The Ethical Business Guide: How to Develop an Ethics Policy

BY ANDREA WERNER
INSTITUTE OF BUSINESS ETHICS

DEVELOPING A MEANINGFUL AND EFFECTIVE ETHICS POLICY WILL SUPPORT HIGH STANDARDS OF BUSINESS BEHAVIOUR AND AID ETHICAL DECISION-MAKING.

Few directors of small and medium sized enterprises (SMEs) will deny the importance of good, trusting relationships with customers, employees, suppliers and the community. The success of their company depends on it.

Yet these relationships will pose owners and managers with ethical challenges in their day-to-day business. Examples include:

  • Do I meet a deadline with my customer and ship out products even though I know there is a possibility they might be faulty, or do I openly discuss my difficulties with the customer?
  • How do I ensure that my employees do their work properly and do the right thing?
  • How do I deal with my employees’ desire to balance their work obligations with their personal ones?
  • How do I respond when securing an important contract seems to require the payment of a kickback?
  • Do I delay payment to suppliers and the Inland Revenue when my cash-flow is currently limited?

This article will set out how a small business should undergo the process of developing a policy that addresses and answers these questions.

AN ETHICS POLICY IN SMES

SMEs are characterised by informal understandings and shared expectations among the directors and the workforce of how business is to be done. Any values and ethical principles will usually be implicit rather than formally expressed through ethics policies, codes and programmes that are familiar in large companies.

However, there are advantages to having a somewhat more formal ethics policy in place. Firstly, it reinforces and makes explicit the values and principles that are part of the organisational culture – so allowing them to be communicated to stakeholders. Secondly, a policy will provide guidance and support to employees on how they are expected to conduct their business. A policy will provide a context and the vocabulary for employees to raise any concerns they have with their supervisors or the directors. It will form a framework for management and staff to decide what is the “right thing to do” and for understanding why ethical standards are important.

A POLICY WILL PROVIDE GUIDANCE AND SUPPORT TO EMPLOYEES ON HOW THEY ARE EXPECTED TO CONDUCT THEIR BUSINESS THE ETHICAL BUSINESS GUIDE

STEP 1: IDENTIFY AND DEFINE CORE VALUES OF THE BUSINESS

An effective ethics policy will be based on a set of values or business principles. Values may be thought of as agreed standards of behaviour, expressing beliefs about the ‘good’ and the ‘right’ in the context of the organisation. In SMEs, these values will inevitably be influenced by the personal and professional values and principles of the owner-managers. However, it is considered good practice to consult employees (and even other stakeholders) about this, asking them what they think the values of the organisation are.

When identifying the organisation’s core values, it may help to think of some values as business values and others as ethical values, although the distinction can be blurred and business and ethical values are often interrelated. Some commonly found values are shown in Box 1.

BUSINESS VALUES MAY INCLUDE:

  • Customer service
  • Quality
  • Innovation
  • Reliability
  • Efficiency
  • Value for money

ETHICAL VALUES MAY INCLUDE:

  • Integrity
  • Honesty
  • Openness
  • Respect
  • Fairness
  • Responsibility

STEP 2: DRAW UP A ‘CODE OF ETHICS’

The cornerstone of an ethics policy is a written ethics statement including guidance for staff (usually a code of ethics). It will bring the company’s core values to life as it translates them into specific commitments and expected behaviour in relation to the organisation’s key stakeholder groups (i.e. customers, employees, suppliers and contractors, providers of finance and community).

For example, it will spell out what it means to be ‘honest’ to customers or to show ‘respect’ to employees. A code will also be a good place to address environmental responsibilities. It will be helpful to include issues about which employees are concerned and on which they would like guidance.

EXAMPLES OF ETHICS STATEMENTS

  • We will provide products and services giving good value and consistent quality, reliability and safety.
  • We will not knowingly sell products which harm our customers.
  • We will treat all employees with equal respect and dignity and will provide them with equality of opportunity to develop themselves and their careers.
  • We undertake to pay our suppliers and contractors in accordance with agreed terms.
  • We seek to compete fairly. We do not solicit or offer bribes or other improper advantages for business or financial gain.
  • We will protect the interests of shareholders and other investors and will not do anything which will advantage one class of investor at the expense of another.
  • We are committed to developing and maintaining good relationships with our local community, and to regularly supporting community activities.

The code may be titled, for example, “The way we work” or “Our values and principles”. A code of ethics cannot cover every situation an employee or the business may face, but should make clear the ‘spirit’ in which business should be done.

STEP 3: EMBEDDING THE ETHICS POLICY

The ethics policy needs to be communicated to everybody working in the organisation. The code may be displayed on office and shop floor walls – clearly visible to all staff; or a hard copy of the code could be handed out to all employees. It will be good practice if owner-managers themselves introduce the policy to new employees and remind existing staff of the importance of responsible behaviour on a regular basis, e.g. in staff meetings. Reminder communications could include examples of ‘right’ action, consequences of ‘wrong’ actions, and examples of ethical dilemmas and how to handle them.

AN EFFECTIVE ETHICS POLICY WILL BE BASED ON A SET OF VALUES OR BUSINESS PRINCIPLES

Employees should be encouraged to speak to their line-managers or the directors if they are unsure about the ‘right’ response to specific situations or if they have concerns over certain decisions and behaviours. The rights of staff to speak up without fear of retaliation and the support that they will be offered should be made clear. It is also worth considering who employees might contact should they not feel comfortable raising issues with their managers.

Directors may also want to consider appointing an ‘ethics champion’ – a person who keeps an eye on
the company’s ethical standards. Depending on the size and set-up of the business, this may be the HR manager, the company secretary, a non-executive director or even a person outside the organisation. Such a person may check on the effectiveness of the ethics policy, discuss ethical issues and concerns with the directors and be a contact if an employee wishes to raise concerns or seek guidance outside of the management line.

Owners or senior managers need to be aware that their behaviour sets an example to their employees. For a policy to be effective, it is important that they are regarded as people of integrity, adhering to high ethical standards. As the same applies for supervisors and line managers, they should be reminded on a regular basis of this responsibility.

It is also good practice to review and revise the ethics policy from time to time, in order to address any new issues and keep it relevant.

Owners and directors committed to promoting an ethical culture in their organisation will be more likely to reap the benefits of a good reputation among their stakeholders and a loyal workforce.

The Institute of Business Ethics was established in 1986 to encourage high standards of business behaviour based on ethical values. The organisation works to raise public awareness of the importance of doing business ethically, and collaborates with other UK and international organisations with interests and expertise in business ethics. For more information visit www.ibe.org.uk

CHECKLIST FOR DEVELOPING AN ETHICS POLICY

  1. Identify and define the core values of your business – with the help of your staff.
  2. Draw up a ‘code of ethics’ that translates these core values into specific commitments in relation to your key stakeholders (i.e. customers, employees, suppliers, community, providers of finance) and marketplace behaviours and goals.
  3. Make sure all employees know about your ethics policy and the behaviours that are expected of them.
  4. Encourage them to speak up if they have any concerns regarding ethical issues and standards.Consider appointing an ethics champion – someone who keeps an eye on the company’s ethics.
  5. Ensure all your senior managers understand the importance of setting an example with their own behaviour.
  6. Revise the code regularly.

© BLUE ROCKET AND THE GOOD FOLK 2009