What are the Benefits of Having a Code of Ethics and Conduct?

BY: ComplyLog|October 3, 2022|Ethics

What are the Benefits of Having a Code of Ethics and Conduct?

Embedding a culture of doing the right thing within an organisation is essential to flourish in the current regulatory environment. With the European Union continually adding and refining legislation to combat wrongdoing, avoiding dissuasive sanctions for breaking the law is one of the key benefits of having a code of ethics and conduct. 

However, there are many more reasons to set standards for the behaviour of your employees. As Deloitte reports“companies that embed positive ethics deep within their culture may enjoy healthy returns through employee and customer loyalty and public respect for their brand, both of which can translate into higher shareholder returns.” 

The Ethisphere Ethics Index shows that the world’s 21 most ethical companies outperformed a comparable index of large-cap companies by 7.1% in the five years to January 2021. This indicates that businesses that invest in their people, cultures and communities can turn that into tangible returns for the good of the business and its stakeholders. 

Table of Contents 

Embedding-a-culture-of-doing-the-right-thing

What is the purpose of a code of ethics and conduct?

A code of conduct and ethics provides a framework for how a company expects all of its stakeholders to act in relation to all aspects of its business activities. The code should include: 

  • The organisation’s principles
  • Its standards
  • Its expectations for the ethical and moral behaviour of everyone related to the company

Ensuring everyone understands the company’s mission and values is essential for creating a unified workforce, all collaborating in an effective, productive and ethical manner. Crystalising this in a code of ethics and conduct communicates the obligations to all relevant parties. 

Is there a difference between a code of ethics and a code of conduct?

Many people use the terms code of ethics and code of conduct interchangeably. They are broadly similar, but there are also some differences. You base both on the principles, values and mission of the organisation, but here is where they divert:

Type of code Specific role
Code of conduct Relates to the physical actions of stakeholders and their behaviours whilst at work and representing the company. The code of conduct guides employees toward following the letter of the law.
Code of ethics Relates to the mindset of employees and how that affects their decision-making to ensure the company pursues ethical routes. Ethical conduct helps an organisation follow the spirit of the law.

By combining the two into a code of ethics and conduct, you ensure that you affect both actions and intentions in a positive manner to create a robust compliance culture. 

The benefits of having a code of ethics and conduct

Builds a good reputation

Ethical principles in business are more important than ever. Customers, suppliers, shareholders and other stakeholders want organisations to go about their work in the correct manner. 

Following high-profile cases of unethical behaviour, such as the LIBOR and Enron scandals, companies are under increased scrutiny to eradicate wrongdoing and act in a trustworthy manner. 

The risks of being associated with illegal or unethical conduct are so great that showing that you are actively seeking to create an ethical business environment helps you gain a good reputation within the sector and enhance public trust in your organisation. 

Increases the attractiveness of your business

This good reputation makes ethically minded customers more likely to spend with you. As Anna-Mieke Anderson, CEO of The Greener Diamond Foundation, says in an article for Forbes

“Today’s shoppers are looking for ethical, eco-friendly brands that put people and the planet ahead of profits.” 

In addition, shareholders are more likely to want to invest in a business with a concrete policy of fairness and sustainability embedded in a code of ethics and conduct. Where a business does not have this code, it shows that there is less emphasis on doing the right thing, opening that organisation up to the risk of internal wrongdoing and the reputational damage that can follow. 

Attracts-outstanding-employees

Attracts outstanding employees

Millennials make up a major proportion of the workforce and are a generation driven by a desire for ethics and fairness in all areas of life. In employment, they want to know that their employer is committed to fairness and to creating a better working environment. 

Your code of ethics is one way to demonstrate that your company values this method of working, and, as a result, that makes it more attractive to candidates. An organisation with a strong ethical stance will have the pick of the outstanding talent on the market by offering a better quality of life than those who do not promote these principles. 

This extends to the areas of diversity and inclusion, too. If your code promotes an inclusive attitude at all levels of your organisation, you will be more likely to attract the best candidates, regardless of age, gender identity, race, sexual orientation or any other demographic. Without this commitment, you miss out on talent who feel that you will not treat them as equals because of their background. 

Proves your social conscience

Environmental, social and governance (ESG) are the key terms relating to sustainable investing in today’s market. The S of ESG, or social matters, relates to how a company looks after its people and treats its community. It is all about employee well-being and social justice. 

Your code of conduct and the way that you promote it internally and externally acts as proof of your intentions to create a fair and equitable workplace. Recent movements such as #MeToo and Black Lives Matter showed that there are still many areas of life in which there is drastic inequality. 

Organisations that refuse to challenge this and make a positive change will find that shareholders seeking responsible investments will avoid them in favour of issuers who have a proactive policy on social responsibility and other ethical principles. 

Helps disclose and manage conflicts of interest

The Market Abuse Regulation (MAR) requires people who make recommendations on investments to declare any conflicts of interest in the course of their work. 

By including this in your code of conduct, you ensure that employees understand the severity of failing to comply with the regulation and its consequences for them as individuals and for the business. 

Encourage open reporting of conflicts of interest by adding it to your code. This creates a speak-up culture that prizes such declarations. Employees are likely to be more honest, and you can deal with the issues raised before they cause problems. 

Creates standard best practices for internal behaviour

By having a centralised code of conduct, there is no room for ambiguity in how internal stakeholders perceive their obligations. You can standardise those processes and principles that are important to how your business operates internally. 

These professional standards include the onboarding process, grievance procedure, whistleblowing investigations, chain of command, job duties and other aspects of your internal processes. 

Creates standard best practices for external behaviour

Similarly, your code can set boundaries for external behaviour, such as confidentiality requirements, intellectual property protection, customer communication protocols and more. 

This ensures that employees consistently act with integrity. Not only do they maintain a compliant and equitable environment within the office, but they also adhere to this approach at all times. 

Your code should cover the behaviour of employees outside of the organisation to prevent the leaking of private information or use of protected company material and to reduce the risk of any activities that could damage the relationship between the business and its clients. 

Improves compliance

There are many regulations and directives to which you must adhere as an organisation. For compliance departments, keeping up to date with the intricacies of EU legislation is part of the job. However, for other employees, it is unlikely they will read and consume vast legal documents. 

Your code of ethics and conduct is the place to outline the important areas of compliance on which they must act. Whether it is recording all conversations relating to trades as required by the Markets in Financial Instruments Directives (MiFID II) or what to do if an employee is added to an insider list

How to promote a code of ethics and conduct

1. Clearly and thoroughly explain the employee’s obligations

Legislation can be difficult to understand for people who are not used to reading it. This is why your code should present the action points of MAR, MiFID II, the EU Whistleblowing Directive and other relevant documents, and it should present them in a clear, understandable format. 

2. Communicate the policies and guidelines to all staff

You should make your code accessible to all employees and require them to read it. This ensures they are aware of their responsibilities regarding the code and their behaviour within the organisation. 

Add the document to a shared digital workplace and ask for employees to sign a declaration that they have read and understood it. Add an overview of the code to your regular training sessions so that you keep it fresh in people’s minds. 

The code should also form part of the welcome pack for new starters. 

3. Explain the protocol for reporting questionable ethical standards

Showing that you prize high ethical standards encourages employees to report behaviour that falls short of expectations. This requires a robust whistleblowing process that meets the obligations of the EU Whistleblowing Directive. 

You must inform employees about how to make a report, the reporting channels that you use, the confidentiality with which you handle reports and how you will protect them from retaliation after they file their report if someone discovers their identity. 

Create-procedures-for-investigating

4. Create procedures for investigating allegations and imposing sanctions

You must create a policy for how the company will investigate whistleblowing reports. This should include an independent person or department who must acknowledge receipt of the report within seven days and feed back on the results of the investigation within three months. In addition, there must be punitive sanctions in place for anyone found to have acted in an unethical manner. 

FAQs

What is a good code of conduct?

A good code of conduct is written in a way that will be easily understood by your employees and clearly expresses your core values and mission. It also covers your expectations of behaviour and the ethical obligations of your workforce. 

What is an example of a code of conduct?

You can have a look at the Euronext code of conduct and ethics as an example. This code is very clear to show how much the company values ethical behaviour, beginning with details on how to report breaches of the code. Having this information so prominent reassures potential whistleblowers that the company encourages and values reports and will not discriminate against those who speak out.  

Euronext’s code of conduct and ethics clearly sets out the main risk areas relating to the business and its policies for expected employee behaviour. Not only that, but it also communicates the company’s responsibilities to its employees, showing that ethical behaviour works in both directions. 

Does a code of conduct and ethics improve accountability?

Yes, a code of conduct and ethics helps to improve accountability, but it cannot do so in isolation. It must form a part of a compliance culture where speaking up and doing the right thing is seen to be encouraged. The example must be set from the top down, and employees must see executives conduct themselves in an ethical manner if they are to believe that the organisation is serious about its ethical stance. 

Conclusion

There are so many benefits of having a code of ethics and conduct that it is essential you create one for your organisation – from improving the attractiveness of your business to investors to avoiding punitive fines from regulators, your code of ethics forms an essential part of your strategy. 

In order to further improve your compliance efforts and help your employees report unethical behaviour in the confidence they will be heard and protected, you can use IntegrityLog. This online tool processes reports in a manner compliant with GDPR and the EU Whistleblowing Directive, maintaining confidentiality and reminding investigators of upcoming deadlines. Request a free demo for your business today. 

 

References and Further Reading

 

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