Code of Conduct, Ethics, and Leadership Conflicts in Business

Introduction to Codes of Conduct

In recent years, several well-publicized scandals involving the improper management of ethics and values within large business organizations have emerged, bolstering the importance of business ethics in modern society. Among the most notable is the scandal involving global corporation Tyco. Cases such as this have led to the enactment of many laws, regulations, and recommendations for companies to implement in order to protect their business and their employees. One such recommendation is the adoption of a code of conduct for all staff members to follow. A code of conduct within a regulated profession has shown to have a significant impact on the ethical culture of an organization and the values of its leaders.

A code of conduct is a written framework of internal controls and business standards that integrates values such as honesty, trust, and integrity, and helps set the tone for the entire company. However, conflicts between a code of conduct and the personal ethics of individual leaders have existed in many organizations. This paper discusses a code of conduct that I have worked under and the ramifications of its existence within the organization.

A code of conduct can be described as a company's way of establishing a commitment to integrity and high ethical standards across all of its business operations. Ideally, this commitment would be demonstrated in all employees' actions, both individually and collectively. Employees are expected to refrain from illegal and unethical conduct, and supervisors must ensure that their employees understand what is expected of them and exemplify proper conduct by following the standards set forth in the code. Because all employees represent the organization in their relations with others — including customers, competitors, and investors — they should act in ways that maintain or enhance the company's reputation. This required standard of business ethics can be compared to decisions that an individual would feel comfortable disclosing to his or her family. In recent decades, fraud and corruption have emerged as among the greatest threats to economic development and business management. Any business with long-term interests will ultimately be harmed by plans that involve fraud or a lack of internal controls.

Ethics and Values in Business

Ethics is generally a term used to describe a set of values that define what is right or wrong, good or bad. From a professional and scientific perspective, the ethics of business and the moral code of society are inseparable and sometimes indistinguishable. Ethics is a branch of philosophy concerned with the principles and standards of human conduct. Values and beliefs are cultivated strictly through ethics, which serves as the philosophy and science for determining what values to hold and when to hold them (Bottorff, 2004). Morality and ethics are closely linked in the operation of a business. One of the most important characteristics of moral judgments is that they express values. Moral judgments are made about actions that involve choice — it is only when people have genuine alternatives that we conclude those actions are either morally good or morally bad. In cases where business ethics have failed, leaders in management positions have covered up losses and manipulated data so that companies would continue to appear successful.

A code of conduct combines ethics and values into the mission and goals of a company. A company's business depends on the public's continued trust and confidence; it is therefore important to recognize that even the appearance of a conflict of interest or an ethical concern can be just as damaging to a company's reputation as an actual conflict. In relation to ethics, a company's code of conduct will typically state that employees should avoid any relationship with other people or businesses that might impair the proper performance of their job responsibilities. Employees must also avoid actions or business relationships that would compromise their independence of judgment with respect to dealings between the company and any other business or individual.

For example, a code of conduct would generally provide that an employee should not engage in a profit-making occupation outside of their regular duties with the company if that outside employment: (1) competes with the company or provides services to a competitor; (2) interferes with assigned duties, such as by requiring company time, property, or facilities to perform outside work — including making or receiving phone calls or electronic communications, handling correspondence, or receiving visits from outside customers; or (3) diminishes the employee's ability to devote the necessary time and competence to their duties with the company. A code of conduct may also prohibit employees from making any investment in a competing business, or any supplier, subcontractor, or client of the company. In addition, full-time employees are generally expected to devote their full working time, attention, and energy to their duties with the company.

A review of leadership strategies at several large companies illustrates how a company's code of conduct can conflict with the ethics and values of individual managers. Such conflicts are not merely theoretical — they have played out in high-profile corporate scandals with severe financial and legal consequences. When a leader's personal values diverge from the organization's stated ethical standards, the resulting behavior can undermine the entire framework of the code, sending a signal to other employees that the code is negotiable or unenforceable.

Conflicts Between Leadership and the Code of Conduct

Employees are expected to avoid any actions or relationships that would compromise their independence of judgment. Yet when a leader visibly disregards these expectations, the code's authority is weakened at every level of the organization. The sections below examine both a well-known external example and a personal workplace experience to illustrate how such conflicts arise and what consequences follow.

The recent Tyco International scandal provides a prominent example of a company in which leadership ethics conflicted sharply with the stated code of conduct. Tyco was hailed as one of America's fastest-growing companies; from 1997 through 2001, its revenues rose by 48.7% per year, while pretax operating margins improved to 22.1% (Bianco et al., 2002). Yet behind this apparent success, CEO Dennis Kozlowski was stealing money from the company, setting up an unauthorized relocation plan, and abusing the company's Key Employee Loan Program — a program originally established to help executives pay taxes due upon the vesting of restricted shares. From 1997 through 2001, the CEO allegedly used the loan program and covert relocation accounts like revolving credit lines, drawing on one or the other for hundreds of millions of dollars in interest-free funds (Bianco et al., 2002). In addition, the CEO misappropriated $43 million in corporate funds to make philanthropic contributions in his own name. He was ultimately investigated in 1999 by the Securities and Exchange Commission and resigned just before his indictment.

Conclusion

A review of the literature indicates that conflicts between a company's code of conduct and its leadership can cause some very serious problems. As a result, companies must consider all possible perspectives and anticipate unexpected circumstances that may arise both when writing and when implementing a code of conduct. The cases examined here — the Tyco scandal and the international workplace experience described above — demonstrate that a code of conduct is only as effective as the leaders who model and enforce it. Organizations that fail to hold leadership accountable to the same standards expected of all employees risk undermining the very values the code is designed to protect. Proactive planning, consistent enforcement, and a genuine commitment to ethical leadership are essential if a code of conduct is to shape organizational culture rather than merely decorate it.