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Software Development

Code of ethics in business: benefits, importance and its impact

date: 27 September 2022
reading time: 12 min

A code of ethics documents will outline the company’s mission statement, their values, methods for which their staff will approach issues, the ethical principles they must follow based on the organisation’s values and the basic standards to which they pledge.

What is a code of ethics in business?

A code of ethics refers to a set of guidelines that are there to ensure that professional individuals and organisations conduct their business with integrity and honesty. It seeks to establish a company’s behaviour expectations for their employees and any third-party collaborators. 

Once tech companies have identified their future digital plans, they may choose to implement a code of ethics as part of their digital transformation strategy.

This is not unique to tech, though; many industries successfully implement a code of ethics into their operations, such as the UK Police Force, the Professional Association of Social Workers and the Institute of Business Ethics.

According to the job site Indeed, 28% of applicants may reconsider accepting a job with a company if their missions and moral values did not align – even if the job was perfectly suited to them in every other way.

Morality and ethics are important to individuals in the workforce as well as customers, so they must be considered carefully.


Code of ethics vs. code of conduct: similarities and differences

A code of ethics is similar to an ethical code of conduct; however, there are some key differences.

The code of ethics document goes deeper into the principles that provide the foundation of a company’s actions and even goes so far as to outline issues such as conflict of interest, harassment, safety and whistleblowing.

While a code of ethics typically provides guidance on values and choices, a code of conduct explicitly says which behaviours and acts are proper and which are not.

It’s a useful resource for people to learn their duties and responsibilities inside the company, as well as the norms and standards to which they should adhere.


Common types of business codes of ethics

What a company stands for and how it operates in an ethical manner depend on the adopted code of ethics.

Having a comprehensive understanding of the different types of codes can establish a strong basis for businesses to effectively address ethical dilemmas and cultivate a culture centred around integrity.


Compliance-based code of ethics

It’s a set of rules that dictate the behaviour and conduct of individuals and groups within a specific industry or company, ensuring compliance with legal requirements and industry standards.

It covers areas such as employee hiring, compensation, as well as safety and health standards. Violations of these rules can result in penalties. 


Value-based code of ethics

A value-based code of ethics provides employees with clear guidelines that align with the organisation’s core values.

Providing an overview of clear expectations guides employees in their day-to-day decisions and actions, ensuring that their behaviour aligns with the company’s ethical principles. 


Industry-based code of ethics

Certain professions have established their own codes of ethics for employees in their respective fields. Examples of industry-based codes of ethics include healthcare, finance, education, engineering, journalism, law and technology.

These codes outline the ethical responsibilities of professionals and cover topics such as confidentiality, conflicts of interest, and the duty to report violations.


Read more about the importance of ethical behavior:


The importance of code of ethics in business conduct

Having an effective code of ethics in place is essential. It details the manner in which all staff members and associates conduct themselves on a day-to-day basis in order to maintain a respectful and socially acceptable working environment.

It is essentially the ‘moral compass’ of the company to which all employees are held, even upper management.

It also serves as a useful tool to cite when providing employees warnings about their conduct for any infractions that have been committed. If the actions of a staff member violate the code of ethics too severely, it can be used to justify termination from their position.

As well as individual organisations, codes of ethics are also important for setting industry-wide standards in a range of sectors. This guarantees that the methods and practices in place are of the highest standards by enforcing the ethics code by punishing violations with financial or legal action.

This helps to mitigate risks across industries and remove people from any potential harm.

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Common types of business codes of ethics

The specific codes of ethics can vary depending on the industry, company size, and cultural context, but the most common types include:


Professionalism

Professionalism refers to the qualities and behaviours expected in the workplace, such as being skilled and knowledgeable in your job, acting with integrity and reliability, treating others respectfully and presenting yourself appropriately.

Professional competence is about conducting yourself in a way that contributes to personal and organisational success.

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Elements of strong product culture


Integrity

Integrity is demonstrated through honesty, openness, taking responsibility, and adhering to legal and ethical standards. It involves acting in a consistent and trustworthy manner and taking responsibility for one’s actions.

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Inclusivity

The notion of inclusion entails treating all employees fairly, honouring human rights, and appreciating and valuing diversity. When a company’s employees feel valued and respected, they are more likely to take the initiative and contribute to its success.


Social Responsibility

A commitment to social responsibility means making moral choices after weighing the effects on everyone involved, from global corporations to local neighbourhoods.

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The ESG Scorecard

Businesses can gain customers’ trust, improve their standing in the community, and make a beneficial impact on society as a whole by maintaining ethical conduct and engaging in socially responsible practices.

If you are interested in the topic of ESG in business, see also:


Accountability

It means owning up to one’s actions and taking responsibility for any violation. The dedication to accountability is reflected, for example, by the fact that punishments, up to and including termination are available for violations of the code of ethics.


Respectfulness

The code of ethics prioritises the respectful treatment of other employees. It underlines the importance of acknowledging and appreciating the value of every person while fostering a diverse and inclusive workplace. 


Compliance with laws and regulations

A cornerstone of the code of ethics is a commitment to acting in accordance with all relevant statutes, rules and policies.

This means learning and following company code, policies and procedures and adhering to external legal and ethical norms. It minimizes the threat of getting into legal trouble and increases trust of all stakeholders.


What are the advantages and benefits of having a code of ethics in the workplace?

There are many advantages to having a code of ethics implemented within an organisation. Some of them are obvious, others less so.

When it is implemented well, a code of ethics for business can provide a huge competitive advantage and result in an upturn in the company’s performance, increasing their financial position (which is the whole point of even having a company, right?).


Have a look at some of the most important code of ethics benefits below.


Guidance

Guidance helps to steer a company or employee’s ethical course of action when it is not obvious or apparent. It ensures that individuals within the organisation have a framework to rely on when facing difficult decisions and helps maintain ethical standards even in challenging circumstances.


Reinforce company values

A code of ethics helps to acquaint its staff members with their values and company culture, and serves as an everyday reminder. This also extends to the company’s associates, third party contractors, and even customers.


Consistent management standards

Consistent management standards help to establish uniform management standards in terms of their responsibilities to their staff and serve as a layer of protection for staff in positions of power who may otherwise, with or without malice, abuse said power.


Regulations compliance

Complex government regulatory standards can be tricky to manage, and a code of ethics helps in traversing these issues.

For example, in the USA, the Sarbanes-Oxley Act of 2002 requires that all public companies must have a code of ethics in place for all senior financial officers in order to protect the company, its staff and their customers.


Building a trustworthy brand

A code of ethics goes a long way to ‘walking the walk’ in terms of being a good, honest business so that customers and colleagues alike can understand your transparent values.

It demonstrates that the company is taking their ethical responsibilities seriously, which will attract responsible investors and build trust in the brand.

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Self-preservation

Having a code of ethics ensures that there are mechanisms in place with which to defend the company in case of a lawsuit (as long as it is followed correctly).


Morality and social awareness

When it comes down to it, the main, and most obvious, benefit is that it maintains a high level of moral standard. This demonstrates with actions the lengths to which a company will go to prove their commitment to good ethical practices, which in turn will translate into high morale with their staff, investors and customers.

This promotes and develops positive social change, ultimately contributing in a highly positive manner to good business practices.

Code of Ethics
Elements of code of ethics


How to create an effective code of ethics for your business

There are a few best practices for a code of ethics that must be followed when implementing your plan. The following code of ethics template should serve to be a guide when successfully setting up a code in a business.


Identifying organisation’s core values

First and foremost, it’s important to establish what your business priorities are when it comes to your code of ethics. Doing this from the outset will help to facilitate company growth in alignment with the overall company ethics.

As the business scales up with success, onboarding and maintaining new staff members will be much easier with a clear ethical code which visibly details the company’s values, priorities and moral lines.

When determining the company values, first consider what you feel is ‘unacceptable’ behaviour in a business, e.g. when searching for new clients or deciding on profit margins. These ‘unacceptable practices’ will help to understand where you draw the line when it comes to your operations and can help begin your code of ethics document.

This can also extend to less serious issues, but important nonetheless, such as company dress code, working times, sick leave and so on.


Build your code together and set ethical principles

Collaborating in a team-wide effort to create your code of ethics is a key process as it not only gets everyone involved and having a say in the final outcome, it helps all staff members to really understand its value and importance, especially the small details when it comes to understanding why certain elements are included.

Involving your team will result in better support for the idea and adherence to the code moving forwards will be much smoother. In addition, as the old saying goes, ‘many hands make light work’, and it is likely that your team may suggest additions to the code of ethics that could have otherwise been overlooked.

This will help to establish a much more well-rounded final code.


Assign a lead staff member responsible

Typically known as the ethical or compliance officer, it’s important to assign one employee to have the overall responsibility for not only the creation of the code of ethics, but also the ongoing duty to ensure that it is adhered to.

Even if you have the support of senior management, having one specific person be responsible for the document creation and maintenance ensures that it is not overlooked and is constantly being considered in the day-to-day operations.

This person may typically be from HR (human resources), and will most likely have a strong commitment to the success of the organisation, be highly reliable and with good integrity, and have great interpersonal skills. As the business grows, so will the scope of the code of ethics.

The compliance officer will be responsible for updating the document in line with the expansion of the company’s operations, and will take the lead in any cases of abuse or misconduct.


Have support systems in place

If you are a large company with a well-established HR department, then you will probably be able to create a wide-sweeping code of ethics without issue.

Likewise, if you are a small company that operates in a low-risk field, you will most likely to put a basic code in place easily.

However, it’s worth at least having a communication pathway open to a human resources professional just in case you get thrown into a situation that could potentially cause some difficulty for the company. Their expertise will be on hand, even from afar, to guide you in employee behaviour and company conduct to make sure that your code of ethics is drafted and adhered to in the proper manner.

Even in larger companies, having a specialist to hand when needed is useful, especially if you don’t have a robust code of ethics in place.


How professionals conduct business honestly and kindly? Examples of business ethical behaviour

As mentioned previously, transparency, fair treatment of employees, avoidance of conflicts of interest, and respect for the right to privacy are all examples of how a company’s code reflects its commitment to upholding important values.

Many businesses maintain a good reputation through their company policies:

  • The Body Shop is a cosmetics brand known for its unwavering dedication to ethical sourcing and environmental sustainability. They prioritise using natural and responsibly obtained ingredients, abstain from animal testing, and actively contribute to numerous social and environmental initiatives.

  • TOMS is a well-known shoe company with a unique business model based on corporate social responsibility. TOMS gladly gives away another pair of shoes for every pair purchased. They are also involved in numerous community and environmental projects.


Future of business ethics

The need for more transparency: Hyper-transparency, or the increasing availability of information about businesses and their operations, is a trend that will influence the direction of business principles in the future. Social media, whistleblowers and government restrictions all play a role in fueling this movement. 

The moral challenges raised by technological advances: Technological progress has created some of the most pressing ethical problems for modern businesses. While innovation and data-driven solutions are crucial to a company’s success, they also frequently force organisational leaders to make challenging ethical decisions without well-established industry practices or regulatory guidance. 

Responsibility for the environment: It’s our duty to take care of the environment. Most companies are under increasing pressure to assess and address their effects on the natural world. Acting ethically means that waste must be minimised, resources must be conserved, and all applicable environmental laws must be followed.


Read more about responsibility and future trends in business:


Ethical behavior in the organisation: a summary

The benefits and importance of having a well-thought-out and wide-reaching code of ethics in an organisation in place are clear.

All organisations, both large and small, should seriously consider putting a code in place, regardless of how much ‘risk’ their operations are.

A code of ethics is the moral standard to which the company and its employees must hold themselves. It will be a firm set of guidelines that will help steer an organisation in times of trouble and an invaluable asset to a well-functioning and successful enterprise.

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