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Chapter 4:
CODES OF ETHICS AND CODES OF CONDUCT
CHAPTER 4 CHAPTER AND ADDITIONAL QUESTIONS
In studying this chapter, students should consider the questions below.
“CQ1” refers to “Chapter Question 1.” This question appears at the end of the textbook
chapter.
“AQ1” refers to an “Additional Question 1.” This is an “additional” question related to
the chapter. It is not listed at the end of the textbook chapter as a “Chapter Question”.
These items are numbered within the two categories based on the order in which the
answer appears in the chapter.
CQ1: What is the difference between a Code of Ethics and a Code of Conduct?
CQ2: Why are Codes of Ethics and Conduct important? What purposes do they fulfill?
CQ3: What values are contained in most Codes of Ethics?
AQ1: Are there universal codes of conduct for international business?
CQ4: How would you create a Code of Ethics for an organization?
AQ2: What should be the relationship between a code of ethics and strategic planning?
CQ5: What topics should be addressed in a Code of Conduct?
CQ6: How would you implement an effective Code of Ethics and Conduct communication
strategy?
CHAPTER 4 LEARNING OBJECTIVES
After completing this chapter, students should be able to:
Understand the difference between a Code of Ethics and a Code of Conduct
Explain the importance of code awareness and expectations
Describe the content found in most Codes of Ethics and Codes of Conduct
Create and implement an effective Code of the Ethics communication strategy
Conduct an annual employee assessment of the Code of Ethics
CHAPTER 4 OVERVIEW
An organization’s Code of Ethics and Code of Conduct minimize ethical ambiguities by
communicating clear ethical guidelines for employees to apply when making decisions. These
codes serve as the organization’s conscience.
This chapter explains the differences between a Code of Ethics and a Code of Conduct,
summarizes the purpose and content of codes, and describes how to use a Code of Ethics an
assessment tool for improving ethical performance.
CHAPTER 4 LECTURE OUTLINE
Teaching Objective: To teach the differences between Codes of Ethics and Codes of Conduct,
and how to use the Code of Ethics to improve ethical performance.
Suggested Time: Two to three hours of class time is recommended to present this chapter.
I. Chapter Question 1: What is the difference between a Code of Ethics and a Code of
Conduct?
Code of ethics
Code of conduct
II.Chapter Question 2: Why are Codes of Ethics and Conduct important? What
purposes do they fulfill?
Organizational size and type of ethics program
Demonstrates managerial concern for ethics
Conveys a particular set of values and obligations
Meets legal requirements and industry trends
Positive impact on employee behaviors
III. Chapter Question 3: What values are contained in most Codes of Ethics?
IV. Additional Question 1: Are there universal codes of conduct for international
business?
Foreign Corrupt Practices Act
Anti-Bribery Convention
Caux “Principles for Responsible Business”
V. Chapter Question 4: How would you create a Code of Ethics for an organization?
Background
13-Step Process
VI. Additional Question 2: What should be the relationship between a code of ethics
and strategic planning?
VII. Chapter Question 5: What topics should be addressed in a Code of Conduct?
Background
Topics
Business gratuities
E-mail
VIII. Chapter Question 6: How would you implement an effective Code of Ethics and
Conduct communication strategy?
Background
Elements of a communication strategy
Obstacles for an effective code
Annual code of ethics assessment
CHAPTER 4 SUPPORTING MATERIALS
Textbook Inserts
Ethical Dilemma Analysis
What would you do?
Let’s Build a Building
In the Real World: Enron
Exhibits
Exhibit 4.1: Ethics Program Growth and Organizational Size
Exhibit 4.2: Honesty and Ethical Standards of Professions
Exhibit 4.3: Fortune 100 Code of Ethics
Exhibit 4.4: Caux “Principles for Responsible Business”
Exhibit 4.5: Crafting a Cause-Based Strategic Message
Exhibit 4.6: The Power of a Mission-Driven Organization
Exhibit 4.7: Facebook Friendships Between Students and Teachers
Exhibit 4.8: Code of Conduct for Internet and E-mail Use
Exhibit 4.9: Code of Ethics Employee Assessment
Exhibit 4.10: Code of Ethics
Exhibit 4.11: Code of Ethics Survey
Thematic Boxes
Tips and Techniques
Best Practice in Use
CHAPTER QUESTION 1: WHAT IS THE DIFFERENCE BETWEEN A CODE OF
ETHICS AND A CODE OF CONDUCT?
The terms “Code of Ethics” and “Code of Conduct” are often mistakenly used interchangeably.
They are two unique documents.
CODE OF ETHICS
A Code of Ethics briefly describes broad ethical aspirations.
A Code of Ethics, sometimes referred to as a Values Statement, is similar to the Ten
Commandments, a few general principles to guide behavior that could fit on a business
card.
The general principles embodied in a Code of Ethics—such as respecting all owners,
customers, employees, suppliers, community members, and the natural environment—
represent aspirations.
These principles describe the kind of people we want to be – someone who treats others
as he or she wants to be treated.
CODE OF CONDUCT
A Code of Conduct more extensively describes acceptable behaviors for specific
situations that are likely to arise.
A Code of Conduct, often developed by an employee with legal expertise, provides
substance to the Code of Ethics and is usually several pages long.
A Code of Conduct applies the Code of Ethics to a host of relevant situations.
Whereas one principle in the Code of Ethics might state that all employees will obey the
law, a Code of Conduct might list several specific laws relevant to different areas of
organizational operations that employees will obey.
DISCUSSION ACTIVITY
Have students search the internet for “Code of Ethics” and “Code of Conduct” and compare the
similarities and differences between the two documents.
CHAPTER QUESTION 2: WHY ARE CODES OF ETHICS AND CONDUCT
IMPORTANT? WHAT PURPOSES DO THEY FULFILL?
ORGANIZATIONAL SIZE AND TYPE OF ETHICS PROGRAM
A Code of Ethics is usually the first step in formalizing an ethics program. The extent of
an organization’s ethics program is often related to its size.
In small organizations the ethics code is embodied within the owner, and a formal
one is unnecessary because employees typically interact with each other on a
regular basis.
Begin drafting a Code of Ethics when the number of employees reaches about ten,
a point when employees may not interact with each other or the owner as much.
Ethical hazards and risks increase as organizations grow in complexity.
Review EXHIBIT 4.1 Ethics Program Growth and Organizational Size
1-9 Employees: Orient employees to relevant laws and regulation; share stories
about ethical decisions
10-49 Employees: Develop and review a Code of Ethics and Code of Conduct
50-199 Employees: Appoint an Ethics Officer, create an ethics steering
committee, and develop formal annual ethics training sessions
200-999 Employees: Develop ethics monitoring and reporting systems
1,000-4,999 Employees: Implement an ethics assist line and whistle-blowing
procedures
More than 5,000: Create an Ethics Office
DEMONSTRATES MANAGERIAL CONCERN FOR ETHICS
Discuss the organization’s Code of Ethics and Conduct with new employees to
establish ethical expectations.
Begin the meeting by demonstrating awareness of job-related ethical issues and
public perceptions about business ethics.
CONVEYS A PARTICULAR SET OF VALUES AND OBLIGATIONS
Codes convey a set of values and obligations that clarify appropriate behaviors and
provide employees with clear and consistent moral guidance.
Codes of Ethics articulate and reinforce a moral consensus, rather than just one person’s
opinion
Codes legitimize dialogue about ethical issues when challenging situations arise.
Codes signal that employees will be held personally accountable for their ethical choices
Codes provide an additional safeguard against pressures from managers, peers, or
external constituents to behave unethically.
From a practical perspective, ethics codes are essential because a manager may be
unavailable when an ethical issue arises among subordinates.
MEETS LEGAL REQUIREMENTS AND INDUSTRY TRENDS
Codes are sometimes required by law, such as the Sarbanes-Oxley Act of 2002
The New York Stock Exchange (NYSE) and the National Association of Securities
Dealers Automated Quotations (NASDAQ) require that all listed firms must have a Code
of Ethics for directors, officers, and employees.
Banks, healthcare firms, and organizations doing business with municipal, state, and
federal governments are also required to have an ethics code.
The 1991 Federal Sentencing Guidelines provide financial benefits to organizations that
have Codes of Ethics.
Many industry associations and professional organizations develop codes as a
self-regulating strategy that deflects government regulation.
POSITIVE IMPACT ON EMPLOYEE BEHAVIORS
Researchers report that organizations with Codes of Ethics have higher levels of
employee commitment and greater tolerance for diversity.
Employees are proud to be associated with ethical organizations and desire to work for
honest and trustworthy managers.
Employees are more likely to trust managerial decisions, and managers are more likely to
trust employee decisions. The cycle of trust contributes to higher levels of employee
morale and job satisfaction.
CHAPTER QUESTION 3: WHAT VALUES ARE CONTAINED IN MOST CODES OF
ETHICS?
A Code of Ethics expresses the principles that define an organization’s ideal moral essence.
Keep the language simple and avoid legalese or professional jargon.
The best codes are easy to understand and inspirational, something that unites employees
regardless of their particular religion, ethnicity, gender, or geographical location.
Make the Code of Ethics an affirmative statement of how employees should act, not how
they should not act.
An extensive scholarly review of corporate Codes of Ethics, global Codes of Ethics, and
the business ethics literature found the following six values continually expressed:
1. Trustworthiness
2. Respect
3. Responsibility
4. Fairness
5. Caring
6. Citizenship
DISCUSSION ACTIVITY
Ask students if their employer or volunteer organization has a code of ethics or code of conduct.
If so, bring it to class. Do employees know it exists? Is it inspiring? Do employees refer to it
when ethical dilemmas arise?
ADDITIONAL QUESTION 1: ARE THERE UNIVERSAL CODES OF CONDUCT FOR
INTERNATIONAL BUSINESS?
FOREIGN CORRUPT PRACTICES ACT
In 1977, Congress responded to U.S. corporations paying bribes in foreign countries by
passing the Foreign Corrupt Practices Act (FCPA), making it illegal for U.S. businesses
to directly pay bribes in other nations or thorough intermediaries, such as joint venture
partners or agents.
In addition, under the FCPA foreign corporations whose securities are listed in the United
States must maintain accounting ledgers that reflect these transactions.
The FCPA differentiates bribery from facilitating payments.
A bribe is typically defined as providing someone with a monetary incentive or
object of value to do something contrary to his or her job description.
Facilitating payments, which are legal, expedite performance of “routine
governmental action,” such as obtaining permits, processing governmental papers,
loading and unloading cargo, and scheduling inspections to transit goods across
borders.
Facilitating payments do not include being awarded new business or continuing
business with a particular government official.
ANTI-BRIBERY CONVENTION
Some businesses headquartered in the U.S. argued that the FCPA puts them at a
competitive disadvantage because businesses headquartered in other nations continue to
pay bribes as a cost of doing business. As a result, the U.S. government pressured other
nations to adopt similar anti-bribery legislation.
In 1999, the Organization for Economic Co-operation and Development (OECD),
representing thirty developed nations, ratified the Anti-Bribery Convention which
requires member nations to enact legislation criminalizing the payment of bribes in
developing nations.
A growing number of non-OECD members have signed this agreement, including Brazil,
Estonia, Israel, and South Africa.
CAUX “PRINCIPLES FOR RESPONSIBLE BUSINESS”
Attempts have been made to create a moral level playing field worldwide through an
International Code of Ethics, where principles such as integrity and honesty are adopted
by all organizations conducting business, independent of locale.
The Caux Round Table, an international network of business leaders from a variety of
nations and cultures, spearheaded a collaborative effort to develop the Caux Principles
for Responsible Business for conducting business worldwide.
Review EXHIBIT 4.4 Caux “Principles for Responsible Business”
oPrinciple 1: Respect Stakeholders Beyond Shareholders
oPrinciple 2: Contribute to Economic, Social and Environmental Development
oPrinciple 3: Respect the letter and the spirit of the law
oPrinciple 4: Respect Rules and Conventions
oPrinciple 5: Support Responsible Globalization
oPrinciple 6: Respect the Environment
oPrinciple 7: Avoid Illicit Activities
DISCUSSION ACTIVITY
Ask students if it is ethical for the United States to impose its value system on other nations.
Would students want other nations to impose their value system on the United States? Should a
multinational business apply one set of ethics in the United States and another in Italy, Russia, El
Salvador, or Egypt, nations whose cultures and laws vary significantly from the United States?
CHAPTER QUESTION 4: HOW WOULD YOU CREATE A CODE OF ETHICS FOR AN
ORGANIZATION?
BACKGROUND
It is relatively easy to copy another organization’s Code of Ethics. After all, how many
different ways can one say treat all stakeholders with utmost respect and integrity? But
this would be a missed opportunity to enhance employee ownership of the Code of
Ethics.
Instead, have employees construct the code.
Do as a team building activity
The Ethics Resource Center offers a “Code of Ethics Toolkit” that guides organizations
and industry associations in developing a Code of Ethics.
13-STEP PROCESS
Step 1: Obtain approval from executives.
Step 2: Create a code writing team.
Step 3: Gather list of ethical issues from relevant stakeholders.
Step 4: Define a “Code of Ethics”.
Step 5: In groups gather a list of ethical behaviors from participants.
Step 6: Determine common themes.
Step 7: Draft a Code of Ethics.
Step 8: Compare to Other Codes and Modify.
Step 9: Compare to Other Groups participating in creating the code.
Step 10: Align code with organizational mission or broader code.
Step 11: Review code by presenting it to legal counsel and executives.
Step 12: Create a code communication strategy.
Step 13: Annual assess code awareness and relevance, and revise as needed
DISCUSSION ACTIVITY
Have students adopt the 13-step process to develop a code of ethics for some organizational unit
on campus, such as the School of Business, Management Department, student organization, or
staff department. Share this with the leader of the appropriate organizational unit.
ADDITIONAL QUESTION 2: WHAT SHOULD BE THE RELATIONSHIP BETWEEN A
CODE OF ETHICS AND STRATEGIC PLANNING?
The Code of Ethics can be a key aspect of an organization’s strategic plan. Strategic planning
integrates an organization’s mission with its vision and provides clear direction on how the
organization will progress from its current situation to a highly desired future situation.
Connecting the code to an organization’s mission and vision, rather than keeping it separate,
establishes credibility and visibility for the Code of Ethics.
Ideally, an organization’s mission statement, vision statement, and Code of Ethics
communicate a “cause” that employees and other stakeholders can rally around, and
potential customers want to be a part of.
An organization’s mission statement describes what an organization does and for whom.
A vision statement describes what an organization aspires to become in the future.
The shared values embodied in a Code of Ethics provide relationship consistency
between the organization and its stakeholders in the present and future. General Motor’s
mission and vision may fluctuate, but the way the company treats stakeholders will be
consistent.
Review EXHIBIT 4.5 on how to craft a cause-based strategic message
Review EXHIBIT 4.6 on the chain of events connecting an organization’s mission and
values to increased profits and shareholder value
DISCUSSION ACTIVITY
Have students create a cause-based strategic message by answering the questions in Exhibit 4.6
for the School of Business, Management Department, student organization, staff department, or
some other organizational unit on campus. Share this with the leader of the appropriate
organizational unit.
