WPA in the News

Creating and Maintaining a Code of Conduct to Promote an Ethical Organizational Culture

April 16, 2010
Employment Relations Today: Questions and Answers Column
By Lynn D. Lieber, Esq. (Volume 37 Issue 1)

An 8-page article published in Employment Relations Today
is excerpted below. Reprints are available online at Wiley InterScience.

After the fall of Enron and other ethical scandals, most organizations enacted a code of conduct and distributed it to their employees. Some organizations have undertaken costly internal audits by ethics experts. Offices of ethics or compliance have been created (and have received large budgets) in organizations around the country. Organizations have instituted elaborate compliance programs, auditing committees, and review boards, yet ethical violations continue to be uncovered and continue to make news headlines.

What role can and should HR departments play to prevent their organizations from becoming the next featured news story on ethics violations? In a speech (“Tone at the Top: Getting it Right”) at the Second Annual General Counsel Roundtable, Stephen Cutler, director of the Division of Enforcement in the U.S. Securities and Exchange Commission (SEC), stated, “The answer is to instill in employees the notion that these issues are important—or, as [former SEC] Chairman Donaldson has said, to make ethics part of the company’s DNA.”

WHAT CONTRIBUTES TO CONTINUED ETHICAL LAPSES AND WHAT CAN HR DO TO PREVENT THEM?

Some factors cited as contributing to ongoing ethical lapses include unrealistic budget pressures, with too much emphasis on short-term financial goals; pressure from the marketplace and analysts’ expectations; decreases in revenue or market share; lack of a code of business conduct and organization-wide training;absence of a board of directors or audit committee that vigilantly oversees the financial reporting process; weak or nonexistent internal accounting controls; and ineffective internal audit staffs.

Many of these factors lie outside the purview of the HR department, and largely reside in sales, the finance department, or the “C suite” of an organization. However, HR can actively participate in creating and implementing a code of conduct, as well as revising and updating the code as business and societal pressures change. Human resources can also take the lead in communicating an organization’s ethical values and clearly specifying appropriate and inappropriate behavior. Human resources should maintain consistency throughout the organization for rewarding ethical behavior and punishing inappropriate behavior.

Providing support for employee ethical behavior can also come from HR in the form of employee hotlines and reporting mechanisms. Finally, and arguably most importantly, HR can be responsible for training all levels of employees on not only the organization’s code of conduct, but also other ethics-related policies and subjects. (See also “Utilizing HR and Ethics and Compliance Collaboration to Promote an Ethical Culture” in this issue of Employment Relations Today.)

WHAT IS THE SCOPE OF A CORPORATE CODE OF CONDUCT?

A corporate code of conduct refers to an organization’s policy statements that define ethical standards for employee conduct. Depending on the size and complexity of the organization, HR might be responsible for creating, revising, and implementing a code of conduct. Often, HR departments work in conjunction with the company’s ethics and compliance office on drafting and implementing the code and training employees.

Most codes of conduct have preambles that generally state:

The organization’s expectations for personal conduct by employees;
The code is consistent with existing policies and procedures and is not intended to supersede them in any way; and
The code serves as a guide to help employees address certain legal and ethical issues they may confront. Codes outline acceptable employee personal behavior and should specify:
The organization’s reputation for integrity and business ethics must be vigilantly maintained.
Employees must comply with all provisions of the code of conduct and exercise good judgment in decisions and actions.
Employees may be subject to disciplinary action, up to and including termination, for inappropriate personal behavior.
If an employee engages in illegal conduct, the employee may additionally be personally liable for criminal or civil penalties. Through codes of conduct, organizations make employees aware of how and where to report actual and potential code violations. The code should state:
Any employee who becomes aware of any violations or potential violations of the code of conduct must promptly report such information to the designated management official(s).
The organization will not tolerate threats or actions of retaliation against any employee for reporting in good faith any suspected illegal or unethical conduct

The sections that follow present other areas of business operations that a code of conduct should encompass.

Proprietary Information, Competitiveness, and Conflicts of Interest

Most organizations include provisions in their codes of conduct (as well as in other forms and policies) regarding trade secrets and confidential information. The code should specify that the company’s valuable assets include its physical assets, data, and intellectual property and that the loss, theft, or misuse of these assets could affect the organization’s competitiveness and jeopardize its future. The code may give examples of proprietary and confidential information specific to the organization and industry, along with examples of how employees should protect such information.

Further, codes of conduct often address how employees are expected to handle competitive opportunities. For example, the code should stipulate that if, through an employee’s work at the organization, that employee becomes aware of an opportunity that might be appropriate for the organization to pursue, the employee may not pursue that opportunity on behalf of himself or herself or another person or entity unless such a corporate opportunity has first been disclosed to the organization.

Many codes of conduct address whether and under what circumstances employees may engage in outside employment. The code may provide that employees may hold outside jobs, so long as they do not negatively affect the performance of their work at the organization and the outside jobs do not represent conflicts of interest.

A code of conduct should define conflict of interest (i.e., any instance in which an employee uses his or her status or authority as an employee of the organization or uses the organization’s resources or influence for personal benefit or for the benefit of another person or entity) and warn employees that they must avoid any actual or potential conflicts of interest or any abuse of such employees’ positions of trust and responsibility. (Many organizations’ codes provide specific examples of conflicts of interest in their industry.) The code should also state that employees must disclose any situation that presents a conflict of interest or the appearance of a conflict of interest to the designated management official(s).

Employee Privacy

Employee privacy issues include the proper handling of employee information as well as employees’ expectations of privacy regarding use of employer premises and equipment. The code of conduct should outline strict guidelines for protecting employees’ personal information that the organization collects and maintains related to employment, compensation, and medical benefits.

In contrast, the code should also clearly state that employees have no rights to or expectation of privacy with respect to the use of employer premises and equipment and that the organization retains the right to inspect employees’ desks, files, office furniture, workspaces, computers, electronic files, and voicemail messages. Employees should be warned that personal items, messages, or information that employees may consider private should not be placed or kept anywhere in the workplace, and all work computers, e-mail, Internet-access accounts, and telephone and voicemail systems are the organization’s property and can be searched at any time.

Use of Social Media

With the proliferation of social networking on Facebook, LinkedIn, Twitter, MySpace, Livejournal, and similar mediums, many organizations are now including pertinent provisions in their codes of conduct. The following are some examples:

Employees are prohibited from posting online “recommendations” or “references” for current or former employees of the organization.
An employee may identify as an employee of his or her organization on social networking sites, but the employee maintains the responsibility to represent the organization in a professional manner and to ensure the job title used, if any, matches the job title on record at the organization.
Employee posts should include disclaimers that the opinions expressed do not represent the organization and belong to the author alone.
Confidential or proprietary information may not be disseminated via social networking, and references to clients, customers, or partners should not be made without approval from a designated organization official(s).

With reputational issues paramount in today’s corporate environment, many organizations have code-of-conduct provisions regarding employees’ representations of their organization apart from those that are within the context of social networking. Essentially, such provisions would state that employees may act only within the scope of their authority when representing the organization and are not permitted to make public statements or respond to media inquiries concerning the organization.

Gifts and Entertainment

Many codes of conduct specify the types of gifts employees can give and receive and when, and under what circumstances, employees may accept meals and entertainment. The following is a sample provision:

Employees may not give, offer, promise, or authorize the payment of money, gifts, or anything of value to any government, government official, or candidate for political office for purposes of affecting or influencing any act or decision by such entity or individual.

Certain direct or indirect political contributions may be illegal, and therefore codes of conduct should outline if, when, and how the company will contribute to political organizations and candidates. The codes should clearly state that no individual employees or departments may make contributions on behalf of the organization without prior authorization.

As a related matter, the code of conduct may specify how employees should report to a designated management official(s) receipt of any offer of hospitality that is intended to influence or might appear to influence business decisions or actions.

Record Retention and Legal Compliance

Codes often specify the organization’s requirements regarding accurate recordkeeping and retention. Some sample provisions are as follows:

The organization is legally required to maintain accurate books, records, and accounts to fairly reflect accurate transactions and maintain adequate internal accounting controls.
Records must be complete, accurate, and supported by adequate documentation so they can be audited.
All employees must cooperate fully with internal and external auditors.
In the event of any claim or imminent or ongoing investigation, lawsuit, or other examination of the organization, employees must retain all relevant documents, including computer files and e-mails, in that employee’s custody.

In addressing legal compliance, codes of conduct usually include provisions such as the following:

The organization’s policy is to comply with all laws applicable to its business.
Should an employee have any legal concerns or questions related to his or her work or whether another employee’s activity at the organization may be illegal, it is the employee’s responsibility to seek advice from the designated management official(s).

Discrimination and Harassment

Many organizations restate their antiharassment and antidiscrimination policies within their codes of conduct to emphasize the importance of these policies. This section should include all of the following elements:

A list of the current protected categories under federal, state, and local law and a statement that the organization is committed to providing a workplace free of unlawful discrimination and harassment related to any and all of those bases;
The legal definition of sexual harassment;
A statement of zero tolerance for any form of retaliation against an employee who reports harassment or inappropriate behavior or who provides information during an investigation;
A statement of the confidentiality of reports of unlawful harassment and/or discrimination;
The organization’s promise to take immediate and appropriate action to stop any further discrimination or harassment; and
The organization’s pledge to take prompt and effective remedial action if the results of an investigation indicate that such action is warranted.

Workplace Violence

All codes of conduct should address workplace violence. Such provisions should include the following statements, at a minimum; more detailed information may be required based on the organization’s industry, location, or facilities:

The organization does not tolerate threats, intimidation, harassment, or attempted or actual violent acts.
If an employee witnesses any of these behaviors or is concerned that the actions of others may lead to this behavior, the employee must report these incidents to the designated management official(s).
Possession of firearms or weapons by an employee, contractor, consultant, vendor, visitor, or other nonemployee in the workplace or at workrelated events is strictly prohibited.
Weapon means any item designed for the purpose of inflicting bodily injury, which may include items that are legal to own. Employees are not permitted to have these items on the organization’s premises or while conducting business on behalf of the organization.

Other Provisions and Certification

The provisions described above are a sampling of the areas covered by most codes of conduct. However, depending on an employer’s industry, type of business, or location, it may be important to include provisions that cover company policies in other areas as well, such as insider information and insider trading, workplace safety, product safety, environmental protection, labor/human rights, substance abuse, and fair trade.

All codes of conduct should require employees to certify that they have read, understood, and will comply with the code of conduct and that they understand that a violation of the code may result in discipline, up to and including the termination of their employment. Additionally, employees should be asked on an annual basis to certify that they have complied with the code.

HOW CAN HR ASSIST IN DISSEMINATING THE CODE OF CONDUCT?

One of HR’s most critical tasks in supporting an ethical workforce is by conducting annual, comprehensive training for employees on the organization’s code of conduct. Such training should be required of all employees, organization- wide, including C-suite officials, members of the board of directors, outside counsel, and certain outside parties, such as vendors. If an organization does business globally, the training should be customized to the laws of that specific country and may need to be translated or have language or dialect modifications.

The training should be made mandatory for all employees, and there should be disciplinary consequences for noncompliance. Training should be consistent in message, content, and tone but should be customized to the level and job position of employees in the organization to make the training meaningful and relevant. HR should take care to extend the same type of training to all employees, both field employees and office employees, so as not to discriminate against a group of employees by not offering the same training experience.

HR should use due diligence in contracting with outside training vendors, for both in-person training and Web-based training. As code-of-conduct training and certification are critically important to the organization, HR should ensure there is a method to conduct the training annually and track who has been trained and certified for compliance with the code.

HOW CAN HR WORK WITH OTHER DEPARTMENTS TO TRAIN EMPLOYEES REGARDING ETHICAL CULTURE?

Finally, HR’s support of an ethical workplace doesn’t just extend to creating, updating, and implementing the organization’s code of conduct and training employees on the code. There are many different types of employee training that can be conducted to support an ethical corporate environment.

For example, HR can be instrumental in selecting, developing, and deploying antitrust, ethical sales practices, gifts and entertaining, and e-mail usage courses to the sales department. Employees who deal with financial data should be trained in the Sarbanes-Oxley Act (if a public corporation), the Fair Sentencing Guidelines Act, business ethics, the Gramm-Leach-Bliley Act, and anti-money-laundering policies.

All employees could benefit from training on harassment- and discrimination- prevention, whistleblowing and retaliation, confidentiality and trade secrets, e-mail usage, blogging, Internet usage, data protection and privacy, workplace-violence prevention, and the drug-free workplace laws. Providing a “training track” for the organization on compliance issues can assist the organization in creating a culture of integrity, respect, and professionalism.

Lynn D. Lieber, Esq., is founder and CEO of Workplace Answers, a San Francisco–based provider of compliance training solutions. Lieber is a seasoned employment law attorney and a nationally recognized spokeswoman on harassment and discrimination law.Workplace Answers delivers Web-based training in human resources, unlawful harassment prevention, data security and privacy, as well as financial and ethics compliance.The company helps client organizations build an effective affirmative defense under local, state, and federal employment law.

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