Isabel Collins, Radley Yeldar: You must live by your credo

Having a code of conduct is not enough - it must be put into action at all levels in the company.

According to James Murdoch in his recent testimony before the parliamentary committee investigating phone hacking, the key to business integrity is 'sending everybody a copy of the code of conduct'. Sorry James, but that's the barest of bare minimums.

Of course it is important that every employee receives - and reads - a code of conduct. However, if a code of conduct is to function as an effective protector of corporate reputation, three things must happen: first, the organisation needs a well thought through code; second, it needs a programme of engagement to ensure staff understand its content and implications; and third, it needs a leadership and culture that put the code into action.

Murdoch can tick point one, but points two and three seem to be sorely lacking at News International. Yet without an engagement programme and leadership buy-in, the three big benefits of a code of conduct - protecting reputation, building relationships and minimising risk - will inevitably be compromised. Instead employees have to rely on their initiative when it comes to doing the right thing. That sounds fair enough, yet good people can do dreadful things if they find themselves in a situation that somehow makes it seem permissible.

In a corporate context, a code of conduct can make all the difference when it comes to doing the right thing, but only if it takes the correct approach.

Our recent study of the FTSE 350's codes of conduct showed that codes should not be prescriptive. Instead they should be built around a few well-made rules that make it easy for staff to understand what matters and act accordingly.

Codes of conduct that take this more enlightened approach inspire active understanding and buy-in rather than simply creating a passive awareness and a sense of overweening regulation. In short, they become an invitation rather than an instruction, an ethical compass that guides behaviour, culture and decisions and not a straightjacket of compliance.

Having a code of conduct that invites participation and consideration is just the start. A great document is no use to the business if it stays in a drawer. Leaders must use the code as the starting point for conversation, challenging their teams to think about the situations they experience and the grey areas every organisation encounters. Without ethical leadership the code and what it stands for becomes someone else's issue.

What happens when a code of conduct is undermined or ignored? The answer is simple: unethical behaviour can cost companies real money. Any manager tempted to cut the occasional ethical corner should consider the following sobering stories.

In April 2010, America's financial regulator accused Goldman Sachs of defrauding investors by misstating and omitting key facts about a financial product linked to the US sub-prime mortgage market. Goldman Sachs was fined a record $550m and endured a $24.2bn drop in share value.

A few months later, Hewlett-Packard's Mark Hurd, who had served as chairman and CEO for five years, resigned after it was alleged he didn't abide by the company's code of conduct. The Financial Times said: 'Hurd's departure wiped $10bn off HP.'

These cases - and many others - highlight the consequences of ethical failure. The lesson is clear: creating and promoting a well-conceived code of conduct is an effective way to avoid risk to reputation, eye-watering cost, broken trust or even a policeman's knock on the boardroom door - a fact Murdoch might like to consider.

VIEWS IN BRIEF

What is the best example of a company that has planned its internal comms strategy to fit with its wider corporate reputation?

Johnson & Johnson is an example of a business with a code of conduct - or credo - that runs through the company. In 1982, the company immediately recalled contaminated Tylenol painkillers in the US at great financial cost. But the long-term gain in protecting reputation was of far greater value.

Which brand has gained most, reputation-wise, in the wake of the riots?

Certainly none of the politicians or the Met Police. Their response, in terms of action and comms, appears to have reduced public trust and confidence.

Isabel Collins is head of employee engagement at Radley Yeldar.

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