Code of Conduct

A code of conduct is an articulation of the standards that govern an organisation’s conduct, conveying its commitment to responsible practice to both internal and external stakeholders.

It sets out the rules and values employees are expected to follow within a company or organisation and the standards they are expected to uphold.

A code of conduct directly connects an organisation’s wider purpose and core values to employee behaviours and practices. It is a statement of expectations from the business to its employees.

The IoD has established a Commission to develop a Code of Conduct for Directors following recent UK corporate scandals which suggest that business conduct does not always meet the standards expected by society.

The Commission is being chaired by Lord Iain McNicol and consists of 16 leading figures from the worlds of business and public affairs. The Commission will run between September 2023 and March 2024 and report its findings in April 2024.

The IoD’s vision is for board members from all types of corporate entity to sign up to the Code of Conduct on a voluntary basis. By committing themselves to the code, directors will signal their willingness to apply high ethical and behavioural standards in their governance and leadership activities.

Why is a Code of Conduct important?

A code of conduct sets out clearly the leadership’s expectations for behaviour across the business in the areas of integrity, objectivity, confidentiality, professional behaviour and professional competence.

It helps to ensure employees are comfortable in their working environment. It sets out the principles for appropriate behaviour in the workplace, helping to ensure good relationships between colleagues as well as those between employees and employers.

Workplace satisfaction and staff morale have both been shown to be higher in companies where all concerned take ownership of, and abide by, an agreed code of conduct. This in turn helps the business to retain and attract employees who want to work for a business that reflects their own values and embrace forward-thinking standards, directly benefit profitability by reducing costs.

Following a code of conduct also enables employees to adhere to any relevant workplace legislation. It helps to remove any doubt whether behaviours and actions are legally sound or not.

A code of conduct demonstrates good governance within a business or organisation. It provides a clear leadership and mission statement, enhancing a company’s reputation, culture and brand among all its internal and external stakeholders – employees, potential employees, shareholders, potential partners, customers and suppliers. It demonstrates the values the organisation believes in and stands for. It helps to create a positive perception of the organisation from potential customers who are more likely to trust a company that demonstrates commitment to ethical practices.

Finally, a code of conduct can serve as a reference point for decision-making, drive business practices and improve productivity.

What should be included in a Code of Conduct?

How comprehensive you choose to make your code of conduct will depend on the purpose for which you are creating it. If yours is a new business or an SME you may not want to overburden your key stakeholders with an overly detailed code, but it is better to have a clearly defined code in place than to have to react after an issue arises.

A code of conduct can be tailored to each company or organisation’s needs and is usually included in the employee handbook. It defines the standards expected by all company employees and can cover the following areas.

Company values

The ethics and beliefs that help define the company and its culture:

• Business ethics
• Environmental and Social Responsibility
• Employee rights
• Commitment and responsibility
• Diversity and inclusion

Employee behaviour

An explanation of what is expected of employees in terms of behaviour and performance – how they should treat people and communicate, or specifics related to how they perform their role. For example:

• Standards of professionalism
• Discrimination and sexual harassment policies
• Use of company assets
• Use of social media
• Communication rules
• Reporting misconduct
• Disciplinary process.

Internal day-to-day business practices

These could include:

• Dress code
• Annual leave/holiday time
• Inclement weather policy
• Break policy
• Onboarding process
• Job duties
• Training guidelines
• Rules related to time off through illness/injury
• Absenteeism, attendance and punctuality
• Use of phone while at work
• Benefits
• Chain of command
• Legal compliance
• Leave policy.

External practices

Finally, a code of conduct; should define the expectations for employees when dealing with external parties and could cover for example:

• Confidentiality and data protection
• Privacy
• Intellectual property policies
• Customer communication requirements
• Conflict of interests.
• Communications with the media or at external events

Important things to consider

A code of conduct should establish clear guidelines and expectations and must be accessible to all employees.

It should include a company’s core values, for example, relating to diversity and inclusion. It should also cover the aspects of professional behaviour expected of employees, such as use of a company’s assets or social media and details of disciplinary action and processes.

A code of conduct should also set out a company’s internal working practices. For example, dress code, holiday policy, job duties, attendance and punctuality. Equally, it should state its external practices – what is expected of employees dealing with customers and accessing a company’s confidential information or intellectual property.

Is a Code of Conduct legally binding?

A code of conduct ensures that all members understand what is expected of them in their interactions with colleagues, customers, vendors, or any other stakeholders.

Whether codes of conduct are legally binding depends on how it is drafted and enforced within a company or organisation. If it states that violations of the code will result in disciplinary action, or if it forms part of an employee’s conditions of employment, it can be considered legally binding.

Codes of conduct can be difficult to enforce so it is important to have a clear understanding of the law before implementing a code of conduct.

Not all organisations choose to strictly enforce their codes, while others choose immediate corrective measures. However, there must be clear evidence demonstrating intent to violate the code before any legal action can be taken.

It is also important to remember that codes need to be regularly reviewed and updated in order to remain effective and compliant with current laws.

What happens if your employees violate your Code of Conduct?

Violations of the code of conduct code can damage your organisation’s reputation and, for individuals, can result in disciplinary action or termination. It is therefore essential to be familiar with the code of ethics and to have a clear procedure for violations of it.

Where you are made aware of a violation of your organisation’s code of conduct, it is important to act on it quickly and establish a time frame to report back. Follow the prescribed process, investigate claims and allow the employee to speak in their own defence. Failure to do so could result in claims of discrimination, unfair treatment or even unfair dismissal. Document the situation to keep a record and protect yourself from adverse legal action. Keep the investigation confidential.

At the lowest level, a verbal or written warning may be issued in the event of a code of conduct violation. Depending on the nature of the violation, suspension from work or termination of employment may result.

How to report a Code of Conduct violation and prevent retaliation?

A code of conduct promotes an open and honest culture. Reports of code of conduct violations can either be made directly to line managers or can be made on a confidential or anonymous basis.

When making a report, employees should provide as much information as possible, including names, dates, events and an explanation of why they believe the incident is a code of conduct violation.

What is the difference between a Code of Conduct and a Code of Ethics?

A code of conduct is closely related to a code of ethics but there is a difference.

A code of ethics is broader, providing principles that guide employee mindset and decision-making.

A code of conduct is more prescriptive and contains specific rules for employee behaviour and actions.

Having a code of conduct is important for all businesses, regardless of size. It ensures that employees are aware of the standards for behaviour expected of them within the organisation.

Even if not legally binding, codes of conduct provide a practical process of how to handle certain situations and help protect your company from potential legal issues.

Code of Conduct case studies

Below are three real world examples of codes of conduct.

Marks & Spencer – The M&S Code

The M&S Code of Conduct (the Code) sets a floor of minimum commitments for its business conduct. These commitments are focused on key policy areas affecting M&S to ensure that it acts in line with relevant laws and regulations, industry standards and stakeholder expectations.

The company says in its Code document: “It is important that we all know and own our part in complying with the Code. Our colleagues can find information on our commitments, and their responsibilities for fulfilling them, in our Group Policies. Where relevant, individual members of our family of businesses will also have Standards & Procedures available to support our colleagues to comply with the Code.

“Although our Code sets the floor of minimum commitments, we know that our businesses often go above and beyond to deliver for our customers, colleagues, suppliers and the community.”

“Whilst we all must comply with the Code, we should also be guided by ‘The M&S Way’ – our values for making the everyday remarkable and delivering success for M&S: All in for the customer; Make every penny count; Talk straight; Do the right thing; and, Own it and get it done.”

Unilever – Code of Business Principles and Code Policies

Unilever’s Code of Conduct document is framed under three key headings: ‘Our Values, ‘Code of Business Principles’ and ‘Code Policies’.

The document says: Our Values of Integrity, Respect, Responsibility and Pioneering are the simplest statement of who we are. They govern everything we do.

“Our Code of Business Principles is a simple ethical statement of how we should operate. We publish this externally and expect all others who work with us to set themselves equally high principles.

“Our Code Policies define the ethical behaviours that we all need to demonstrate when working for Unilever. They are mandatory. While these are for internal use, we also publish them externally in support of transparency.”

PwC’s Code of Conduct – Living our purpose and values

PwC says its culture thrives supported by a framework of internal and external expectations and requirements.

The company says: “These help guide our behaviours and build trust in how we do business, with each other, in our communities and how we use information.

“When working with our clients and colleagues to build trust in society and solve important problems, we:

• Act with integrity
• Make a difference
• Care
• Work together
• Reimagine the possible.”

The company adds: “Our purpose and values are the foundation of our success. We exist to build trust and solve important problems, and our values help us to deliver on that purpose. “This code underpins our ability to behave in a consistent manner with our values.”

Related resources

The IoD Information and Advisory Service can help you get the answers you need to take your business forward. You can access independent and confidential business advice from a panel of expert advisors who cover a vast range of business topics. This service is free for full IoD members.