Put It In Writing: Your Business Has Ethics

by Jeff Wuorio
reprinted with permission from the Microsoft Small Business Center

Ethics are on people’s minds these days, as newspaper headlines scream about insider trading, companies cooking their books, and other scandals involving business executives at mostly major corporations.

Unfortunately, accounting fraud and other scandals can taint all businesses, large and small. Still, many small-business owners think a written code of ethics is an unnecessary, cosmetic step. Not true, according to various experts in business and academia.

Not only does a code of ethics put your business in a positive, proactive light, they say, but it just makes sense to specifically identify to customers and employees what behavior is appropriate and what’s not.

“People always need to know the rules of the game,” says Ted Sun, business professor at the University of Phoenix. “Imagine a football game without rules. An organization’s the same — people need to know the boundaries of what’s ethical and what’s not.”

A written code of ethics — a tangible overview of those elements that you consider important in operating a business of integrity and principles — can be a definite plus for your business in these times. But drawing up a useful code of ethics means more than scribbling down thoughts at random. Here are eight guidelines to help you.

1. Focus on business practices and specific issues. What actually ends up in a company’s code of ethics will differ from one firm to the next. However, these are things to consider including:  conflicts of interest to avoid, accuracy of financial statements, sexual harassment, workplace safety, environmental standards, and rules and regulations specific to your industry and company. “A good rule of thumb is that ethics codes should call attention to key domestic and international regulations that apply to the organization,” says Diane Swanson, professor of management at Kansas State University.

2. Tailor it to fit your business. Codes of ethics are not cookie cutters  –  one size definitely does not fit all. While you can gain a sense of what your company’s code might include by looking at other companies’, keep your thinking as singular as possible. “It’s really critical that the code of ethics fits the values and mission of the specific company,” says Alice Peterson, president of Listen Up Group, a Chicago provider of services for confidential employee reporting of wrongdoing. “That also means you should never go to somebody else’s Web site and copy theirs.”

3. Include employees in developing a code of ethics. Nothing may be more ineffective than a code of ethics that comes down as an executive mandate. When considering those issues that should be part of your code of ethics, ask others throughout your company what they think is important. Not only will that strengthen the overall scope of the code of ethics, but employees will also be more accepting of ethical guidelines into which they had input.

4. Train your people to be ethical. Even the most thoughtful code of ethics is of little use if a company doesn’t know what it really means. That makes employee training particularly important. Arrange for classes, seminars or meetings to lay out the specifics of your code of ethics and what it means to everyone’s daily activities. “Ethics training should include vignettes and stories that come from the company, so that the subject is real for everybody  –  everyone from the mailroom to the corner office,” Peterson says.

5. Post your code of ethics internally, and set up a reporting system. While you don’t want to encourage a network of snitches
and informants, employees will need a way to let someone know about any ethics breaches they may see. Peterson recommends a two-tier system. First, she suggests a complete open-door policy so that employees know that information is always welcome. Moreover, consider accepting anonymous reports. That, too, may help overcome some employees’ reticence to report ethics code violations.

6. Consider appointing a compliance person. Obviously, a company’s ethics should be of concern to everyone within the organization. But, if it’s feasible, it can be advantageous to appoint a compliance officer whose responsibilities include investigating ethics problems. If nothing else, that can make it much simpler to know to whom employees should pass along suspected ethics missteps.

7. Follow up on any ethics violations you uncover. Just like failing to publicize and promote your code of ethics to your employees and others renders it virtually meaningless, failing to act on ethics violations will disable even the best intentioned of company efforts. When drawing up your code, specify what range of penalties go with certain missteps and violations. Lay out an appeals process. Make sure everyone in your company knows the ramifications of violating the code. “Holding people to ethical conduct is something many people are very poor at,” says Sun. “It requires some confrontation and a lot of leadership skills.”

8. Live it from the top down. It’s critical that no one person in a company ever appears to be above a code of ethics. That means it’s particularly important that executives and top managers also adhere to the guidelines of an ethics code. If managers say one thing but do something else, that’s nothing more than a license for the rest of the company to follow suit. “Good role modeling by top managers is a must,” Swanson says. “Without it, ethics codes can be seen as mere window dressing.”