Code of Ethics

Within subdivisions, the code may specify categories of problems such as conflicts of interest; taking or offering bribes, gifts, favors, etc.; rules relating to information such as disclosures, withholding data, insider trading, and so forth; preferential treatment, discrimination; interpersonal relations including sexual harassment; resolving quality versus cost conflicts; and potentially endlessly more issues. Well-executed codes of ethics will be concise, as brief as possible, yet will contain vivid examples to make each point as clear as possible.

Implementation, Reporting, and Sanctions

The final section of a code will deal with administrative implementation of the code and sanctions against code violations. The simplest code will require reporting of code infractions up the management chain, including what action to take if the next level up fails to take action. In larger organizations an office or function may be expressly charged with handling code violations. Ombudsmen may be named. Sanctions will be spelled out and their administration defined, including a transparent process for establishing facts, the issuance of warnings, requirements for counseling or reeducation, consequences of repeat offences, on up to discharge or even, if appropriate, litigation.

For obvious reasons, a code of ethics without sanctions and a rational process for its implementation will be viewed by employees as merely a gesture without "teeth." Conversely, the business owner must be alert to the fact that ethical violations are not necessarily be legal infringements; therefore sanctions such as firing an employee may be problematical unless the business has an "employment at will" hiring and firing policy and its exercise is backed by state and federal law under the circumstances.

ETHICS CODES AND SMALL BUSINESS

One of the advantages of small business is that it can avoid what are sometimes time-consuming upheavals in the business world. By any measure, traditional or modern, ethics is an important issue. Observation and studies show that ethical behavior is efficient. A. Millage recently wrote in Internal Auditor about the findings of the "2005 National Business Ethics Survey" (NBES). The NBES is conducted by the Ethics Resource Center. The survey showed that 70 percent of employees in companies with a "weak" ethical culture (as measured by NBES) observed ethical wrong-doing in their companies. Only 34 percent of employees in organizations with "strong" ethical culture did so. Employees observed morale-destroying behavior such as discrimination and sexual harassment; lying internally, to vendors, customers, and the public; misreporting of time; direct thievery; and other problems. By any measure such activities translate into higher costs, lost reputation, poor performance, etc. Ethics matters.

At the same time, the current preoccupation with codes of ethics is producing very large documents, sometimes reaching the length of books. A Google search on the phrase "code of ethics" yielded 17,900,000 hits in January 2006, a Yahoo search 12,000,000. Much of the current interest may be due to recent corporate scandals and the requirements of the Sarbanes-Oxley Act of 2002. Does the current interest mean that a small business must formulate its own code of ethics? In most cases, it will do no harm.

To publish such a code is relatively easy. Many hundreds of sample codes are available on the Internet, many of them specifically designed for the small business. The small business owner can easily write a one-page code and distribute it to employees if he or she sees the need for this. Many small businesses have found it useful in the past to publish policy statements that deal with personnel policy, including business hours, vacations, accrual of personal time, and so forth. A code of ethics along the same lines may be easy to produce and serve an important purpose: to underline the owner's commitment to ethical behavior.

Many very small businesses of 10 to 20 employees operate more like families. Ethical behavior is part of the culture—as it is in a family. In such situations the sudden appearance of a code of ethics may be rather jarring. Discussion of the matter in a staff meeting may serve the purpose better: to alert employees to this issue and what is happening "out there."

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