Louise Etheridge, consultant at Bureau Veritas, advises on developing effective codes of conduct as part of corporate social responsibility policies
Throughout corporate history companies have recognised the value of codes of conduct. They define acceptable business practice internally and provide guidelines for the appropriate conduct of wider business activity externally. Such codes are predominantly voluntary statements that document rules governing behaviour, providing a set of values and commitments based on good corporate conduct.
Codes vary considerably in content, format and levels of implementation. Content can range from philosophical blue sky mission statements to detailed, pragmatic, compliance-driven commitments. Companies may choose to keep their codes applicable only at a local level or to apply them across the business, providing global reach and a standardisation of business conduct.
Codes can be as diverse as the activity of the company formulating them, but generally fall into one of the following categories:
Despite a majority of large corporates in the UK having some type of code of conduct, many lack credibility, with few companies translating it into something measurable and effective. Some companies that have adopted codes are now realising they do not have the skills and experience for effective implementation. For example, if a company makes reference to an out-of-date code when faced with a public boycott, external stakeholders are not going to be satisfied. They want to see a proactive approach to implementation with true ownership within the company and a dynamic approach to code review.
The degree to which any type of code provides something meaningful for the company adopting it, or for the greater good to which they contribute, depends on its credibility. Is it worth more than the paper it is written on? The credibility of a code depends on a number of factors, namely:
Fit for purpose
Codes should be applicable to the size of the company, type of business sector and the resources available for
implementation. Whether a code is being developed for the first time or being revised and updated, it is important to define why it has been established. At the early stages, objectives and target audience should be defined. Consultation with the target audience will ensure the code is fit for purpose, resulting in increased buy-in, ownership, understanding and awareness.
An effective code can enhance or help protect a company’s reputation. For large corporations this can have an clear and significant impact on brand value and market share, hence it is advisable to refer to a legal team to check phraseology. But what about smaller companies with less resources available to invest in code development and implementation?
SMEs account for more than 90% of all UK businesses but are often left out of the debate. For SMEs, codes should be more about risk assessment and the identification of the drivers for a code – fundamentally simple, straightforward and easy to implement. The size of a company should not affect the quality of a code, it is about tailoring the process and contents to the company and employees. Codes should be directly proportional to the amount of resources available for implementation
Lost in translation
Readability can make or break a code’s success. Dissemination and communication to all individuals responsible for and affected by its implementation is important. It should be relevant at both strategic and operational levels. Training those affected by the code and evaluating their understanding can have a positive impact on motivation for driving it forward. To make a code meaningful:
A board member should own the code and champion its existence. However, the pitfall of relying on just one enthusiastic, altruistic individual should be avoided – the code should be driven by a core group of business-focused individuals. The key to a successful code is making it part of company culture and embedding it into everyday activity, without this commitment any company would struggle to take a code forward and gain the appropriate commitment and buy-in from the rest of the business.
Testing the water
Piloting a code with a core group of stakeholders always results in valuable learning. Consulting with the very people it will affect helps to understand potential barriers to
implementation as well as the likely resources needed for a fuller roll out. One NGO piloted its ethical purchasing code for two years before adopting it formally and permanently.
Draft implementation guidelines were written and the organisation joined forces with other like-minded NGOs to further refine the code to ensure it was fit for purpose and workable. The implementation was tested with a sample group of different sized suppliers across a range of sectors. This pilot phase resulted in a revision before full roll out that meant implementation was much easier.
Measuring the impact of a code and its compliance will provide one of the core components of key performance indicators for its success. This can be in the form of internal monitoring, making use of any internal audit function, employee surveys or by employing the services of an external party. Generally, companies commit to a continuous improvement ethos in managing non-compliance to codes of conduct. In other words, “work with us to improve and all will be forgiven”. However, if violations continue, a systematic approach to dealing with them needs to be defined. Responses to violations by employees, subsidiaries, and suppliers can include disciplinary action, providing training to the violator, a request for appropriate corrective action within a timeframe, or ultimately cancellation of a contract. Positive reinforcement of respect for the requirements of a code is also important to draw attention to best practice. It should be heeded that the grander the commitments made, the greater the ramifications for the business if it is broken.
A recent report by the UK Social Investment Forum advocates further legislation on company reporting on social, ethical and environmental issues. Further to this, investors have rated the existence of certain genres of codes highly. These include effective environmental management, good employment practices, respect for local needs in the developing world and good corporate governance. Investors are just one stakeholder group that can exercise demands on the focus and development of a code.
The dichotomy faced by many companies is striking the balance between their own understanding of core business ethics and key risks and those identified by external stakeholders. External stakeholders have a view on the way business is conducted and how business activities should be managed in relation to social, environmental, health and safety, and ethical activities. Their opinions can and do matter, so ignoring the demands of such stakeholders can potentially damage company reputation.
Often the process that leads to the development of codes that lack credibility is largely reactive, and part of a short term thinking strategy. Codes should be pragmatic, a reflection of genuine business values and ethical risks, and they must be sustainable. They should be dynamic as well, accurately reflecting change in business activity, and reviewed as part of a stakeholder feedback programme. In essence, whatever the type of code, make it specific, measurable, attainable, realistic and tangible.