Corporate Codes of Conduct

Nearly every large domestic and multinational corporation today has a corporate code of business conduct as part of its formal corporate governance system. The nature and content of the codes vary considerably and they are influenced by the national cultures from which they originate and/or are applied. However, in general, corporate codes of conduct are voluntary, self-regulatory statements of business moral standards, legal compliance, organizational policy, and/or civic responsibility that hold those governed or affected by the codes accountable for ethical behavior in accordance with them.

Corporate codes of conduct can be classified into three categories: codes of compliance, codes of ethics, and codes of best practice. Codes of compliance emphasize strict alignment with enacted legal and regulatory requirements. For example, the passage of the Foreign Corrupt Practices Act in 1977, the creation of the 1991 U.S. Corporate Sentencing Guidelines, the implementation of the Sarbanes-Oxley Act of 2002, and other legislative enactments influenced the content of corporate codes of compliance by explicitly criminalizing executive actions that authorized inaccurate accounting and financial reporting to investors, resorting to global bribery to obtain business, and violating workplace health and safety standards. Corporate codes of compliance are designed to prevent criminal misconduct and to protect the firm from the risk of financial and litigation costs due to illegal and/or unethical employee behavior.

Corporate codes of ethics are not designed to prevent criminal misconduct but to enable current responsible corporate action. These codes state the values and principles that form the purpose of the corporation and the current prioritized moral responsibilities that employees have to all company market and non-market stakeholders and for which they are held accountable. For example, the Johnson & Johnson Credo is a corporate code of ethics that identifies and prioritizes the moral responsibilities of company leaders in making ethical strategic business decisions. This corporate code of ethics provided critical moral guidance to global corporate decision makers who took Tylenol off the shelves when product tampering was documented, thereby morally prioritizing the safety needs of current customers over the financial needs of current investors. The corporate code of ethics enabled uniform, timely, principled global business decision making in a crisis situation by providing value prioritization guidance and a comprehensive stakeholder moral frame of reference to exercise responsible business judgment—even when it would have been legally defensible to delay such a business decision.

Corporate codes of best practice are aspirational in nature and geared to the future direction of corporate moral progress. For example, the United Nations Global Compact and the Caux Roundtable's Code delineate moral best practices that would improve future world prosperity and global corporate citizenship relations between business and its many stakeholders worldwide. Such codes of best practice provide direction and incentives for continual corporate moral improvement in the global marketplace.

A corporate code of conduct is, however, only one part of an organization's ethics and compliance system. Its credibility among market and non-market stakeholders depends on the extent of participant drafting, transparency, monitoring and enforcement that were and remain part of its implementation. In general, codes which are drafted with the wide involvement of market and non-market stakeholders rather than narrowly promulgated as directives from top executives and company legal counsel are more likely to be taken seriously since all parties affected have been empowered to “own” the code standards.

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