Why Code of Ethics is important

The rise in environmental concerns, workplace issues and an interconnected global business environment have created the need to establish boundaries around how we interact with each other. The multicultural environment in which business operates today is not only complex but is fraught with legal, social and moral differences which must be considered when conducting day-to-day operations. A corporate code of ethics and program is one way to connect the dots.

The Code of Ethics is a formal document that outlines the organization’s principles and values, and guides behaviors as well as decision making for staff at all levels of the company. Unlike Corporate Codes of Ethics of the past, a new generation of codes is emerging that goes beyond revenue and addresses the connectedness of our workplace as well as the roles and responsibilities of stakeholders. It is a document that must become so imbued into the fabric of the organization that it is lived out in daily business interactions and business processes.Along with the corporate code of ethics, organizations must insure there is a clear and formal process for questioning decisions. As Human Resources professionals, we should question the ethics of using the economy and the need to downsize as an excuse to get rid of poor performers rather than going through the performance management/coaching and counseling process. We should wave the red flag at massive bonuses for executives of struggling organizations.

We should challenge actions that may impede our organization’s success and reputation in the marketplace. We need to examine internal controls that are in place to ensure that the values of the organization are known and acted upon. If there are no controls in place, we should collaborate with other functional departments to develop control.

These are issues that speak to the implementation and incorporation of a code of ethics and establish its values-based drivers. This process must also include methods for employees to evaluate decisions and raise ethical concerns. The process must be transparent and ensure employees are free from fear of reprisal.

Many companies realize the importance of code of ethics development and work to create codes of ethics accordingly. The purpose of code of ethics development and subsequent ethics training is to first define a company’s ethical stances on topics like material sourcing, conflict resolution and legal compliance, and then to ensure that every member of the company understands the ethics code.

The benefits of having a code of ethics include protecting employees’ rights, avoiding legal challenges and developing a positive public image of the company.

It Protects Employees’ Rights

A primary purpose of code of ethics training is to ensure that managers understand employees’ legal rights and that employees know how to advocate for themselves in situations like:

• Pay disputes
• Discrimination
• Sexual harassment 
• Disparate treatment 
• Resolving conflicts
• Pursuing promotions 

Following an ethical code regarding employee treatment can protect employees from being exploited and mistreated in other ways. Educating employees about their rights and how to advocate for themselves is another one of the benefits of having a code of ethics, as empowering employees to be their own advocates will serve them throughout the rest of their careers.

Ethics Make Difficult Choices Easier

For a supervisor or company leader, the day-to-day decisions that come with managing people and operating a business are not always easy. One purpose of code of ethics development is making these decisions easier by creating guidelines leaders can follow when making these decisions.

For example, a clothing company might be faced with the ethical dilemma of whether to end its relationship with a manufacturer found to be using child labor and engaging in exploitative business practices. Although changing manufacturers would increase the company’s costs and eat into its profits, the right choice is clear when it is written into a company’s code of ethics.

Similarly, having a well-developed code of ethics can make it easier for company leaders to develop an effective code of conduct for employees. A code of conduct is not the same as a code of ethics. While a code of ethics states the company’s broad positions, a code of conduct is an explicit set of instructions that team members are expected to follow while employed by the company. Generally, the code of conduct is written using the positions outlined in the code of ethics, and its instructions are developed to enable employees to easily follow the company’s code of ethics.

Consumers and the Importance of a Code of Ethics

Another one of the most important benefits of having a code of ethics is creating a positive public image. Consumers pay close attention to companies’ actions, particularly those involving ethical decisions. Typically, consumers like supporting companies they perceive to be ethical and will pay more to buy products and services from these companies.

It Can Prevent Lawsuits and Legal Challenges

The importance of code of ethics development is immediately apparent when other companies in the same industry face lawsuits for ethical and legal violations. By developing a strong code of ethics and prioritizing its tenets in every business decision, a company’s leaders can potentially save the company millions of dollars in the legal fees and fines that can accompany an allegation of wrongdoing.

Preventing lawsuits is closely tied with another purpose of code of ethics creation: maintaining a positive relationship with the public. News of ethical violations reaches social media and other public outlets quickly, and even a seemingly minor infraction can have a devastating effect on the public’s perception of a brand. By committing itself to the importance of its code of ethics in every action it takes, a company can insulate itself against all the consequences of negative publicity.