Codes of Conduct: Values or Principles-Based?

Compliance professionals generally agree that a code of conduct is an essential component to communicating the standards of behavior that a company expects of its employees. But how best to accomplish that goal? Well, that's a whole other story.

Companies tend to break into two camps when it comes to what should be included in the corporate code of conduct. Some companies take a values-based approach, where they lay out a set of principles as a guide, while others go into far greater detail, providing chapter and verse on the specific policies of the company. Values-based codes tend to be much briefer than policy-specific codes. Which type of code is more effective is an open question for debate. 

An analysis conducted by Compliance Week of the codes of conduct of 50 large, global companies reveals that the majority of codes tend to follow a prescriptive approach, spelling out both the company's core values and then delving into specific rules of law. Fewer companies just provide the principles and leave employees to figure out how best to apply them. According to the findings, Boeing had the shortest code of conduct at one page, compared to BP's code, which at 100 pages is the longest. 

PepsiCo, which recently finished revamping its code, moved from a shorter to a longer version after reevaluating what it wanted the code to achieve. PepsiCo decided to abandon the strictly principles-based document that laid out the aspirational expectations of its employees, to include additional guidance.

“It seems like companies have gone toward this more conversational, longer format,” says Dave Yawman, chief compliance and ethics officer at PepsiCo.  “I can only imagine that it's designed to give people more guidance.”

“Do you want to lay out just where the destination points are, or do you want to put more of a map on how to get to those destinations?” says Yawman. “As we looked at PepsiCo and thought about how global and diverse our workforce is around the world, it became very clear to us that we needed the code to be this unifying set of standards.”

The decision to revaluate its code stemmed, in part, from what Pepsi considers a more complex regulatory environment, and new regulatory risks. “There are more topics in our new code than there used to be,” says Yawman. In addition to anti-bribery, anti-trust, conflicts of interest, and harassment, the new code also covers privacy, social media, and human rights issues.

Still, companies are conflicted on how to strike a balance between providing additional guidance and providing too much detail to be useful. Roy Snell, CEO of the Society of Corporate Compliance and Ethics, argues that companies today are making their codes far too long. “It irritates me to no end that the legal community has high-jacked the code of conduct,” he says. “If dithering on about the rule of law would solve our employee conduct issues, this problem would have been solved years ago.”

“Teaching people the rule of law is valuable; that doesn't mean you should do it in the code of conduct,” says Snell. The code of conduct is the only document companies present to employees to spell out their expectations. “Anything more than five pages becomes noise.”

Ron James, president and CEO of the Center for Ethical Business Cultures at the University of St. Thomas, says that the length of a code is less important than the corporate culture that supports it. “Personally, I think you can create a model that is shorter as long as it incorporates the basic principals around laws, rules, and regulations that employees needs to comply with, and links those to the standards of behavior that you express through your shared values and principles,” he says. “You have to have a combination of the two.”

Scott Gilbert, chief risk and compliance officer for global professional services firm Marsh & McLennan, agrees that the code of conduct is only part of the equation. You need a “well-articulated and real support of the CEO of the company, senior management, and the board,” but also a “really well-designed code that is easy to use, attractive to look at, and that works well as a source of guidance,” he says.

“It irritates me to no end that the legal community has high-jacked the code of conduct. If dithering on about the rule of law would solve our employee conduct issues, this problem would have been solved years ago.”

—Roy Snell,

CEO,

Society of Corporate Compliance and Ethics

Marsh's code of conduct is derived from speeches by CEO Brian Duperreault, stressing how the work employees do is important, and how each employee has a responsibility to behave in an ethical way. “The importance of ethical conduct was, therefore, being talked about at a really senior level as being a strategic imperative of the firm,” says Gilbert.

Aircraft maker Boeing takes a decidedly high-altitude approach, stressing just a few core principles that the company hopes will influence all employee decisions and interactions. “We emphasize personal accountability as an opportunity and responsibility for every employee to affect his or her work environment and have made this a part of our code,” says Wanda Denson-Low, senior vice president of the Office of Internal Governance. “We don't believe that making the Boeing Code of Conduct longer will ensure a better understanding of the company values or each employee's commitment to standards of behavior.”  Boeing's code of conduct weighs in at a compact 314 words.

“Tone at the top is important, but to impact real change, there has to be commitment at all levels of the company, especially among mid-level and first-line managers,” Denson-Low adds.

While a shorter code leaves more gray areas, they are more adaptable than longer, more specific codes. James stresses that a good code of conduct is forward looking. They “look into the future and anticipate what may be coming up,” he says. “That's where your principals, your values, or your ethics could come into play, because they provide a general direction.” James says that a common weakness among longer codes is that they can sometimes be “rearview mirror-looking.” They often look back at what has happened in the past and establish a standard of behavior responding to that, he says.

Interactive Codes

Others argue that having broad abstract principles is not enough. “One of the things we learned through focus groups and through talking with people is that they really want to see examples in the code of the kinds of situations that are likely to present themselves and what the suggested outcomes are,” says Marsh's Gilbert.

BOEING CODE OF CONDUCT

Below is the text of Boeing's Code of Conduct:

The Boeing Code of Conduct outlines expected behaviors for all Boeing

employees. Boeing will conduct its business fairly, impartially, in an ethical and

proper manner, in full compliance with all applicable laws and regulations, and

consistent with the Boeing values. In conducting its business, integrity must

underlie all company relationships, including those with customers, suppliers,

and communities and among employees. The highest standards of ethical

business conduct are required of Boeing employees in the performance of

their company responsibilities. Employees will not engage in conduct or activity

that may raise questions as to the company's honesty, impartiality, reputation

or otherwise cause embarrassment to the company.

As an employee of The Boeing Company, I will ensure that:

I will not engage in any activity that might create a conflict of interest

for me or the company.

I will not take advantage of my Boeing position to seek personal

gain through the inappropriate use of Boeing or non-public

information or abuse my position. This includes not engaging in

insider trading.

I will follow all restrictions on use and disclosure of information.

This includes following all requirements for protecting Boeing

information and ensuring that non-Boeing proprietary information

is used and disclosed only as authorized by the owner of the

information or as otherwise permitted by law.

I will observe fair dealing in all of my transactions and interactions.

I will protect all company, customer and supplier assets and use

them only for appropriate company-approved activities.

Without exception, I will comply with all applicable laws, rules

and regulations.

I will promptly report any illegal or unethical conduct to management

or other appropriate authorities (i.e., Ethics, Law, Security, EEO).

Every employee has the responsibility to ask questions, seek guidance, and

report suspected violations of this Code of Conduct. Retaliation against

employees who come forward to raise genuine concerns will not be tolerated.

Source: Boeing.

“That methodology—talking to people and getting their reactions—really informed the design and creation of the new code," says Gilbert. In response, it is much more interactive, consisting of Q&As about what employees should do in certain situations, or where they should go for help. Kimberly Clark, Yahoo, Tyco, and Manpower also include interactive features in their codes of conduct.

PepsiCo took a similar approach by including Q&As and hyperlinks that direct employees to additional information where necessary. “It's more in the vein of sounding like a conversation with employees—more than just an aspirational statement of principles,” says Yawman. “We've been getting good feedback.”

Ultimately a code of conduct comes to greater life by the training programs that support it and the awareness tools that come with it, says Yawman. “You have to find a way to drive people to find the code and read it and be aware of it,” he says. “It's a good standalone document, but it's certainly one piece of a broader program.”

Marsh & McLennan, for example, issued a 50-minute training documentary that was translated into 15 different languages in combination with the release of its code.

Threaded throughout the film are specific messages about such issues as insider trading, contractual limitations of liability, and the importance of individual responsibility.  Other companies to release ethics videos include BearingPoint, CA Technologies, and DynCorp.

No matter whether a code of conduct is principles-based or rules-based, long or short, “codes of conduct need to be living documents,” says Denson-Low. “We encourage employees and managers to have team discussions about how the code applies to their work. This approach helps employees understand their role in keeping the principles of the Boeing Code of Conduct integral to their day-to-day activities.”