Chapter 12

Establishing a Code of Ethics and Ethical

Guidelines
Understanding Business Ethics
Stanwick and Stanwick
2nd Edition

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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How We’re Fixing Up Tyco

• Eric Pilmore, the new senior vice president of
corporate governance at Tyco, had to
determine how he was going to repair the
tarnished image of Tyco.
• Tyco would have to start from scratch to
develop a new code of ethics in order to
reestablish credibility with its stakeholders.

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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How We’re Fixing Up Tyco

• Established the Guide to Ethical Conduct
which was applicable to all employees
– Covered ethical areas such as sexual harassment,
potential conflicts of interest, compliance rules,
and fraudulent behavior
– Also developed ethical vignette videos to highlight
potentially unethical behavior in different
situations

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Role of a Code of Ethics

• A code of ethics is a written document that
explicitly states what acceptable and
unacceptable behaviors are for all of the
employees in the organization.
• Components that impact the development of
the ethical standards of the firm
1. Social value
2. Institutional factors
3. Personal factors
4. Organizational factors
Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.
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Role of a Code of Ethics

• Four types of statements a corporation
may adopt to communicate the
corporation’s view of ethics:
1. Values Statements
2. Corporate Credos
3. Codes of Ethics
4. Internet Privacy Policies

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Code of Ethics and Stakeholders

• Code of ethics gives a firm an opportunity
to declare its ethical vision to all its
stakeholders
• Four ethical values to consider when
developing a code of ethics:
1. Integrity
2. Justice
3. Competence
4. Utility
Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.
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Code of Ethics and Stakeholders

• JCPenney
– Developed one of the first corporate codes of
ethics
– Stores were originally called the Golden Rule
Stores
– In 1913, when the JCPenney stores were
formed, the Penney Idea was adopted

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Benefits of a Code of Ethics

• Employee loyalty increases
• Questionable behavior decreases
• Competitive positions improve
• Managers get more confident
• Employee relations improve
• Customer relationships get more solid

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Content of a Code of Ethics

• Meeting customer expectations
• Honesty and Nondelegable quality
• Traceability and Respect for privacy
• Avoidance of conflicts of interest
• Antidiscrimination
• Empowerment through organizational freedom,
responsibility, and authority
• True reports and Integrity
Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.
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Code of Ethics Content Areas

• Fiduciary responsibilities • Absence of prejudice
• Compliance and harassment
• Accounting • Conflict of interest
• Governance • Human resources
• Member • Cooperation with other
communications and credit unions
confidentiality • Social responsibility
• Commitment to learning
and skill enhancement

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Role of Total Responsibility Management
and a Code of Ethics
• Total Responsibility Management (TRM)
– Starts with the premise that the vision of the
firm drives the development of the code of
ethics
– The firm’s vision establishes the benchmark
goals in which the firm is now accountable to
its stakeholders

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Total Responsibility Management

• Three major stages of the TRM system

1. Inspiration process
2. Integration process
3. Innovation and improvement process

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Total Responsibility Management

• Inspiration Process
1. Vision setting and leadership commitment
2. Responsibility vision and leadership
commitments
3. Stakeholder engagement processes
4. Foundation values

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Total Responsibility Management

• Integration: Changes in Strategies and

Management Practices
1. Strategy
2. Building human resource capacity
3. Integration into management systems

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Total Responsibility Management

• Innovation: Focusing on Assessment,

Improvement, and Learning Systems
1. The responsibility measurement system
2. Transparency and accountability
3. Innovation, improvement, and learning
systems

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Steps for an Effective Code of Ethics

• Many companies begin their ethical
codes with a mission statement
– The mission statement sets forth a brief
explanation about what the company
stands for and why it exists
• Also identifies stakeholders of the company
and explains the interactions with the group

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Elements of a Good Ethics Program

1. A well-designed code of ethics

2. The assignment of functional
responsibility
3. The proper employee training
4. An ethics hotline

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Role of Government Regulations

• Section 406 of the Sarbanes Oxley Act
of 2002 requires companies that are
publicly traded to disclose whether or
not they have a code of ethics
– If code of ethics does not exist, the
company must explain why
– Based on SOX requirements, only top level
managers are required to be held
accountable to the firm’s code of ethics

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Global Code of Ethics

1. Caux Round Table Principles
2. Organization of Economic Co-operation
and Development Guidelines for
Multinational Enterprises
3. United Nations Global Impact

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.

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Questions for Thought

1. Do you think codes of ethics really
make a difference in an organization?
Explain.
2. Find the Code of Ethics for
UnitedHealth on the internet.
Comment on the topics addressed in
UnitedHealth’s Code of Ethics. Do you
feel the code adequately achieves its
purpose?
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Questions for Thought

3. Many companies ignore or overlook
differences in translating codes of
ethics into other languages. Why is it
important to have codes of ethics
translated into the native languages of
the countries in which the company
may operate?

Understanding Business Ethics 2nd Edition © 2014 SAGE Publications, Inc.