Code of Ethics

Published August 9, 2013 by Mayrbear's Lair

codeofethics

The world marketplace continues to expand at alarming speeds because of innovations in technology, transportation, and communication.  As a result, international borders have disappeared and a global sociopolitical economy has emerged where businesses now compete on a worldwide level.  This new environment permeates across boundaries where diverse cultures, values, regulations, and ethical standards exist.  Leaders have been forced to adopt and learn new ways of conducting business in order to maintain their share of the marketplace in this increasingly competitive, and, in extreme cases, hostile climate.  In order to gain the trust and support of stakeholders and prove that organizations and their leaders are engaged in ethical conduct, many organizations implement ethics programs and include a Code of Conduct Statement to represent their standards for ethical and moral behavior.  The focus of this research examines the components required for the development of a Code of Ethics doctrine that outlines the standards for ethical and moral conduct. To help develop and shape the doctrine’s framework, this research takes a closer examination of the fundamentals required including the following mechanisms: (a) a statement of values and principles; (b) a set of rules that frame the parameters of ethical performance; (c) training, communication, and implementation strategies; (c) the role of leadership; (d) corporate social issues; (e) laws and regulations that impact the organization; (f) oversight and enforcement strategies; (g) ethics auditing programs; and (h) considerations for globalization.  The findings of this research will conclude that although limitations and poorly designed codes of conduct encourage unintended outcomes, a company’s Code of Ethics represents an organization’s standards for ethical behavior and moral conduct because when significant disagreements emerge, these statements can achieve a measure of consensus; clarify standards which may otherwise be construed as vague expectations; and provide a clearly defined set of guidelines that represent a company’s values, principles, and aspirations.

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Statement of Values

A corporate Code of Ethics doctrine communicates the standards for ethical behavior in a business environment.  Ethics is a common way to determine what it means to be an upstanding citizen and is utilized as an effective tool for guiding the decision making process.  Ethics outlines the nature and basis of morality where moral judgments, standards, and rules of conduct are identified.  Business ethics, on the other hand, consists of the core values, ideals, and standards that guide behavior and define an organization’s specific principles.  These principles are usually conveyed in the corporation’s mission statement and Code of Ethics doctrines.  The policies in these documents outline pervasive behavioral boundaries and establish a guideline that identifies rules and regulations that the organization embraces as all-encompassing and absolute.  For example, Ross (2007) cited that Chinese factories where low-wage labor force conditions exist and staffers are subjected to eleven-hour work days, twenty-seven out of thirty days a month, could use a Code of Ethics doctrine to create better working conditions.  These conditions exist because: (a) factory leaders justify their ethical misconduct as a solution to satisfy the demands of the expanding global market and (b) there are no policies or regulations in place to deter this behavior (Ross, 2007).  Without clearly defined codes of conduct or regulations to prevent ethical misconduct and corporate abuse, factory bosses will continue to operate prioritizing profits over the well-being of the stakeholders that support them.

At the core, the ethics code must reflect the moral values and the underlying principles of the industry with honesty and integrity as well as address the significant ethical issues leaders face in today’s business culture.  These include: (a) protecting the environment, (b) avoiding fraud and ethical misconduct, (c) prohibiting financial corruption, (d) addressing the manufacturing of harmful products that puts the public at risk, (e) eliminating sexual harassment and discrimination, and (f) protection from piracy.

To develop an effective Code of Ethics, the first step is to begin devising a statement of values that includes the non-negotiable principles of the organization.  Fisher (2013) contends that leaders should design codes of conduct with the following objectives: (a) to express best ethical practices, (b) to articulate a specific value system that concisely delineates both decisional and behavioral rules, (c) to apply ethical conduct through leadership, (d) the requirement of staff participation, and (e) to accept and guide ethical behavior with incentives that motivate staff members (Fisher, 2013).  For example, companies like Ben & Jerry’s and Patagonia have established environmental sustainability as a positive core value and have committed their organizations to operate in an environmentally friendly manner.  Other companies, however, are driven by negative core values that focus on profit and self-interest only, like the tobacco companies that misled their consumers about the hazards of smoking.  A Code of Ethics doctrine should be influenced by the owner’s core values.  These principles could include: dependability, loyalty, commitment, open-mindedness, consistency, honesty, efficiency, creativity, humor, motivation, innovation, positive attitude, optimism, passionate, respectful, courageous, educated, endurance, empathy, and having fun.  These fundamental concepts can play a significant role to help shape a mission statement and a Code of Ethics doctrine.

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Training and Communication

Limitations and poorly written codes of conduct can present unintended consequences.  In the business world, ethics is an ambiguous concept that many leaders believe is a highly technical discipline to interpret and most feel unqualified addressing the subject.  In fact, Freeman and Wicks (2010) suggest that many top level managers suffer from moral muteness.  In short, they lack training and, as a result, are unable to fuse ethics with business conduct (Freeman & Wicks, 2010).  In truth, leaders must consider both the ethical and legal aspects of a situation to make the most effective decisions.  Top managers are in a position of influence and possess a power that controls the destiny of an organization.  Efficient ethical training programs help leaders: (a) make more effective decisions, (b) choose how and who to conduct business with, and (c) decide whether profits are more significant than achieving positive outcomes with social mindfulness.  By electing to conduct business ethically and engage with other like-minded organizations, leaders cultivate an ethical climate that helps avert facing issues of misconduct and avoid legal ramifications.

The most efficient way for leaders to engage in moral conduct and cultivate an ethical environment is to educate these executives to implement effective ethical training programs.  Ferrell et al. (2013) purport that ethical training programs equip staff members with strong reasoning abilities and intellectual skills that can guide them to comprehend and discover more effective solutions to complicated ethical issues.  They have identified the following six stages of moral development based on psychologist Lawrence Kohlberg’s model of philosophy: (a) punishment and obedience; (b) purpose and exchange; (c) interpersonal expectations, relationships, and conformity; (d) social system and conscience maintenance; (e) prior rights, social contract or utility; and (f) universal ethical principles.  Kohlberg’s theories further suggest that individuals should continue to evolve and reshape their morals and ethical behavior with extended training and education, as well as by drawing from personal experiences (Ferrell, Fraedrich, & Ferrell, 2013).  Leaders then apply their highly developed skills to identify and address the nature of the moral dilemmas as they arise to help them achieve optimum solutions.  For example, when a supervisor discovers a staff worker engaging in ethical misconduct, because of their high level of training, the manager can recognize the issue more easily and attempt to resolve it.  When leaders establish clearly defined policies, provide education and training systems to support them, staff members are more likely to abide by them and accept the consequences for behavior that falls outside those boundaries.  A Code of Ethics doctrine may also include a clause to address the training requirements expected from all staff members.

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Implementation Plan

When there are disagreements of an ethical nature, a Code of Ethics doctrine can help achieve a measure of consensus.  The most effective leaders comprehend the significance of identifying the voluntary and legally required aspects of institutional practices and the behavior that supports it.  In addition, this research supports that the most successful leaders engage in actions that demonstrate the leader’s conduct and business practices, while taking responsibility for cultivating of an ethical climate.  This strategy serves to inspire staffers to adopt similar practices.  Aristotle (384– 322 BC) suggested that a person’s character is developed by habituation.  In other words, a person’s righteous or iniquitous behavior is developed by the continuous engagement in acts that have a common quality.  These repetitious acts rely on the individual’s natural tendencies to gravitate towards virtuous or immoral behavior (Aristotle, 2012).  Equipped with this knowledge, leaders are better able to guide ethical behavior and implement programs that help guides staff members to develop patterns and habits that embrace moral conduct.  For example, investigators discovered Enron’s leaders had developed a culture of deceit to safeguard capital gains.  To assure stakeholders and to avoid repeating this situation again, leaders began to design and develop effective ethical training programs to educate employees and implement conducts of ethics as part of their organizational culture.  In addition, the establishment of the Sarbanes-Oxley Act (SOX) by Congress prompted corporations to work with the government in partnership by creating a federal oversight system that monitors corporate accounting practices, making fraud a punishable criminal offense.  Corporate leaders that implement programs inspired by the SOX mandates are able to address a wide range of provisions including corporate transparency in financial reporting; monitor corporate board members conduct; and complying with criminal justice practices.

Leaders that implement ethical training programs for staff members establish a culture that discourages misconduct, prevents behavior that represents a false corporate image, prohibits executives from hiding poor performance outcomes, and acts as an oversight system to monitor accounting and auditing practices to ensure operational integrity.  In addition, to guarantee stakeholder trust and confidence, CEOs now sign off on all company financial forms to confirm that all organizational processors have complied with every mandate.  These significant topics can also be addressed and included in an organization’s Code of Conduct doctrine.

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The Role of Leadership

A Code of Ethics statement clarifies standards that may otherwise be vague expectations.  Most leaders consider themselves ethical.  Others, however, question whether ethics is a substantive component of effective leadership.  Regardless of their views, executives are in a unique situation and have the power to guide corporate culture and shape ethical conduct.  Chopra (2012) contends that despite the advantages a person may have – wealth, intelligence, popularity, or influential social connections – none of these components provides the magic wand to effective leadership (Chopra, 2012).  Leaders continue to face difficult dilemmas and how they cope with various situations can make the difference between a positive outcome that contributes to the benefit of others and whether it results in disastrous outcomes.  For example, a leader that cultivates an atmosphere of deception and misdirection fertilizes the environment for destruction.  Therefore, the most effective and successful leaders must have the ability to: (a) guide a corporation to profits for the sake of the stakeholders, (b) achieve organizational goals in an ethical manner, and (c) motivate employees to engage consistently in ethical behavior in alignment with the organization’s code of conduct consistently.  Furthermore, the most efficient top level managers incorporate policies to inspire high performance levels and motivate staff members to engage in conduct that goes beyond mere observation of policies.  The best leaders establish trust and earn the loyalty of all their stakeholders.  Leaders that work in partnership with personnel achieve greater levels of success.  In return, stakeholders that respect organizational leaders that are more likely to support them and volunteer services beyond achieving organizational goals.  The role of leadership can also be addressed immediately following the mission statement in the form of a Leadership Letter from the organization’s CEO.

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Corporate Social Issues

Codes of Conduct doctrines provide statements of value and can also address a corporation’s social responsibility policies.  Organizations with leaders that incorporate ethical choices and learn corporate social responsibility operate businesses that consist of little worry and fear from concerns of bringing harm to themselves, others, or the environment. This is because their values include business practices that contribute to the welfare of citizens and the environment rather than engage in conduct that exploits or depletes resources.  For example, organizations like Plum Village focus on creating a culture that supports happiness by developing a community of stakeholders that are motivated to support them.  Hanh (2012) postulates Plum Village founders achieved this by creating a model that is not solely focused on profits.  By cultivating an atmosphere that supports joy and happiness, their organization and others like them prove that businesses do not have to sacrifice happiness to achieve high levels of profit (Hanh, 2012).  Furthermore, time and time again, history proves organizations that engage in destructive behavior, commit fraud, and operate without regard for stakeholders or the environment do not enjoy the same long term success.  Leaders that focus on cultivating a climate to motivate ethical conduct without compromising their ability to profit are more likely to succeed as well as maintain the confidence and support of stakeholders.  These are concepts that can be included in the organization’s code of conduct statement or, alternatively, for smaller organizations, can be addressed by implementing green strategies into their daily business practice, like recycling and incorporating efficient systems that reduce energy and fuel costs.

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Laws, Regulations, Oversight, and Enforcement

A Code of Ethics doctrine can also incorporate regulatory measures as another method to influence the impact of the ethical behavior and outcomes in a business environment.  The development of ethical compliance programs serves as a process that establishes corporate commitment to practicing ethical behavior.  These programs are designed by utilizing codes of conduct as the blueprint to direct ethical performances.  In short, effective leaders implement regulatory measures to help them achieve positive outcomes with social awareness and corporate accountability.  For example, Carpenter (2012) contends that because of the complicated manner in which leaders conduct business in the global market, they are required to: (a) identify, comprehend, and implement the acceptable use of corporate funds; (b) recognize the falsification of important documents and account records; and (c) identify debatable techniques sales representatives engage in to close deals (Carpenter, 2012).  These are common issues managers address in the corporate arena.  In addition, competition, political pressure, and different value systems also influence ethical conduct and outcomes.  To help leaders address these complicated challenges, the US government established the Federal Sentencing Guidelines (FSG) to help prevent ethical misconduct that results from white collar crimes.  Bredeson and Prentice (2010) purported that the SOX act, for example, was developed and imposed stern security mandates to: (a) create an oversight program that is monitored by a new federal agency, (b) reform the entire accounting industry, (c) restructure Wall Street practices, (d) alter corporate governance practices, and (e) confront insider trading and obstruction of justice (Bredeson & Prentice, 2010).  As a result, the Public Company Accounting and Oversight Board (PCAOB) was also developed to help support these mandates and work in partnership with the Securities and Exchange Commission (SEC) to help implement SOX’s numerous regulations.  Furthermore, these new governance practices were designed to protect whistle-blowers that support ethical conduct.  The implementation of these regulations, oversights, and the enforcement of these strategies all serve to maintain stakeholder confidence.

Laws and Code of Ethic doctrines are created to help define relations between individuals and corporations that affect the economic and social order of a society’s governance practices.  Mann and Roberts (2013) postulate that these laws are developed to reflect the social, political, economic, religious, and moral principles of society (Mann & Roberts, 2013).  In other words, laws are used as tools to control behavior in society and function to regulate human conduct.  Corporate leaders work in partnership with government agencies to guide acceptable ethical conduct to protect people and keep them safe.  Regulatory measures provide the motivation for organizational leaders to develop core practices that ensure legal and ethical compliance.  They put focus on the development of structurally sound core practices that consist of structural integrity in both financial performance and non-financial performance outcomes.  An organization’s Code of Ethics doctrine should provide in great detail an outline of the policies and regulations that staff members are expected to abide by.

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Ethics Auditing Strategy

Codes of Conduct doctrines also serve to deter corporate leaders from misusing their power and putting stakeholders or the public in harm’s way.  Companies are in the business of making a profit for the benefit of their stakeholders.  Leaders must be conscious that they are required to engage in behavior that supports responsible conduct towards their stakeholders, consisting of employees, customers, suppliers, communities, and society at large.  Ferrel et al. (2013) assert that organizations devise transparent methods to monitor and audit organizational outcomes and behavior by having open access to observe and analyze the following components: communications, compensation, social responsibility, corporate culture, leadership, risk, stakeholder perceptions, and the more subjective aspects of earnings, corporate governance, technology, and other significant areas (Ferrell, Fraedrich, & Ferrell, 2013).  Leaders want their organizations to benefit from large capital gains.  To help achieve this, they integrate ethical programs and audit systems into their code of conduct practices to encourage positive outcomes.  These significant concepts should also be included in the corporations’ Codes of Ethics doctrine.

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The Global Marketplace

In today’s marketplace, a Code of Ethics doctrine must also communicate the standards for ethical conduct on the worldwide stage.  Because organizational leaders are forced to face some very serious choices that could have long term positive or negative outcomes, they initiate directives that support corporate social responsibility (CSR) to achieve a long term competitive advantage in today’s cut throat global marketplace.  McGraw (2012) contends that being surrounded by the right people helps individuals learn the right actions to make the right decisions (McGraw, 2012).  Because US Business practices regulations are not enforced worldwide, many American leaders must contemplate high risk issues like: (a) complying with superiors to engage in ethical misconduct to achieve goals, (b) choosing to refrain from unethical behavior at the cost of losing their position, or (c) discovering another a solution (that may be unpopular) to avoid misconduct to achieve positive outcomes.

As a solution to help establish a more level playing field among companies who compete in the global market, the World Trade Organization (WTO) was created, consisting of 153 members.  Narlikar (2005) declared the WTO provides a variety of noble objectives including: (a) improved standards of living, (b) full employment, (c) expanded production of and trade in goods and services, (d) sustainable development, and (e) an enhanced share of developing countries in global trade.  Members also receive a commitment from the WTO to contribute to these objectives, engaging in a mutually advantageous partnership focused on reducing substantive tariffs and other trade barriers.  In addition, members are assured of the elimination of discriminatory treatment in trade transactions (Narlikar, 2005).  In short, the WTO is committed to liberalizing global trade by addressing economic and social issues with respect to agriculture, textiles, clothing, banking, communications, government purchases, industrial standards, food and sanitation regulations, and intellectual property.

Another important issue many corporations face when entering the global arena are companies that make payments to influential people for the purpose of obtaining favors or receiving business contracts.  The US identifies this type of business conduct as bribery – an illegal practice and a criminal offense.  Ferrel et al. (2013) purport that many American companies were operating at a disadvantage when competing with foreign companies whose governments did not prohibit the act of bribery.  As a solution, in 1998 the US and 33 other countries signed an agreement to combat the practice of bribing foreign officials in global business transactions.  This agreement is called the US Foreign Corruption Practices Act (FCPA) and serves to prevent this kind of conduct from occurring (Ferrell, Fraedrich, & Ferrell, 2013).  The United Kingdom implemented a similar agreement with the UK Antibribery Act to hold corporations and individuals liable for bribery regardless of where the offense is committed.  These and other organizations like the International Monetary Fund (IMF), The United Nations Global Compact, and the Sherman Antitrust Act, provide businesses competing on in the worldwide market parameters and regulations that are enforced help to deter ethical misconduct.  These issues should also be addressed in the Code of Ethics doctrine.

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Conclusion

Code of Ethics doctrines are a set of rules that help establish the standards that guide individuals and organizational behavior.  The Constitution of the United States, for example, is a doctrine that provides – in detail – regulations with the idea of forming a more perfect union to establish equal justice and to promote general welfare among its citizens (Government, 2012).  Corporations are microcosms of a similar organizational system that converge with the intent to promote general welfare and to make a profit doing so.  Companies want to achieve their goals in a uniform manner and do so by operating within the frame of justice that supports the well-being of society and their stakeholders.  For this reason, the development of an efficient and effective corporate ethics program is essential to provide a clearly defined set of parameters that is communicated through the organization’s vision, mission statement, and is further detailed in their Code of Ethics doctrine.

If an organization’s Code of Ethics statement is to have success, it must have full support of the entire organization beginning with the top level managers and include all levels of personnel.  Boatright (2009) suggests that unless this occurs, the code is unlikely to be successful (Boatright, 2009).  The findings of this research have deduced that although limitations and poorly designed codes of conduct encourage unintended outcomes, the development of an effective Code of Ethics doctrine, together with the implementation of an organization’s ethical program, serves to communicate the company’s standards for ethical behavior and moral conduct.  Time after time, these doctrines prove to be essential because when there are disagreements, these statements can achieve a measure of consensus, clarify standards which may otherwise be construed as vague expectations, and provide a clearly defined set of guidelines that represent the company’s values and principles to effectively help with the decision making process.  These combined elements can help achieve the highest outcomes.  In conclusion, for an organization to function successfully and harmoniously with the community and their surrounding environment, they must establish a code of behavior that everyone is willing to accept and abide by.

This concludes my six week research on ethics in organizational management. Next week we begin our six week journey into the realms of Business Law! Thanks for staying with me on this epic adventure in organizational management.

-Mayr

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References

Aristotle. (2012). Ethics. Seattle, WA: Amazon Digital Services, Inc.

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Bredeson, D., & Prentice, R. (2010). Student guide to the Sarbanes-Oxley Act. Mason, OH, USA: Cengage Learning.

Carpenter, D. (2012). The consumer financial protection bureau. Washington, DC, USA: CreateSpace Independent Publishing Platform.

Chopra, D. (Composer). (2012). The seeds of success. [D. Chopra, Performer] On 21 Day Meditation Challenge: Creating abundance [Audio Sound Recording]. San Diego, CA, USA: D. Chopra.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

Fisher, C. (2013). Decoding the ethics code: A practical guide for psychologists. Thousand Oaks, CA: SAGE Publications, Inc.

Freeman, E., & Wicks, A. (2010). Business ethics. Upper Saddle River, NJ: Pearson Education, Inc.

Government, U. (2012). the constitution of the United States of America. New York, NY: American Civil Liberties Union.

Hanh, T. (2012). Work: How to find joy and meaning in each hour of the day. Berkeley, CA: Parallax Press.

Mann, R., & Roberts, B. (2013). Business law and the regulatoin of business. Mason, OH, USA: Cengage.

McGraw, P. (2012). Life code. Los Angeles, CA, USA: Bird Street Books.

Narlikar, A. (2005). The world trade organization: A short introduction. New York, NY: Oxford University Press.

Ross, R. (2007). Slaves to fashion: Poverty and abuse in the new sweatshops. Ann Arbor, MI: University of Michigan Press.

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