Ethical norms and standards of behavior have deep historical and philosophical roots. Philosophy and ethics originated in ancient Greece. The development of the world economy, the emergence of corporations, which directly or indirectly involve tens of thousands of people, made ethical issues relevant. Codes of ethics and rules of different business organizations and communities have existed as formalized and adopted documents since the XIX century (Cheema et al., 2021). In the XX century, codes of ethics of individual companies began to be adopted. I would like to talk about ethics in corporate governance in this paper, as this topic seems relevant and interesting to me. Here will be provided a discussion of the types of corporate ethics codes with specific examples and why companies require such codes.
Active study of the issues of business and corporate ethics began in the 1980s. It was determined by the crisis of corporate management in the late 1970s and early 1980s (Cheema et al., 2021). In that period, new high-tech companies such as Microsoft and Apple Computers were more efficient than traditional giants such as General Electric and General Motors. The big companies were inflexible in management and took advantage of administrative resources. Growing competition and demands on companies from society, including environmental and ethical issues, demanded a rethinking of business practices and goals and the development of new rules. Proponents of the introduction of ethical standards proceeded from the thesis of the need to form a new type of relationship. They had to change at all levels – between employees and employers, between companies and the state, between companies as partners.
All this created new competitive advantages and conditions at a time of information evolution and globalization of business. Compliance with generally accepted standards of business ethics is particularly acute in corporate governance when regulating a complex system of relationships between shareholders, the board of directors, managers, company employees, and other stakeholders. These stakeholders may include suppliers of goods and services, distributors, vendors, end-users, and the government.
The primary basis on which corporate ethics is built is the company’s Code of ethics. The Code of Ethics is a concise statement of the primary corporate principles of each company. If such a company is a corporation, this document is gradually adopted by all companies. It applies to all employees, shareholders, management, and commercial partners. In some cases, the Code of Ethics may also apply to all those the company interacts with, such as consultants, intermediaries, agents, and contractors. In this way, by clearly defining the company’s expectations for ethical and behavioral standards, the Code serves as a guide for all stakeholders, representing a commitment to sustainable business conduct (Gerstein et al., 2017). The Code outlines the overall commitment of the company and its partners to the business and work environment and the management of relationships within and outside the company. Practice shows that company codes differ significantly from each other, and these differences are based on the different goals and objectives of the document. A corporate ethics code can fulfill three main functions – reputational, managerial, and corporate culture development.
The code’s reputational function is to enhance the external stakeholders’ loyalty to the company. The managerial function is to govern behavior in challenging ethical situations. Ultimately, organizational ethics is an essential part of the enterprise culture. Thus, a code can transmit its values to all employees, orienting them toward common goals and enhancing corporate identity. In practice, two types of codes of ethics are common: short declarative and extended. A declarative version of a code of ethics has been used since the first half of the 20th century. Such codes include the “Creed” (declaration of ethical values) of Johnson & Johnson and the “Seven Principles of Conduct for Matsushita Electric Employees” code (Sison et al., 2018). One of the difficulties of applying these documents is that it is often difficult to assess the ethics of a particular action based on general principles.
For example, since the 1970s, Johnson & Johnson has implemented the practice of continuous discussion and critical review of the Credo (Sison et al., 2018). During a crisis time for the firm caused by the Tylenol contamination case, the company’s vice president of public affairs stated that the utility had no choice but to eliminate Tylenol from the market. To not do so was to violate the Creed. The primary purpose of the declaratory version of the Code is a reputational goal. At the same time, additional documents are needed to solve managerial tasks or develop the corporate culture. In the 1980s, a detailed version of the Code of ethics detailing ethical behavior became widespread (Sison et al., 2018). This code governs the conduct of staff in specific areas where there is a higher risk of complex ethical issues arising. The regulations describe relations with customers, consumers, the state, conflicts of interest, and labor safety. However, such codes’ large volume and complexity do not allow them to be viewed as a company-wide document. In the majority of companies, such codes are created for upper and middle management.
Accepting a specific version of the code is not obligatory for the firm. However, it must choose one of the options. This is explained by the fact that the ethical framework is mandatory for the correct management of the company. The implementation of ethical standards is not limited to the adoption of the document. It is impossible to force a code of ethics, so to make it work, it is necessary to think over the procedures that would allow all company employees to be involved in document development. Only if every employee accepts the Code of ethics will it be enforced. Companies are developing business ethics programs for this purpose. The most popular ones are compliance with laws and regulations or compliance with laws and regulations and programs based on the value approach, which are called standards of integrity. European companies tend to have more than one business and corporate ethics program, as American corporations do.
Several corporate programs are running in parallel, which at first glance are only indirectly related to ethics, but in essence, they are of a nature that affects employee behavior.
To conclude, a code of ethics is an indispensable element of the governance of any modern enterprise. There are several types of codes of ethics that focus on the different goals that management has. The declarative version of a code of ethics is used for a rehearsal function, with more complex issues within the company being addressed by additional documents. The extended version of the Code corrects this incompleteness. It includes options for dealing with virtually all ethical issues that may arise in the company’s functioning. Regardless of the type of document, the Code of ethics is essential for the correct operation of work processes within the company.
Cheema, M. U., Munir, R., & Su, S. (2021). Corporate governance and whistleblowing: Corporate culture and employee behavior. Routledge. Web.
Gerstein, M., Gerstein, F., & Hershey H. (2017). A new corporate ethics and leadership paradigm for the Age of creativity. Journal of accounting, ethics and public policy, 18(2), 17-23. Web.
Sison, A. J. G., Ferrero, I., & Guitián, G. (Eds.). (2018). Business ethics: A virtue ethics and common good approach. Routledge. Web.