Code of Ethics

A code of ethics sets out an organization’s ethical guidelines and best practices to follow for honesty, integrity, and professionalism. It is a document that outlines the core values and ethics of business that professionals must follow. The codes of ethics are determined by the professional body, company management or the association. The main types of codes of ethics include a compliance-based code of ethics, a value-based code of ethics, and a code of ethics among professionals.

A code of ethics will start by setting out the values that underpin the code and will describe an organization’s obligation to its stakeholders. The code is publicly available and addressed to anyone with an interest in that organization’s activities and the way it operates. It will include details of how the organization plans to implement its values and vision, as well as guidance to staff on ethical standards and how to achieve them.

Types of Codes of Ethics

A code of ethics can take a variety of forms, but the general goal is to ensure that a business and its employees are following state and federal laws, conducting themselves with an idea that can be exemplary, and ensuring that the business being conducted is beneficial for all stakeholders. The following are three types of codes of ethics found in the business.

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 behaviour. Despite strict adherence to the law, some compliance-based codes of conduct do not thus promote a climate of moral responsibility within the company.

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 compliance-based 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.

Code of Ethics Among Professionals

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.

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).