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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

Codes of Conduct: Are we honorable or are we hypocrites?

Yes, it should set out rules to follow. Here’s the company position about conflicts of interest. About giving and receiving gifts. About political contributions. And so on.

But there’s something even more important and deeper than those rules.

The Code of Conduct is a statement by top management – the chairman or CEO – about what the company truly believes.

There’s something powerful in a simple statement that says, “This is what I believe. And this is how our company and everyone in it is expected to behave.” The act of declaring publicly what we believe sets the course of our behavior. Once we tell other people what we truly believe, then we become accountable. If we live up to those beliefs, we have behaved honorably. If we don’t live up to those beliefs, then we’re hypocrites.

The Code of Conduct is like a flag that declares what we stand for. It tells the stakeholders and the rest of the world what our standard of behavior must be. Then it acts as a gauge for accountability, a way to measure if we are honorable or if we are hypocrites. That accountability is one way the mere presence of a strong and clear Code of Conduct helps drive compliance forward.

Because Codes of Conduct send such a powerful signal to employees and others, often the most important words in the code come at the beginning — in the introduction, or the CEO’s letter, or the prelude.

For example, ThyssenKrupp’s Code of Conduct is introduced by a letter from the company’s Executive Board. The letter says the Code of Conduct “sets a standard for ourselves and at the same time represents a promise that we will act responsibly both externally in our dealings with business partners and the general public as well as internally in our interactions with colleagues.” That’s good. It set out the expectations for behavior. I like the use of the word “promise.”

But to be honest, ThyssenKrupp’s words are rather “industrialized.” Somehow they lack  . . . . flesh and blood. They fall a bit short of being genuinely human and personal.

Compare ThyssenKrupp’s words with the message from Ian Read, the chairman and CEO of Pfizer. In the preamble of Pfizer’s Code of Conduct, he says,

Our commitment to doing the right thing, which means complying with both the spirit and the letter of the laws that govern our industry, gives us a competitive advantage. Acting with integrity depends on each of us giving our full commitment. The responsibility lies with all of us — it’s mine, it’s yours, it’s all of ours.

That’s clear, direct, and simple. And it’s personal. Mr. Read takes responsibility himself. And he gives responsibility to each employee. Mine, yours, ours.

An even stronger statement comes from Jim Umpleby of Caterpillar. In his introduction to the company’s Code of Conduct, he says: “I think our Code of Conduct is the most important document we produce at Caterpillar.” Wow. That’s a powerful statement. Any big company produces a lot of documents every day. And many of the documents are important. But Mr. Umpleby says one document — the Code of Conduct — is the most important. I believe him.

So it’s crucial to be clear and personal when telling employees and others why there is a Code of Conduct and how it should impact our daily lives. The reason, after all, is accountability.

Are we acting honorably? Or are we falling short? Let’s measure ourselves against the Code of Conduct.


Richard L. Cassin is the publisher and editor of the FCPA Blog.

A version of this post first appeared in Compliance Management Magazine and is republished here with permission.

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  1. I almost never disagree with Dick Cassin, but I would like to suggest a different approach regarding codes of conduct. I am less of a fan of codes of conduct than many others are. I don’t think employees measure the CEO or top management by what they say; they measure what they do. I would rather not have the CEO just saying all the right things. Better to have the boss actually DO the right thing. The Enron code is probably the most frequently cited example, but in general I believe employees discount these codes unless they see concrete management actions to back them up. As I heard Professor Mollie Painter Morland once say, “a company’s real code of conduct is its budget.”

    Another concern is to have the CEO sit on his or her mountaintop and condescend to share his or her wisdom with the lesser beings who work there. Really, does the CEO actually know what life is like in the field and in the remote offices? Instead, consider starting the work on the code by talking to the people who work there. They will tell you what the company’s real values are. If the people in headquarters want to do a first draft, fine. But then take it to the field and the workers, listen carefully to them, and then write a code that really matches the company’s actual values.

    Cheers, Joe

  2. Joe makes a good point.

    And the other thing to keep in mind is that the CEO might even have the best of intentions, but if there is a disconnect between the CEO's message "on the mountaintop" and the reality on the ground I think there is a case that "happy" messaging from the CEO might even be more damaging than nothing at all.

    I think of John Stumpf (formally of Wells Fargo), his arm in a sling and hangdog expression on his face, sitting in front of the Congressional committee and (seemingly sincerely) talking about the "strong " culture of ethics at Wells Fargo. Let's take him at his word. He believed it, but through a series of bad systems, misguided incentives and a lack of focus and resources the reality and the culture that many lived was much different.

    But Richard is right too. If you don't believe us, believe the DOJ who has said (in the context of FCPA specifically) that the Code is the "foundation". If the foundation isn't there then there is nothing to build on. But you can't live with only a foundation. That's just the first step of many.


  3. A well written Code of Conduct is the foundation on which a company's ethical culture is built. However, it is only one component of an effective ethics and compliance program which must be built on four strong pillars. The first is Direction – Senior management must spell out for employees they kind of behavior that is expected, and that which is prohibited. This is where the Code of Conduct comes into play and the more real-world, practical direction it provides the better. If ethical behavior is genuinely important to the CEO, and it is clear from the Code of Conduct, it has a chance of being important to the company's employees. Would that it were enough.

    As James Madison famously wrote in Federalist 51, "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary." Which brings us to the second pillar of an effective ethics and compliance program: Prevention. Much as the CEO would hope and expect all employees to abide by the tenets of the Code of Conduct, employees are not angels. Therefore, the ethical company will deploy measures aimed at preventing, or at least deterring, unwanted behavior. An organizational structure which applies appropriate segregation of duties is pretty basic and will help prevent many bad things from happening. Many but not all.

    Despite best efforts to guide employee behavior, companies need a mechanism to determine if their directive and preventive controls are actually working. Enter the third pillar, Inspection. Internal and external audits, SOX testing, investigations, etc., are the most common tools for this job. And when they reveal weaknesses, the fourth pillar, Correction, uses root-cause analysis to address the underlying conditions that allowed the unwanted behavior to occur.

    So, yes. A clearly written Code of Conduct is mandatory, but it is only the starting point for a comprehensive approach to ethical behavior.

    – Jack –

  4. A written Code of Conduct is important to set a bench mark for acceptable behaviour. The comments above about enforcement are equally valid and there should always be a policy for the whistle blower (with stated protections) but also a reference to frivolous or nefarious complaints that may be personality driven!

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