CHAPTER I: The Role of Business in Social and Economic Development

Lesson 4: Codes of Ethics and Business Conduct

Time Frame: Week 4

Content Standard:

The learner demonstrates an understanding of common practices in business organizations.

Performance Standard:

The learner shall be able to craft simple “Codes of Ethics” or “Codes of Right Conduct”.

Learning Competencies:

At the end of this module, the learner shall be able to:

1. Share observations on business policies and practices; and

2. Distinguish between good policies/practices and morally unacceptable policies/practices.

LESSON CONTENT
What Is a Code of Ethics?
A code of ethics is a guiding set of principles intended to instruct professionals to act in a manner that is
honest and that is beneficial to all stakeholders involved. A code of ethics is drafted by a business and tailored
made to the specific industry at hand, requiring all employees of that business to adhere to the code.
The moral choices of businesses have evolved over time, from the industrial age to the modern era. In the
world we live in today, working conditions, how a business impacts the environment, and how it deals with
inequality are all areas that society deems important that perhaps two centuries ago it did not as much. A code of
ethics helps ensure that businesses will always act with integrity.
A code of ethics is a guide of principles designed to help professionals conduct business honestly and with
integrity. A code of ethics document may outline the mission and values of the business or organization, how
professionals are supposed to approach problems, the ethical principles based on the organization's core values,
and the standards to which the professional is held.
A code of ethics, also referred to as an "ethical code," may encompass areas such as business ethics, a
code of professional practice, and an employee code of conduct.
KEY TAKEAWAYS
• A code of ethics sets out an organization's ethical guidelines and best practices to follow for
honesty, integrity, and professionalism.
• For members of an organization, violating the code of ethics can result in sanctions including
termination.
• In some industries, including banking and finance, specific laws govern business conduct. In
others, a code of ethics may be voluntarily adopted.
• The main types of codes of ethics include a compliance-based code of ethics, a value-based
code of ethics, and a code of ethics among professionals.
• A focus on climate change has become an integral part of companies' codes of ethics,
detailing their commitment to sustainability.
Understanding a Code of Ethics
Business ethics refers to how ethical principles guide a business's operations. Common issues that fall
under the umbrella of business ethics include employer-employee relations, discrimination, environmental
issues, bribery, insider trading, and social responsibility.
While many laws exist to set basic ethical standards within the business community, it is largely
dependent upon a business's leadership to develop a code of ethics.
Both businesses and trade organizations typically have some sort of code of ethics that their employees
or members are supposed to follow. Breaking the code of ethics can result in termination or dismissal from the
organization. A code of ethics is important because it clearly lays out the rules for behavior and provides the
groundwork for a preemptive warning.
Given the importance of climate change and how human behavior has led to negatively impacting the
climate in a severe manner, many companies have taken to include climate factors in their code of ethics. These
principles include manners in which the company is dedicated to operating sustainably or how they will shift to
doing so.

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 In many cases, this commitment to sustainability adds to the costs of a company, but because consumers
are becoming more focused on the types of businesses they choose to engage with, it is often worth the cost to
maintain a good public image.
Regardless of size, businesses count on their management staff to set a standard of ethical conduct for
other employees to follow. When administrators adhere to the code of ethics, it sends a message that universal
compliance is expected of every employee.
What Is Corporate Culture?
Corporate culture refers to the beliefs and behaviors that determine how a company's employees and
management interact and handle outside business transactions. Often, corporate culture is implied, not expressly
defined, and develops organically over time from the cumulative traits of the people the company hires. A
company's culture will be reflected in its dress code, business hours, office setup, employee benefits, turnover,
hiring decisions, treatment of clients, client satisfaction, and every other aspect of operations.
KEY TAKEAWAYS
• Corporate culture refers to the beliefs and behaviors that determine how a company's employees
and management interact.
• Corporate culture is also influenced by national cultures and traditions, economic trends,
international trade, company size, and products.
• Corporate cultures, whether shaped intentionally or grown organically, reach to the core of a
company’s ideology and practice, and affect every aspect of a business.
What is 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. It is also intuitive, with repetitive habits and
emotional responses. We also call it Corporate Culture.
Organizational Culture is the result of a perception within the company that its employees all share.
Richard Perrin, Partner and Head of Advisory at KPMG in Romania, defines the term as:
“The sum of values and rituals which serve as ‘glue’ to integrate the members of the organization.”
Corporate culture comes under the umbrella theme ‘organizational economics.’ Organizational economics is
the study of how humans create and develop organizations. It also looks at how organizations affect economic
growth.
Benefits of Ethical Organizational Culture
• According to the ACFE 2018 Report to the Nations, which is conducted every two years, organizations
that had a Code of Conduct for employees experienced fraud losses which were 56% less costly than
companies without a Code of Conduct. Organizations with an Ethics & Compliance Reporting Hotline
experienced fraud losses which were 50% less costly than organizations without an Ethics line.
• According to the Corporate Executive Board (CEB), companies with weak ethical cultures experience 10
times more misconduct than companies with strong ethical cultures. Companies with strong openness of
communications deliver shareholder returns an average of five percent higher than their peers.
• “The advantages of a strong ethical culture are manifold. Studies repeatedly show that businesses with
strong ethical cultures outperform those without; there are a variety of reasons underlying that
performance data. Companies with stronger cultures tend to have employees who are more engaged and
committed. Turnover tends to be lower and productivity higher. Customers and investors increasingly
seek companies whom they believe behave ethically, as the 2015 Aflac Corporate Social Responsibility
Survey showed.” Culture Matters: The Advantages of a Strong Ethical Culture are Manifold by Erica
Byrne (2016).
• Companies that work to build and maintain ethical workplace cultures are more financially successful and
have more motivated and productive employees. HR Magazine, Creating an Ethical Culture, April 2014.
• Organizations with stronger cultures find far fewer employees (4%) feel pressure to commit misconduct
than in weaker cultures (15%). Likewise, the rate at which employees observe misconduct by co-workers
is nearly twice as high in weaker cultures (76%) than stronger cultures (39%). Ethics Resource Center,
June 2010.
• Organizations that build an ethical culture outperform organizations that do not. Center for Ethical
Business Cultures, James A. Mitchell, 2001.
• When companies value ethical performance, misconduct is substantially lower: In 2013, only 20% of
workers reported seeing misconduct in companies where ethical cultures are “strong” compared with 88%
who witnessed wrongdoing in companies with the weakest cultures. Ethics Resource Center National
Business Ethics Survey 2013, HR Magazine, Creating an Ethical Culture, April 2014.
• According to Ethics Expert Chuck Gallagher, there are five key benefits of an ethical culture:
1. An Ethical Management Team is Good for Business
2. Customers Buy More from an Ethical Company
3. Ethical Companies Operate More Profitably

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 4. An Ethical Organization is a Healthy Organization
5. An Ethical Organization Understands its goals
Creating an Ethical Corporate Culture
Sauser and Sims (2013) suggest that an organizational culture grounded in moral character is the ideal
corporate culture. A culture of character is the type of organizational culture in which positive moral values are
ingrained throughout the organization. Pastin (1986) describes organizations exhibiting what we call a culture of
character as those that possess the following four stylistic markers:
• They are at ease interacting with diverse internal and external stakeholder groups. The ground rules of
these firms make the good of these stakeholder groups part of the organization’s own good.
• They are obsessed with fairness. Their ground rules emphasize that the other person’s interest count as
much as their own.
• Responsibility is individual rather than collective, with individuals assuming personal responsibility for
actions of the organization. These organizations’ ground rules mandate that individuals are responsible to
themselves.
• They see their activities in terms of purpose. This purpose is a way of operating that members of the
organization highly value. Purpose ties the organization to the environment.
To Pastin’s (1986) list, Sims (2005) has added:
• There exists a clear vision and picture of integrity throughout the organization.
• The vision is owned and embodied by top management, over time.
• The reward system is aligned with the vision of integrity.
• Policies and practices of the organization are aligned with the vision; there are no mixed messages.
• It is understood that every significant leadership decision has ethical value dimensions.
• Everyone is expected to work through conflicting stakeholder value perspectives.
Moreover, Sauser and Sims (2013) give the following suggestions for Creating an Ethical Organizational
Culture in business organizations:
1. Adopt a code of ethics;
2. Provide ethics training;
3. Hire and promote ethical people;
4. Correct unethical behavior;
5. Take a proactive strategy;
6. Conduct a social audit;
7. Protect whistle-blowers;
8. Empower the guardians of integrity;
9. Assure commitment from the top;
10. Communicate the standards of conduct widely throughout the organization and the industry;
11. Designate an ethics officer with clear responsibility for enforcing ethical standards;
12. Establish a process for reporting violations of ethical standards and actively investigate all reported
violations;
13. Assure due diligence by the organization’s board of directors; and
14. Above all, lead by example.
Drafting a Code of Ethics
Phase 1: Identifying Key Values and Ethics
1. List your personal values.
If you are in charge of the company or leading the creation of the code of ethics, you should
consider your personal values. Factor in what you value in life as an employee, as a boss, and as a person.
These values can then inform your company's code of ethics.
You may ask yourself, “What do I believe in?” “How would I like to behave around others?” “How
would I like to treat others?” "How would I like others to be treated?"
Common personal values may be "reliability," "dependability," loyalty," and "honesty."
You may also think about how you have treated others in the past. Consider how you have dealt with
moral dilemmas or ethical issues. Do you feel you acted correctly? If so, you may use this as a model for
the code of ethics.
If you're not sure what your values are, take 7 days and jot down every single moment that lifts
you up or makes you feel excited, engaged, or lit up. Then, look for patterns in the list that can give you
insight into what's important to you.
2. Discuss the company's values.
Ask a team of your employees to list the company's values. Have the team to look back at any
ethical issues or moral dilemmas the company dealt with in the past. Consider how the company responded
to these issues and what could have been done better or be improved.

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 Have the team consider, “How would the company like to treat ethical issues?” “How would the
company like to treat employees and clients?” “What does the company believe in and how does this
inform their values?”
If the company already has a mission statement, you may use it to inform the company's values.
For example, the company's mission statement might be, "We serve the needs of our customers and our
employees with integrity and honesty." Often, a company's mission statement will say a lot about what
the company values and how it approaches ethics.
3. Review codes of ethics written by others.
To help you identify your values and ethics, look at examples of code of ethics from other people
and other companies. Contact other companies in your field and ask them for a copy of their code of ethics.
Don't be afraid to use language from other code of ethics. Use it as a guide or reference and make
it your own.
If you use content from other code of ethics, make sure you cite them, especially if you are quoting
the content word for word.
Phase 2: Drafting the Code of Ethics
1. Give the code of ethics a memorable title.
Avoid generic titles like “Code of Ethics” or “Code of Values.” Go for a thematic title that is
memorable and specific.
For example, you may choose a title like “The Way We Conduct Ourselves at AB
Communications” or “Living Our Values at AB Communications.”
2. Include a table of contents.
Format the code of ethics so it is easy to get from section to section. Put the titles of each section
in the table of contents.
For example, you may have a section title like, “Introduction” or “Prologue.” You may also have
a section title like “Core Values” or “Our Living Values.”
3. Have an introduction or prologue.
Start the code of ethics with an introduction or prologue that explains why the code is important
and what the purpose of the code is. Address what the code is meant to accomplish. Note the scope of the
code and who it applies to.
Note in the introduction whether the code of ethics is mandatory for all employees. You should
also note if the code is a regulatory document that is supposed to inform and manage the employees in
ethical situations.
4. List the core values.
Make a list of the core values and provide a brief summary of what the value means to the
company. There is no set number of values needed for a code of ethics. You may have four to eight core
values or one to five core values.
For example, you may have a core value like “Professional integrity: We believe every employee
should demonstrate integrity in ethical situations.”
5. Discuss the importance of these values.
You can also mention why the core values are important, focusing on each value listed. Write one
to two sentences about why you included in each value and how it connects to your company as a whole.
For example, you may note, “Professional integrity is important to us as a company because we
believe employees should act with consideration for others.”
6. End with resources for employees.
Most codes of ethics have an end section that lists resources for employees that they can refer to
if they have an ethical dilemma or questions about ethics. You may list resources like a Human Resources
representative or an ethics hotline.
Phase 3: Implementing the Code of Ethics
1. Ask employees to sign the code of ethics.
Implementing the code of ethics is an important next step. Have your employees sign a printed
copy of the code of ethics to show that they have read and acknowledged it.
You can also keep the physical copy of the code of ethics somewhere it can easily be seen, such
as in the staff room or the employee lounge.
2. Use incentives to get employees to use the code of ethics.
Make a system where points are given every time the code of ethics is accessed by employees.
Create a recognition program tied to employee use of the code of ethics. Reward employees who use the
code of ethics regularly with prizes or bonuses.

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 You can also make a penalty system where employees are given mild reprimands for not using the
code of ethics when they should have.
3. Refer to the code of ethics regularly.
Treat the code of ethics like a living document that you look at often and discuss. Refer to it once
a week or once a month, even if you do not have any ethical issues. This will keep it relevant to how you
conduct yourself on a day-to-day basis.
You can also make a point to revisit the code of ethics once a year and review it. Add or revise
sections of it as you see fit. Make sure it feels relevant and up to date so it gets used on a regular basis.

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