What Are The Differences Between A Code Of Conduct And A Code Of Ethics?

BY: ComplyLog|December 20, 2022|Ethics

A Code Of Conduct And A Code Of Ethics

In terms of corporate compliance, it is common for companies to have both a code of conduct and a code of ethics. Sometimes the terms are used interchangeably, but they are, in fact, separate documents. This article explores the differences between a code of conduct and a code of ethics and informs you as to the importance of both. 

The compliance landscape is continually shifting due to authorities such as the European Union tackling wrongdoing across sectors. So, you have to be able to show all stakeholders, from customers to shareholders and employees, that you are serious about creating the right company culture

For example, fines for breaching the EU’s General Data Protection Regulation (GDPR) reached almost €100 million in the first half of 2022, a 92% year-on-year increase. This shows the union is serious about ensuring compliance by businesses across member states. 

Implementing both a code of conduct and a code of ethics are effective ways of fostering compliance and showing that you are taking the right steps to comply with EU law. 

What-is-a-code-of-conduct

What is a code of conduct?

The company code of conduct is a document that sets out requirements relating to the behaviour and interactions of employees, directors and other internal stakeholders of a company. 

This includes those actions that stakeholders must take in relation to their roles and relevant legislation in the sector. It also includes information on expectations for interactions with clients and other external parties when representing the business.

In addition, you might include details of how to actively avoid discrimination in the workplace by following specific interview procedures, dress code requirements, reporting procedures for whistleblowers and other practical information that dictates the actions expected of employees within the business. The code provides a definition of what integrity looks like in that organisation, allowing individuals to model their behaviour on its contents. 

Businesses generally include the code of conduct in the employee handbook and provide access to it via a shared workspace on the company network. 

What is a code of ethics? 

The code of ethics is designed to provide guidance on how employees should approach decision-making so that it aligns with the company’s mission and values. In turn, this promotes the requirement to conduct duties in a manner that promotes honesty and integrity, meeting professional standards in that field. 

In the code, you might find details of how the company approaches issues that are important to it and its targets, goals and values. This might include sustainability, for example, guiding stakeholders to consider how to work in a manner that is conducive to green principles. Another element of the code of ethics might be the requirement to approach challenges without bias.

Your code of ethics should promote self-awareness in employees, giving them the building blocks to allow them to make ethical decisions. It should also be accessible in a shared workspace for easy reference. 

Focus

What are the differences between a code of conduct and a code of ethics? 

Focus

The code of conduct focuses on compliance with legislation that affects the company and rules for fostering a compliant and professional workplace.

For example, it would set out the specific rules relating to insider dealing. This means explaining the procedure required for entering details on an insider list and for keeping that information private. This is practical guidance for employees on specific subject areas. 

Your code of ethics relates less to the specifics of a certain piece of legislation and more to the values and principles of the business. It would instruct employees to consider the ethics of their choices in all areas of work, including not using the knowledge they require at work to gain an unfair advantage over other market participants. This document concentrates on embedding fairness and equality into the actions of employees. 

Scope

The scope of a code of conduct is always very specific. It relates to actions that the company deems appropriate in particular real-life situations in which an employee of the business might find themselves during the course of their work. 

This could include laying out the obligations surrounding the company dress code. The code of conduct would include details of what it is and isn’t acceptable to wear when representing the business. 

The equivalent in the code of ethics would feature a much wider scope. Rather than going into detail about the actual items of clothing deemed acceptable, the code of ethics might set out an expectation that employees must approach all aspects of their job with professionalism. It does not specifically mention the dress code, but it guides workers to consider what constitutes professionalism when they make decisions related to their work, including what to wear. 

Enforceability

Your code of conduct relates to legal compliance requirements placed on your organisation in the jurisdictions in which it operates. This means that it is easy to enforce the terms of the code of conduct. If employees break the law, by retaliating against a whistleblower for example, the company is within its right to take punitive action against them. 

When it comes to the terms of a code of ethics, however, it is less clear-cut. Ethical behaviour by employees is obviously preferable for companies, but it is less easy to enforce. If a staff member is caught lying, in many cases, this does not constitute breaking the law, as distasteful as it might be. As such, the company might not be able to take any specific action against the employee. It could affect their probationary period or future promotion prospects, but it would be difficult to dismiss them over the code of ethics unless they also committed a crime by telling that lie. 

What the code of ethics does do, though, is show authorities that the company has done what it can to promote and guide ethical behaviour, creating the right kind of culture. In the event of non-compliance, this might be used to try and mitigate a fine imposed on the company. 

Impact

The impact of a code of conduct is likely to be a decrease in people contravening rules put in place to prevent the company from meeting compliance requirements. 

The impact of a code of ethics is generally related to promoting a positive culture where people make decisions based on ethical principles. This, in turn, can also lead to a more compliant company with less misconduct. 

Comparison chart: code of ethics vs code of conduct 

Element Code of conduct Code of ethics
Description A document that details specific rules that employees must abide by in order to ensure that the company remains compliant. A document detailing the company’s values and ideals, which employees are expected to adopt and implement when carrying out their work
Type of code Informational, based around specific actions General, based around ethical concerns
Scope of code Narrow scope with focus on identified regulatory risks Wide scope, relating to ethical concerns that affect the entire working life
Document length Shorter, detailing key values and purpose Longer, detailing multiple compliance concerns
Disclosure More likely to be for employees only Public disclosure showing ethical endeavours
Focus Rules and relevant compliance risks  Values of employees and behaviour

FAQ

Can I combine my company’s code of conduct and code of ethics?

Many companies do combine their codes of conduct and ethics into one document, as this makes it easier for employees to read and digest the information without the confusion of having two separate policies to recall. These two documents complement each other, which means that it makes sense for some companies to publish them together. One example is Euronext.

How are the code of ethics and code of conduct similar?

Codes of ethics and conduct are aimed at similar audiences in terms of those who are required to act on the content within. This is generally internal stakeholders, such as employees and leadership figures. Both documents also relate to behaviour, albeit from different angles. 

Do-Small-Business-Need-These-Two-Documents

Do small businesses need these two documents?

Businesses of all sizes require codes of conduct and ethics, as they are effective ways of guiding employee behaviour in a compliant and ethical direction. Even if your risk level is low, it is a good idea to set out your expectations, however many staff you have, so that business is carried out in the right manner. 

Conclusion

There are many differences between a code of conduct and a code of ethics, and it is important to cover both in your communications with internal stakeholders. Laying out the specific compliance risks along with the values by which you require your employees to live when they are at work creates the sort of company culture to ensure your business stays on the right track. 

To help employees exercise their commitment to a speak-up culture, IntegrityLog provides a GDPR-compliant reporting channel for whistleblowers that allows you to investigate wrongdoing and unethical behaviour in the workplace. Request a demo of IntegrityLog right now to find out how it can help your business. 

 

References and Further Reading

 

 

Popular posts

Insider list management

Market Abuse Regulation (MAR) Explained

Whistleblowing

4 Interesting Examples Of Whistleblowing In The Workplace

Insider list management

The 7 Behaviours That Qualify As Market Abuse – Part 1

Whistleblowing

How To Encourage Whistleblowing (And Why It’s Key For Compliance)

Insider list management

Market Abuse Penalties Under MAR + 5 Case Studies