Do modern Codes of Conduct help cause and conceal unethical behavior?
Tuesday, July 16, 2019 at 9:08AM
Caterina Bulgarella in Code of Conduct, FCPA Guidance

How well positioned are today’s code-of-conduct practices to meet the effectiveness criteria for Corporate Compliance Programs embedded in the latest DOJ guidelines? That is, "Is the compliance program well designed? Is it being implemented effectively? And does it work in practice?”

According to the results of an investigation I recently conducted in collaboration with SAI Global, while progress has been made, there are still plenty of opportunities available to be leveraged to increase the impact of the code of conduct on employee behavior. 

The study focused on a thorough analysis of 174 publicly available codes of conduct randomly harvested from Fortune 1000 companies. Ninety-three percent of the codes in the final sample had been released between 2011 and 2017, providing a largely contemporaneous representation of current code-of-conduct practices.

Overall, the study revealed that companies today are not neglecting all the design elements needed for the code to successfully influence the organization’s ethical orientation and culture, but oftentimes, the codes fail to go all the way, ignoring some pressing influential factors (e.g., applicability of the code to the C-suite, focus on diversity and inclusion, etc.). 

For example, only 70 percent of the codes of conduct examined included a statement of company values, mission, or key principles. Similarly, only 71 percent of the codes in the study’s sample made it clear that the code applied to executive officers, and only 75 percent mentioned that the code’s tenets were also relevant for the Board of Directors. Conversely, 96 percent of the codes indicated that employees were to abide by the policies and principles outlined in them. 

The noted disparity between applicability to employees and to the C-suite/Board of Directors is meaningful because it carries the potential effect of weakening the code’s impact on employee behavior. If the goal of the code is to reduce the number of dilemmas employees face at work, it needs to provide unequivocal indication that its principles apply to all stakeholders equally, especially senior leadership. In fact, the perception of any double standard in the way a company treats management vis-à-vis its workforce has the effect of diluting the validity of the very tenets of conduct communicated in the code and seemingly opens the door to competing priorities. 

Consider the following example: If employees were to perceive that a different set of standards applied to senior leaders, the requests made by any senior manager in the organization, which have many ways to trickle down, would carry more weight than the nominal principles laid out in the code. Indeed, most codes of conduct seem to fall short precisely in this regard. For example, according to the present study, only 52 percent of the examined codes laid out additional responsibilities for managers and supervisors.  

Referring to the DOJ guidelines and the importance of effective design, failure to unambiguously articulate stakeholder responsibility is not only a design weakness but it is a pitfall that affects how well the code is going to work when it’s most necessary. In particular, the very fact of not mentioning all stakeholders when assigning conduct obligations via the code is an error of omission that employees, especially in the face of difficult ethical challenges, can use as a way out. Given that the risk of unethical behavior increases when people can rationalize their conduct, if the principles of conduct laid out in the code seem to apply only to some but not all stakeholders, then it may also be the case that they are relevant only some but not all of the time. This is why vague codes that provide cues to discount standards of conduct have the unintended effect of creating a back door for employees to use when they find themselves in the thick of things. 

Another interesting insight from the current study has to do with how codes tend to address the theme of tone and conduct in the organization. Based on our findings, 84 percent of codes today blatantly prohibit harassment and 79 percent outright forbid discrimination. However, only 54 percent of codes are designed or used to specifically promote diversity and inclusion. In this respect, it is clear that codes of conduct are still mostly used as a component of the compliance toolkit yet not as a driver to shape the organization’s culture. 

Leveraging the code of conduct to highlight the importance of Diversity and Inclusion in the organization is a priority. The code can help to create the right tone and conduct not because D&I has become trendy nowadays, but because a focus on D&I in the code works as another powerful reminder that all employees have equal rights and value in the current organizational culture. This equal focus, in turn, reinforces the perception that the principles of conduct laid out in the code apply to all stakeholders all of the time. 

Although 74 percent of codes today emphasize the importance of treating one another with respect, such a positive framing is not as powerful as emphasizing an inclusive culture. The gap between respect and inclusion that emerged from this study suggests that when it comes to foundational principles of conduct many codes are not designed to penetrate the fabric of the organization as deeply as they possibly could. In fact, although articulating the idea that people are to treat each other with respect and dignity is an important step forward to catalyze an ethical culture, respect often works as a parochial tenet when it comes to tone and conduct. Thus, it can be taken to mean deference and protection of the status quo by members of the majority group in an organization, but it may mean something very different to minority members.

As companies move beyond the requirements of compliance to address the challenges and opportunities that ethics and culture pose -- in keeping with the new DOJ’s guidelines -- the code of conduct will need to evolve. The design elements and deployment strategies organizations use make all the difference - not only with respect to whether the code is implemented effectively but also in relation to the question of whether it’s ultimately working in influencing employee behavior. To this end, companies need to give attention to whether the design elements they are using are consistent with a culture framework that underscores a deeper understanding of what creates risk in employee behavior. By the same token, companies must also make sure that all the key components of their code of conduct are integrated into a cohesive architecture and that the layout of each component is devised so as to strengthen the code’s overall ethos and impact.  

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In the next post, I'll look at insights we learned from our investigation about some important code-of-conduct components, such as resources for reporting, the decision-making matrix, and more.

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Caterina Bulgarella, Ph.D., pictured above, is the co-founder of Be Thread, a platform of tools for human-centric work environments, an SAI Global influencer, and a member of Ethical Systems’ core team. She's a culture architect and ethics expert who advises senior leaders on culture change and ethical challenges. She can be contacted here.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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