A code of ethics is a set of values adopted by a business which practically translates into do’s and don’ts for all stakeholders of the company. A code is a must-have for any growing business—it gives new recruits guidelines for responsible conduct that make the process of integrating them into the establishment faster and smoother. Business ethics is also about putting out rules aimed at long-term stability and growth. This includes ethical decision-making that sustains the ecosystem in which the business operates and thrives. Compromising best practices for short-term gains but those that hazard long-term interests can prove disastrous—remember how computer giant Satyam collapsed because founder Ramalinga Raju falsely inflated revenue and profit figures?

Master investor Warren Buffet’s company Berkshire Hathaway lays out a code of business conduct and ethics. Buffet, a staunch proponent of long-term strategy as opposed to short-term gains, has spelt out a rule of thumb to guide employees who find themselves in a quandary—“I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local newspaper—to be read by their spouses, children and friends—with the reporting done by an informed and critical reporter.” Inspired to set standards? Follow these guidelines to help you get a code up, and show that you care about good governance.

Establish a Code

Define business values
Clearly establish what values the business stands for—it could be to practice non-discriminatory hiring or to embrace environment-friendly technologies. It helps establish the culture you set out to achieve in your company. Code framing is a top down process. “A company’s code of ethics reflects the ethics of the top boss,” says Sridhar Iriventi, vice president of global business support at TechDemocracy, a software firm based in Hyderabad. All business leaders possess unique qualities that sustain organisations. They walk the talk on certain issues and that becomes the code of ethics. But leaders differ—some advise profit centre heads to politely decline if clients demand extra favours. Others profess that offering non-professional favours is critical to keep the business afloat. Their attitude becomes, ‘Don’t talk ethics. Our first ethic is survival.’ An outline for the code may be set by thinking through questions such as “Do we have a price? Or, what things would we never do to acquire a client, or achieve business targets?”

Consult employees 
Obtaining employee inputs can help frame practical guidelines that are better understood and adhered to by the rank and file. Doing so also ensures there is ownership of those values by employees. “An inclusive process buys in support for the code—after all, the code bears upon employee behaviour,” opines Sushanta Sen, principal advisor, Confederation of Indian Industry (CII). Involve employees in code framing by asking them about practical issues they face. For instance, do potential clients expect them to give out perks to be awarded contracts? Such information is best gathered anonymously.

Get legal counsel
A code of ethics is best committed to writing. Consulting a lawyer while drafting the code can help understand which proposed code clauses fall within the framework of law and hence can be argued in court.“Omnitech InfoSolutions, an IT company, has two sets of codes—one for directors and key management personnel and another for employees,” shares Nikul Shah, president of the global HR and corporate services departments. The directors’ code is statutory, and hence based on standard legal requirements. Both codes are drafted by the company’s legal and compliance department. But codes go beyond legal provisions. “Universally agreed, objective ethics is incorporated as law,” explains corporate law counsellor Vinod Kothari. Everything which is legal might not be in line with a company’s ethics. For instance, trading in tobacco stocks is legal but some stock brokers abstain from doing so in the name of ethics. Ethics come from the conscience. And, as such, they should be self-imposed.

Implement the Code

Communicate the code 
The ethical code must be clearly communicated to employees as it influences their behaviour. “The code is a communication tool that informs internal and external stakeholders about the organisation’s values,” comments Shah. New employees at Omnitech InfoSolutions are informed about the code as part of their appointment letter. Teams working at customer sites sign an additional non-disclosure agreement. Also, directors annually sign a self-declaration form to confirm compliance with the code in line with the securities laws of India—these require company directors to swear to a code of ethics every year. Documenting the act serves as a defence for the company in the eventuality of something going wrong.

Establish a monitoring mechanism
Drafting a code of ethics is only the first step. Monitoring its implementation is equally vital. Internal monitoring involves appointing a vigilance officer who reports to the board. The officer must have good people skills, be reliable and genuinely committed to the company’s wellbeing. 

“We take breaches of the code of conduct very seriously as we are ISO 27001 accredited. Serious regulatory misdemeanours like insider trading are directly reported to the MD,” shares Shah. The company also relies on inputs from the company registrar to pinpoint transgressions. Internal monitoring has its limitations. “Monitoring by an independent third party builds greater confidence in the business,” says Ashutosh Mishra, director at Transparency International India (TII), a not-for-profit that works to promote transparency in business. Third party monitoring is mandated for companies signing TII’s Integrity Pact, a memorandum covering transparency and integrity in public procurements and contracting. According to Mishra, “Appointing an external monitor shows the extent to which a company is committed to global best practices relating to transparency.”

Monitor implementation
Transgressions should ideally be reported anonymously to safeguard the whistle-blower from making foes. Some organisations crack down on every transgression, big or small. “Minor transgressions can adversely impact the environment and be a stepping stone to a major transgression. It is better to take early precautions,” cautions Shah. Other companies prefer to ignore minor lapses. For instance, a box of chocolates presented by a vendor to the purchase manager may be an acceptable gift. But complimentary air tickets to a holiday destination certainly are not. Sometimes, focussing on the bigger picture can help employees self-realise what is expected of them.

Revise the Code

A code of business ethics is a dynamic statement. It usually works in conjunction with the company’s mission statement. Just as the business environment necessitates policy changes, so too, the code must be updated to reflect the new ground realities. An annual overview of the code can help gauge whether it truly represents business or not. “Achieving full transparency would take time but a beginning can be made. This should not put off business leaders from doing what is right,” adds Sen. Benefits will accrue, albeit in time. Multinational corporations are known to conduct due-diligence on prospective partners and vendors. Also, the kind of government laws that are being introduced in India—the Lokpal Bill, the Citizens Charter, and the Bribery of Foreign Public Officials Bill are a few such legislations on the anvil—will act as a greater deterrent to ethical malpractices. So, get working on it. As they say, transparency and honesty are truly the best policy.

Must-haves 

A code of business conduct and ethics serves as a guide to action. So, it should address typical business circumstances as well as include pointers for ethically ambiguous situations. Here are a few essential clauses:

Conflict of interest: Meaning that a person’s private interest should not interfere in any way with the interests of the company.

Corporate opportunities: This prohibits directors and employees from personally appropriating opportunities that are discovered through the use of corporate property or information, without company consent.

Fair dealing: This provides that covered parties shall deal in an honest and ethical manner with vendors, partners and clients.

Insider trading: This prohibits covered parties from using confidential company information for stock trading purposes or for any purpose other than company business.

Confidentiality: This clause obligates directors and employees to maintain the confidentiality of company information entrusted to them, except  when disclosure is legally authorised.

Protection and proper use of company assets: Covered parties must protect the company’s assets and ensure their efficient use.

Long Term vs Short Term

Plato first brought out the concept of long-term good and short-term good, saying that ethics survive in the long run. But what constitutes long-term in business parlance? This is important to understand because ethical transgressions often happen because of the basic conflict between short-term and long-term.

A McKinsey survey shows that companies are tempted to focus on short-term strategies and targets due to market pressures. Most analysts compound the challenge of adopting ethical approaches by relying on short-term indicators to analyse company performances. While profit making is important, it is equally critical for a company to focus on creating long-term stakeholder value.“Less than five to seven years is short-term,” says corporate law counsellor Vinod Kothari.