Organizational codes of ethics: rationale and implementation

Code of Ethics

Modern organizations usually have a code of ethics. Such codes can contain a mix of philosophical considerations, basic overviews, and specific, actionable elements. There are a number of reasons why organizations want or need a code of ethics, and in many cases such rational is built directly into the code, or at the very least strongly influences it.

Reasons for Having a Code of Ethics

The first main reason for having a code of ethics is legitimacy. In many organizations, a code of ethics is something that distinguishes the professional organization from the unprofessional one. As organizations grow, it becomes more difficult to guide behavior throughout the organization, so formal structures are required in order to facilitate this, and a code of ethics is one of these structures. Both external and internal structures see the code of ethics, and recognize that the organization understands the value of ethics in operations, and in legitimizing itself as a trustworthy organization (Preston et al., 1995). A good example of the need for legitimacy arose in the early 2000s with a multitude of corporate scandals. These scandals typically were perpetrated at the highest levels of the organization. As such, investors could not feel confident about companies unless the people at the top of those companies showed evidence of being committed to the highest ethical standards. A code of ethics was often instituted, along with some sort of blanket statement about corporate governance.

Another reason for having a code of ethics is to specifically govern behavior within the organization. Many codes provide the justification for remedies within an organization, such as training employees, censuring those who commit ethical violations, or even just defining what an ethical violation is. The code of ethics is something that can help with organizational behavior (Trevino, Butterfield, McCabe, 1998).

How Codes of Ethics Work

Ethical policies start with a philosophical underpinning. This is typically rooted in the broader ethics of the society in which the organization has arisen, but there are instances where that might not be the case. Either the organization wishes to take a more universal approach to ethics, or in some cases companies have codes of ethics that reflect mostly the interests of shareholders. Business ethics can be quite different from the sense of right and wrong that most people have -- that disconnect often reflects in controversies, such as those about minimum wages, offshoring and sweatshops.

Once the organization has a root philosophy with respect to ethics, this needs to be explained in a general sense. From there, the ethical principles actually need to be operationalized. In many organizations this does not happen, but a code of ethics is only an useful as its training and enforcement mechanisms. The organization has to include its ethical principles in the onboarding and training processes, and have a system by which the standards can be enforced. Organizations vary significantly with respect to the guidance that they provide their employees with respect to ethics, some providing highly specific information and others merely offering the loosest guidance. Organizations that provide a greater degree of clarity in this matter likely see more commitment to ethical behavior, because everybody within the organization understands the boundaries of expected behavior.

Policies

Having a code of ethics is the bare minimum that an organization should do. There is enough reason to think, however, that a code merely serves as a framework. Without actual policies -- training, guidance, and resources -- the code does not hold much meaning, and probably will not influence organizational behavior much. Thus, it is important that the policies specifically operationalize behavior. One of the major issues with ethics codes and policies is that they are too general. Policies that only cover obvious situations (i.e. "treat customers with respect") do not provide any clarity to assist employees when they are faced with genuine ethical dilemmas. Further, many companies write codes that do not seem to grasp the difference between an illegal act (i.e. Enron) and an ethical violation. An ethical violation is when there is an ethical dilemma -- choosing not to be a criminal is not an actual ethical dilemma. What employees need is genuine guidance when faced with challenging ethical situations.