Ethical organizational culture

Leaders and employees adhering to a code of ethics create an ethical organizational

culture. The leaders of a business may create an ethical culture by exhibiting the type of
behavior they had like to see in employees. The organization can reinforce ethical
behavior by rewarding employees who exhibit the values and integrity that coincides
with the company
code of ethics and disciplining those who make the wrong choices.

Code of Ethics for Organization

A code of ethics, also called a code of conduct or ethical code, set out the company’s
value, ethics, objectives and responsibilities. A well written code of ethics should also
give guidance to employees on how to deal with certain ethical situations. Every code of
ethics is different and should reflect the company’s ethos, values and business style.
Some codes are short, setting out only general guidelines, and others are large
manuals, encompassing a huge variety of situations.

Key components of code of ethics in Business Organization

The code of ethics is a set of behavioral rules employees should follow to ensure the
company’s values are reflected in all business dealings. Regardless of the size of the
business, clearly defined codes and closely monitored transactions should keep your
company from violating laws and make it a place where employees feel comfortable
doing the right thing.

Values
Business Values typically are expressed in terms of how the company performs its day-
to-day interactions with suppliers, employees and customers. A primary objective of the
code of ethics is to define what the company is about and make it clear that the
company is based on honesty and fairness. Another commonly defined value is respect
in all
interactions, regardless of the circumstances.

Principles
Principles are used to further support the business values by including operational
credos employees should follow. Customer satisfaction, business profitability and
continuous improvement are key factors in documenting business principles. Corporate
responsibility to the environmentally friendly use of natural resources is another
business
principle that often is found in code of ethics.

Management support
Manager support of the values and principles may be documented in the code of ethics.
Open door polices for reporting ethics violation can be included in the code, along with a
process to anonymously report any code of ethics issues. To reflect how seriously
management considers the code, some business displays the code of ethics with
management signatures in prominent areas, such as the break room, where employees
will see it on a daily basis.
Personal Responsibility
Another component is a statement regarding each employee’s personal responsibilities
to uphold the code of ethics. This may contain information regarding both the legal and
moral consequences if an employee violates the code. The requirement to report any
violators is normally a component of the ethics code’s personal responsibility. This is
meant
to show that it is not sufficient to merely adhere to the values and principles but to help
ensure every employee supports the code of ethics by reporting violators.

Compliance
Any laws or regulations may be referred as rules to adhere to as part of daily business
interactions. The Sarbanes-Oxley Act- which was enacted as a direct result of the Enron
case, in which executives falsified financial records to overstate the company’s worth—
details what financial reporting a company must do. Compliance to all financial reporting
and any licensing requirements such as ISO 9000 by the International Organization for
Standardization can be documented, along with the expectation that all licenses will be
maintained and legal regulations met.

How to Create a Code of Ethics for an Organization

These days, every business should have a written code of ethics. The code of ethics
you create communicate the company’s philosophy to employees, vendors, customers,
clients and the public. Because of growing focus on business ethics over the last
decade, according to Ethics Web, many customers now actively seek out firms that
promise to do business in an honest and ethical manner. As a business owner, writing a
code of ethics is one of your most crucial jobs.
1. Review sample codes of ethics that company in similar business use. Read those
documents carefully, and look for information you can apply to your business.
2. Review other documents related to your business, including the firm’s mission
statement and any specific policies new hires receive as part of their orientation. These
documents can include the Internet and phone usage and time-off policies. Review
documents that address the conduct standards your firm has established. Use those
documents
as a guide when you create your formal code of ethics.
3. Think about the ethical dilemmas that face not only your company, but also its
competitors. These ethical issues vary by industry, and it is important to directly address
them in the company’s code of ethics. For example, a clothing manufacturer could
pledge not cut off ties with vendors who use child labor.
4. Solicit input from employees when you create the code of ethics. Many companies
make the mistake of leaving workers out of the loop, but the front-line workers confront
ethical dilemmas frequently. Ask employees for specific examples of situations that
make them feel uneasy, and incorporate those ideas into the code of ethics.
5. Address potential workplace issues, such as office romance and nepotism, in your
code of ethics. If your small business is mainly a family affair, outside employees might
feel intimidated when they work with your family members. Make sure the code of ethics
directly addresses hiring practices and the outlets for perceived grievances.
6. Assign an individual in your company to be responsible for compiling the code of
ethics. Empower that person with the resources he/she needs, including the flexibility to
communicate openly and frankly with front-line workers and others within the company.
Allow her to solicit feedback from both the management team and the
workers. Although the Chief Executive Officer, along with the legal team, is ultimately
responsible for the content of the code of ethics, assigning a member of the
management team to draft the document creates a single point of contact for everyone
in the organization.
7. Ask your attorney to review the proposed code of ethics before putting it in force. Ask
the attorney for feedback regarding any necessary changes to the document.

The Advantages of Ethics in an Organizations

A code of ethics is an integral component of company culture, but organizations must
actively promote their ethical policies to fully leverage the advantages. A code of ethics
can be viewed as either an administrative formality with no practical use or a dynamic,
comprehensive guideline for making company decisions. Realizing the advantages of a
code of ethics in your organization relies on every employee’s awareness of and
commitment to the code. A positive and a healthy corporate culture improves the morale
among workers in the organization, which may increase productivity and employee
retention; this, in turn, has financial benefits for the organization. Higher levels of
productivity improve the
efficiency of the company, while increasing employee retention reduces the cost of
replacing employees. Ethical people are those who recognize the difference between
right and wrong and consistently strive to set an example of good conduct. In a
business setting, being ethical means applying principles of honesty and fairness to
relationship with co-
workers and customers. Ethical individuals make an effort to treat everyone with whom
they come in contact as they would want to be treated themselves. Following are some
of the important advantages of ethics in an organization –

1. Strategic Decision-Making
Small business owners make decisions at the executive level of their company. A code
of ethics in a small business can provide a foundation on which to base all decisions
that affect internal and external stakeholders, such as employees or residents in the
local community. Ethical dilemmas faced by small business owners must often do not
have the same scope as issues faced by corporate executives, such as laying off
thousands of workers or introducing tons of pollutants into the environment. However,
having a solid code of ethics in place from the beginning can help to guide you as your
company eventually grows to a corporate size.

2. Day-to-Day Decisions
Company owners are not the only employees in a small business who make decisions.
Due to the size of small businesses, front-line employees often have less supervision
and more personal responsibility than employees of large corporations. This makes it
even more important for all employees to fully understand the expectations of the
company and the ethical guidelines in which to make decisions.
3. Company Reputation
Small businesses work hard to gain competitive advantages. Gaining advantages from
a positive reputation in the marketplace can be enough to secure a sizable market
share from a larger competitor. Proudly displaying your code of ethics on your website
or in press release, while taking care to ensure that your actions are always in line with
your words, can garner a positive image among consumers and job-seekers, creating a
loyal customer base and helping to develop your brand image.

4. Legal Considerations
The legal benefits of having a code of ethics in place make ethics statements a virtual
requirement of doing business. All of the advantages mentioned above can serve to
keep your company out of legal trouble, which, while important to every company, is
especially important for sole proprietorships and partnerships that do not enjoy personal
liability
protection. A comprehensive code of ethics can provide extra protection if single
employees commits a criminal act in the name of your company, as well. If a single
purchasing manager defrauds your suppliers, for example, your code of ethics can help
to convince a court that your company does not endorse that kind of behavior.

5. Build Customer Loyalty

Consumers may let the company take advantage of them once, but if they believe they
have been treated unfairly, such as by being overcharged, they will not be repeat
customer. Having a loyal customer base is one of the keys to long-range business
success because serving an existing customer doesn’t involve marketing cost, as does
acquiring a new one. A
company’s reputation for ethical behavior can help it create a more positive image in the
marketplace, which can bring in new customers through word-of-mouth referrals.
Conversely, a reputation for unethical dealings hurt’s the company’s chances to obtain
new customers, particularly in this age of social networking when dissatisfied customers
can quickly disseminate information about the negative experience they had.

6. Retain Good Employees

Talented individuals at all levels of an organization want to be compensated fairly for
their work and dedication. They want career advancement within the organization to be
based on the quality of the work they do and not on favoritism. They want to be part of
the company whose management team tells them the truth about what is going on, such
as when layoffs or recognitions are being contemplated. Companies who are fair and
open in their dealing with employees have a better chance of retaining the most talented
people. Employees who do not believe the compensation methodology is fair are often
not as dedicated to their jobs as they could be.

7. Positive Work Environment

Employees have a responsibility to be ethical from the moment they have their first job
interview. They must be honest about their capabilities and experience. Ethical
employees are perceived as team player rather than as individuals. They develop
positive relationships with coworkers. Their supervisors trust them with confidential
information and they are often given more autonomy as a result. Employees who are
caught in lies by their supervisors damage their chances of advancement within the
organization and may risk being fired. An extreme case of poor ethics is employee’s
theft. In some industries, this can cost the business a significant amount of money, such
as restaurants whose employees steal food from the storage locker or freezer.

8. Avoid Legal Problems

At times, a company’s management may be tempted to cut corners in pursuit of profit,
such as not fully complying with environmental regulations or labor laws, ignoring
workers safety hazards or using standard materials in their products. The penalties for
being caught can be severe, including legal fees and fines or sanctions by government
agencies. The
resulting negative publicity can cause long-range damage to the company’s reputation
that is even more costly than the legal fees or fines. Companies that maintain the
highest ethical standards take the time to train every member of the organization about
the conduct that is expected of them.

Disadvantages of an Employees Code of Conduct

If you ask most managers, they would probably tell you that a code of conduct is a good
thing. It can set a high standard for employees and ensure that they are interacting in a
professional manner. Codes can also make the disciplinary process easier when
unethical behavior occurs. However, codes of conduct also have many disadvantages
that suggest, as the Institute of Business Ethics confirms, that the rules that govern
employee behavior must be an internal component of a company’s culture to be
effective. Simply having an employee handbook is not enough to promote ethical
values.

1. Inequality
Codes of conducts are often drafted, in part, to ensure that all members of an
organization are treated equally. However, often those in upper-level management and
creative positions are given a “bye” on certain codes, like those restricting how the
workers talk about the company or to what degree employees are allowed to have
personal relationships outside the work. Accordingly, if companies are going to have
codes of conduct, they should reconsider any code that cannot be applied equally.

2. Unenforceability
Some codes of conduct, perhaps because of employee misconduct in the past, take a
micromanagement approach, dictating detailed minutia like the kinds of material that
can be worn in the office or the exact length of personal phone calls. According to
Leadership Skills for Life, it is important for codes of conduct to be detailed because
some questions, like whether or not taking a company pen home is ethical, will render
many answers. However, it can be noted that such codes can be cumbersome,
contradictory and ultimately ineffective when people, including supervisors who cannot
enforce the codes and still have a productive workplace, abandon them in favor of
“common sense”? On the other hand, a company in which the value of honesty is
embedded and appreciated can result in a culture where no one would consider taking
a pen.

3. Unethical Corporate Behavior

In some cases, codes of conduct may facilitate unethical corporate behavior. Codes of
conduct that limit employee’s ability to speak out against the corporation can keep them
quite for fear of job loss or legal retribution even if the company is engaging in an
unethical practice. Further, codes of conduct can be used to set ethical-looking rules
that managers are instructed not to follow so if any misconduct occurs it is the individual
employee, not the corporation that will be blamed.

4. Lack of Stability
Although many codes of conducts are developed out of corporate values, mission
statements and even past incidents of company impropriety, there is rarely anything
holding corporations to their own codes of conduct. In other words, they are not stable,
and owners or boards of directors can revise them to include the company’s current
needs and desires--be they ethical or not—at any time.