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Ethics policies: Every business should have one

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7th Aug 2015
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“We are committed to ensuring that we conduct our business responsibly, legally, professionally and with integrity. We do not tolerate any activity that breaches the policies and standards that we expect all our people and operations to meet. We want to be known as a company that can be trusted to do what we say.”

These three sentences are given at the start of the ‘Thomas Cook PLC Sustainability Report 2012 – Ethics section’ and clearly describe the elements necessary for an effective ethics policy.

Since the banking crisis the importance of ethical standards in business has never been more paramount but despite its increasing importance there is no legal requirement for a company to have an ethics code.

The Companies Act 2006 makes no reference to the duties of the company as a whole rather requiring each director “to exercise reasonable care, skill and diligence” (s174 CA 2006). The relatively recent Bribery Act 2010 requires all UK based companies that export, (or plan to export) goods and/or services to be able to demonstrate that they have implemented “adequate procedures” to prevent corrupt practices by staff and anyone else who works on their behalf from giving or receiving bribes.

The Act introduced the corporate crime of “failure to prevent bribery” (section 7) and, if convicted, the company’s directors risk an unlimited fine or a prison sentence of up to ten years. The Enterprise and Regulatory Reform Act 2013 introduced the ‘Whistle blowing’ legislation (for detail see here) and there are the Money Laundering Regulations 2007 (for basic detail see here)

But otherwise UK law is silent on the subject.

Why produce an ethical code?

Although it’s not a legal requirement, the importance and benefit of having an ethical policy has not gone unnoticed amongst many business sectors, not least the professional accounting and tax bodies such that they have formulated their own ethical codes for their members (eg the AAT code).

Such codes invariably require confirmation that the main principles have been complied with in order for members to remain in the profession. Accountants are increasingly finding that their input is being sought by SME clients who, when tendering for contracts with larger businesses, are questioned on their businesses’ ethical policy.

The creation of an ethical policy also gives the SME directors and owners of other non company businesses the opportunity to review the workings of their business. It sets out, in writing, exactly how they would like to see the business being run in the future from the viewpoint of anyone who has any dealing with the business. Even if there is no staff, every business should have a business plan to include a section detailing the Ethics Policy.

How to start?

As there are many examples of Business plans online, so are there templates for ethics plans. But an effective ethics policy centres on the individual company and it is because of this individuality that the creation of an ethics policy cannot be rushed. It can’t be restrictive on its staff so that, by adhering strictly to the code, the staff loses interest in the business and its future.

A starting point could be to look proactively at the business’s core values – both the business values (e.g. customer service and reliability) and the ethical values (e.g. honesty, respect) and try to place those values into words relative to the business.

Draw up a list of words that describe the business as it stands and how you wish to see its progression in, say, five or ten years, concentrating on the ethical points. To get you going on the mind set, use the same headings as indicated in the first paragraph of Thomas Cook’s policy then continue with more detail. The business needs to act:

  • Responsibly - be straightforward and honest in all business relationships.
  • Legally - comply with relevant laws and regulations and avoid any action that discredits the business.
  • Professionally competent and with due care – acting diligently, thoughtfully.
  • Integrity - be straightforward and honest in all professional and business relationships.
  • Objectivity and fairness - not to allow bias, conflict of interest or undue influence of others to override professional or business judgments.
  • Confidentiality - respect the confidentiality of information acquired as a result of professional and business relationships; not to disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right to disclose, nor to use the information for personal advantage.

List a series of questions that you feel need to be answered e.g. what is good about the business; what needs to be upgraded or increased or implemented etc; what feedback (positive or otherwise) have you had from your customers/suppliers/clients; could you do better; if clients have been referred why have they come to you; ask your staff for input – can the answers be build upon.

Think ‘worst case scenarios’ - build the practicalities of dealing with such situations into the Code.

Does the company work with suppliers and others whose ethical values do not compliment your own? Such suppliers may impact on the credibility of your business.

An adverse newspaper headline can be extremely damaging especially to a local business as could an adverse blog/twitter etc post. List ethical situations which might compromise staff, either of their own making or of others.

Accountability – when should written authority be obtained for a decision and by whom? What procedures must be followed in reporting a breach of the code and any subsequent investigation? Think about the procedural practicalities should you or a member of staff suspect that a client is behaving dishonestly.

Other sources

Practical points

The code should be reviewed on a regular basis to consider any issues that have been raised and reflect on any new regulations and suggestions that have arisen since the last publication date.

Depending upon the size of the company and its activities the review could be annually or whenever a significant event occurs such as merger or even a breach of the Code or the taking on of more staff  otherwise suggest every five years.

Remember Warren Buffett’s words: “it takes years to build a reputation and only a few seconds to ruin it”.

If you are formulating an ethics policy for your own business consider these articles (here and here) and a question of an ethical dilemma met by an AccountingWEB member.

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Replies (12)

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Teignmouth
By Paul Scholes
07th Aug 2015 15:20

Really?

I got onto this bandwagon 4-5 years ago as environmental policies were hijacked by wider CSR policies and received a lot of blank faces from all the SMEs I spoke to along the lines of, "we don't have to publish a policy statement announcing our intention to trade legally so why do we have to do the same over our ethical policies?"

Perhaps it would be more effective if we asked all those businesses who intended to act unethically, to come clean and tell us?

I am passionate about ethical behaviour, shared values and social responsibility in business but the moment you try to codify what are, at the end of the day, human characteristics, the moment you dilute them with the inevitable result that the majority of businesses will just cut & paste wheat the business next door put on their website.

 

 

 

 

Thanks (4)
Locutus of Borg
By Locutus
07th Aug 2015 16:27

Sorry JAADAMS, I disagree

 ... Not about being ethical but having endless policies for things that we should know to do anyway.

The trouble with these sorts of policies is that whilst they sound good, they make absolutely no difference in the real world.  The only time these sorts of things ever get read is at induction, along with umpteen other policies ... and then quickly forgotten.

With small businesses, ethics revolve around the personal ethics of the business owner(s).  The business owner's ethical view on things tends to become apparent in the way they do things, not some artificial policy.

With larger businesses (with external shareholders) the main driver is usually growth and profits.  I view any ethical, environmental policies, social responsibility policies, sustainability policies that they may have as just marketing bluster.  It's good for business to say this stuff and follow it to the extent of staying on the right side of the law, but rarely followed beyond that.

 

Thanks (3)
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By johnjenkins
10th Aug 2015 10:00

Perhaps the

Government and HMRC should have one......................then stick to it. Nothing but PR.

Thanks (1)
Replying to kathyk0410:
Locutus of Borg
By Locutus
10th Aug 2015 10:44

It's worse than that

johnjenkins wrote:

Government and HMRC should have one......................then stick to it. Nothing but PR.

HMRC don't just have an ethics policy. They have an ethics and responsibilities committee.

https://www.gov.uk/government/organisations/hm-revenue-customs/groups/et...

Proof (if needed) that these things are meaningless PR.

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By Romanista
13th Aug 2015 10:49

Is it ethical....

....to impose your ethics on someone else?

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By AndrewV12
13th Aug 2015 11:09

Mmmmm

Are ethical policies suitable for Accountants, well not for the ones I have worked for anyway.   What next.... they will be asking Lawyers to have them.

 

I agree with the comment above you are either ethical or you are not, no need for a policy. 

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Teignmouth
By Paul Scholes
13th Aug 2015 11:58

@Romanista

Over several thousand years, what start out as ethical principals adopted and accepted by the majority, become laws imposed on all.

A few years back on here, there would have been a general outcry about imposing an ethical outlook on any form of tax avoidance, this is not the case today.

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Replying to tltodman:
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By Romanista
13th Aug 2015 12:44

Paul Scholes

An ethical code only works if the people who are governed by it believe in it and adhere to it.  Many people appear to use ethical codes as a cloak of respectability if the number of  fraud cases in the past  involving accountants and solicitors are anything to go by. 

 

By way of analogy, you are obviously a football fan going by your online name,  so you will know that despite an ethical code covering racism and sexism in football those two prejudices survive in almost in tact in that sport.  You can change what people say in public but not what they believe and act upon.

 

I have found a wide diversity of opinion amongst practitioners on what constitutes evasion and what constitutes avoidance over the years.  Some people seem to pick and choose which parts of the code they believe in and want to adhere to and which parts their conscience allows them to ignore.  Much like any "believers" in any code.

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By johnjenkins
13th Aug 2015 14:30

@ Paul

it's called human nature, Paul. It's the animal instinct in us. Law, ethics, religion, it's all the same. You either believe or you don't. However, as long as it doesn't affect anyone else I see no reason why you can't pick and choose the codes that fit in with your thinking.

The migrant crisis in Greece is a classic example of ethics. Should they be turned away or should we embrace them. There can be no half measures with this one. However a business can change it's code of ethics according to changes of environment. Financial institutions regularly change their code of conduct. They even say that they can change it at anytime. So therefore it is meaningless. Going on from that, for ethics read common sense.

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By Scriptic
13th Aug 2015 19:00

Bullshine

I'm with Romanista on this one. At best pompous statements of ethical policies sound like Milliband's late and unlamented tombstone.

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Teignmouth
By Paul Scholes
14th Aug 2015 11:30

Romanista & John

Yes, to all you say (see my first post) I was only commenting on R's comment about imposing ethics on others, one-liners can be interpreted in many ways.

By the way R, this is both my online & real name, and no, I am not a footie fan, I grew up being taken to West Ham by my Dad in the 60s, so your comments ring true. I am optimistic though, I went to a game there last year and the atmosphere was a world away but yes, some areas of society hang on to unacceptable behaviour, but many, if challenged, may not actually believe what they shout, the rest of society having changed the tide, for the next generation.

 

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Replying to lionofludesch:
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By Romanista
14th Aug 2015 12:46

Paul Scholes

Paul

My wife says that I am not a football fan either.  I regularly go to see a team in the bottom professional  league in Scotland and having seen them play once she decided that it bore no resemblance to football.  Difficult to argue with her sometimes.

Back on subject, there is a n interesting article on the government's proposals to reform  IR35 in this week's Taxation magazine.  HMRC introduced IR35 hoping that the profession would do its work for it and make sure that it worked.  It is largely ignored by taxpayers and professionals alike.  Professionals ignoring legislation a it applies to their clients?  Surely not!

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