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Why it is important to have a Company Code of Ethics Policy

Updated on March 31, 2011
C.V.Rajan profile image

C.V.Rajan is a retired Engineer. Backed by 3 decades of industrial experience, he writes on several aspects of business, management and HR.

It is easy for companies to make quick profits by turning a blind eye to ethics and principles in business practices in the short run. Some businessmen even justify unfair business practices saying “money earned by selling fish does not stink”. But that is far from true, if you take long term profitability, respectability and prestige of the company.

Employees and executives working in a company may have their own personal views about what is right or wrong in business practices, but what the owners or promoters of a company think on these matters is what really counts. If the owners of a company have clear cut views about what they consider as ethical practices of running the business, they must be communicated in black and white down the line. That’s where the importance of a company code of ethics policy is important.

  If it were not to be there, there will be conflicts of opinion, embarrassment, loss of prestige and reputation, witch hunting, governmental interference and even law suits to be faced when executives in charge of key positions act contrary to ethics to bring in large profits by questionable means to the company.

 The company code of ethics should encompass several facets of the business activities including marketing, sales promotion, sales practices, dealership contracts, purchase policies, purchase terms and codes, vendor and sub-contractor issues, policies related to recruitment, promotions, transfers and retrenchments, perks given to executives, norms related to pollution control, employee codes of conduct, employee welfare/ social security, working hours and overtime issues, operational safety, contract labor issues and so on.

 Normally, the company codes of ethics should address, on priority and without ambiguity, the statutory requirements applicable to the state/ country where the business is functioning. In it, issues like non-deployment of child labor, payment of overtime to employees, employee social security/ medical insurance, safety codes, adherence to pollution control norms, tax issues etc will be covered.

 There are ethics issues that can be stated black and white. But there may be grey areas where there is scope for “turning a blind eye” or there may be difficulty in putting everything in black and white.

 For example, the company may not deploy child labor, but does it turn a blind eye to a subcontractor who does? The company may have strict safety norms and safety gear issued to its staff, but what about contract labors who come and work inside the company without adequate safety gear?

 The policy may state clearly that bribing a potential buyer to get orders is to be avoided; but what if the purchaser goes through correct norms to award a contract without bending or breaking rules, but to release the order without intentional delays, he expects a good job for his under-qualified brother-in-law in the company?

 Thus it is quite possible that there will be grey areas in codes of ethics and it may not be practical to put everything in writing. But that does not mean that companies should have their ethical codes maintained only by word of mouth. The attempt should always be to put codes in writing to the extent possible and it should be a widely known and circulated document.

 Only in specific cases, where a written code of ethics is not too practical, there has to be guidelines issued to the staff to consult and get directions from designated top executives who are authorized to guide on tricky ethical issues. It is also important that such persons’ ethical standing is unquestionably high.

The signs must be there clear and comprehensible.
The signs must be there clear and comprehensible. | Source


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    • GNelson profile image

      GNelson 7 years ago from Florida

      Code of ethics are great but why aren't CEO's held accountable. Too often corporations commit fraud or sales or safety violations and nobody is held accountable. The person in charge should be accountable.