Code of Ethics – Definition

Cite this article as:"Code of Ethics – Definition," in The Business Professor, updated October 22, 2019, last accessed June 4, 2020, https://thebusinessprofessor.com/lesson/code-of-ethics-definition/.

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Code of Ethics Definition

A code of ethics or ethical code refers to a set of guidelines, standards, and principles that a company adopts and must be adhered to by its workers. A code of ethics is usually in a written form, it is a document that outlines the core values and ethics of a business that professionals must live by. Codes of ethics are used in every profession, industry and business, these are principles, standards and core values that employees or professionals must follow.

Usually, items highlighted on different codes of ethics vary as they are determined by the professional body, company management or the association.

A Little More on What is a Code of Ethics

Code of ethics are established in organizations, professions and industries to guide workers and professionals distinguish what is ethical and acceptable in the profession and what is not. It also outlines what professionals are expected to do in the daily discharge of their duties and when faced with certain problems.

Ethical codes guide the operations of  a business as well as the conduct of the employees. The core values of a company such as professionalism, honesty, integrity, unbiased approach and many others are contained in the codes of ethics. Also, habits that employees are expected to shun such as mediocrity, bribery, corrupt practice, discrimantion and others are stated.

Trade unions, non-government associations, civil societies, not-for-profit organizations, industry, professional bodies and businesses have codes of ethics. A code of ethics is an outline of how employees are expected to behave, the core values they should possess which is often in line of the business. As a CEO or business owner, regardless of the size of your business, your employees are expected to adhere by the codes of ethics that guide business operations. Employees who disobey or break the codes of ethics of an organization are bound to be dismissed from such organization.

Compliance-Based Code of Ethics

There are certain codes of ethics that businesses must adhere to as stipulated by the governing or oversight bodies. For instance, guidelines guiding how companies hire their employees, employee compensation, safety and health standards, among others are compliance-based code of ethics. Failure to comply by these ethical codes attract penalties .

In many organizations and industries, the management  hire compliance officers who has the responsibility of ensuring that the company and its workers comply with the codes of ethics. The officer is in charge of compliance trainings for workers and also keeps tabs on changes in the codes as determined by the regulatory bodies.

The regulatory bodies for many industries have clear penalties and consequences for violation of compliance-based codes of ethics. To avoid the consequences, many organizations recruit a compliance officer to ensure strict adherence to the ethics.

Value-Based Code of Ethics

Aside from compliance-based code of ethics outlined by governing bodies which organizations and industries must adhere to, there are other forms of codes of ethics. Every company has its core values which differ from the values of other companies in the same industry. The core values of a company are in line with its mission and vision. A value-based code of ethics refer to those ethics that align with the value system of the company which its employees must adhere to.

Oftentimes, many companies have codes of ethics that are combination of both companies and values. It is hard to come by a company that has only value-based code of ethics without some element of compliance-based code of ethics.

Code of Ethics Among Professionals

Professionals such as accountants, lawyers, financial advisers, estate managers, broker dealers and others have codes of ethics that guide the way they conduct business with their client or function at their workplaces. In the United States, the American Institute of Certified Public Accountants (AICPA) expects that all Certified Public Accountants (CPAs), uphold the code of ethics which are truthfulness, integrity, objectivity and avoidance of conflicts of interest.

The mortgage industry also has a code of ethics that mortgage administrators and estate managers must adhere to when transacting on behalf of their clients. Aside that they must act in the best interest of their clients, they must have honesty, integrity and avoid fraudulent practices.

Example of a Code of Ethics

Aside form code of ethics adopted by professionals listed above, there are other good examples on institutes and professional bodies that adopt and require strict compliance to code of ethics. The Chartered Financial Analyst Institute (CFAI) is a professional body that outlines codes of ethics that Chartered Financial Analysts (CFAs) must strictly adhere to. Some of the ethics are;

  • Integrity, competence and diligence in all deals and transactions.
  • Ethical conduct that reflect professionalism and credibility of the profession.
  • Acting in the best interest of their clients and putting the integrity of their profession first before personal interests.
  • Striving to maintain and improve professional competence and promote the viability of global market.

Reference for “Code of Ethics”

https://www.investopedia.com/terms/c/code-of-ethics.asp

https://en.wikipedia.org/wiki/Ethical_code

https://www.betterteam.com/code-of-ethics-and-professional-conduct

https://www.acm.org/code-of-ethics

www.businessdictionary.com/definition/code-of-ethics.html

https://www.cfainstitute.org/en/ethics/codes/about-code-of-ethics-and-standards

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