Only 40% of ftse 250 businesses have a code of ethics - does it matter?

Maybe we need to innovate codes with teeth

“A man without ethics is a wild Beast set loose upon this world”. I am not sure Albert Camus would therefore be very impressed with research released from the Institute of Business Ethics last week. It found that nearly half the companies on the UK’s FTSE 350 index do not have a publicly available code of ethics. It isn’t any better in the FTSE 250 either at only 40%. So what’s going on and does it matter?

The concept of a code of ethics has emerged as a guiding force for some shareholders over the last decade as businesses face dramatic environmental, technological and political changes. It is meant to serve  as a moral compass, enabling organizations to navigate complexity while ensuring long-term trust and societal impact. A good code should give power to employees when they see things going wrong and should be a useful indicator of culture for suppliers, customers and potential recruits. 

Nonetheless, I am sceptical. BP had a code when it had the enormous Deepwater Horizon oil spill, VW had a code when it was lying about diesel emissions. Facebook had a code while it worked with Cambridge Analytica. I have seen companies set up teams to oversee ethics, produce glossy brochures and websites and yet still face misconduct allegations or have challenging cultural issues. 

A code has to be more than just a list of rules and guidelines; it should represent an organization's core values and principles. It defines the moral responsibilities a business undertakes, using data that helps to ensure decisions are taken with integrity, and accountability. By adhering to a well-crafted code, companies can cultivate an ethical culture that resonates throughout the entire organization, impacting decision-making processes, wider partner relationships, and overall business practices. But this involves hard work. Documents alone are pointless. There has to be teeth given to those documents.

There are some that make it work. Patagonia, the outdoor apparel company, exemplifies the successful implementation of a short and useful code. "Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis”. These words encapsulate the company's commitment to environmental stewardship and social responsibility. Their code permeates all aspects of its operations and they use it daily to inform decisions as well as in the appraisal and recruitment system. 

A good code can also be a reaction to a negative event. In 2013, the Rana Plaza tragedy in Bangladesh exposed the harsh working conditions endured by factory workers producing garments for several global brands, including Primark. This disaster ignited calls for improved worker safety and fair labour practices in the fashion industry. To address these concerns, Primark developed and implemented a comprehensive code of ethics, known as the Primark Code of Conduct. This code is focused on the fair treatment of workers, safe working conditions, and environmental sustainability - all done in collaboration with suppliers and auditors. It is fairly well regarded as a good response to a terrible crisis.

Even if you share some of my scepticism about box ticking, the trend is towards more reporting and more scrutiny of company ethics. This must be a good thing. So if you are in one of those businesses about to put a code in place, here are some things to bear in mind.

 Firstly, keep up to date. An ineffective code arises when you fail to address the emerging ethical challenges in your industry. For example,the changing power of software over the last few years has introduced many novel ethical dilemmas such as data privacy, algorithmic bias, and automation-related job displacement. The generative AI developments we are living through present another set of hazardous questions that affect all companies, not just technological ones.

Secondly, there has to be a system of redress if things go wrong. This is fundamental. The code of ethics should clearly outline the process for reporting and addressing ethical violations so employees understand how to identify and report misconduct and have confidence in the code. Establishing confidential reporting channels and ensuring you have  non-retaliation policies is helpful so whistleblowers feel safe. It’s important to lay out how you will proceed when investigating a reported violation. You could assign a qualified individual or appoint a committee or hire an outside advisor.

Finally, once an infringement is substantiated, it's essential to take appropriate and immediate action. This can be harder than it seems - I have been on boards where the investigations have taken several months due to legal complexities, during which time employees have lost faith in management. 

There seems to be universal acknowledgement that codes of ethics work most effectively in companies where there is a real life and death peril. While this is understandable in some ways, it seems a shame that only when the stakes are so high do companies pay enough attention to what should surely be normal business practice. Who wants to run a company that is unethical? By not having a code you can point to, you could be making too much of a point. 

The business pages are routinely full of those wild beasts on the loose about which  Camus warns us. Maybe we should start to defend against them by innovating with codes that actually work.