Fall 2015 Issue of Horizons

An executive-specific code of conduct should be in addition to—not in place of— the general code of conduct, and should address issues that are specifically applicable to management, such as conflicts of interest and relationship issues, protection of confidential information, financial reporting and disclosure issues, influence on independent auditors, and requirements for reporting to the board of directors and audit committee. Creating a separate code of conduct for executives also demonstrates to other staff members and outside parties the higher standards to which management is held. Further, because senior leaders are the ones setting the standard for acceptable behavior within the company, enacting more stringent ethical requirements for those individuals supports and emphasizes a strong tone at the top. 4. (d) According to the Society for Human Resource Management, an ethics audit is “a comparison between actual employee behavior and the guidance for employee behavior provided in policies and procedures.” By its nature, this type of assessment relies heavily on qualitative or subjective information; however, the ethics audit team should also consider use of quantitative, measurable data—such as employee performance review scores and helpline metrics—wherever possible. Additionally, while an ethics audit conducted by an independent third party will yield more objective results, ethics audits are often conducted by the organization itself. If the audit is conducted by an internal team, the team should consist of staff members from various functions such as HR, compliance, legal, and internal audit. Procedures performed as part of an ethics audit typically include: ∙ Reviewing the company’s ethics-related policies and procedures against best practices, expected and actual outcomes, and benchmarking data.

However, 60% of the incidents of observed misconduct were perpetrated by supervisors and managers, and 67% of the misconduct involved multiple acts or ongoing unethical behavior, revealing the need for companies to continue taking proactive steps toward building an ethical culture. 2. (b) A code of ethics and a code of conduct are both integral parts of an organization’s ethics program; in many organizations, the two codes are collectively referred to as the ethics policy. Although the two codes work in tandem to provide ethical guidance to all employees, they serve different purposes and contain different information to meet that objective. A code of ethics is a principles-based code that describes broad ethical aspirations, standards, and values that support employees in making judgments about the underlying ethics of varying situations. In contrast, a code of conduct is a rules- based code that describes acceptable and unacceptable behaviors for specific situations that are likely to arise, thereby removing the need for judgment in many circumstances. In essence, the code of conduct gives substance to the code of ethics; consequently, the code of ethics tends to be straightforward and concise, while the code of conduct is usually more detailed and much longer. 3. (a) A company’s executives face different—and often more serious—ethical dilemmas than the rest of the staff. And the choices executives make typically have a much greater impact on the organization. Since 24% of misconduct and 19% of frauds involve organizations’ senior leaders, specific ethical guidance for company executives sends a clear message about expected ethical conduct from the top down.

www.RubinBrown.com | page 13