The term ‘ethics’ is one which has found itself often linked with ‘morality’ and it has sometimes been applied more narrowly to mean the moral principles of a particular individual or group.. Ethical conduct strikes at the core of corporate governance.
Ethical conduct implies minimal standards of conduct that individuals and organisations apply in guiding decision-making and actions. Globally, business ethics form an underlying basis for corporate governance practices. The Board of Directors of a company, acting on behalf of the shareholders, should therefore define standards of ethical behaviour expected of Directors and employees of the company and the third parties they relate with.
There is generally no blueprint for the contents of a Code of Ethics. However, there appear to be two models for structuring ethical codes – viz – the “Stakeholder” model code and an “Issues” model code[1]. The Stakeholder model code focuses on ethical behaviour towards stakeholder groups, while the Issues model focuses on specific issues relating to ethical behavior. Essentially however, a Code of Ethics should explain its purpose and describe the values that are important to the Board for the conduct of the business of a company (e.g. integrity, responsibility, accountability, professionalism, and reputation).
The Code apart from defining and setting out the various categories of ethical conduct that are acceptable as well as the scope of ethical boundaries for all those who are bound by it, should also state clearly the commitment of all those subject to it, to ensuring that their conduct is in full consonance with its provisions. The ultimate objective is to enshrine and maintain the highest ethical standards both within the company and in dealing with external third parties.
Section 36 of the SEC Code of Corporate Governance for Public Companies in Nigeria provides some guidance as to the contents of a Code of Ethics.
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The following reasons have been identified as to why companies should develop a formal code of ethics:
■ Compliance: Companies need to ensure compliance by their employees and stakeholders with relevant laws and regulations, and that conduct is in consonance with general expectations within the business environment. Ethical violations may also be violations of the law and may result in civil or criminal penalties.
■ Managing stakeholder relations: A Code of Ethics enhances the relationship between the company its shareholders and other stakeholders – including regulators.
■ Creating a value-based organisation: By logical premise, an ethically administered company is more likely to be successful in business in the long term. Thus, companies are encouraged to develop and nurture an ethical culture that will ensure employees act and think in a way that is consistent with the values espoused in the Code of Ethics.
■ Competitive advantage and Sustainability: Ethical conduct can earn a company competitive advantage that will assure business sustainability. A company that establishes for itself a reputation of being ethically governed would more likely garner better patronage than one that is perceived as being indifferent on this subject.
Adeyemi is Managing Director of Deloitte Corporate Services Limited ([email protected])
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