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Business Ethics

Code of Conduct for Small Businesses


Jun 16, 2016

code of ethics

No business is ever too small for a code of conduct. In fact, small businesses can benefit greatly from having an effective code of conduct in place. From reinforcing company values to helping employees navigate ethical dilemmas, formal codes of conduct can serve as an invaluable asset. 

A Code of Conduct Can Help You Navigate Gray Areas

It’s up to business leaders to create their own codes of conduct to help their companies navigate the gray areas. Yet within small organizations, many don’t bother. They either don’t feel their risks are great enough, or they believe they can trust their staff to act ethically without one.

The smaller your business, the more likely it is you trust your employees to act appropriately without a formal code of conduct. Nearly two-thirds of microbusiness owners believe their employees will act ethically, compared to just 37 percent of small to medium-size business owners.  

Statistically speaking, as your business grows, your faith in your staff is likely to decline — which means you’ll have greater need of a formal code of ethics in the future. For that reason, it’s important to establish a code of conduct early. 

Don’t Ignore the Advantages of Establishing a Code of Conduct

More than 20 years ago, having any kind of code of ethics at all was considered a best practice, and one that only a third of businesses followed. Today, it’s considered a necessity for most companies; one study found that more than 80 percent of businesses now have an explicit code of conduct.

As global anti-corruption authorities intensify their campaign against unethical business practices — slapping violators with jaw-dropping penalties — more companies are attempting to protect themselves by adopting codes of conduct.

Perhaps even more compelling for small business leaders is the fact that anti-corruption laws now hold companies accountable for misconduct committed by third-party associates, which means not having an ethics policy could cost you business.

“Due to requirements of prime contractors higher up supply chains, smaller firms are increasingly asked during tendering processes about their ethical risk management,” warned Philippa Foster Back, director of the Institute of Business Ethics.

Provide Ongoing Training

Creating a code of conduct is just the first step. Once it’s in place, employees need a thorough understanding of how it applies to them and how they can use it in their daily decision-making.

Research shows that “training staff in what the code means to their working life can not only bring significant financial benefits, but build an ethical business culture a company can be proud of,” says the Institute of Business Ethics.

This is another area where many businesses drop the ball. One survey found that although half of business leaders felt they had consistent processes for defining and launching code of conduct initiatives, only about a quarter of them provided training or testing for employees.

According to James D. Berg, chief ethics and compliance officer for Apollo Education Group, code of conduct training should achieve the following goals:

  • Expand employee knowledge about the code of conduct and relevant laws and regulations
  • Help employees build the courage to report misconduct when they witness it
  • Develop employees’ ability to make ethical decisions
  • Build trust between employees and leaders
  • Foster belief in the company’s ethical culture

Focus on Company Values

One mistake many companies make is approaching their code of conduct narrowly as a matter of compliance, or “a set of rules and regulations acting as a stick to deliver effective governance through command and control language,” said PwC Fraud Academy.

Instead, the organization argues, business leaders should use their code as a tool to inspire an ethical corporate culture by expressing the company’s values. “A code should be the overarching home for an organization’s values and beliefs, inspiring people to do the right thing every day,” said Tracey Groves of PwC. “If deployed effectively, a code breathes life into how and why the organization exists.”

Seventy percent of codes explicitly reference their company’s values. More than half of these revolve around collectivist values such as teamwork, collaboration and trust, while only 16 percent reference individualist values such as freedom.

Get Input from Employees

For a code of conduct to function as a driver of corporate culture and not just a regulatory stick, it needs to arise from a collaboration between all stakeholders in the business, from employees and leaders to customers and business partners.

After all, the people on your operational front lines have the most firsthand awareness of emerging risks and ethical dilemmas. Their input can help ensure your code addresses real-world risks and challenges.  Yet most companies take a top-down approach. In a survey of business leaders, fewer than 10 percent included input from their workforce in their codes of conduct, while fewer than 5 percent consulted customers or key business partners.

Include Decision-Making Tools

It’s not enough to simply tell employees to act ethically. A code of conduct should also give them guidance and tools for making difficult decisions while on the job.

What should employees do if they feel caught between conflicting obligations? Who should they talk to if they witness ethical misconduct at work? Codes of conduct should answer these questions and help employees navigate ethical gray areas.

Conclusion

With the right input, focus and training, a code of conduct can be a powerful tool for small companies. Small business leaders have a tremendous amount of influence on their organization’s ethics — even more so than in large corporations. A well-executed code of conduct serves as a vehicle for articulating the ethical tone you want to set for your company.

 

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