Every month seems to bring news of another scandal involving unethical behavior on behalf of businesses. Earlier this year, 14 people associated with the Fédération Internationale de Football Association, or FIFA, were indicted on charges of wire fraud, racketeering and money laundering. In late May, five major banks pleaded guilty to fraud and antitrust-related charges. And every football fan is familiar with the “deflate gate” scandal. These crimes and others underscore the necessity for businesses to have a strong corporate code of conduct.
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What is a Code of Conduct?
A code of conduct is a document that details a business’s mission, operating principles, and values. Sometimes known as a code of ethics, the code of conduct is meant to be the company’s guiding star that helps employees perform their jobs in an ethical manner that reflects well on the business as a whole. Codes of conduct aren’t new. Johnson & Johnson’s Credo, for example, dates back to before World War II. But codes have become increasing common in recent years. The Sarbanes-Oxley Act of 2002, for example, requires publicly traded companies disclose whether they have a code of conduct for top executives, and if companies don’t have they one must explain why. The New York Stock Exchange (NYSE) and NASDAQ also require companies traded on their exchanges to have a code of business conduct and ethics for all employees.
Importance of Implementation
It’s not simply enough to have a code of conduct. The values and behaviors it espouses must become part of the corporate culture. In fact, US Sentencing Commission says the presence of a corporate code of ethics and related compliance programs should be a mitigating factor when an organization has been convicted of a crime. However, companies must:
“[P]romote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. Such compliance and ethics program shall be reasonably designed, implemented, and enforced so that the program is generally effective in preventing and detecting criminal conduct. The failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.”
The Commission also says that ethics and compliance codes:
- Must be regularly communicated to employees
- The company must take steps to ensure it’s followed
- There should be incentives to encourage employees to follow the code
Writing Your Company’s Code of Conduct
Creating a code of conduct is an art. The writer must have a deep understanding of the code’s goals and objectives. The code must clearly communicate the company’s core values, and be written in concise but complete manner, free of jargon and legalese that could confuse employees. It should provide examples of ethical and unethical behavior, and provide additional resources for workers who need more information.
Measuring the Effectiveness of Your Company’s Code of Ethics
Writing a corporate code of conduct is the (relatively) easy part: Communicating it to your employees in a way that enables them to absorb the message can be much more difficult. In addition to sharing it with all employees and posting it prominently through your business’s facilities, get creative and find ways to discuss it in engaging ways. Some organizations screen movies that present ethical dilemma, such as A Few Good Men or Jaws, and then lead group discussions among employees. Others roleplay at corporate retreats. In the 1990s, Lockheed Martin created an ethics board game – The Ethics Challenge – using characters from the comic strip Dilbert.
Once your business has started to implement its code of conduct and educate employees, you should also try to measure the program’s effectiveness. Consider using employee surveys, one-on-one and group interviews, job satisfaction and exit surveys, and even independent audits. If your company has an ethics hotline, you should also regularly monitor certain the number of calls received, the types of issues raised, and whether callers tried unsuccessfully to resolve the issue before calling the hotline. There’s no single snapshot that will tell you whether the company’s conduct code is working, but collectively this feedback will give you a good idea of its effectiveness.
For Help Creating & Implementing Codes of Conduct
If your business, large or small, is creating its first code of conduct or needs help when revising a code, contact the corporate and employment lawyers at Waltz, Palmer & Dawson, LLC at (847) 253-8800. We can guide your company through the process of creating and implementing an effective code of conduct, and help ensure that it meets the standards established by Sarbanes-Oxley, the stock exchanges, the US Sentencing Commission and other relevant bodies.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
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