Cracking the Code of Conduct Conundrum: Synchronizing Words and Behaviors

Cracking the Code of Conduct Conundrum: Synchronizing Words and Behaviors

By Tom Hagy

“Children stop your screaming!!! It is 3 A.M. and you’re waking up the entire neighborhood!!!” the mother screamed at 3 A.M., waking up the entire neighborhood. When a boy pointed out that his mother also was a cause of local insomnia, he was delivered this classic chestnut: “Do as I say, not as I do!!!”

Companies may find themselves having a similar conversation when it comes to modeling ethical conduct, and drafting, socializing, synchronizing and enforcing codes that effectively translate into real–life good behavior.

Compliance: An Ambiguous Moving Target—Get a Lawyer

When thinking about drafting or updating your corporate code of conduct, PricewaterhouseCoopers partner Joe DeVita, in a post for Corporate Compliance Insights, strongly urges that legal counsel be an integral part of any effort to craft compliance codes. One important reason, he wrote, is the incredible amount of digital information companies generate and store. “Data stands in mute testimony to compliance,” he wrote. “It is, in a word, evidence of compliance, or noncompliance as the case may be. More than that, it is discoverable evidence.” He said “compliance is a moving target” and that a company’s ability to demonstrate compliance is “never absolute.” He said technology and data storage can “breed unforeseen consequences that appear seemingly out of nowhere.” DeVita went on to say that statutory guidance can be “ambiguous or incomplete.”

“Good compliance is manifestly good business,” DeVita wrote. “An integrated team on a focused, well-defined project is a formula for success. Legal must be integrated as part of a multidisciplinary team whose combined commitment and expertise contribute to achieving corporate compliance.”

An Effective Code of Conduct

Elizabeth Lewis, Senior Communications Manager, The Network, has observed that companies are paying more attention to “uniquely branding its code to reflect the culture of the company and the demographic of its employees. Everyone understands the value of branding when it comes to external messaging—but for internal messaging? “Yes,” she wrote. “As an employee, you’re more likely to connect with a code that reflects the look and feel of your company, one that features images of the people and places you recognize and highlights the types of ethical scenarios you face on a day-to-day basis.”

A second observation Lewis outlined was that there is increased attention on behavior outside the workplace. “Where codes were once focused mostly on what you could (and couldn’t) do when you came into the office every day, companies are now including coverage of many behaviors that relate to outside activities.” Lewis said covering activity both inside and outside of the workplace will “deliver more value to employees, and, ultimately, to your company.”

Finally, Lewis said in her three-part blog series, “good codes take time.” While a company can know how long certain aspects of creating a code will take, from prototype to execution, the size of the company, the number of people involved in the review process and the timing of big events, like board meetings and training sessions, all come into play and can add time to the process. Lewis is not troubled by this. “On the contrary,” she wrote, “it points to the critical role a code plays within a company and the importance placed on getting it right. It’s also a reflection of the care companies are taking to socialize their code and to make sure the final product has the support of all of its stakeholders.”

To read her complete series and find more useful information, go to The Network– Integrated GRC Solutions website at www.TNWINC.com.

Transparency International, another good source of direction on codes of conduct, said some of the areas most often covered by codes of conduct are: loyalty, efficiency, effectiveness, integrity, fairness, impartiality, undue preferential treatment, discrimination, abuse of authority and gifts and benefits.

But, Transparency International Senior Policy Coordinator Craig Fagan says, because some of these topics are more “principled and value-based,” it makes it difficult to “set a bar for good behavior.” “Others, however, allow for a framing of what actions are expected from and demanded of those working in the public’s service.”

While codes are based on local customs and social mores (cultures have different views on nepotism, for example), Fagan says there are globally accepted standards for conduct by public officials that commonly regulate conflicts of interest. Although he was writing about public entities, Fagan’s guidance is instructive for any organization. Fagan says conflicts can be tackled with due diligence on “asset declarations, receipt of gifts and employment opportunities (prior to, during and after leaving public service.” In a subsequent post (he has written a series on the subject), Fagan said the challenges to codes of conduct are:

1. Culture— will the code be accepted, or misinterpreted as correcting a problem?
2. Design—stale or unarticulated codes (for example where the unspoken rules overrule the written ones) will be ineffective.
3. Enforcement—the agency or department tasked with enforcing the codes may not have the necessary weight of authority to actually do the job, or in the case of the enforcement team that is part of a legislature there is a risk that its decisions become politicized.

Behavior of Leadership

Jeffrey Seglin is the syndicated writer of the ethics column The Right Thing and is director of the Communications Program at the Shorenstein Center at the Harvard Kennedy School. I asked him: How does a company close the gap between a lofty code and the reality of its corporate culture? What are the dangers in not doing this?

“There’s a Grant Thornton study that showed that the effect of having a code that employees perceived not to reflect the behavior of leadership in the organization caused more damage than having no code at all,” Seglin said. “For a while, ethics consultants made a killing going around giving companies their ‘values statements’ or codes. The acronym R-I-C-E was commonly the model—respect, integrity, communications, and excellence. Those are good words but they mean nothing if they don’t reflect an organization’s culture. Enron’s values statement included those terms, but in this order: Communications, Respect, Integrity, and Excellence.” He pointed to an example when a company’s code “went squarely against what it was asking its employees to do.” The result was a strike.

When asked about making sure the code is not just words on a page, Seglin, like Elizabeth Lewis, believes it must be socialized and based on the reality of your culture.

“You get to know the employees with whom you work. You work with them year in and year out. You make sure that the code reflects the values of the leadership AND the employees and that new employees know what’s expected and that actions of leadership reflect these values. But it takes real leadership to set the standard that we will not lie, cheat, steal, or cut corners, and then to make sure there are consequences for those who try to do such things, regardless of how great their sales or productivity levels are.”

The Danger of Short-Term Financial Focus

In good times and bad, companies at times will set unreasonable sales targets. Does that encourage bad behavior, as people feel they need to “do whatever it takes” to hit targets and preserve their jobs? “That can happen. It can also happen and did when the focus began to be on quarterly stock performance rather than long-term performance.”

Writing for the Sloan Management Review back in 2003, Seglin nailed a big yellow caution sign on corporations’ focus on next quarter’s profits— a focus that persists today and certainly contributed to another implosion in 2008.

“When companies imploded in the summer of 2002 and one corporate scandal after another littered the headlines, boardrooms and Congressional hearings,” Seglin wrote, “the rallying cry was for more corporate accountability. But underlying the scandals is a larger, more systemic problem: Corporate America and its investors are gripped by short-term thinking. Until executives get back to building companies for the long term and turn their back on the obsession with short-term upticks in stock prices, companies will find themselves stuck in this mire.”

Seglin recalled the glory days of the dot-com boom in the 1990s. At its height, Seglin wrote, “executives, mindful or not, may have been growing wealthier at the expense of the long-term health of their companies. Most employees bought into this mind-set as well. At Enron, for example, 60% of employees held stock options in the company. In the company’s elevators, employees could watch the financial news stations and see how their stock was doing. The importance of seeing the stock price rise and keeping it rising was at the heart of Enron’s culture. The short-term mentality that drove the dot-com boom and was endemic throughout the latter half of the past decade resulted in more than a few people turning a blind eye toward bad behavior.”

“Breaking the cycle of bad behavior will take more than convicting executives, shutting down auditors and instituting new rules and regulations. It will take a seismic shift away from the short-term mentality that grips corporations,” Seglin wrote.

What about the impact of hard economic times on unethical conduct? It would seem like fertile times for breaking the rules.

 “Actually,” Seglin told the In-House Advisory, “what happens is exactly the opposite. In good times, people seem more willing to overlook bad behavior. In bad times, that’s when people start crying for a need for better values and call people on their bad behavior. There’s that line at the end of the movie Annie Hall when Woody Allen’s character talks about going to a psychiatrist and telling him that he has a brother who thinks he is a chicken. ‘Why don’t you just tell him he’s not a chicken?’ the psychiatrist asks. ‘Because we need the eggs,’ the Allen character responds.”

“In good times,” Seglin concluded, “there’s a tendency to overlook bad behavior, because we need the eggs.”