Codes of Ethics and Codes of Conduct Chapter Four Codes of Ethics and Codes of Conduct Visit http://wileymanagementupdates.com/ for the latest in business news stories. Copyright © 2012 John Wiley & Sons

Understand the difference between a Code of Ethics and a Code of Conduct Explain the importance of code awareness and expectations Describe the content found in most Codes of Ethics and Codes of Conduct Create and implement an effective Code of Ethics communication strategy Conduct an annual employee assessment of the Code of Ethics Chapter 4 Learning Objectives Chapter 4: Collins, Business Ethics

Difference Between a Code of Ethics and a Code of Conduct A Code of Ethics briefly describes broad ethical aspirations It is sometimes referred to as a Values Statement It has a few general principles to guide behavior that could fit on a business card These principles describe the kind of people we want to be The general principles embodied in a Code of Ethics represent aspirations When faced with an ethical dilemma or ambiguous situation, principles articulated in the Code of Ethics can help guide the decision maker Chapter 4: Collins, Business Ethics

Difference Between a Code of Ethics and a Code of Conduct A Code of Conduct more extensively describes acceptable behaviors for specific situations that are likely to arise It is often developed by an employee with legal expertise, provides substance to the Code of Ethics and is usually several pages long A Code of Conduct applies the Code of Ethics to a host of relevant situations Chapter 4: Collins, Business Ethics

Purpose and Importance of Codes The extent of an organization’s ethics program is often related to its size In the 1960s, only 15 percent of surveyed companies had a Code of Ethics Now, nearly all Fortune 1000 companies have a Code of Ethics Begin drafting a Code of ethics when the number of employees reaches about 10 Assign responsibility for managing organizational ethics to a specific individual at the 50-employee level and begin developing some ethics training Chapter 4: Collins, Business Ethics

Exhibit 4.1 Ethics Program Growth and Organizational Size Insert Exhibit 4.1 Chapter 4: Collins, Business Ethics

Purpose and Importance of Codes Demonstrate Managerial Concern for Ethics Discuss the organization’s Codes of Ethics and Conduct with new employees to establish ethical expectations New employees play a pivotal role in helping an organization achieve the highest standards for honesty and ethical behaviors By discussing the organization’s Code of Ethics and Conduct, managers demonstrate concern that ethical issues will be appropriately addressed Chapter 4: Collins, Business Ethics

Purpose and Importance of Codes Convey a Particular Set of Values and Obligations Codes of Ethics clarifies appropriate behaviors and provides employees with clear and consistent moral guidance It articulates and reinforce a moral consensus It legitimizes dialogue about ethical issues when challenging situations arise Employees need a reliable source of information to guide them when ethical issues arise Chapter 4: Collins, Business Ethics

Purpose and Importance of Codes Meet Legal Requirements and Industry Trends The Sarbanes-Oxley Act: required all publicly traded companies to disclose whether they had a Code of Ethics for senior financial officers Many industry associations and professional organizations develop codes as a self-regulating strategy that deflects government regulation Banks, health care firms, and organizations doing business with municipal, state, and federal governments are required to have an ethics code Lawyers, accountants, teachers, and social workers who violate their professional code can lose their license Chapter 4: Collins, Business Ethics

Purpose and Importance of Codes Positive impact on employee behaviors: Researchers report that organizations with Codes of Ethics have higher levels of employee commitment and greater tolerance for diversity Within an organization culture of trust, employees are more likely to trust managerial decisions, and managers are more likely to trust employee decisions Chapter 4: Collins, Business Ethics

Code of Ethics Content Providing employees with a list of prohibitions—things they should not do—can feel oppressive Make the Code of Ethics an affirmative statement of how employees should act It’s similar to the difference between a coach telling an athlete not to play badly versus a coach telling an athlete she is playing well and can do even better Chapter 4: Collins, Business Ethics

Code of Ethics Content An extensive scholarly review of corporate Codes of Ethics, global Codes of Ethics, and business ethics literature found the following six values continually expressed: Trustworthiness Respect Responsibility Fairness Caring Citizenship Chapter 4: Collins, Business Ethics

International Codes The Foreign Corrupt Practices Act (FCPA) makes it illegal for U.S. businesses to directly pay bribes in other nations The FCPA differentiates bribery from facilitating payments A bribe is typically defined as providing someone with a monetary incentive to do something contrary to his or her job description Facilitating payments, which are legal, expedite performance of “routine governmental action” Some businesses headquartered in the U.S. argued that the FCPA puts them at competitive disadvantage because businesses headquartered in other nations continue to pay bribes as a cost of doing business Chapter 4: Collins, Business Ethics

Code of Ethics Content American businesses are obligated to obey both U.S. laws and host nation laws, with the higher ethical standards taking precedence The Caux Round Table spearheaded a collaborative effort to develop the Caux Principles for Responsible Business Chapter 4: Collins, Business Ethics

Exhibit 4.4a Caux Principles for Responsible Business Insert Exhibit 4.4 Chapter 4: Collins, Business Ethics

Exhibit 4.4b Caux Principles for Responsible Business Insert Exhibit 4.4 Chapter 4: Collins, Business Ethics

Creating a Code of Ethics Following are 13 steps for creating a Code of Ethics as a team-building exercise: Step 1-Obtain approval Step 2-Create a code-writing team Step 3-Gather list of ethical issues from relevant stakeholders Step 4-Define a “Code of Ethics” Step 5-Gather a list of ethical behaviors from participants An ethics code serves as a constant reminder, particularly when the owner is not present Chapter 4: Collins, Business Ethics

Code of Ethics Content Step 6-Determine common themes Step 7-Draft a Code of Ethics Step 8-Compare to other codes and modify Step 9-Compare to other groups Step 10-Code alignment Step 11-Code review Step 12-Code communication strategy Step 13-Code revision Chapter 4: Collins, Business Ethics

Connecting Code of Ethics to Strategic Planning Strategic planning integrates an organization’s mission with its vision and provides clear direction on how the organization will progress from its current situation to a highly desired future situation Connecting the code to an organization’s mission and vision, rather than keeping it separate, establishes credibility and visibility for the Code of Ethics Mission statements describe what an organization does and for whom Vision statements describe what an organization aspires to become in the future Strategic plans are communication devices Chapter 4: Collins, Business Ethics

Exhibit 4.5: Crafting a Cause-Based Strategic Message Jim Armstrong’s 10-step process for developing a cause-based communication strategy Insert Exhibit 4.4 Chapter 4: Collins, Business Ethics

Code of Conduct Content A Code of Conduct addresses the wide range of legal expectations and ethical risks unique to an organization or job title Creating a Code of Conduct requires input from top-level executives, corporate lawyers, and human resource personnel Chapter 4: Collins, Business Ethics

Code of Ethics Content The New York Stock Exchange recommends that a Code of Conduct address the following seven topics: Conflicts of Interest Corporate Opportunities Confidentiality Fair Dealing Protection and Proper Use of Assets Compliance with Laws, Rules, and Regulations Encouraging the Reporting of Any Illegal or Unethical Behavior Develop different Codes of Conduct for different business units, work functions, or stakeholders as an organization grows in complexity Revise the Code of Conduct when new issues arise Chapter 4: Collins, Business Ethics

Code of Ethics Content Codes of Conduct are based on shifting moral expectations and legal obligations New technologies create new ethical dilemmas requiring new ethical guidelines Insert Exhibit 4.7 Chapter 4: Collins, Business Ethics

Code of Conduct Relevancy Business Gratuity A business gratuity is a present, gift, hospitality, or favor for which fair market value is not paid by the recipient A fine line exists between a business gratuity and a bribe The general guideline for when a gratuity evolves into a bribe is when the object of value unduly influences buying decisions Instructing buyers not to accept gratuities from suppliers, and then encouraging salespeople to offer gratuities to customers, sends mixed messages that damage managerial credibility Organizations need consistent policies to avoid the negative impacts of employees claiming hypocrisy Chapter 4: Collins, Business Ethics

Code of Conduct Relevancy Email A 2009 survey reported that approximately half of all organizations monitor email use Clearly note in the Code of Conduct that the employer’s right to monitor email communications on company-owned computers and network systems supersedes employee privacy rights A 2007 survey conducted by the American Management Association found that 28 percent of the organizations had terminated an employee for inappropriate email use Chapter 4: Collins, Business Ethics

Code of Conduct Relevancy Association of Consulting Engineers Australia Code of Conduct Policy Insert Exhibit 4.8 Chapter 4: Collins, Business Ethics

Implementing an Effective Code Communication Strategy Ethical hypocrisy, the gap between an organization’s formal ethical proclamations and its actual behavior, damages employee morale Researchers report that people working for a supervisor who encouraged employees to lie about delivery information to clients had less job and organizational satisfaction Chapter 4: Collins, Business Ethics

Implementing an Effective Code Communication Strategy Elements of an Effective Code Communication Strategy: Connect the code to the organization’s strategy Mention the Code of Ethics in job announcements Introduce the code during employee orientation Annually distribute the Code of Ethics with a letter signed by a high-level executive emphasizing the importance of applying the code on a daily basis Chapter 4: Collins, Business Ethics

Implementing an Effective Code Communication Strategy Elements (cont.) Display the Code of Ethics in newsletters, highly traveled areas, and on stationary and websites Discuss the code during ethics training workshops Mention the Code of Ethics in correspondences with suppliers and customers Evaluate employees on code adherence in performance appraisals Link code adherence to promotions and merit raises Annually assess how well the organization embodies the code Employees are more likely to report a code violation if others in the organization disapprove of the violation, they do not fear retribution for reporting, or the person committing the violation has been given a previous warning Codes are particularly essential during periods of market and organizational turbulence Turbulence creates uncertainty and employees can shift into a survival of the fittest mindset Chapter 4: Collins, Business Ethics

Annual Code of Ethics Assessment Insert Exhibit 4.9 Chapter 4: Collins, Business Ethics