105
4
CODES OF ETHICS AND CODES OF CONDUCT
What would you do?
Code Violation
After graduation, you obtain a supervisory position at a bank. Mary, one of your 12
tellers, is your best employee. She has worked at the bank for 10 years and is trusted and
admired by both coworkers and customers. Her annual performance reviews are
excellent. She shows up on time and works hard. Mary is conscientious and a good team
player, and she has a wonderful personality.
Every day, each teller is required to accurately count his or her cash drawer, report any
cash variances, and sign a balance sheet. The Cash Balancing Department is responsible
for checking the tellers’ work to make sure they balance their cash correctly and report
any irregularities. Another department reviews the tellers’ work (deposit slips, checks,
payment tickets, etc.) for transaction processing errors. Together, these two departments
verify whether any variance is a cash shortage or a transaction processing error, which is
more often the case. Slight cash variances occasionally happen. Not reporting a cash
variance and falsifying a balance sheet are grounds for immediate termination.
Under your management, Mary receives the “Teller of the Year” award for two
consecutive years. So you are shocked one morning when the Cash Balancing
Department informs you that Mary’s balanced cash drawer was short $100 and she
apparently falsified a $100 transaction to make the drawer appear balanced.
You meet with Mary as soon as she arrives at work and audit the cash drawer in her
presence prior to any transactions. The drawer is $100 short.
“I have no idea how the mistake happened,” Mary nervously says. “I’ve been up all night
trying to figure out how the error occurred. This has never happened to me before.
I can only guess that I must have given a customer $100 too much cash, but I can’t
believe a customer wouldn’t return the money, particularly since it could cost me my job.
I was hoping the customer would come back today and return the money. If that didn’t
happen, I was going to put $100 of my own money in the drawer at the end of the day.
See, I have the money right here.” Mary shows you five $20 bills. “I know this violates
our Code of Ethics about always being honest, and our Code of Conduct about reporting
shortages. But I just freaked out and didn’t report the shortage right away.”
106
PART II
Getting Everyone on Board
Mary’s record has been spotless up to this point. Your gut feeling is that she wasn’t trying
to steal money. Mary simply, and unwisely, responded to the $100 shortage by falsifying
the balance sheets. She is now a nervous wreck and you’re sure she would never do this
again. You can allow Mary
to put $100 in the drawer and declare everything legitimate.
According to bank policy, however, you must begin the termination process by informing
the bank manager. Despite Mary’s previous stellar performance, you know the
Chapter Objectives
After reading this chapter, you will be able to:
•
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
bank manager will abide by c
(Collins 105-106)
current bank policy and not make any exception to the rule. You would lose your best
teller and ruin Mary’s career in the banking industry.
What would you do? Would you
1) Tell the bank manager and pursue termination?
2) Let Mary replace the missing $100 with her own money and put Mary on notice that
the next time this happens she will be terminated?
Why?
Create and implement an effective Code of Ethics communication strategy Conduct an
annual employee assessment of the Code of Ethics
(Collins 106)
The perfect job candidate has been hired—the person is experienced, energetic, and
intelligent and has high integrity. People of high integrity, however, do not necessarily
share the same ethical viewpoints. Each person develops a unique ethical viewpoint, a
perspective shaped by parents, siblings, friends, teachers, religious leaders, political
leaders, other moral role models, and culture.
Ethical dilemmas arise because situations are ambiguous. What bothers one person’s
conscience may not bother another person’s conscience. A rule one high- integrity person
considers essential another high-integrity person might consider too rigid. Two managers
of high integrity, for instance, may disagree on the appro- priate discipline for a
subordinate’s misbehavior, such as an excellent bank teller who violated a bank’s policy.
An organization’s Code of Ethics and Code of Conduct minimize ethical am- biguities by
communicating clear ethical guidelines for employees to apply when making decisions.
These codes serve as the organization’s conscience. This chapter explains the differences
between a Code of Ethics and a Code of Conduct, summa- rizes the purpose and content
of codes, and describes how to use a Code of Ethics as an assessment tool for improving
ethical performance.
(Collins 106)
CHAPTER 4 Codes of Ethics and Codes of Conduct
Code of Ethics
107 Difference between a
and a Code of Conduct
The terms “Code of Ethics” and “Code of Conduct” are often mistakenly used
interchangeably. They are two unique documents. A Code of Ethics briefly describes
broad ethical aspirations. A Code of Conduct more exten- sively describes acceptable
behaviors for specific situations that are likely to arise.
A Code of Ethics, sometimes referred to as a Values Statement, is simi- lar to the Ten
Commandments, a few general principles to guide behavior that could fit on a business
card. The general principles embodied in a Code of Ethics—such as respecting all
owners, customers, employees, suppliers, community members, and the natural
environment—represent aspirations. These principles describe the kind of people we
want to be—someone who treats others as he or she wants to be treated. When faced with
an ethical dilemma or ambiguous situation, principles articulated in the Code of Ethics
can help guide the decision maker.
A Code of Conduct, often developed by an employee with legal exper- tise, 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. Whereas one principle in the
Code of Ethics might state that all employees will obey the law, a Code of Conduct might
list several specific laws relevant to different areas of organizational operations that
employees will obey.
The Code of Ethics of the National Association of Social Workers (NASW), for example,
lists six ethical principles to guide behavior: ser- vice, social justice, dignity and worth of
the person, importance of human relationships, integrity, and competence.1 The more
detailed NASW Code of Conduct provides specific examples, such as stating that social
workers will obtain informed consent from clients regarding the purpose of services
provided, relevant costs, and treatment alternatives. The NASW Code of Conduct also
addresses situations involving conflicts of interest, confiden- tiality, records access,
sexual relationships, sexual harassment, derogatory language, and termination of
services.
Purpose and Importance of Codes
A Code of Ethics is usually the first step in formalizing an ethics program. The extent of
an organization’s ethics program is often related to its size.2 In small organizations, the
ethics code is embodied within the owner, who serves as a very observable role model. A
formal ethics code is unnecessary because employees typically interact with one another
on a regular basis. Begin drafting a Code of Ethics when the number of employees
reaches about 10, a point when employees may not interact with one another or the owner
as much. Ethical hazards and risks increase as organizations grow in complexity. Assign
responsibility for managing organizational
(Collins 107)
ethics to a specific individual at the 50-employee level and begin developing some ethics
training sessions. Exhibit 4.1 provides guidelines for expanding ethics pro- gramming
based on employee growth.
(Collins 108)
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, as do many other organizations.3 A
2008 survey of the International Association of Administrative Professionals reported that
85 percent of respondent organizations had an official written ethics policy, although only
56 percent believed all employees knew the pol- icy existed.4
Why should an organization develop a Code of Ethics and a Code of Conduct? These
codes fulfill multiple purposes including the following:
• Demonstrate managerial concern for ethics • Convey a particular set of values and
obligations • Meet legal requirements and industry trends • Positively impact employee
behaviors
Demonstrate Managerial Concern for Ethics
First impressions matter a great deal. Discuss the organization’s Codes of Ethics and
Conduct with new employees to establish ethical expectations. Begin the meeting by
demonstrating awareness of job-related ethical issues and public perceptions about
business ethics. An array of job-related ethical issues appears in Chapters 1 and 2 and can
be found on industry websites. The Gallup Poll regularly conducts surveys on public
perceptions of honesty and ethical standards for a wide range of profes- sions and
industries. The results for 2009 appear in Exhibit 4.2.5
(Collins 108)
New employees play a pivotal role in helping an organization achieve the high- est
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, establish an expectation that new employees will behave
ethically, and highlight the importance of discussing ethical issues when they arise with
supervisory personnel.
Convey a Particular Set of Values and Obligations
Codes convey a set of values and obligations that clarify appropriate behaviors and
provide employees with clear and consistent moral guidance. For instance, assume five
potential suppliers are competing for a $75,000 contract. One potential supplier offers the
organization’s key decision maker two all-expenses-paid vouchers for a Hawaiian
vacation. Should the employee accept the gracious offer?
Factors that might influence an employee’s decision include whether such be- havior is
typical within the employee’s culture or industry, the employee’s current economic
situation, and the supplier’s likelihood of being chosen. An employee might be unaware
that accepting the offer creates an appearance that the contract decision is being
influenced by a factor not associated with performance quality, service, or price. A clearly
articulated Code of Ethics highlighting the importance of respecting
(Collins 109)
all suppliers, and a Code of Conduct stating that an employee should not accept gifts
from potential suppliers, eliminates any doubt as to the appropriate response to this
situation.
Codes of Ethics articulate and reinforce a moral consensus, rather than just one person’s
opinion, and legitimize dialogue about ethical issues when challenging situations arise.
Codes are typically welcomed and embraced by employees with strong moral identities
and convictions. The organization becomes a place where an employee’s moral identity
and job identity can exist in harmony. There are not two sets of ethics, one set of ethical
principles to be applied outside work and a different set at work. Instead, morality is
integrated throughout the daily work experience. Codes also signal that employees will
be held personally accountable for their ethical choices, and they provide an additional
safeguard against pressures from managers, peers, or external constituents to behave
unethically.
Employees need a reliable source of information to guide them when ethical is- sues
arise. From a practical perspective, a manager might not be available when an ethical
issue arises among subordinates. The previously mentioned Hawaiian vaca- tion offer
from a supplier to the organization’s buyer is likely to happen away from the office. In
addition, a peer responding immediately that a sexist comment violated the Code of
Ethics sends a much stronger message than delaying a response until the issue reaches
managerial awareness.
Meet Legal Requirements and Industry Trends
Codes are sometimes required by law. In 2002, Congress quickly passed the SarbanesOxley Act following high-profile corporate accounting scandals involving Enron,
WorldCom, Arthur Andersen, and other businesses. The legislation required all publicly
traded companies to disclose whether they had a Code of Ethics for senior fi- nancial
officers. The New York Stock Exchange (NYSE) and the National Association of
Securities Dealers Automated Quotations (NASDAQ) went one step further. To gain
renewed investor confidence in the stock market, NYSE and NASDAQ required that all
listed firms must have a Code of Ethics for directors, officers, and employees.6 Banks,
health care firms, and organizations doing business with municipal, state, and federal
governments are also required to have an ethics code.
As discussed in Chapter 2, the 1991 Federal Sentencing Guidelines provide fi- nancial
benefits to organizations that have Codes of Ethics. Organizations are held accountable
for employees breaking the law. Judges can reduce fines if an organiza- tion has
implemented a Code of Ethics.
Many industry associations and professional organizations develop codes as a selfregulating strategy that deflects government regulation. Professional codes buffer their
members from organizational, managerial, and work unit pressures to behave unethically. Lawyers, accountants, teachers, and social workers who violate their profession- al
code can lose their license. This provides an additional safeguard for professionals not to
accept an unethical directive from a company executive.
Many professional codes are available on the Internet. The Society for Human Resource
Management Code of Ethics addresses six core areas, such as professional responsibility
and development.7 The National Association of Legal Professionals lists four general
principles followed by 10 canons.8 The Chartered Property Casu- alty Underwriters
(CPCU) society provides a list of specific unethical practices that
(Collins 110)
would result in disciplinary action.9 The Pew Research Center’s Project for Excel- lence
in Journalism offers a collection of ethics guidelines developed by news organizations.10 Similarly, the Online Ethics Center for Engineering and Research provides
ethics codes for a host of engineering associations.11
Positive Impact on Employee Behaviors
Lastly, organizations implement Codes of Ethics and review them on an annual basis
because of the many positive impacts they have on employee behaviors. Researchers
report that organizations with Codes of Ethics have higher levels of employee commitment and greater tolerance for diversity.12 Employees are proud to be associated with
ethical organizations and desire to work for honest and trustworthy managers. The
relationship is reciprocal. Whereas trustworthy managers attract trustworthy employees,
trustworthy employees are recruited by trustworthy managers. Within an organization
culture of trust, employees are more likely to trust managerial deci- sions, and managers
are more likely to trust employee decisions.13 This cycle of trust contributes to higher
levels of employee morale and job satisfaction.14
Code of Ethics Content
A Code of Ethics expresses the principles that define an organization’s ideal moral
essence. Keep the language simple and avoid legalese or professional jargon. The best
codes are easy to understand and inspirational; they unite employees regardless of their
particular religion, ethnicity, gender, or geographical location.
The tone of an ethics code is very important. Providing employees with a list of
prohibitions—things they should not do—can feel oppressive rather than inspiration- al.
Make the Code of Ethics an affirmative statement of how employees should act, not how
they should not act. Declaring that employees will not lie is restrictive lan- guage,
whereas declaring that employees will always tell the truth appeals to people’s more
positive essence. The difference can have a profound effect on organizational culture. 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.
What values are stated in ethics codes? An extensive scholarly review of corpo- rate
Codes of Ethics, global Codes of Ethics, and the business ethics literature found the
following six values continually expressed:15
1. Trustworthiness 2. Respect 3. Responsibility 4. Fairness
5. Caring 6. Citizenship
Many other values can be added to this list. For instance, in addition to honesty and
respect, Microsoft’s values statement includes the following:16
• Passion for customers, partners, and technology • Willingness to take on big challenges
and see them through
(Collins 111)
• Self-critical,questioning,andcommittedtopersonalexcellenceandself-improvments
• Accountable for commitments, results, and quality to customers, shareholders, partners,
and employees
Exhibit 4.3 provides an example of a Fortune 100 corporate Code of Ethics that
highlights four guiding principles using short and concise statements.17
International Codes
We live in a highly integrated global society. Should a multinational business apply one
set of ethics in the United States and another in Italy, Russia, El Salvador, or Egypt,
nations whose cultures and laws vary significantly from those of the United States?
In the 1970s, the integrity of capitalism was called into question when a U.S. Senate
investigation found that more than 400 companies based in the United States secured
business by bribing foreign government officials. Lockheed, a leading aero- space
corporation, was among the most prominent.18 For more than 20 years, Lock- heed
corporate executives approved the payment of bribes to guarantee military aircraft
contracts, including $22 million for just one international deal. In 1977, Congress
responded to these anticompetitive practices by passing the Foreign Cor- rupt Practices
Act (FCPA), making it illegal for U.S. businesses to directly pay bribes in other nations
or through intermediaries, such as joint venture partners or agents.19 In addition, under
the FCPA, foreign corporations whose securities are listed in the United States must
maintain accounting ledgers that reflect these transactions.
Exhibit 4.3 Fortune 100 Code of Ethics
OUR VALUES
Communication
We have an obligation to communicate. Here, we take the time to talk with one another . .
. and to listen. We believe that information is meant to move and that information moves
people.
Respect
We treat others as we would like to be treated ourselves. We do not tolerate abu- sive or
disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here.
Integrity
We work with customers and prospects openly, honestly, and sincerely. When we say we
will do something, we will do it; when we say we cannot or will not do something, then
we won’t do it.
Excellence
We are satisfied with nothing less than the very best in everything we do. We will
continue to raise the bar for everyone. The great fun here will be for all of us to discover
just how good we can really be.
(Collins 112)
The FCPA differentiates bribery from facilitating payments. A bribe is typically defined
as providing someone with a monetary incentive or object of value to do something
contrary to his or her job description. Facilitating payments, which are legal, expedite
performance of “routine governmental action,” such as obtaining permits, processing
governmental papers, loading and unloading cargo, and scheduling in- spections to transit
goods across borders. Facilitating payments do not include being awarded new business
or continuing business with a particular government official.
Some businesses headquartered in the United States argued that the FCPA puts them at a
competitive disadvantage because businesses headquartered in other na- tions continue to
pay bribes as a cost of doing business. As a result, the U.S. govern- ment pressured other
nations to adopt similar anti-bribery legislation. In 1999, the Organization for Economic
Co-operation and Development (OECD), representing 30 developed nations, ratified the
Anti-Bribery Convention, which requires mem- ber nations to enact legislation
criminalizing the payment of bribes in developing nations. These guidelines were
modified in 2009 to ensure that member nations adopted the best practices for making
companies liable for foreign bribes.20 A grow- ing number of non-OECD members have
signed this agreement, including Brazil, Estonia, Israel, and South Africa.
Some business executives maintain that it is inappropriate and arrogant for the United
States to impose its moral values on other nations. “When in Rome, do as the Romans” is
their preferred guideline. This philosophy fosters adopting the lower ethical business
standards found in many undeveloped nations, which solidifies cor- ruption and political
oppression in the host nation.
But that is not how U.S. law operates. American businesses are obligated to obey both
U.S. laws and host nation laws, with the higher ethical standard taking pre- cedence. If
those in “Rome” pay bribes to obtain business or regulatory approval, American
managers conducting business as those in Rome do will likely end up in a U.S. jail.
Attempts have been made to create a level moral playing field worldwide through an
International Code of Ethics, in which principles such as integrity and honesty are
adopted by all organizations conducting business, independent of locale. The Caux
Round Table, an international network of business leaders from a variety of nations and
cultures, spearheaded a collaborative effort to develop the Caux Principles for
Responsible Business for conducting business worldwide. The result of their collaborative efforts appears in Exhibit 4.4.21
Exhibit 4.4 Caux Principles for Responsible Business
Principle 1: Respect Stakeholders Beyond Shareholders
• A responsible business acknowledges it
(Collins 113)
The FCPA differentiates bribery from facilitating payments. A bribe is typically defined
as providing someone with a monetary incentive or object of value to do something
contrary to his or her job description. Facilitating payments, which are legal, expedite
performance of “routine governmental action,” such as obtaining permits, processing
governmental papers, loading and unloading cargo, and scheduling in- spections to transit
goods across borders. Facilitating payments do not include being awarded new business
or continuing business with a particular government official.
Some businesses headquartered in the United States argued that the FCPA puts them at a
competitive disadvantage because businesses headquartered in other na- tions continue to
pay bribes as a cost of doing business. As a result, the U.S. govern- ment pressured other
nations to adopt similar anti-bribery legislation. In 1999, the Organization for Economic
Co-operation and Development (OECD), representing 30 developed nations, ratified the
Anti-Bribery Convention, which requires mem- ber nations to enact legislation
criminalizing the payment of bribes in developing nations. These guidelines were
modified in 2009 to ensure that member nations adopted the best practices for making
companies liable for foreign bribes.20 A grow- ing number of non-OECD members have
signed this agreement, including Brazil, Estonia, Israel, and South Africa.
Some business executives maintain that it is inappropriate and arrogant for the United
States to impose its moral values on other nations. “When in Rome, do as the Romans” is
their preferred guideline. This philosophy fosters adopting the lower ethical business
standards found in many undeveloped nations, which solidifies cor- ruption and political
oppression in the host nation.
But that is not how U.S. law operates. American businesses are obligated to obey both
U.S. laws and host nation laws, with the higher ethical standard taking pre- cedence. If
those in “Rome” pay bribes to obtain business or regulatory approval, American
