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The Purpose of a Code of Ethics

Wells Fargo and Volkswagen Violated Their Own Code of Ethics

Arguably, Wells Fargo is the most unethical company in the U.S. How else can we explain why the company allowed its employees to open more than 2 million unauthorized accounts, sticking customers with almost $2.5 million in fees? On November 25, 2016, Wells Fargo asked the court to allow decisions about dozens of lawsuits filed by customers over fake accounts to be taken outside the court, no doubt to mute the harm done to thousands of customers.

An unethical German company with widespread activities in the U.S. is Volkswagen. V.W. reached an agreement on June 28, 2017 to spend up to $14.7 billion to resolve federal and state civil allegations of cheating on emissions tests and lying to customers. The company has admitted that it rigged diesel vehicles using a "defeat device" to pass emissions tests.

The question is whether these companies have a code of ethics and, if so, why did it fail to protect the public interest? Wells Fargo has a Code of Ethics & Business Conduct that identifies the Company’s values: our people as a competitive advantage, ethics, what’s right for customers, diversity and inclusion, and leadership.

V.W. sets forth the following core values to help achieve its goal of being the number one automobile manufacturer: to act responsibly for the benefit of our customers, shareholders, and employees, and to accept responsibility for our actions.

Both Wells Fargo and V.W. ignored the basic premise that a code of ethics is just a piece of paper filed away unless it becomes a living document that guides all activities and decision making. A code of ethics creates an ethical framework upon which all decisions are founded. A code should identify the common values that underlie strategic planning and the goals to be achieved from an ethical perspective.

An effective code of ethics establishes a direction for the company and pathway to meet the organization’s ethical responsibilities to its stakeholders: customers, employees, suppliers, strategic partners; and so on. A formal, well-communicated code of ethics can also help to protect a company's reputation and legal standing in the event of a breach of ethics by an individual employee.

A code of ethics is a vital document for any business, as breaches of ethics can land companies in serious trouble with consumers, other organizations or government authorities. Creating a code of ethics makes decision-making easier at all levels of an organization by reducing ambiguity and considerations of individual perspectives in ethical standards.

The Institute of Business Ethics (IBE) outlines a 9-Step Model for developing and embedding a code of business ethics as follows:

  • Understand your context

  • Establish board level support

  • Articulate your core values

  • Find out what bothers people

  • Choose your approach

  • Draft your code

  • Test it

  • Launch it

  • Monitor it

The launch of a code of ethics is just the beginning of the journey. Ongoing monitoring, training on its use and rewarding those who demonstrate ethical leadership are also required.

I have previously blogged about the importance of establishing an ethical culture in an organization to support the code of ethics. A code is meaningless unless top management models ethical behavior in every action taken and decision made.

A report by the SHRM Foundation titled “Shaping an Ethical Workplace Culture” describes an ethical workplace culture as one that gives priority to employee rights, fair procedures, and equity in pay and promotion, and that promotes tolerance, compassion, loyalty and honesty in the treatment of customers and employees. Such a culture encourages employee support and respect for the rules of conduct and fair treatment by management. This, in turn, promotes trust in management and internalization of the company’s values. Once this happens, ethics becomes embedded in the workplace culture.

Another purpose of a code of ethics is to provide guidance and set common ethical standards to promote consistency in behavior across all levels of employment. A code governs the actions and working relationships of board members and top management with employees and in dealings with other stakeholders. Here is an outline those relationships.

  • Requires the highest standards for honest and ethical conduct, including proper procedures for dealing with conflicts of interest between personal and professional relationships.

  • Requires full, fair, accurate, timely and understandable disclosure in reports and documents filed with regulators, including financial reports, and provided to shareholders.

  • Requires compliance with applicable governmental laws, rules and regulations.

  • Establishes accountability for adherence to the code.

  • Provides for methods to communicate violations of the code.

An effective code establishes an ongoing process to meet new and challenging situations that test a company’s ability to identify and respect the rights of its stakeholders and to act not necessarily to enhance shareholder value, although that can be the by-product of making ethical decisions, but, instead, to protect the rights of customers to have a safe product whether it be an automobile or financial investment.

Blog posted by Steven Mintz, aka Ethics Sage, on December 14, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at:

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