Is a Code of Ethics Really Necessary?

Sheila Hadley Strider
Posted: 08/25/2010

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.

Good Ethics Is Good for Business

It is good business to do business ethically. Experts agree that organizations enjoy higher profits and greater shareholder value even when they sustain increased research, development, and other expenditures in the short term.

Consider this: organizations with ethics programs had a higher return to shareholders (112%) than those that did not (76%), (Watson Wyatt Worldwide, 2000). Shareholder value doubled when the organization had a clear commitment to a code of ethics (DuPaul University Study of 300 large firms). A study conducted by SHRM and the Ethics Resource Center in 2008 found that "the majority (83%) of HR professionals believe that the HR department is a primary resource for ethics-related issues" and often serves in that role or as a partner to the designated ethics officer.

However, the push for greater profits while remaining competitive in the marketplace can thwart the efforts of well meaning executives. An impediment to a successful ethics program can also be caused by a disconnect between corporate objectives and front line implementation. The key determinant in achieving value from ethics programs is in incentivizing compliance and developing metrics that support this initiative. Having executives who understand that there is substantial shareholder value in operating the business ethically and try to instill that philosophy into the culture is another key element of success.

Amid an environment driven by regulatory requirements, EU standards, and the push for more financial controls, we see a realization that there is value in ethical business operations. On a global scale, it has been suggested that organizations develop standards to ensure that ethical business practices and guidelines mandated at senior levels of the organization are translated across borders to all employees, regardless of their physical location.

In most cases this will involve decision making at levels lower than the organization may have been previously accustomed to. In the long run doing, business ethically, empowering employees to make ethical business decisions, and developing a process to guide employees in making those decisions will cost less, net greater shareholder value, and lead to better decisions than operating without this framework.

Sheila Hadley Strider
Posted: 08/25/2010

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