The company’s code of ethics outlines its core values that the organization adheres to in its business operations.
It deep dives into the principles that guide their actions and touches upon issues such as harassment, safety, and conflicts of interest. This code is often considered an ethical code of conduct.
Honesty and integrity are the foundation stones for professionals to excel in their business. However, there is a general tendency to consider them impractical. Business leaders often face this question throughout their lives and struggle with decisions where they need to decide whether they should follow or compromise on their code of ethics.
Let’s turn back the pages of time and explore the history of the code of ethics.
History of Code of Ethics
When we try to trace back the origins of ethics in business, it can be dated back to the early days of the barter system which was based on the principle of equivalent exchange.
Although the definition of ethics in business can be subjective, a huge number of philosophers have examined this topic. The modern-day concept of business ethics can be traced back to the activist groups opposed to big businesses in the 1970s. The activists stated that big businesses and mega corporations, in their thirst for profits, paid little or no heed to the ethical questions surrounding their businesses.
This opposition was mirrored in Europe and Japan in the 1980s however it did not translate very easily and the development varied from country to country due to the social, political, and economic differences. In other words, the birth of code of ethics could be termed as a result the activism.
As the time passed, businesses began to define their code of ethics in order to express that they were responsible in their business activities. On a worldwide level, ethics became associated with the UN Global Compact initiated in 1999 but officially launched in July 2000.
Understanding the code of ethics in a practical sense
A code of ethics is a guiding principle that helps professionals conduct business with honesty and integrity. Also known as an “Ethical Code”, it encompasses areas like business ethics, a code of professional practice and an employee code of conduct.
It is similar to a code of conduct which establishes behavioral expectations that the organization has from its employees and third parties.
We can look at it as a high-level overview of the principles and values that the organization wants from those who act on its behalf to uphold while doing business.
Many companies combine the Code of ethics with their code of conduct into an ultimate code while others choose to keep them separate.
Are laws and ethics the same?
Laws are a set of rules and regulations enforced by the government or authorities while ethics are morals and principles adapted by society from the environment. Failure to follow laws can result in penalties and punishment while ethics do not attract penalties and punishment.
While many laws are in place to set the basic ethical standards within the business community, it largely depends on a company’s leadership to develop and uphold a strong code of ethics.
What is the purpose of code of ethics?
Having an ethical code in place is essential as it outlines the guiding principles that employees must hold up every day.
It serves as a permanent reminder of the company values which the employees as well as the leadership have to acknowledge that they will abide by.
In case of a violation, it triggers a range of consequences including a warning, a review by the ethics committee, or termination, depending on the severity of the infraction.
The purpose of a code of ethics is to keep those informed that are acting on behalf of the organization, and how they should conduct themselves.
A code of ethics reiterates the organization’s values and morals so that employees and third parties understand the standards they are accountable.
Types of Codes of Ethics
The code of ethics can take different forms; however, the goal is that the employees follow an ideal and abide by the law, ensuring that the business that is being conducted is beneficial for all the stakeholders.
Compliance Based Code of Ethics
There are certain codes of ethics that businesses must adhere to as stipulated by the governing or oversight bodies (Law).
In some industries, like banking, specific laws govern business conduct. These industries formulate a compliance-based code of ethics to enforce laws and regulations.
Employees usually go through a formal training to learn the rules of conduct. The company as a whole can face legal issues if an employee fails to follow the guidelines.
For example, the guidelines that guide how companies should hire their employees, employee compensation, safety and health standards, among others are compliance-based code of ethics.
To make sure that the principles of the ethical code are being followed, some companies even appoint a compliance officer. Alternatively, it is the HR that acts as a compliance officer in most of the companies.
This type of code of ethics is based on hard and fast rules and well-defined consequences rather than individual monitoring of personal behavior.
Value Based Code of Ethics
Every company has its core values that are aligned with its vision and mission. The core values can be different for different companies even if they are in the same industry.
Value based code of ethics addresses the value system of the company.
It requires a greater degree of self-regulation than compliance-based codes of ethics.
Some codes of conduct are structured in ways that address both compliance and values.
Code of Ethics among professionals
Professions like financial advisors, lawyers, estate managers, broker-dealers and others have codes of ethics that guide the way they conduct their business activities.
Unlike compliance-based and value-based ethical codes, the code of ethics among professionals is considered a legal requirement and also a code of loyalty that requires them to act in the best interests of their clients.
Professionals are expected to follow ethical standards such as integrity, objectivity, truthfulness, and are to avoid conflicts of interest.
The National Human Rights Commission of India (NHRC) has outlined the details of code of ethics in an Indian context. The twelve points listed are as follows
- Inclusive Business
- Accountable Business
- Transparent Business Standards
- Commitment to Professed Quality and Representation Accuracy
- Fair Competition
- Equal opportunities employer
- Upholding of Employee Human Rights
- Health, Safety, and the Environment
- Corporate Citizenship
- Stakeholder Representation
- Business Association’ and ‘Conflict of interest’
Code of Ethics and the UN Global Compact
As all the Ethical codes are in place to ensure that the business practices are aligned with the law and are confined within the law to avoid fraudulent practices, there is a bigger body that regulates and keeps the codes of ethics in check. It is called UN Global Compact.
All business organizations ensure that their ethical codes are aligned with the ten principles of the UN Global Compact.
The pact states:
“Corporate sustainability starts with a company’s value system and a principles-based approach to doing business. This means operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labor, environment and anti-corruption. Responsible businesses enact the same values and principles wherever they have a presence, and know that good practices in one area do not offset harm in another. By incorporating the Ten Principles of the UN Global Compact into strategies, policies and procedures, and establishing a culture of integrity, companies are not only upholding their basic responsibilities to people and planet, but also setting the stage for long-term success.”
The 10 principles of the UN Global Compact are as follows:
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labor;
Principle 5: the effective abolition of child labor; and
Principle 6: the elimination of discrimination in respect of employment and occupation.
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly technologies.
Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.
HR and Code of Ethics
As the responsibility of upholding the company’s ethical codes and the code of conduct falls on the shoulders of all employees it is primarily HR’s job to make sure that all the employees in the organization understand the code of ethics and conduct.
HRs should also make sure that the consequences are communicated clearly if an employee fails to follow the ethical codes.
Some companies do appoint a compliance officer whose job is to make sure that the code of ethics is being followed in the organization, however, it all begins with HR.
The business drafts a code of ethics and it is molded to the specific industry at hand, requiring all employees of that business to adhere to the code.
From the industrial times to the modern era, the moral choices of business have seen a significant change. In today’s world, the working conditions, how businesses impact the environment, and how they deal with inequality are all aspects that society deems important which perhaps a century ago was not the case. Ethical codes are in place to ensure that businesses always act with integrity.
The better an organization follows its code of ethics, the more respected it would be, attracting like-minded talent that gives importance to ethics and winning trust from customers.
The HR department plays a critical role in implementing the code of ethics at levels of an organization. Having the right systems in place to ensure compliance helps in negating potential problems when it comes to ethics.
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