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Codes of Ethics and Business
Conduct

Class Instructor: Ms. Marion Pia B. Calderon

B U S I N E S S E T H I C S
 Module 4: Codes of Ethics and Business Conduct

The Collapse of Enron

Enron Corporation was an American energy company based in Texas, USA, which collapsed in
November to December 2001. Through accounting loopholes, the creation of special purpose
entities and faulty financial reporting; it hid billions of dollars in debt from failed deals and projects.
Also, it fell into the trap of forgetting the primary focus of the business - to provide some goods or
services for others - and became a mere cash accumulator. As a result of its demise, billions of
dollars of shares, retirement benefits and pension funds were lost, as well as tens of thousands of
jobs.

Just prior to its implosion, Enron had only one goal: to be the largest company in the world. But
why? What is the point of being the largest? For what end? When Enron set that goal, it had already
begun to lose its way. It became close to impossible to identify or define the company's mission:
how it was making its money, what exactly it was selling, etc. While becoming a commodity market-
maker (which was not its original function) is laudable, Enron even forgot that being a commodity
market-maker was its new primary function and concentrated on becoming the biggest company in
the world. Forgetting its major purpose, it appears it took on projects simply to accumulate wealth -
for the company and the executives, even forgetting its obligations to its shareholders.

Lesson Objectives:
At the end of this module, the students should be able to:
1. explain what codes of ethics and codes of corporate conduct are;
2. give examples of corporate code of ethics in some Philippine firms;
3. explain the meaning of corporate ethical culture; and
4. explain how ethical cultures can be created in business organizations.

Code of Ethics
When huge corporate scandals began to proliferate, companies began creating communications
propaganda for building corporate reputation. Feeling a need to improve their images and facing
increasing accusations of corruption, businesses turned to ethical codes to publicize their virtues
and create a more positive impression with stakeholders.The debate over ethical code effectiveness
continues up until today. They have been defined multiple times in Journal of Business Ethics,
sometimes redundantly without building on earlier works and other times adding new dimensions
to the understanding of a code. Kaptein and Wempe (2002) describe them as policy documents
defining responsibilities of the organization to stakeholders and articulating the conduct expected of
employees.
 Module 4: Codes of Ethics and Business Conduct

Codes contain open guidelines describing desirable behaviors and closed guidelines prohibiting
certain behaviors. As instruments to enhance social responsibility, codes clarify the norms and values
the organization seeks to uphold. In contrast, mission statements articulate the objectives of a
company and declare what goals the organization intends to accomplish. Ethical codes differ from
mission statements by articulating the value system and answering the question "within what ethical
standards and values should the mission be pursued"?

Carl Skoogland (2003), the former ethics director of Texas Instruments, argues: "Ethical managers
must know what is right, value what is right, and do what is right." We believe these are indeed the
three key principles that are essential in the practical and successful management of ethics at the
organizational level. With respect to Skoogland's three key principles, leaders and members of
cultures of defiance may (or may not) know what is right, but they certainly neither value nor do what
is right. Leaders of cultures of compliance, from this same perspective, know what is right and evendo
what is right, but do not value what is right. Consequently, members of these firms may be tempted
to bend or break the rules when opportunities occur, and may even be surreptitiously rewarded by
their supervisors and peers for doing so. In cultures of neglect, there may be a conscious effort to
know, value and do what is right, but - through some (often unconscious) flaw in the culture - this
effort flags through lack of diligence, resulting in a breach of moral standards. Finally, in cultures of
character, positive moral values are ingrained throughout the organization such that all of its
members strive without fail to know what is right, value what is right, and do what is right. This is an
organizational culture grounded in moral character. A culture of character, thus, is the type of
organizational culture in which positive moral values are ingrained throughout the organization.

What is Corporate Culture?

Culture has a profound influence on all aspects of human behavior. Its impact may be subtle or
pronounced, direct or oblique, or enduring or ephemeral. It is so entwined with all facets of human
existence that is often difficult to determine how and what ways its impact is manifested. Adding to
the complexity of understanding the impact of culture is its inherently dynamic nature. Cultural
influences change and culture evolves as political, social, economic, and technological forces reshape
the cultural landscape. Certainly, the economic and physical environments (populations, climate,
geography, etc.) are important issues for business organizations; however, the cultural environment
(communications, religions, values and ideologies, education, social structure) has special importance
and relevance.
 Culture, thus, is a human reality and resides in human communities. having said that, it is
necessary to deal with the idea of culture from an anthropological perspective. Philosophical
anthropology has taught us that the human person is an open system and as such, is capable of
learning, but a learning that is positive (if he is to be truly human) and is made most perfectly positive
through the cultivation of the virtues.

The Notion of Organizational Culture

Organizational Culture is a group of internal values and behaviors in an organization. It
includes experiences, ways of thinking, beliefs and future expectations. An organization's culture
defines the proper way to behave within the organization. This culture consists of shared beliefs
and values established by leaders and then communicated and reinforced through various methods,
ultimately shaping employee perceptions, behaviors and understanding. The culture creates the
environment in the organization and influences the nature of the long-term plans that move the
organization toward its vision. Culture also dictates the policies and processes that enable the
organization to live its mission every day.

Importance of Organizational Culture

Why is organizational culture important, you ask? Your culture impacts everything from
performance to how your company is perceived in the media.

1. It defines your company’s internal and external identity

Organizational culture “defines for you and for all others, how your organization does business,
how your organization interacts with one another and how the team interacts with the outside world,
specifically your customers, employees, partners, suppliers, media and all other stakeholders.”
In other words, your organizational culture will reverberate across all aspects of your business
because it represents the way you do business. It’s simultaneously your identity and your image,
which means it determines how your people and customers perceive you.

2. Organizational culture is about living your company’s core values

Your culture can be a reflection (or a betrayal) of your company’s core values. The ways in which
you conduct business, manage workflow, interact as a team, and treat your customers all add up to
an experience that should represent who you are as an organization and how you believe a company
should be run. In short, your culture is the sum of your company’s beliefs in action.

Business Ethics
 Module 4: Codes of Ethics and Business Conduct

But if your espoused values don’t match your culture, that’s a problem. It could mean
that your “core values” are a list of meaningless buzzwords, and your people know it.
A strong organizational culture keeps your company’s core values front and center in all
aspects of its day-to-day operations and organizational structure. The value of doing so is
incalculable.

3. Your culture can transform employees into advocates (or critics)

One of the greatest advantages of a strong organizational culture is that it has the power
to turn employees into advocates.
Your people want more than a steady paycheck and good benefits; they want to feel like
what they do matters. And when your people feel like they matter, they’re more likely to
become culture advocates—that is, people who not only contribute to your organization’s
culture, but also promote it and live it internally and externally.
How do you achieve this? One way is to recognize good work. A culture that celebrates
individual and team successes, that gives credit when credit is due, is a culture that offers a
sense of accomplishment. And that’s one way to turn employees into advocates.Then again,
if your company culture doesn’t do this, you may be inviting criticism.

4. A strong organizational culture helps you keep your best people

It should come as no surprise that employees who feel like they’re part of a community,
rather than a cog in a wheel, are more likely to stay at your company. In fact, that’s what
most job applicants are looking for in a company. Ask any top performer what keeps them at
their company and you’re bound to hear this answer: the people. It’s because a workplace
culture focused on people has profound appeal. It helps improve engagement, deliver a
unique employee experience, and makes your people feel more connected.

Business Ethics
 Module 4: Codes of Ethics and Business Conduct

5. A well-functioning culture assists with onboarding

Organizational culture also has the potential to act as an aligning force at your
company. This is particularly the case with new hires who, more often than not, have put
some considerable thought into the type of culture they’re entering into.
The culture at your organization is essentially a guiding force for them, so it’s important
that it starts with onboarding.

6. Your culture transforms your company into a team

A successful organizational culture brings together the people at your company and
keeps them aligned. When your culture is clear, different perspectives can gather behind it
with common purpose. The culture at your organization sets expectations for how people
behave and work together, and how well they function as a team.
In this way, culture can break down the boundaries between siloed teams, guide
decision-making, and improve workflow overall. On the flip side, a toxic organizational
culture has the capacity to do just the opposite.

7. Culture impacts performance and employee wellbeing

Reports show that organizational culture has a direct impact on performance and, more
importantly, your employees’ wellbeing. A healthy culture addresses both of these areas by
finding an appropriate balance based on company values.
Does your company stress performance to such a degree that you feel like your physical
and mental health are being overlooked? There might be instances when that may not be a
problem, but for the vast majority of cases, it’ll have a negative effect on your company.
Employee wellbeing strategies have the potential to bring huge benefits to employees
and employers alike but they need to be introduced in the right way for the right reasons,
and at the right time. To be properly effective they need to be developed in a holistic way,
consistent with a business culture that is conducive to their success. That means supportive
management behaviours, flexible working options and an open culture that allows
employees a voice and some say in shaping the working environment.

Ms. Marion Pia B. Calderon, LPT

GSuite: [email protected]

Business Ethics