Governance Code of Conduct - Executive Summary

2000

Section

CHAPTER 1
CODE OF CONDUCT AND ETHICAL ISSUES
LEARNING OUTCOMES
After studying this chapter, the student should be able to

Purpose of the code of conduct

Principles of a code of conduct

Relationship between the code of conduct and successful marketing

Implications of the code of conduct

INTRODUCTION
A code of conduct is a framework how to do a particular task. In terms of business
language it can be termed as set of standards or ethical standards.
For example, dress code, discipline is a part of professional code of conduct.
Say Lawyers have to follow black and white color in their outfit. Similarly Doctors
have to follow white color coat in their dressing outfit. Politicians normally use Khadi
dresses etc. This creates a formal discipline in the organisation.
The International Federation of Accountants provided the following working definition:
"Principles, values, standards, or rules of behavior that guide the decisions,
procedures and systems of an organization in a way that (a) contributes to the
welfare of its key stakeholders, and (b) respects the rights of all constituents
affected by its operations."

PURPOSE OF CODE OF CONDUCT

The purpose of code of conduct is to provide an outline to do work properly. It is a
kind of instruction guide or reference for users to plan their day to day work
effectively. Code defines the aim, objectives, mission, vision, values, and principles
and connects with professional environment of the organisation. Thus, the behavior of
individuals, should clearly define the objective of organisation and how it can be
achieved and become successful in the global market. It gives a chance to the
organisation to make a good identity or reputation in the society.

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For instance, if an employee of a firm does not follow the set of rules then he will not
perform his work systematically and efficiently. As a result the profitability and
success of business will suffer in return.
It means every organisation should develop their code of conduct and some ethical
standards to control the working of organization.
A code of conduct is divided into two parts:

Code
of
cond
uct

Set of
rules &
regulatio
ns for
employee
s

Managem
ent
needs &
objective
s
Code of conduct

CODE
(Guidelines)

CONDUCT
(Behaviour)

Code is a fully open guideline of organization functioning.

Conduct is a kind of behaviour of individual who convert the guidelines into action.
Code of conduct has following aspects:
1. Define the profession
2. Honesty to the work and obey the laws
3. Product quality and safety
4. Fair dealings with customers and suppliers
5. Good relations with people
6. Positive and healthy environment of organisation

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7. Establish core values for employees

8. Strengthen a cultural integrity and openness
9. Minimize risk, increase productivity
10.Clearly define company norms and values
ASSESSMENT
1. Define the code of conduct with example.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------2. What is the importance of code of conduct in an organisation?
Or
What is the need or purpose of code of conduct in business organisation?
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-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------11.

PRINCIPLES OF CODE OF CONDUCT

The key principles of code of conduct are:

6.

1.

Principle of Right
thing at right time

Principle of
Universality

7.

2.

Principle of
1.
defining the
profession
3.

Principle of
8.
Communication

8.

Principle of Unity
of Command

Principle of
recommendation

4.
Principle of
Commitment from
Board of Directors
5.
Principle of
modification

9.
Principle of
Awareness
10.

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Principle of
Disobedience

1.

Principle of Right thing at right time: It means code of conduct helps the
members in doing right work properly at right time which in turn help the
organisation in achieving their goals.
E.g.: if a manager takes decision after completion of the target then it is of no
use.

2.

Principle of defining the profession: Principle of Code of conduct should

clearly define the nature of business. It helps in setting or collecting all the
resources for the business. Resources may be financial, human or physical
resources.
E.g. if you are commencing a new garments business then you should specify
the category whether for men or women. Then you collect all types of
resources as per your business requirement.

3.

Principle of Unity of Command: Code of conduct should help the employees

in taking right decisions. Employees have lot of work or activities to perform in
the organisation. Sometimes at a point of time they have to take decision for a
bulk of activities so if they do not know about the ethical standards they cant
able to take an appropriate decision on time. Thus, it needs a proper care from
management point of view.
E.g:

SITUATION 1

BOSS

Emplo
yee

SITUATION 2
BOSS
1

BOSS
2

BOSS
3

Emplo
yee

In above example there are two situations given. First shows that an employee
takes directions from only one boss. But situation 2 shows an employee gets

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directions from 3 bosses at same time. He becomes confused here which boss
he follows first.
4.

Principle of Commitment from Board of Directors: Code of conduct

enables board of directors in developing the organisation culture and
behaviour of employees. It is the responsibility of board of directors to appoint
the senior managers to supervise that development.

5.

Principle of modification: Code of conduct should be modified or updated

time to time with the help of specialist managers, multi disciplinary and
international managers. So that this type of changes would help the business in
identifying the risks to corporate culture and then taking remedial actions to
minimize the effect of risk on business activities.
E.g. if you have garment business, you have to check the customers
likings/disliking in every season. What fashion is prevalent in the market you
have to be update and keeps on changing your code of conduct also. It will
only help your business in achieving success.

6.

Principle of Universality: Code of conduct should be prepared in such a way

that it should be applicable at all levels of the organisation, where business
operates. It should follow all the laws and regulations of the society and
government.
E.g. McDonalds code of conduct is same in every country whether it is India,
America or China. Their services like home delivery, hospitality etc. will remain
same in the whole universe.

7.

Principle

of

Communication:

Code

of

conduct

should

be

properly

communicated and promoted to the managers, employers and employees or

all the members of the organisation in a very simple sense. There should be no
disturbance or hurdle while communicating the message to the listeners.
Awareness of ethical standards is must for the members of the organisation.
8.

Principle of evaluation: Code of conduct should be reviewed properly on

time which further helps in defining the roles and responsibilities of the
members of the organisation.
E.g.

A manager gives a target for 20 products/month output to three

employees say A, B, C
Then their evaluation card is:
A
TARGET

B
20

C
20

20

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OUTPUT

18

20

EVALUATION

(-) 2

PERFORMANCE

Below Average

22
(+) 2
Good

Above Average

This example helps the manager in taking proper decision. He will decide to
reduce employee A target, do no change with employee B and increase the
target of C employee.
9.

Principle of Awareness: A proper awareness programs and training sessions

should be designed in the organisation so as to create the interest and desire
among employees to perform the work properly.
E.g. A manager communicates only the target to his employees and not the
process of working. Then how will he complete the target on time without
knowing the process? It means a manager should communicate all necessary
information to his employees related to his work.

10. Principle of Disobedience: Employees should be informed about each and

every aspect of the code of conduct. They should be made aware about the
consequences/outcomes of not following the rules and regulations.
E.g. if any employee does not follow the rules and regulations then he should
know this thing that he may have get a strict penalty or punishment for this.

ASSESSMENT
1. What are the principles of code of conduct?
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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------2. Name any five principles of code of conduct.

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------3. Discuss the principle of unity of command with example.
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-----1.

RELATIONSHIP

BETWEEN

CODE

OF

CONDUCT

AND

SUCCESSFUL MARKETING

Adhering to a code of ethics is vital for successful marketing

Following code of conduct or ethics is important for successful marketing. Marketing
simply means fulfilling the needs of customers and get payment in return. There is a
positive relationship between code of conduct and successful marketing. Ethics or
norms are those moral values which gives proper guidelines to the individual.
These norms includes: 1) follow the laws carefully 2) take right decision at right time
Marketers should create a chain of trust between customers and their society. Thus
they need to follow ethical values to build consumer confidence. Some of the ethical
values are as follows:
1. Values: values affect the everyday life of the business. It plays a vital role in
daily decision making. Values involve six basic elements for each and every
organisation as follows:
Values = Responsibility+ Simplicity + Honesty + Respect +Transparency
E.g. The IDF and its soldiers are obligated to protect human dignity. Every human
being is of value regardless of his or her origin, religion, nationality, gender, status
or position."

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Israeli female soldier

2. Practice: marketers have lot of activities to do. In a single society they have
to move here and there for their business. So sometimes it becomes difficult for
them to follow the code of conduct at each level of the society. Here their
organisation plays a vital role. Marketing organizations should encourage their
employers. They should give rewards to those marketers who practically adopt
ethical behaviour. E.g. a manager announces the rewards for those employee who
will not use unfair means like cheating, frauds, misguidance and all.
3. Competitors: competition with other firms can become one of the reasons for
not following code of conduct. But if companies compare their products with other
firms in a fair means then code of conduct can be followed very easily. They
should represent their product or service in a fair mean to the customer so that
he/she may not get confused while selecting the product/services.
4. Representation: marketers/sellers should represent their product or service
fairly while advertising. It helps in creating a healthy relationship between buyers
and sellers. Marketers should not use unfair means of advertising like bribes or
offering fake claims and wrong information.
ASSESSMENT
1. What is the role of code of conduct in marketing?
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------2. Define the meaning of moral values.
-----------------------------------------------------------------------------------------------------------------------------------------

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----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------3. What is the relationship between the code of conduct and successful marketing?
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------1.

IMPLICATIONS OF THE CODE OF CONDUCT

1. By adopting code of conduct in business, it helps in upgrading the level of
society. e.g.: a decade ago employees were terminated due to their personalities
or racism but now accepted on the basis of their qualification.
2. Code of conduct helps in taking right decision at problematic situations. E.g.
during times, much importance was not given to ethics and values but now
business leaders try to do work according to the code of conduct. It helps them in
deciding what is right or wrong among situations.
3. Code of ethics increases the productivity and profitability of the business
firms.
4. These ethics create a better morale and confidence among employees.

5. Ethical programmes play a vital role in following the legal laws and regulations
carefully and not doing any deal in unfair means. E.g. helps in avoiding taking
bribes or offering false claims to consumers.

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6. Code of conduct helps in maintaining good quality of the product.

7. This enhances in strategic planning means proper planning on time.
8. Ethics create a strong public image or reputation in front of society.
9. Code of conduct creates a healthy relationship among all managers, employers
and employees. It develops a positive and friendly organisation culture.
10.Code of conduct creates a formal kind of environment in the organisation.

CASE STUDY OF MCDONALD COMPANY

Having a lot of franchises through world wide and a global reputation to maintain,
McDonalds has developed a uniform code of conduct for their organisation. For this a
simple process is adopted by the organisation.
1. Firstly new employees are hired

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2. Then they sign a copy of code of conduct of the organisation after agreeing
with all the terms and conditions
3. Then implement this code of conduct in the organisation.
Ray Kroc set the original standard for McDonald's when he said that "the basis for our
entire business is that we are ethical, truthful and dependable."

McDonald's purpose/objectives
1. McDonald believes that customer is the king of the market. so the purpose is to
satisfy them completely.
2. The company wants that the employees should be committed to their jobs.
3. They want that the employees should present as ambassadors of the company.
4. Code of conduct trains each employee so that they perform their jobs
efficiently.
5. Ethical standards help in creating employees positive attitude towards their
job.

McDonald principles of a code of conduct

1. Employees must treat their colleagues, customers, workers, their seniors with
great respect.
2. Employees cannot use abusive language or cannot harass anyone within or
outside the organisation.
3. The principle of code of conduct helps the employees in maintaining healthy
and positive work environment.
4. Drinks like alcohol or illegal drugs in work environment are not permitted.
5. Company assets should not be used for employees personal use.
6. Confidential company information should not be leaked.
7. McDonalds employees should not use their office computers for checking their
personal email, documents etc.
8. Company employees should not exploit the office vehicle like motorcycle or
cars used for home delivery.

Relationship between code of conduct and successful

marketing of McDonalds Company
Code of conduct of McDonald plays a vital role in making marketing successful.
McDonald is actively involved in donations and charities for the welfare of the society
e.g. its own Ronald McDonald House Charities. McDonald employees greet their

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customers very well. They present a very humble attitude and give a homely
environment to their customers. This kind of behaviour develops only by adopting
ethical standards and code of conduct of a company.

McDonalds Implications of code of conduct

Sometimes employees of a company have to face unethical or even criminal
behaviour from their customers part. It is the duty of employees to report these
violations of company standards to their seniors. For this McDonald adopts a process
as follows:
1. Speak with your manager first about the issue.
2. If find unsuccessful in first step then contact McDonalds Global Officer or
Business Integrity Line.
3. For example if in case any complaint will be dealt with and requires
investigation. Then employee is protected from the company legal rules and
regulations.

Governance Code of Conduct - Executive Summary

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ASSESSMENT
Search for the code of conduct of any well-known South African company on the
Internet. Read the code of conduct and then discuss the following:
1. What is the name the company?
2. In what industry does this company operate?
3. Who is the CEO or managing director of the company?
4. Do you believe that this company and its employees act according to the
guidelines in its code of conduct?
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SUMMARY
Code of conduct set the rules and regulations, plans and policies for the business. It
governs the business in an ethical way. It creates guidelines for all the members of
the organizations like for boards of directors, managers, supervisors and employees.

Governance Code of Conduct - Executive Summary

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All the members of the organizations must follow these planned rules and regulations.
Code of conduct helps the individual in planning and taking right decisions. This code
of conduct further helps the organisation in protecting the reputation and credibility
of the organisation.