The Importance of a Code of Conduct

codeCompanies and Chief Compliance Officers have taken significant actions to emphasize the importance of a company’s code of conduct.

A well-designed code of conduct is a foundation for an effective ethics and compliance program. It is the core from which other policies and procedures are designed. It presents the company’s ethics and compliance program as a unified whole, without irrelevant detours into other topics.

A company has to take two important actions in rolling out its code of conduct.

First, the company’s code of conduct has to be short and straightforward. It should not be a lengthy document; indeed, it should be a short recitation of the company’s values and principles, along with a brief mention of important substantive compliance issues.

Second, the CCO and his/her staff should conduct code of conduct training. It is an important way to communicate the company’s culture of ethics and compliance. It should foster a dialogue among training attendees concerning the company’s code and its culture.

When a company decides to implement a compliance program, or overhaul its existing program, I often advise the company to start with the code of conduct as a bedrock statement of compliance principles. The design of a code of conduct requires careful consideration of the message that a company wants to send to its officers and employees.

code4A lengthy, overly prescriptive code of conduct communicates a message of lack of trust – which the company believes it is important to tell its officers and managers exactly what they should do.

On the other hand, a general code of conduct that sets out the company’s culture and its ethical principles could have a strong impact on company officers and employees. A focused code of conduct can refer to separate policies (e.g. anti-corruption, antitrust, due diligence, AML) and underscore the importance of compliance with these policies.

A code of conduct is a critical opportunity to establish and communicate a company’s culture. You can always tell a great deal about a company’s culture from its code of conduct – whether it is committed to ethics and values; whether compliance is viewed as a very detail-oriented process; and whether the company values its culture or is focused on compliance with its policies and procedures.

Many companies are reexamining their codes of conduct. That is a good thing and will lead to new solutions and techniques. With the advent of intranet portals in a company and social media, a company can make sure that its code of conduct is concise, accessible and a well-reasoned and persuasive statement of corporate values and expectations.

code3A company should reexamine its code every three to five years, especially if the company has experienced any significant changes through growth or acquisition. The process for re-evaluating a company’s code should open the door to a broad discussion focused on the following important topics:

  • What values and principles do we want the company to stand for in the outside world?
  • What culture do we want to create in our company?
  • How do we build a culture that values integrity and trust?
  • What can we do to improve our “speak up” culture?

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