Codes of Business Conduct: Valuable or Useless?

Last updated on: October 5, 2017 at 10:16 am by Jeremy Neill

Codes of Business Conduct: Valuable or Useless? 2017-10-04T20:42:56-06:00 Jeremy Neill

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When I teach ‘Business Ethics’ to my students, I let them know that codes of ethical conduct are statements that one often encounters in the business world. They range from very vague at one extreme to very complicated at the other. They’ve become more popular in recent years. Partly this is because they offer companies a first-line response against legal liability. It is also because they set a behavioral tone, ethically speaking, for company cultures. At best, they are inspirational statements which can motivate employees to do their very best. At worst, they can be so vaguely worded as to be wholly inapplicable. Sometimes, in fact, a particular company’s employees might be entirely unaware of its code of conduct.

Meeting between US and Chinese Business Leaders, US Department of Treasury, Wikimedia Commons

Do codes of conduct actually lead to better employee behavior? Probably not. The fact is that there have been numerous scandals in recent years – Enron, Worldcom, Theranos, Valeant, Wells Fargo – at companies which have had robust codes of conduct. In spite of the existence of conduct codes, the employees of these companies still did terrible things. In every possible way, they betrayed the trust of their investors, customers, and community. So the mere existence of codes of conduct, as such, does not prevent wrongdoing. Persons who are inclined toward evil are going to do bad deeds, period – whether their companies have codes of conduct or not.

Many businesspersons these days think of a code of conduct as a kind of an ethical ‘sandbox.’ That is, the code is there to serve as an ‘outer behavioral boundary.’ Within such a boundary, the idea is that businesspersons can more or less do whatever they want. They can do business and treat others however they desire, provided that they stay within the boundaries of the sandbox. Venturing outside of the sandbox is the problem. Treating people badly, within the boundaries of the sandbox, is not.

The problem with the ‘sandbox’ view is that it often leads to bad outcomes. The reason why is as follows: when your mindset is that any and all behaviors are acceptable within the boundaries of the sandbox, then you will likely see yourself as being justified in doing whatever you want in circumstances in which your company neglects to include certain behaviors on its list of things that are ‘outside of the sandbox.’ No corporate conduct code can be exhaustive. There is no code of conduct that can include all of our possible bad behaviors on its list of ‘forbidden’ things. In fact there are many codes that just wave their hands about stuff like that and give up entirely. Such codes are supposed to be more like inspirational statements. They give up altogether on listings of things that are forbidden.

Another mindset, which I consider to be similar to the ‘sandbox’ view, is the ‘contract’ view. This view thinks of codes of conduct as contracts. Just like a contract, the code of conduct is provided by the company in order to give its employees an explicit listing of what they are and are not permitted to do. The parties to the contract – the company and the employees – are expected to operate in a particular way. To operate in some other way is to violate the terms of the contract.

But here again, the problem with the ‘contract’ view of codes of conduct is that it treats such codes as lists of behavioral do’s and don’ts. You should ‘do’ the things that the contract says. You should ‘not do’ the things that the contract says not to do. Of course, the difficulty with all of this is that there is no contract in the world that can list all of the things that you should and should not do. This is fine if the contract is only supposed to govern a precise, temporary business relationship – like a temporally-limited agreement between a supplier and a contractor. But this kind of thinking does not work so well when it comes to the more open-ended world of company behavior. There are always going to be behaviors that are not being explicitly forbidden by the terms of the contract. To treat the contract as a listing of permissible and impermissible things is to see it as giving one the license to do all sorts of other, unlisted bad things so long as one does not violate one’s contractual obligations.

I think that both the ‘sandbox’ view and the ‘contract’ view are problematic as ways of thinking about codes of ethical conduct. It is best, I think, to conceive of such codes in another way entirely. On my view, codes of ethical conduct are best when they are treated as mere behavioral starting points. They are there to serve as inspirational statements for employees to do their best. To think of a code of conduct as a listing of the things that one is not supposed to do is naturally to be tempted to do the many other things that have not been explicitly ‘forbidden.’ Best, in my view, is to think instead of codes of conduct as being there to promote the things that one is supposed to do. This is to focus one’s attention on something very different than wrongdoing. It is to focus one’s attention on behaviors that are right, as opposed to behaviors that are wrong. The best way to ensure that one does the right thing in business is to focus on the right thing, and not on avoiding the wrong thing. To focus on the wrong is to risk the temptation to do all of the other stuff that is not being explicitly listed as ‘wrong.’ The point ought to be to stay as far away as possible from all wrongful behaviors. I can pretty much guarantee that someone’s business behaviors will be moral if she is staying far away from the cliff’s edge. To dance on that edge is to invite temptation and danger. Best is to strive to do right, as opposed to striving to avoid wrong, or, what’s worse, to play as close as possible to the cliff’s edge.

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