Code of Ethics

What Is a Code of Ethics?

A code of ethics is a guide of principles designed to help professionals conduct business

honestly and with integrity. A code of ethics document may outline the mission and values of
the business or organization, how professionals are supposed to approach problems, the
ethical principles based on the organization's core values, and the standards to which the
professional is held.

A code of ethics, also referred to as an "ethical code," may encompass areas such as business
ethics, a code of professional practice, and an employee code of conduct.

Types of Codes of Ethics

The following are three types of codes of ethics found in business.

1. Compliance-Based Code of Ethics

For all businesses, laws regulate issues such as hiring and safety standards. Compliance-based
codes of ethics not only set guidelines for conduct but also determine penalties for violations.

In some industries, including banking, specific laws govern business conduct. These
industries formulate compliance-based codes of ethics to enforce laws and regulations.
Employees usually undergo formal training to learn the rules of conduct. Because
noncompliance can create legal issues for the company as a whole, individual workers within
a firm may face penalties for failing to follow guidelines.

To ensure that the aims and principles of the code of ethics are followed, some companies
appoint a compliance officer. This individual is tasked with keeping up to date on changes in
regulation codes and monitoring employee conduct to encourage conformity.

This type of code of ethics is based on clear-cut rules and well-defined consequences rather
than individual monitoring of personal behavior. Despite strict adherence to the law, some
compliance-based codes of conduct do not thus promote a climate of moral responsibility
within the company.

2. Value-Based Code of Ethics

A value-based code of ethics addresses a company's core value system. It may outline
standards of responsible conduct as they relate to the larger public good and the environment.
Value-based ethical codes may require a greater degree of self-regulation than
compliancebased codes.

Some codes of conduct contain language that addresses both compliance and values. For
example, a grocery store chain might create a code of conduct that espouses the company's
commitment to health and safety regulations above financial gain. That grocery chain might
also include a statement about refusing to contract with suppliers that feed hormones to
livestock or raise animals in inhumane living conditions.
 3. Code of Ethics - Based on Professions

Certain professions, such as those in the finance or health fields, have specific laws that
mandate codes of ethics and conduct.

Accountants

Certified public accountants, who are not typically considered fiduciaries to their clients, still
are expected to follow similar ethical standards, such as integrity, objectivity, truthfulness,
and avoidance of conflicts of interest, according to the American Institute of Certified Public
Accountants (AICPA).

Financial Advisers

Financial advisers registered with the Securities and Exchange Commission (SEC) or a state
regulator are bound by a code of ethics known as a fiduciary duty. This is a legal requirement
and also a code of loyalty that requires them to act in the best interest of their clients.

Code of Ethics vs. Code of Conduct

A code of ethics is similar to a code of conduct. Both are sets of professional standards to
guide the behavior of an organization's members.

However, there are some subtle differences: A code of ethics is used to ensure that members
have sound and unclouded judgment. Examples include the legal codes that prohibit lawyers
from accepting cases where they have a conflict of interest or those that prevent brokers from
trading against their clients.

A code of conduct, on the other hand, guides the specific actions of a company's employees.
It may contain certain norms of professional responsibility, such as punctuality and accuracy.
Most companies have an employee code of conduct, both to maintain professionalism and to
prevent friction among their employees.

How to Create a Code of Ethics

Organizations create codes of ethics in order to eliminate unacceptable or immoral behavior

from their members. These are typically structured around existing ethical issues within their
industry.

The first step is for the organization to identify its priorities, as well as any ethical issues that
it wishes to avoid. For example, an organization may want to avoid having conflicts of
interest, because of previous scandals in which employees acted against the interests of the
company or clients. As a result, their code of ethics might prohibit certain inappropriate
relationships, or prohibit employees from any appearance of a conflict of interests.

Example of Code of Ethics

Many firms and organizations have adopted a Code of Ethics. One good example comes from
the CFA Institute (CFAI), the grantor of the Chartered Financial Analyst (CFA) designation
and creator of the CFA exams. CFA Charterholders are among the most respected and
globally recognized financial professionals. According to the CFAI's website, members of the
CFA Institute, including CFA Charter holders, and candidates for the CFA designation must
adhere to the following Code of Ethics:

• Act with integrity, competence, diligence, respect, and in an ethical manner with the
public, clients, prospective clients, employers, employees, colleagues in the
investment profession, and other participants in the global capital markets.
• Place the integrity of the investment profession and the interests of clients above their
own personal interests.
• Use reasonable care and exercise independent professional judgment when
conducting investment analysis, making investment recommendations, taking
investment actions, and engaging in other professional activities.
• Practice and encourage others to practice professionally and ethically that will reflect
credit on themselves and the profession.
• Promote the integrity and viability of the global capital markets for the ultimate
benefit of society.
 Setting Standards of Ethical Behaviour
What is ethical behaviour in a business setting?
In a business setting, ethical behavior applies to any employee, team lead or supervisor. They
should display behavior that is honest and fair in their relationships with co-workers and their
clients. Displaying good ethical behavior can boost company morale and client relations.

What are the ethical standards of business?

Business ethics is an evolving topic. Generally, there are about 12 ethical principles: honesty,
fairness, leadership, integrity, compassion, respect, responsibility, loyalty, law-abiding,
transparency, and environmental concerns.

Why are ethical standards important in business?

Business ethics are the set of practices and policies that companies use to guide them through
decisions about finances, negotiations and deals, corporate social responsibility, and more.
Without a strong set of ethics, a business can run afoul of the law, encounter financial pitfalls
and moral dilemmas.

What is an example of ethical business behavior?

Basic business principles say that you should create a quality product and pay fair wages to
your employees. The corresponding business ethics examples could be that you shouldn't
falsely advertise your product and you shouldn't pay one race or gender more than another.

What is ethical business behaviour in India?

It is a set of standards that determines good and bad practices. Organisations seek to uphold
business ethics to recognize the impact they have on society. In India, business ethics have
been integral to business culture. The principles of honesty and integrity have solidified
business relationships over generations.

(Plus notes on Basics of Ethics)

Assessing Ethical Performance

How do you evaluate ethical performance?
One of the best metrics to measure ethics in the workplace is to get feedback on your
workplace culture. A good way of doing this is through anonymous employee surveys and
questionnaires, where employees can air out concerns about ethical dilemmas and suggest
solutions for how to make the company better.

How do you measure ethical performance?

1. Perceived features of the work environment (The Place) Perceived ethical culture at
workplace. Workplace ethical judgment and decision-making. ...
2. Traits and values of the employees (The People) Moral identity. Trust.
3. Reputation of the firm (in the eyes of outsiders)

What are the three tools used to measure ethical performance?

Three methods are used to measure ethical context: quantitative, qualitative, and mix
methods. Another tool that can be used is The Ethical Health Assessment Tool: an instrument
to use to assess their integrity systems and procedures. It is intended to form part of an ethical
health strategic framework. It may be used alongside other OPI tools and guides, such as the
Guide to building workplace integrity: indicators and practice.

Importance of Ethical Performance Assessment

(Same as importance of ethics in business)