Code of Ethics: Making Your Business Valuable

As children, we were taught right from wrong, good from bad. Then we took those values and modeled ourselves from that internal code of ethics. Over the years we develop and build our personal codes, and organizations should apply that same approach in designing standard ethical guidelines for conducting business.

building_blocksEnforce the Code from the Top-Down
Leaders have to create and enforce a standard code to have a solid and realistic set of guidelines. Then, they should implement these guidelines throughout the organization. If it starts at the top, the example can trickle down through the organization, creating an ethical business culture. Every employee should be equipped with the knowledge to handle daily moral dilemmas using this code without exceptions or deviations, which is where many organizations’ ethical codes tend to fall apart. Annual employee training also will help enforce the code.

Create Core Values
A well-thought-out corporate mission, vision, and core values statement are important in driving business strategy and creating company values. Senior leadership must regularly and clearly communicate these messages to their team and continuously endorse them. The companies with the highest ethical values win customer trust, gain employee loyalty, and benefit from increased revenue over a sustained period of time.

quotes

Value = Ethics
Without a definitive set of guidelines, organizations will inevitability try to boost their bottom line however they can. But don’t ever compromise your values to get ahead. Instead synchronize your values with your plans for the future of your business. If you have a great commitment to values but not the right leadership and strategy, you’re doing a disservice to customers and all other stakeholders. Your emphasis should be on doing both. Ethics is at the core of what makes a business successful.

How do you make your business valuable? How do you implement your company’s code of ethics?

Written by Jeff Thomson, CMA, CAE
Follow me on Twitter @ima_JeffThomson

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8 thoughts on “Code of Ethics: Making Your Business Valuable

  1. Jeff,
    Your article is timely and so important, even if we will not all feel urgency in applying the wisdom of strengthening our ethical muscles. In yesterday’s IMA Michigan Council Regional Conference, Professor Marianne Jennings observed that “Tone at the Top” was insufficient as a topic of discussion to enhance corporate ethical behavior. She noted that all to often, leaders may not have anyone willing to challenge the ethics or underlying values in their decisions. An excellent example came out of Alan Mulally, past CEO of Ford Motor Co., who sat down with his top executives and told them not to leave until someone had told him what was going wrong in their department. After an uncomfortable pause, one man volunteered what seemed to be risky information, and later this person was promoted as a counterexample to the “shoot the messenger” mentality which all to often prevails in the C-suite. How often do we ignore rather than encourange voices that contradict what we think we want to do? Do we have “many counselors” or are we so self-reliant that we only hear what we want to hear?
    This is a rich area for examining our tendencies and how they may impact the health of our organizations. Thanks again, Jeff.

  2. Chris, great comments as always. In the IMA/ACCA research report published on August 20 (A risk challenge culture), we state: “Skepticism and a culture in which people are actively encouraged and rewarded for challenging decisions can be highly effective in ensuring that organizations take the right course, and must be actively promoted.” An unwavering (continuity) and relentless (depth) approach to professional skepticism requires courage and tone throughout the business.

  3. It sounds easy, but how does an organization build a sustainable culture of internal skepticism and challenge in a constructive way to advance the organization’s mission and strategy?

    • Marc,
      Consider the lessons taught by Patrick Lencioni in his book The Advantage:
      Discipline 1: Build a Cohesive Leadership Team
      Discipline 2: Create Clarity
      Discipline 3: Overcommunicate Clarity
      Discipline 4: Reinforce Clarity
      The subtitle of the book is more to the point of your question: “Why Organizational Health Trumps Everything Else in Business”
      I submit that the culture to which Jeff results is enabled by and leads to Organizational Health by clarity over the benefit of internal skepticism and constructive challenge. If the firm’s leaders have unwavering focus and a courageous openness to self-inspection or criticism, then improvement is possible and even more likely, whether in an ethos of integrity and transparency or other business objectives such as increasing shareholder value or implementing a sustainable operation.

  4. I appreciate the discussion on the topics of codes of ethics and ethics training. As Chris noted, I have been exploring the issues of codes and training because, for example, Mathew Martoma, a former portfolio manager at SAC Capital, was convicted of insider trading and sentenced to 9 years in prison. He had paid a physician/professor to feed him advance information about pharmaceutical trials. At his trial, testimony indicated (used to establish scienter) that Mr. Martoma had attended his ethics training in 2007 and 2008, including specific training on insider trading. But, he got a $9.4 million bonus in 2008 for the money he made for the firm based on the inside information he obtained from the prof/doc. Ironically, the training included examples similar to what he did because the research networks were causes for concern at many firms.

    So, here was a company (SAC) that had a code of ethics that was fabulous and a former head of the SEC conducting its ethics training and, yet, there were 9 managers who were convicted or entered guilty pleas to insider trading. SAC paid a $600 million fine.

    What goes on here? Well, incentive plans, pressure, attitude of the leaders, and many complex psychological issues are at play here. All the ethics training in the world would not have stopped baseball players from using PEDs because their clubs, the industry, and, yes, even the fans loved the hits those increasingly large players made. Likewise, all the ethics training programs at banks, mortgage companies, Goldman, and other investment banks did not stop conduct that was, at best, misleading, and, at worst, fraud. The industries were too far gone — CEOs of companies were consumed with a herd mentality. Ethics codes and training are checkmarks. The real ethical issues are never addressed because employees are rewarded for doing things management signals that it wants done in order to compete.

    Beyond the checkmarks, managers and leaders need to look at behaviors in the firm that bring rewards and practices in the industry that are questionable. In these areas they can find clues about what employees are up to and adjust compensation, enforcement, and their own conduct and strategies accordingly.

    Internal auditors and management accountants cannot fix financial statement manipulation through codes or training. They need the help of leaders and their own profession in stepping beyond excuses such as “it’s not material” to a higher standard of ethics that understands those first steps of reliance on materiality lead to more rationalizations and, eventually, restatements. They all need to ask the question, “Yes, but is it a qualitative indicator of what is really going on at the company?” Something may be immaterial but speak volumes about how well the company is really doing given its reliance on technicalities in reporting.

  5. Very powerful, thanks alot Marianne and hoping all is well. “Tone throughout”, not just tone at the top, is critical and it takes time to build the culture.

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