What is a business code of ethics and why is it important?
At the heart of the fabric of any company, large or small, is a set of core values that guide its behaviour and decision-making. These values not only define the company’s identity, but also shape its relationship with clients, employees, partners and society at large.
One of the most solid pillars underpinning these values is the business code of ethics. That is why, in this article, we are going to take a closer look at what it is, what its content is and what role the business code of ethics plays in the functioning of a company.
The corporate code of ethics is a set of principles and guidelines that establishes the standards of ethical behaviour expected of all members of the organisation, from top management to rank-and-file employees. This document articulates the company’s core values and serves as a framework to guide conduct in all business activities and external relations.
In addition to an element for proper regulatory compliance by the company, the business code of ethics is a beacon of trust and transparency that provides a solid foundation on which to build relationships with clients, suppliers, employees, investors and society at large, while strengthening the company’s reputation and credibility.
What is a business code of ethics?
There is no specific legal requirement to have a corporate code of ethics, although the European Parliament and the European Council advise Member States to encourage the development of codes of conduct (see Directive 2000/31/EC), which would include a corporate code of ethics. This is without prejudice to the obligation of all companies to comply with certain ethical standards.
In any case, despite its voluntary nature, it should be stressed that the business code of ethics is a fundamental tool for promoting ethical conduct and corporate responsibility in all company activities. For this reason, its implementation has become an increasingly common and recommended practice in the business world, given the great benefits it brings to the company.
What are the benefits of a business code of ethics for my company?
The implementation of a business code of ethics brings with it several significant benefits that impact both the internal functioning of the company and its external reputation. Specifically, the main benefits are as follows:
- Regulatory compliance. A business code of ethics can help ensure that the company complies with all applicable laws and regulations, as well as higher ethical standards. This reduces the risk of facing legal sanctions and reputational damage due to questionable business practices
- Risk mitigation. By proactively identifying and addressing potential ethical dilemmas and conflicts of interest, the business code of ethics helps mitigate the risks of scandal, costly litigation and loss of clients and reputation.
- Reputation enhancement. Companies that operate in an ethical and transparent manner tend to earn the trust and respect of their clients, suppliers, investors and the wider community. A strong code of ethics can enhance a company’s reputation and differentiate it from its competitors.
- Setting standards of conduct. The corporate code of ethics defines what the company considers ethical and unethical behaviour. This helps employees make informed and ethical decisions in complex situations and promotes conduct consistent with the company’s values.
- Corporate responsibility. The business code of ethics can include provisions that promote environmental sustainability, respect for human rights, labour equity and contribution to the well-being of communities. This ensures that the company not only seeks economic benefits, but also considers its social and environmental impact.
- Organisational culture. The business code of ethics sets out the company’s core values and helps to promote an organisational culture based on integrity, transparency and respect. This helps to improve employee morale, foster teamwork and strengthen the sense of belonging.
What should the business code of ethics contain?
The business code of ethics does not have a generic content, but should be drafted as if it were a tailor-made suit for each company, taking into consideration the type of activity it engages in, its size, its values, the legal regulations it must comply with and its partners’ own expectations.
That said, some of the most common elements in business codes of ethics are as follows:
- Values and ethical principles: A list of core values and ethical principles that guide the company’s behaviour and decisions, such as integrity, honesty, respect, fairness and responsibility.
- Standards of conduct: Specific guidelines on how employees, managers and other related parties are expected to behave in various situations, including interactions with clients, suppliers, competitors and colleagues.
- Legal compliance: Obligation to comply with all applicable laws and regulations in all of the company’s business activities, as well as the consequences of not doing so.
- Conflict of interest: Policies and procedures to identify, avoid and manage conflicts of interest that may arise between employees’ personal interests and the interests of the company.
- Protection of confidential information: Guidelines for protecting the company’s confidential information, as well as the privacy of customers, employees and other related parties.
- Sustainability and social responsibility: Commitments to environmental sustainability, respect for human rights, labour equity and contribution to the well-being of the communities in which the company operates.
- Whistleblowing channel and consequences for violations: A mechanism for employees to report possible breaches of the business code of ethics in confidence and without fear of retaliation, as well as disciplinary consequences for such proven violations.
- Review and update: A commitment to regularly review and update the business code of ethics to ensure that it remains relevant and effective in an ever-changing business environment.
In any case, for the business code of ethics to fulfil its function, it is important that it is clear, concise, accessible and easily understandable to all employees and relevant stakeholders. In addition, it must be backed by a genuine commitment from top management and be an integral part of the company’s organisational culture.
Can an employee be sanctioned for breaching the business code of ethics?
Yes, a business code of ethics may include provisions on sanctions for non-compliance with its provisions. These sanctions may vary in nature and severity, and their main objective is to promote compliance with the standards set, ensuring the accountability of individuals and the company.
In this regard, case law has expressly recognised that the obligations imposed by the company through the business code of ethics fall within what is considered to be the company’s power of supervision and management and, consequently, failure by an employee to comply with these obligations is an act of disobedience and could lead to the imposition of sanctions, including disciplinary dismissal.
However, it is important to bear in mind that such sanctions must be imposed with due respect for the constitutional and labour rights of the employees, so that the infringements and sanctions imposed for non-compliance with the company code of ethics must in any case be in line with and respect labour law.
In any case, it is important that the sanctions set out in a business code of ethics are fair, proportionate and applied consistently and equitably throughout the company. In addition, the business code of ethics should include a clear and transparent process for the investigation and resolution of complaints, as well as safeguards to protect whistleblowers from unfair retaliation.
Conclusions
In summary, a business code of ethics is a vital component of responsible corporate conduct. It not only guides a company’s ethical behaviour, but also strengthens its reputation, drives corporate responsibility, shapes its organisational culture and mitigates risks arising from regulatory breaches.
However, their effectiveness ultimately depends on their correct implementation and effective application at all levels of the organisation. At Devesa Abogados we have extensive experience in the drafting of business codes of ethics and we recommend that all our clients hire specialised advice to ensure that the document drafted is adapted to the needs and characteristics of the company, thereby facilitating its application and guaranteeing its effectiveness.
Do you need advice? Access our areas related to the drafting of business codes of ethics: