held to the same high standards as all other members of the organization. Setting an example at the top will encourage integrity and give the code further credibility. Placing a copy of the code on the organization’s website, which makes the organization’s commitment public, is another way to reinforce its importance.
7.Adopt a training program.
Simply requiring employees to acknowledge receiving and reading the code is not enough to ensure that they understand it and will remember its contents. A well-designed training program is an important tool to help explain its contents while emphasizing its importance. A well-designed training program gives members of an organization the opportunity to practice applying the principles and guidelines to specific, real life situations they may encounter in their work.
There are a variety of options available for training, including the use of live instructors, videos, quizzes and online programs. What is appropriate for your organization may depend on a variety of factors, including its size and industry. No matter what approach is used, an effective training program should explain the code and its value, provide examples of how it applies to specific job responsibilities, include the opportunity to practice applying its principles, feature information about what to do when there are questions or when someone suspects a code violation, and test knowledge of this information.
The enforcement of a code is essential to its credibility, as members of your organization are less likely to pay attention to the code if no disciplinary action is taken when it is violated. Use reporting mechanisms that allow members to alert the organization to violations, and if a violation occurs, make consistent use of reasonable sanctions. The discipline should be appropriate to the violation and surrounding circumstances. Finally, make sure that the discipline is consistent across the board and is based on the nature of the offense rather than the position or status of the individual who committed the violation.
9.Check to see if it is working.
An organization should use monitoring and regular audits to determine whether the code is having its intended effect. These tools can be part of a program to find out if employees are complying with the code. They can also determine the effectiveness of the disciplinary scheme and the reporting mechanisms that have been created. No matter how well the code is drafted, there is likely to be room for improvement. Staying on top of what works and what doesn’t will allow your organization to improve the code and ensure that it continues to fit its needs.
10. Revise and update.
A code must be updated to address changing laws and regulations, as well as business and industry changes. A code that becomes outdated will quickly lose its importance and relevance, so revisions and updates should be made on a regular basis. Revisions and updates are a chance to improve the code and should incorporate information gained from audits, which establish the aspects of the code that are working and those that aren’t. In addition, over time, the organization may find itself confronting new ethical issues, which should be incorporated into the code along with strategies for dealing with them.