Code of Conduct:

A code of conduct is the most common policy within an organization. This policy lays out the
company’s principles, standards, and the moral and ethical expectations that employees and
third parties are held to as they interact with the organization. A code of conduct is an integral
part of compliance efforts as it provides documentation that an employee or third party has
violated company policy if illegal activity arises. Let’s explore what a code of conduct means
and the impact it can have on an organization. In many workplaces, codes of conduct become

Why is having a Code of Conduct Important?

A code of conduct serves as a reference point for employees to make better choices on a day-
to-day basis. While every possible ethical dilemma an employee might encounter won’t be
spelled out, the code should lay out the guiding principles by which employees should act and
therefore lead there workforce to make the right decision. 

Having a strong, ethical code of conduct is essential to building a culture of compliance

throughout an organization. A code of conduct is an excellent exercise to focus the leadership
team on how employees should behave at work and the standards they should uphold. These
standards can have massive impacts on how the organization functions, how employees
conduct themselves daily, and how the workforce interacts with others on behalf of the
organization. 

On top of ethical reasons, there are legal reasons for implementing a code of conduct as well.
All public organizations in the U.S. are required by law to have a code of conduct in place.
Private organizations would be smart to take note of this as well. 

What Should a Code of Conduct Include

There are a few common elements that every code of conduct should feature. An ethical code
of conduct should include a letter from the CEO, reiterate the company’s values, and outline
how violations are handled.

The letter from the CEO should emphasize the organization’s commitment to these standards.
The note is an opportunity to express the leadership team’s prioritization of compliance and
ethics. 

The code of conduct is a great place to drive the organization’s values home with employees
and third parties because they will be signing and therefore agreeing to uphold these
standards. Selecting your organization’s values is a critical step in building a flourishing
business, and establishing a culture of compliance. 

Finally, a code of conduct should inform how violations of the code of conduct are handled
internally at the organization and mention the external legal risks. The code should also
review the proper channels for reporting misconduct if out-of-line behaviour is witnessed. 
What is an Effective Code of Conduct in an Organization?
Best-in-class codes of conduct have a few traits in common. 

First, they are regularly reviewed. Updating the organization’s code of conduct on an annual
basis ensures that the content is up-to-date and relevant as things are always changing within
organizations. The code should be a living, breathing document that is highly relevant to
employees and their work. 

Second, the signatures are properly managed by a policy deployment solution that tracks
signatures and time stamps dates. You can write the best code of conduct in the world, but if
you don’t correctly deploy it to your employees and third parties, what was the point? Strive
for your employees and third parties to sign the code of conduct and understand the contents
and implications. 

Lastly, an effective code of conduct is digestible by the audience it is intended for. It is not
inundated with legal speak that only the lawyers at the company can understand but instead
written in an uncomplicated format that is easy for all to comprehend. While this may seem
like a simple point to emphasize, its impact on the adoption and impact of the code of
conduct within an organization can not be overstated. 

What Is a Conflict of Interest?

A conflict of interest occurs when an entity or individual becomes unreliable because of a

clash between personal (or self-serving) interests and professional duties or responsibilities.
Such a conflict occurs when a company or person has a vested interest—such as money,
status, knowledge, relationships, or reputation—which puts into question whether their
actions, judgment, and/or decision-making can be unbiased. When such a situation arises,
the party is usually asked to remove themselves, and it is often legally required of them.

Understanding Conflict of Interest

A conflict of interest in business normally refers to a situation in which an individual's

personal interests conflict with the professional interests owed to their employer or the
company in which they are invested. A conflict of interest arises when a person chooses
personal gain over the duties to an organization in which they are a stakeholder or exploits
their position for personal gain in some way.

All corporate board members have fiduciary duties and a duty of loyalty to the corporations
they oversee.1 2  If one of the directors chooses to take action that benefits them at the
detriment of the firm, they are harming the company with a conflict of interest.

One example might be the board member of a property insurance company who votes on the
induction of lower premiums for companies with fleet vehicles—when they, in fact, own a
truck company. Even if the institution of lower premiums isn't a bad business move for the
insurer, it could still be considered a conflict of interest because the board member has a
special interest in the outcome.
In legal circles, representation by a lawyer or party with a vested interest in the outcome of
the trial would be considered a conflict of interest, and the representation would not be
allowed.3  Additionally, judges who have a relationship with one of the parties involved in a
case or lawsuit will recuse themselves from presiding over the case.

Common Types of Conflicts of Interest

Self-dealing is the most common type of conflict of interest in the business world. It occurs
when a management-level professional accepts a transaction from another organization that
benefits the manager and harms the company or the company's clients.

Gift issuance is also a very common conflict of interest. It happens when a corporate
manager or officer accepts a gift from a client or a similar type of person. Companies
normally circumvent this issue by prohibiting gifts from customers to individual employees.

Troublesome situations may also arise when, in the course of professional duties, an
individual collects confidential information. Any information of this type used for personal
gain by an employee is a huge conflict of interest, at least in the United States. The financial
industry constantly grapples with this type of conflict of interest in the form of insider
trading.

Finally, the hiring of, or showing favorable workplace treatment to, a relative or spouse—
known as nepotism—can result in a potential conflict of interest.

What is an example of a conflict of interest?

A conflict of interest involves a person or entity that has two relationships competing with
each other for the person's loyalty. For example, the person might have a loyalty to an
employer and also loyalty to a family business. Each of these businesses expects the person
to have its best interest first.

What Is a Code of Ethics?

A code of ethics is a guide of principles designed to help professionals conduct business

honestly and with integrity. A code of ethics document may outline the mission and values
of the business or organization, how professionals are supposed to approach problems, the
ethical principles based on the organization's core values, and the standards to which the
professional is held.

A code of ethics, also referred to as an "ethical code," may encompass areas such as business
ethics, a code of professional practice, and an employee code of conduct.

Understanding Codes of Ethics

Business ethics refers to how ethical principles guide a business's operations. Common

issues that fall under the umbrella of business ethics include employer-employee relations,
discrimination, environmental issues, bribery, insider trading, and social responsibility.
While many laws exist to set basic ethical standards within the business community, it is
largely dependent upon a business's leadership to develop a code of ethics.

Both businesses and trade organizations typically have some sort of code of ethics that their
employees or members are supposed to follow. Breaking the code of ethics can result in
termination or dismissal from the organization. A code of ethics is important because it
clearly lays out the rules for behavior and provides the groundwork for a preemptive
warning.

Given the importance of climate change and how human behavior has led to severely
impacting the climate, many companies have taken to include climate factors in their code of
ethics. These principles include manners in which the company is dedicated to operating
sustainably or how they will shift to doing so.

In many cases, this commitment to sustainability adds to the costs of a company, but

because consumers are becoming more focused on the types of businesses they choose to
engage with, it is often worth the cost to maintain a good public image.

Regardless of size, businesses count on their management staff to set a standard of ethical
conduct for other employees to follow. When administrators adhere to the code of ethics, it
sends a message that universal compliance is expected of every employee.

Types of Codes of Ethics

A code of ethics can take a variety of forms, but the general goal is to ensure that a business
and its employees are following state and federal laws, conducting themselves with an ideal
that can be exemplary, and ensuring that the business being conducted is beneficial for all
stakeholders. The following are three types of codes of ethics found in business.

Compliance-Based Code of Ethics

For all businesses, laws regulate issues such as hiring and safety standards. Compliance-
based codes of ethics not only set guidelines for conduct but also determine penalties for
violations.

In some industries, including banking, specific laws govern business conduct. These
industries formulate compliance-based codes of ethics to enforce laws and regulations.
Employees usually undergo formal training to learn the rules of conduct. Because
noncompliance can create legal issues for the company as a whole, individual workers
within a firm may face penalties for failing to follow guidelines.

To ensure that the aims and principles of the code of ethics are followed, some companies
appoint a compliance officer. This individual is tasked with keeping up to date on changes in
regulation codes and monitoring employee conduct to encourage conformity.

This type of code of ethics is based on clear-cut rules and well-defined consequences rather
than individual monitoring of personal behavior. Despite strict adherence to the law, some
compliance-based codes of conduct do not thus promote a climate of moral responsibility
within the company.
Value-Based Code of Ethics
A value-based code of ethics addresses a company's core value system. It may outline
standards of responsible conduct as they relate to the larger public good and the
environment. Value-based ethical codes may require a greater degree of self-regulation than
compliance-based codes.

Some codes of conduct contain language that addresses both compliance and values. For
example, a grocery store chain might create a code of conduct that espouses the company's
commitment to health and safety regulations above financial gain. That grocery chain might
also include a statement about refusing to contract with suppliers that feed hormones to
livestock or raise animals in inhumane living conditions.

Code of Ethics Among Professionals

Financial advisers registered with the Securities and Exchange Commission  (SEC) or a state
regulator are bound by a code of ethics known as a fiduciary duty. This is a legal
requirement and also a code of loyalty that requires them to act in the best interest of their
clients.

Certified public accountants, who are not typically considered fiduciaries to their clients,
still are expected to follow similar ethical standards, such as integrity, objectivity,
truthfulness, and avoidance of conflicts of interest, according to the American Institute of
Certified Public Accountants (AICPA).

Example of Code of Ethics

Many firms and organizations have adopted a Code of Ethics. One good example comes
from the CFA Institute (CFAI), the grantor of the Chartered Financial Analyst (CFA)
designation and creator of the CFA exams. CFA Charterholders  are among the most
respected and globally recognized financial professionals. According to the CFAI's website,
Members of CFA Institute, including CFA Charterholders, and candidates for the CFA
designation must adhere to the following Code of Ethics:

 Act with integrity, competence, diligence, respect, and in an ethical manner with the
public, clients, prospective clients, employers, employees, colleagues in the
investment profession, and other participants in the global capital markets.
 Place the integrity of the investment profession and the interests of clients above
their own personal interests.
 Use reasonable care and exercise independent professional judgment when
conducting investment analysis, making investment recommendations, taking
investment actions, and engaging in other professional activities.
 Practice and encourage others to practice professionally and ethically that will reflect
credit on themselves and the profession.
 Promote the integrity and viability of the global capital markets for the ultimate
benefit of society.
 Maintain and improve their professional competence and strive to maintain and
improve the competence of other investment professionals.
Code of Ethics FAQs

What Are the Five Codes of Ethics?

All companies will have a different code of ethics with different areas of interest, based on
the industry they are involved in, but the five areas that companies typically focus on include
integrity, objectivity, professional competence, confidentiality, and professional behavior. 1

What Is a Code of Ethics in Business?

A code of ethics in business is a set of guiding principles intended to ensure a business and
its employees act with honesty and integrity in all facets of its day-to-day operations and to
only engage in acts that promote a benefit to society.

What Is a Code of Ethics for Teachers?

A code of ethics for teachers defines the primary responsibilities of a teacher to their
students and the role of the teacher in the student's life. Teachers are required to show
impartiality, integrity, and ethical behavior in the classroom. 2

What is code of ethics for engineers?

Engineers shall be guided in all their relations by the highest standards of
honesty and integrity. Engineers shall acknowledge their errors and shall not
distort or alter the facts. Engineers shall advise their clients or employers when they
believe a project will not be successful.

What Is an Example of a Code of Ethics?

An example of a code of ethics would be a business that drafts a code outlining all the ways
the business should act with honesty and integrity in its day-to-day operations, from how its
employees behave and interact with clients, to the types of individuals it does business with,
including suppliers and advertising agencies.

What Is the Difference Between a Code of Ethics and a Code of Conduct?

A code of ethics is broader in its nature, outlining what is acceptable for the company in
terms of integrity and how it operates. A code of conduct is more focused in nature and
instructs how a business' employees should act daily and in specific situations. 1

The Bottom Line

A code of ethics is a guiding set of principles intended to instruct professionals to act in a

manner that is honest and that is beneficial to all stakeholders involved. A code of ethics is
drafted by a business and tailored to the specific industry at hand, requiring all employees of
that business to adhere to the code.

The moral choices of businesses have evolved, from the industrial age to the modern era. In
the world we live in today, working conditions, how a business impacts the environment,
and how it deals with inequality are all areas that society deems important that perhaps two
centuries ago it did not as much. A code of ethics helps ensure that businesses will always
act with in