While large companies have been seen to be taking the lead in setting ethical standards, leaner and fast-growing companies can sometimes find it more challenging to preserve principles of good governance and compliance amid the day-to-day demands of running a business.
Earlier this year, the Institute of Business Ethics (IBE) reported that while 90% of companies on the FTSE 100 index have published a Code of Ethics, this figure drops to 40% for FTSE 250 index companies. Only half the companies listed on the FTSE 350 index have published any kind of ethical standards – a figure that is likely to tail away steeply among smaller quoted companies and unlisted businesses.
Of those that have been published, the quality of Codes is variable, with the IBE concluding that many are less than satisfactory as meaningful sets of ethical standards.
What is a Code of Ethics?
At its simplest, a Code of Ethics is a document that defines minimum standards of behaviour expected of individuals within, and associated with, an organisation. It also provides an opportunity to distil, clarify and restate the company's vision, values and guiding principles.
There is no prescribed form for a Code, but most provide clarification and guidance covering core risk areas such as financial crime, whistleblowing, health and safety, competition law, DE&I, intellectual property, data privacy, environmental responsibility and human rights.
10 tips for drafting a Code of Ethics
1. Think about scope
A Code of Ethics should apply to all employees and be global in scope, even if a company thinks of itself as only operating in a single country.
Larger companies may implement local codes and may ask their suppliers, customers and associated persons to abide by equivalent principles or separate supplier-focused codes.
2. Make it risk-based and bespoke
A Code of Ethics must be tailored to the organisation, its risk profile and sector.
Companies should conduct appropriate risk assessments and emphasise their response to these risks within their codes.
Looking at what peers do is a helpful way of benchmarking a Code, but it is essential that the document is bespoke and not simply copied from competitors or standard form templates.
3. Consider your company's purpose and risk appetite
It is increasingly important for companies to focus on purpose and build that into their approach to compliance.
Drafting a Code also affords the opportunity to consider the organisation’s risk appetite and tolerance.
For example, making grand statements about taking a zero-tolerance approach to certain matters without sensitively considering these issues might create problems when faced with difficult situations in practice.
4. Be clear and concise
A Code of Ethics is an opportunity to communicate and promote an organisation's core principles.
Companies should decide what their most important corporate policies and procedures are and provide guidance on how these are going to be upheld in a concise and effective manner.
A Code should not attempt to cover every topic in detail, and its limitations should be highlighted with signposts or links to further reading.
5. Think about tone of voice
A Code of Ethics is for all employees globally, not just for legal and compliance teams.
Particular care should be given to the tone of voice to ensure that it is accessible and encapsulates the culture of the organisation – this can be done by engaging and consulting with teams and individuals across departments at varying levels of seniority to ensure the document resonates broadly.
6. Make it visual
Your Code of Ethics must be a document that people want to read and that the organisation can be proud of publishing.
Making it more visual in nature provides an opportunity to reinforce brand identity – there is significant value in enlisting the help of a design team to maximise visual impact and improve clarity of messaging.
7. Provide scenarios, examples and FAQs
A modern Code of Ethics should include scenarios, examples and FAQs to convey information and principles.
The examples should be thoughtfully tailored to the company's particular risk profile, industry and operations. A properly drafted Code of Ethics will provide guidance on what an individual should to do when confronted by a suspected or actual breach of the law or company policies and procedures.
8. Tie in top-level commitment
A Code of Ethics must have the approval of the board or equivalent.
Most modern codes have a statement from the CEO or chairperson at the start of the document.
9. Communicate creatively
To maximize impact, organisations should create a communication and training plan to accompany the launch of their Code of Ethics. Pre-recorded launch videos featuring senior leaders are becoming increasingly popular. Many companies require formal confirmation that the document has been read and understood by employees in the first instance with training to follow.
10. Make the most of the process
A truly gold standard Code of Ethics, which is fit for purpose and will stand the test of time cannot and should not be rushed.
In addition to the end product, there is significant value in the process of producing or updating a Code of Ethics and companies of all sizes should embrace and enjoy the opportunity and the journey.
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