Does Your Business Need a Code of Ethics or Conduct?

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

While related, these two documents have different takes on ethical employee behavior. Some companies combine them into a single document because there’s significant overlap. However, for clarity, we’ll examine each code individually.

Code of ethics

A code of ethics outlines the company’s overarching ethical principles and values. It does the following:

• Promotes high standards against which employees can evaluate themselves
• Broadly defines professional expectations and enhances your brand
• Communicates how the company will act in its dealings

In essence, a corporate ethics code reflects your core values. It contains broad statements that demonstrate your company’s commitment to the following:

• Protection of intellectual property
• Diversity, equity and inclusion
• Promotion of good community relationships
• Cultural competence, including respect for cultural differences and how to respond when customs and laws in other countries conflict with your standards and expectations
• Environmental responsibilities and actions
• Workplace safety practices
• Financial and accounting maintenance and reporting practices
• Employee compensation standards
• Regulatory and legal compliance
• Professional standards and expectations

Examples of directives in a code of ethics

• Your code of ethics should include easy-to-interpret language with clear parameters on what employees should do to remain ethical at work. Here are a few examples of directives that may appear in your code of ethics:
• Be inclusive. Foster an environment where all employees from all backgrounds are supported and made to feel welcomed.
• Ensure the safety of employees and customers. Always make the safety of those around you a top priority.
• Conduct yourself professionally at all times. Never act in a way that could be construed as harassment or exclusionary.
• Be lawful and just. Always follow local, state, and federal rules and regulations. Remain objective and fair in all business dealings.

Code of conduct

A code of conduct is a list of company rules. While an ethics code is a philosophical statement that provides decision-making guidance, a code of conduct defines specific required and prohibited behaviors.

Code of conduct topics might include the following:

• Professionalism standards (e.g., punctuality rules, dress code guidelines, absenteeism repercussions and attendance policies)
• Courtesy toward co-workers, customers and vendors
• Protection of financial, physical, intellectual and digital company assets
• Anti-bribery and corruption
• Harassment — including sexual harassment — dating co-workers, and harassment based on race, ethnicity, or disability
• Substance abuse and use
• Conflicts of interest (e.g., fiduciary responsibilities, running for public office and investing in competing companies)
• Adherence to regulatory and legal requirements

A conduct code must reinforce positive behavior expectations and spell out unacceptable behavior within each category. A separate section should explain how to report code violations — and the consequences of not reporting violations or providing false information to conceal a violation.

Examples of guidelines a code of conduct should include

Your code of conduct allows you to be specific about what you expect from employees daily. Here are a few examples of guidelines that may appear in your code of conduct:

• Protection of company property. All employees are expected to treat company property with care and respect, whether tangible or intangible. This includes refraining from misusing company equipment, using it frivolously or using it for personal purposes. Employees are expected to respect the company’s intellectual property. They should protect confidential information — such as proprietary processes, pricing and cost — from disclosure unless specifically authorized by a supervisor.
• Employees should follow their work schedules and arrive on time. The company offers flexible schedules upon manager approval — so long as the total hours worked each day equal at least 8.5. Vacation and flextime must be approved by your supervisor at least 30 days beforehand. Any unapproved absences will result in salary being docked in the daily amount.
• Employees should be friendly and collaborate well with others. They should not undermine, sabotage, or otherwise disrupt or create obstacles to their colleagues’ work.

Does your business need a code of ethics and a code of conduct?

Some business owners may feel they don’t need a code of ethics nor a code of conduct. After all, isn’t knowing right from wrong intrinsic? Perhaps. However, people and situations can be complex, and formal guidance can be valuable.

Gonzalo Guillen, CEO of HR Exchange, says codes of conduct and ethics are crucial because they help create a strong organizational culture. “Codes of conduct and ethics are essential for fostering trust and guiding behavior throughout a business,” Guillen explained. “Whether for new or established companies, these codes are vital in setting clear expectations and ensuring consistent decision-making at every level.”

Here are a few reasons why your business might need a code of ethics and a code of conduct.

1. A code of ethics and a code of conduct can clarify murky situations.

You shouldn’t have to point out that “borrowing” money for personal use from company coffers without authorization is stealing. However, the line between right and wrong can sometimes be unclear.

Consider the following: Is it ethical to partner with a company that thinks an “extra payment” to a senior manager is a routine part of doing business?

In the U.S., we consider this a bribe and an example of unethical behavior. However, in other countries and cultures, such payment is part of doing business. That’s where a code of ethics comes in.

There can be no ambiguity about a policy that states: “We do not enter into side agreements that are not clearly stated in the contract terms. Terms and amounts of all payments are completely specified and transparent. We do not engage in any ‘off-the-book’ payments under any circumstances. If a contractor, partner or customer requests such an arrangement, we will decline, even if it ultimately results in losing the business.”

2. A code of ethics and a code of conduct can establish standard policies across locations.

Most large corporations have both a code of ethics and a code of conduct and may combine them into one governing document. This guidance sets a consistent standard of employee behavior throughout multiple departments that cross national and international boundaries.

Even if your company is small now, it may grow and open new business locations. Ethical and conduct codes will establish consistent standards throughout the organization.

3. A code of ethics and a code of conduct help define company culture.

According to Guillen, codes of ethics and conduct are crucial to defining a company’s culture. “They not only define the principles that shape a company’s actions but also reinforce the integrity and accountability necessary for long-term success,” Guillen noted.

The culture you create for your business impacts employees, customers and the bottom line — for good or ill. Culture encompasses “the way we do things here.”

A positive and strong company culture encourages the following:

• Feelings of cohesion and trust among co-workers and management
• Fairness and consistency in how employees are treated
• Valuing and caring about employees, customers, vendors and the community
• Acting in an ethical, considerate and professional manner
• Creativity and team innovation
• Responsibility and adherence to laws, regulations, and social norms of behavior

When you set out your values and expectations in codes of ethics and conduct, you make them clear to current and prospective employees. Also conveyed is an understanding that deviating from these standards will not be tolerated.

4. A code of ethics and a code of conduct set standards for employee behavior.

Having ethical and conduct information in writing — and communicating it clearly to your employees — ensures that the standards will be applied consistently and fairly. For example, if it’s unacceptable for lower-level sales team members to lie on sales reports, it is equally unacceptable for the vice president of sales to fudge the numbers when reporting to the CEO.

5. A code of ethics and a code of conduct improve the work environment.

When employees know how they’re expected to treat one another — and the consequences for acting contrary to the code of conduct — they will strive to comply. Promoting values like collaboration, mutual respect, courtesy and communication creates a good work atmosphere that leads to success. A positive work environment will improve job satisfaction and reduce employee turnover.

6. A code of ethics and a code of conduct serve as marketing tools.

Once you’ve established a code of ethics, you can use it externally as a marketing tool. Publish it on your website’s About page, write a blog post about it and include it in product packages.

Seeing that your company is concerned with being ethical makes customers feel more comfortable doing business with you. Additionally, many potential customers and partners prefer to do business with those who share similar values.

7. A code of ethics and a code of conduct offer protection from legal or regulatory enforcement.

Having and disseminating codes of ethics and conduct won’t guarantee that your company will never get into trouble with the government or regulatory agencies. However, it will drastically reduce such risks.

These documents will clarify to employees how they should act in certain ambiguous situations and reduce the likelihood of making poor snap judgments.

8. A code of ethics and a code of conduct attract quality talent.

In the hiring process, you seek the absolute best possible candidates for the open position. A public code of ethics helps job candidates determine if they want to work for your company. When their values align with yours, you’ll find yourself with new hires who fit the company culture and have an excellent chance for success.

How do you create a code of ethics or a code of conduct?

Like writing a mission statement, creating a code of ethics or a code of conduct involves deep consideration of your values and how you want others to view your organization. Here are some tips for creating a code of ethics and a code of conduct.

Creating a code of ethics

A code of ethics is a more general document, so consider writing that one first. Here’s how to do it:

1. List your top 10 values.

These values may depend on your priorities and business type. For example, Amazon’s top priorities are compliance with laws, rules and regulations, and avoiding conflicts of interest. But for Ford Motor Company, quality and safety for customers and employees are top priorities.

Focus on the following areas:

• How employees should act toward each other (e.g., no workplace bullying)
• How employees should act toward customers
• How employees should act in regard to producing, managing, marketing, and selling the company’s product or service
• How employees should treat the company itself
• How employees should treat vendors and other stakeholders
• How employees should act in regard to the community and environment

2. Get feedback from others.

Talk to your management team and employees to discover their priorities.

• Ask them what they think you should include in your code of ethics to create a positive workplace.
• Discuss what kind of workplace culture they would ideally like to have and whether or not your current culture is living up to their expectations.
• Share your list of top values and solicit their opinions. They may think of principles you hadn’t considered before.

You can add to, subtract from or otherwise modify your code of ethics draft as you receive employee feedback. Having a code of ethics that your employees accept is essential because it will make them more likely to implement it in their behavior.

3. Prioritize your values.

Once you have a complete list of the values you want your company to embody, work to prioritize them. Which are the most important?

Some values may be important in general but not when applied to your specific industry and company. For example, it’s wonderful to be safe. Safety should be a top priority for a manufacturing or food service company, but it isn’t really a relevant value for a resume-writing business. Likewise, collaboration may be necessary for a consulting company but not as critical for a dry cleaner.

After this exercise, you can focus on the most critical values that should be included in your code of ethics.

Creating a code of conduct

Everything in your code of conduct should spring from the values laid out in your code of ethics. Like your code of ethics, employee and stakeholder input is key. “Codes of conduct should be developed in participation with employees, sustained by C-suite leaders and revisited over time as the firm’s mission changes,” explained Robert Bird, professor of business law and ethics at the University of Connecticut.

Follow these steps to create your code of conduct document.

1. Examine each value in your code of ethics and create corresponding conduct guidance.

For each value in your code of ethics, identify specific employee behaviors that put the value into action. Depending on each value, some of these behaviors will be in relation to co-workers, customers, the work itself and the company. They may also pertain to vendors, stakeholders, and the community and environment.

For example, the value of collaboration relates mainly to how employees act with each other. For that value, your code of conduct may include the following:

• Break down silos. While each department has its function, we’re all part of the same team — working toward a common goal. Cooperate and communicate with people in other departments.
• Work together. We get more done when we work together. Help colleagues, be friendly and collaborate with others.
• Don’t obstruct. Do not disrupt the workplace or make it more difficult for co-workers to accomplish their goals. Persistent disruption will result in disciplinary action.

2. Decide how employees should report violations.

Let’s say a co-worker is harassing an employee, and the code of conduct prohibits harassment. How should this employee report this violation? Should the employee report the incident to the department head, their immediate supervisor or the human resources department? Who will write up the employee who committed the violation?

The reporting protocol should be clear in the code of conduct. Specify the procedure in a section of your code of conduct.

3. Communicate the disciplinary process.

Rules are useless unless they’re enforced. A section of your code of conduct must inform employees about your disciplinary action policy. This shows employees that you’re serious about enforcing these rules and that the company will fairly evaluate any accusations to protect employees from being falsely accused.

4. Ensure everyone knows, understands and abides by the code of conduct.

According to Bird, codes of conduct can be a powerful tool for building a culture of integrity. However, all employees, executives, managers and stakeholders must be held accountable. “Codes of conduct cannot simply be ignored once its principles become financially inconvenient,” Bird cautioned. “Once employees believe that the company code of conduct is not authentic, employees will ignore the code and not trust future initiatives by company leaders to embed values in the organization.”

Ensure that all organization members understand the conduct code’s crucial role as a fundamental tool to protect a company’s values and operations. Commitment at every level is essential for maintaining a culture of integrity and accountability.

Formalize your core values

Having a code of ethics and a code of conduct will standardize your core values, ensure employees are on the same page, and improve your workplace environment. As your company grows, it will act as a tool to attract top talent and clearly communicate the company’s expectations and culture.