Company Codes of Ethics and Codes of Practice

Many companies require employees to attend trainings about business conduct. These typically include discussions of the company’s policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company’s employee handbook or rules of conduct.

As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies that set standards for the ethical conduct of employees. They are generally documented in one of two ways:

1. Corporate Code of Ethics. A code of ethics begins by setting out the values that underpin the code and describe a company’s obligation to its stakeholders. The code is publicly available and addressed to anyone with an interest in the company’s activities and the way it does business. It includes details of how the company plans to implement its values and vision, as well as guidance to staff on ethical standards and how to achieve them. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.
2. Code of Practice. A code of practice is adopted by a profession or by a governmental or nongovernmental organization to regulate that profession. A code of practice may be styled as a code of professional responsibility, and it will discuss difficult issues, difficult decisions that will often need to be made, and provide a clear account of what behavior is considered “ethical” or “correct” or “right” in the circumstances. In a membership context, failure to comply with a code of practice can result in expulsion from the professional organization. For example, the American Bar Association’s Model Rules of Professional Conduct for lawyers states, “A lawyer shall not offer evidence that the lawyer knows to be false.”^[1]

Beyond establishing policies or codes that guide the ethical behavior of the company or employees, many companies also assess the environmental factors that can lead employees to engage in unethical conduct. A competitive business environment may encourage unethical behavior. Sometimes there is a disconnect between the company’s code of ethics and the company’s actual practices. As you read in the VW case study, the company’s own review recognized that the internal culture of the company contributed to the legal and ethical wrongdoing.

Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by relying upon employees to use their own judgment. Others believe that corporate ethics policies mainly exist to limit the company’s legal liability or to give the public appearance of being a good corporate citizen.