Best Codes Drive and Reinforce Values, Ethics

December 9, 2019
LRN Corporation

An official code of conduct often is a valuable driver for a company’s culture and performance. It affects employee behavior by reinforcing the good and discouraging the bad, helping a company thrive and perform to its fullest abilities.

Most companies are missing an opportunity, according to LRN's new report, From Rules to Values: Effective Codes of Conduct, based on an analysis of nearly 100 publicly available company codes.

Only 30% of the codes that are reviewed are in line with practices that really make a positive difference. One-third are below overall minimum standards, based on a framework aligned with guidelines put forth by the New York Stock Exchange, Nasdaq, and the U.S. Department of Justice.

An effective code is more than a list of rules and regulations; it inspires principled performance, guides employees in how to live the organization’s values, and enables them to be aware of risks and make ethical decisions.

Companies instill trust and reinforce the organization’s culture, business, and brand by providing employees with the tools needed to make ethical decisions.

Most of the codes that were analyzed by LRN are missing the criteria necessary to facilitate ethical decision-making, elevate risk awareness and mitigation, and instruct employees on how to get help or more information.

Knowledge reinforcement, which is critical to understanding and adhering to a code, is largely absent. One in 10 of the codes are considered strong in this area.

Many codes lack the necessary information to reinforce ethical behavior.

Two-thirds of the codes reference organizational values, while half of those articulate values in behavioral terms. Many codes fall short of addressing key risk areas, including those relating to data privacy, social media, diversity and inclusion, and human rights.  

While 70% of codes include details on hotline reporting, fewer than half discuss confidential and anonymous reporting and the procedure for investigation of misconduct, making the process of recognizing and addressing bad behavior difficult to uphold.

One positive: The days of text-heavy, legalistic, rules-based codes is long passed, said LRN’s Jim Walton. Codes have evolved from compliance manuals to easy-to-follow guides on employees’ day-to-day behavior.

“A code should be a gateway to a company’s entire E&C program, policies and training. Employees should be able to come back easily to the code time and again for answers to questions, more information, or when they simply need support to do the right thing,” said LRN’s Dana Vazquez.

About the Author

LRN Corporation

Ethics and compliance leader providing tools, education, and advisory services for global companies to inspire principled performance. LRN’s overall approach recognizes the inherent limitations of rules and regulations in influencing behaviors. In our view, focusing on actions that help build and maintain a values-based culture will mean more compliance and reduced costs as a result of tangible and sustainable behavioral change.

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