Code of Ethics: Understanding its types, uses through examples (2023)

What is a code of ethics?

A code of ethics is a set of principles designed to help professionals conduct business with honesty and integrity. A code of ethics document can describe the mission and values ​​of the company or organization, how professionals are expected to address issues, ethical principles based on the organization's core values, and the standards to which professionals adhere.

A code of ethics, also known as a "code of ethics", can cover areas such as:business ethics, a code of ethics and a code of conduct for employees.

Understand codes of ethics

Business ethics refers to how ethical principles guide a company's operations. Common issues that fall under the umbrella of business ethics are industrial relations, discrimination, environmental issues, bribery,Insiderhandel, and social responsibility.

While there are many laws in place to establish basic ethical standards within the business community, developing a code of ethics is largely up to the leadership of the company.

Both companies and commercial organizations often have some type of code of ethics that they want their employees or members to follow. Violation of the Code of Ethics may result in termination or dismissal from the organization. A code of ethics is important because it clearly sets out the rules of conduct and provides the basis for early warning.

Given the importance of climate change and the serious impact of human behavior on the climate, many companies have decided to include climate factors in their code of ethics. These principles cover how the company has committed to or will move towards sustainable business practices.

In many cases, this obligation is toosustainabilityincreases the cost of doing business, but as consumers become more focused on the types of businesses they engage with, maintaining a good public image often pays off the cost.

Organizations, regardless of size, depend on their leaders to set a standard of ethical behavior for other employees to follow. When administrators adhere to the Code of Ethics, they send the message that universal compliance is expected of all employees.

Types of Codes of Ethics

A code of ethics can take many forms, but the overall goal is to ensure that a company and its employees comply with state and federal laws, live up to an ideal that can be exemplary, and ensure that the business conducted is beneficial to all involved. . . Below are three types of codes of ethics found in business.

Code of Ethics Based on Compliance

For all businesses, laws regulate issues like hiring and safety standards. Compliance-based codes of ethics not only provide guidelines for conduct, but also specify sanctions 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 are usually formally trained to learn the code of conduct. Since non-compliance can create legal problems for the company as a whole, individual employees of a company can face penalties for not following policies.

To ensure compliance with the objectives and principles of the Code of Ethics, some companies appoint aCompliance Officer. This person is tasked with keeping abreast of changing regulations and monitoring employee behavior to promote compliance.

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

Code of ethics based on values

A values-based code of ethics addresses a company's core value system. It can outline standards of responsible behavior in relation to the greater public good and the environment. Values-based codes of ethics may require a higher level of self-regulation than compliance-based codes.

Some codes of conduct contain language that addresses both compliance and values. For example, a supermarket chain might create a code of conduct that places the company's commitment to health and safety regulations above financial gain. This supermarket chain can also include a contract refusal declarationDeliverywho feed cattle with hormones or raise animals in inhumane living conditions.

Code of ethics in various professions

Certain professions, such as B. in the financial or healthcare sectors, have specific laws that enforce codes of ethics and conduct.

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However, chartered accountants, who are not typically viewed as fiduciaries for their clients, are expected to adhere to similar ethical standards of integrity, objectivity, truthfulness and avoidance of conflicts of interest, as per theAmerican Institute of Certified Public Accountants(AICPA).

financial advisor

Financial advisers registered withSecurity and Exchange Commission(SEC) or a government regulator are governed by a code of ethics called the wingduty of loyalty. This is a legal requirement and also a code of loyalty, obliging them to act in the best interest of their customers.

Code of Ethics x Code of Conduct

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

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

A code of conduct, on the other hand, guides the specific actions of a company's employees. It may include certain standards of professional responsibility, such as: B. Punctuality and Accuracy. Most companies have a code of conduct for employees, both to maintain professionalism and to avoid friction among their employees.

How to create a code of ethics

Organizations create codes of ethics to eliminate unacceptable or immoral behavior by their members. These are usually structured around existing ethical issues in your industry.

The first step for the organization is to identify its priorities, as well as any ethical issues it wants to avoid. For example, an organization wants to avoid conflicts of interest arising from past scandals in which employees acted against the interests of the company or customers. As a result, your code of ethics may prohibit certain inappropriate relationships or prohibit employees from having any appearance of a conflict of interest.

Code of ethics example

Many companies and organizations have adopted a code of ethics. A good example comes from the CFA Institute (CFAI), which grants the Chartered Financial Analyst (CFA) designation and creator of the CFA exams.CFA-Charterholderare among the most respected and recognized financial experts in the world. According to the CFAI website, CFA Institute members, including CFA certificate holders, and candidates for CFA designation must adhere to the following code of ethics:

• Act with integrity, competence, care, respect and ethics towards the public, clients, potential clients, employers, employees, fellow investment professionals and other participants in the global capital markets.
• Put the integrity of the investment profession and the interests of clients ahead of your own personal interests.
• Use reasonable care and independent professional judgment when conducting investment research, making investment recommendations, taking investment actions and engaging in other professional activities.
• Practice and encourage others to practice professionally and ethically, which reflects appreciation for oneself and the profession.
• Promote the integrity and viability of global capital markets for the ultimate benefit of society.
• Maintain and improve your professional competence and strive to maintain and improve the competence of other investment professionals.

common questions

the end result

A code of ethics is a set of guiding principles designed to direct professionals to act honestly and benefit everyone involved. A code of ethics is developed by a company and adapted to its industry, therefore all employees of that company are required to adhere to the code.

The moral decisions of companies havedeveloped, from the industrial age to modern times. In the world we live in today, working conditions, the company's impact on the environment and tackling inequality are aspects that society considers important and that perhaps two centuries ago it did not consider so important. A code of ethics helps ensure that companies always act with integrity.