CODE OF ETHICS AND BUSINESS CONDUCT

Codes of Ethics
When huge corporate scandals began to proliferate, companies began creating communications
propaganda for building corporate reputation. Feeling a need to improve their images and facing increasing
accusations of corruption, businesses turned to ethical codes to publicize their virtues and create a more positive
impression with stakeholders. The debate over ethical code effectiveness continues up until today.
American ethical codes were first called creeds or credos and those in the 1980s were considered
"legalistic" and "more likely to talk about ethics or the reputation of the company" (Benson, 1989, p. 308); they
showed concern over issues like affirmative action. More recently they were defined as written documents which
attempt to state the major philosophical principles and articulate the values embraced by the organization
(Stevens, 1996). Codes articulate ethical parameters of the organization-what is acceptable and what is not.
They have been defined multiple times in Journal of Business Ethics, sometimes redundantly without building
on earlier works and other times adding new dimensions to the understanding of the code.
Carl Skoogland (2003), the former ethics director of Texas Instruments, argues: "Ethical managers must
know what is right, value what is right, and do what is right." We believe these are indeed the three key principles
that are essential in the practical and successful management of ethics at the organizational level. With respect
to Skoogland's three key principles, leaders and members of cultures of defiance may (or may not) know what
is right, but they certainly neither value nor do what is right. Leaders of cultures of compliance, from this same
perspective, know what is right and even do what is right, but do not value what is right. Consequently, members
of these firms may be tempted to bend or break the rules when opportunities occur and may even be
surreptitiously rewarded by their supervisors and peers for doing so. In cultures of neglect, there may be a
conscious effort to know, value, and do what is right, but-through some (often unconscious) flaw in the culture-
this effort flags through lack of diligence, resulting in a breach of moral standards. Finally, in cultures of character,
positive moral values are ingrained throughout the organization such that all of its members strive without fail to
know what is right, value what is right, and do what is right. This is an organizational culture grounded in moral
character. A culture of character, thus, is the type of organizational culture in which positive moral values are
ingrained throughout the organization.

What is Corporate Culture?

Culture has a profound influence on all aspects of human behavior. Its impact may be subtle or
pronounced, direct or oblique, or enduring or ephemeral. It is so entwined with all facets of human existence that
it is often difficult to determine how and in what ways its impact is manifested. Adding to the complexity of
understanding the impact of culture is its inherently dynamic nature. Cultural influences change and culture
evolves as political, social, economic, and technological forces reshape the cultural landscape (Usunier and Lee,
2005; Craig and Douglas, 2006). Certainly, the economic and physical environments (populations, climate,
geography, etc.) are important issues for business organizations; however, the cultural environment
(communications, religions, values and ideologies, education, social structure) has special importance and
relevance.
Culture comes from colere, a word that is of agricultural origin: cultivation is not merely imitating: it entails
concern for, taking care of, fostering, nurturing, growing. Culture, then, is the human world, created by man, a
continuation of nature. In addition, culture-as continuation naturae-obeys certain rules. Ethical normativity is
found in man's essence; from this one gleans a certain immortality, that is, his spiritual essence (Polo, 1991).
Cultural manifestations ought to be respected insofar as they fit into human nature and its growth (ethics). What
is not human does not deserve respect. We must note, however, that man generates culture, not vice versa,
therefore man is meant to give sense to culture and not vice versa. The culture of the society in which one lives
influences human life, but does not determine it; hence an existing culture can be accepted, modified, or even
rejected, since all cultural possibilities depend on human freedom (Sellés, 2007).

The Notion of Organizational Culture

More than any other single theorist, Barnard is the father of the concept of corporate culture. The entire
second half of his Functions of the Executive is one long excursus on the importance of creating a shared vision
or purpose, the necessity of generating common meanings and enhanced commitment, and the virtues of
increasing individuals' "capacity to be dominated by organizational personality" (Barnard, 1938, p. 221). Along
with but even more than his contemporaries, the human relations theorists, Barnard recognized that shared
values and meanings, internalized by participants, could constitute a strong system of control-much more
powerful than one based exclusively on material rewards or on force. Unlike his more general analysis of
organizational structure and of leadership Barnard's analysis of organizational culture gave less emphasis on
their more rational and cognitive aspects than on the non-rational, motivational aspects (Williamson, 1995).
Most authors agree that "corporate culture" refers to the assumptions, beliefs, goals, knowledge and
values that are shared by organizational members (Schwartz and Davis 1981; Deal and Kennedy, 1982; Sathe,
1983; Schein, 1992). Such values and beliefs, when supported by various operating norms and rituals, can exert
a decisive influence on the overall ability of the organization to deal with the challenges that it faces (Morgan,
1997). The same culture scholars agree that organizational culture is a phenomenon that involves beliefs and
behavior; exists at a variety of different levels in organizations; and manifests itself in a wide range of features
of organizational life such as structures, control and reward.
The relevance of cultural patterns for what goes on in organizations and different kinds of outcomes is
great; the organizational literature has described this relevance in varied ways. The more common ideas guiding
organizational analysis in this regard include the following functions of culture: culture as social glue, as regulator
of social relations, as compass, and as control mechanism. Other approaches used to describe the function of
culture are: culture as tool, as building block, and as need satisfier (Alvesson, 2002; Racelis, 2009). The social
glue idea is perhaps the most common view of culture. The idea here is that organizations are integrated and
controlled through informal, non-structural means- shared values, beliefs, understandings, and norms. Culture
in this sense contributes to the avoidance of fragmentation, conflict, tension, and other miseries; organizational
life is seen as characterized by consensus, harmony, and community (Alvesson, 2002). This is sometimes called
the integration approach, whereby all cultural members are said to share the same view of culture, as that which
is clear rather than ambiguous. As such, culture is the "social glue" that holds members together in an
organization-wide consensus (Siehl and Martin, 1990).
The Need for Ethical Organizational Culture
Shiva (1988) states that: "Modern science is quintessentially reductionist. Its reductionist nature
undergirds an economic structure based on exploitation, profit maximization and capital accumulation.
Reductionist science is also at the root of the growing ecological crisis, because it entails a transformation of
nature such that the processes, regularities and regenerative capacity of nature are destroyed... In its unwavering
focus on the physical environment, reductionist science makes certain choices-assuming that all issues are
capable of being examined in isolation and that all problems have technological solutions; examining problems
in a linear fashion rather than within a system cycle; marginalizing the unquantifiable "human" element in an
attempt to generate solutions uncorrupted by bias or value."
The economics of organizations, however, has to subject itself to ethics, and needs to focus on how to
employ those goods and resources as well as human capabilities in accord with the alternatives available, that
is to say, it should constantly seek a possible alternative by which human beings can improve and grow, which
in the ultimate instance is what characterizes the ethical organization (Polo, 1991). One way of achieving this is
the development of an organizational culture that would ensure the positive learning in the organizational
members and the formation of their character through the virtues. We glean the transcendent nature of such goal
from the Theory of Human Action in Organizations whereby Pérez López (1991) explains that the human person
in business organizations is capable of having transcendent motives, which are aspects of reality that determine
the achievement of learning from other people with whom the decision-maker interacts. Rosanas and Velille
(2003) explain this quite well by saying that the ethical (read "morally good") manager is, thus, one who provides
the motivational conditions for the organizational members to achieve their full potential which ultimately means
being that free and open system who is capable of self-gift, a radical love which is a selfless interest in the good
of the other.
We said above that culture ought to be respected insofar as it fits into human nature and its growth
(ethics): what is not human does not deserve respect. Ethics of care and concern for specific aspects of the
common good seem crucial in organizations both large and small, as do personal values, character, and
leadership of the owner-manager of the organization. The ethical influences of business organizations have quite
immediate and individual impacts. The very process of creating new products, services, and markets is a journey
with its own enormous ethical impact on the stakeholders immediately affected by the organizational members'
actions (Racelis, 2014). But ethics does not consist only in some rules invented or formulated out of more or less
conventional or relative motives that vary from culture to culture. Sometimes this is proposed as an objection to
the firmness of the status of ethics: ethics depends on criteria that are not universal; rather, there are as many
ethics as there are ways or formalizations of human life. In a situation as pluralistic as the present one, it is also
usually said that ethics is a private matter; it is each one's business to accept an ethics among many different
ones or to construct one's own; it is even possible to live without one. Such proposals are foolish, since what is
ethical arises from the human being's very corporality, that is, from his essence as a personal being. In other
words, as we said above, organizational culture should be at the service of the human person, not the other way
around: we respect cultural manifestations but only if they in turn respect human nature, essence, growth, and
human flourishing (Polo, 1997), the summit of which is attained through the virtues, as discussed in the next
section.

Creating Corporate Codes of Ethics

Creating an Ethical Corporate Culture
As mentioned in Codes of Ethics above, Sauser and Sims (2013) suggest that an organizational culture
grounded in moral character is the ideal corporate culture. A culture of character is the type of organizational
culture in which positive moral values are ingrained throughout the organization. Pastin (1986) describes
organizations exhibiting what we call a culture of character as those that possess the following four stylistic
markers:

• They are at ease interacting with diverse internal and external stakeholder groups. The ground rules of
these firms make the good of these stakeholder groups part of the organization's own good.
• They are obsessed with fairness. Their ground rules emphasize that the other person's interests count
as much as their own.
• Responsibility is individual rather than collective, with individuals assuming personal responsibility for
actions of the organization. These organizations' ground rules mandate that individuals are responsible
to themselves.
• They see their activities in terms of purpose. This purpose is a way of operating that members of the
organization highly value. Purpose ties the organization to the environment.

To Pastin's (1986) list, Sims (2005) has added: There exists a clear vision and picture of integrity throughout
the organization.

• The vision is owned and embodied by top management, over time. The reward system is aligned with
the vision of integrity.
• Policies and practices of the organization are aligned with the vision; there are no mixed messages.
• It is understood that every significant leadership decision has ethical value dimensions.
 • Everyone is expected to work through conflicting stakeholder value perspectives.

Creating Corporate Codes of Ethics

Sauser and Sims (2013) give the following suggestions for creating Codes of Ethics in business organizations:
1. Adopt a code of ethics
2. Provide ethics training
3. Hire and promote ethical people
4. Correct unethical behavior
5. Take a proactive strategy
6. Conduct a social audit
7. Protect whistle-blowers
8. Empower the guardians of integrity
9. Assure commitment from the top
10. Communicate the standards of conduct widely throughout the organization and the industry
11. Designate an ethics officer with clear responsibility for enforcing ethical standards
12. Establish a process for reporting violations of ethical standards and actively investigate all reported violations
13. Assure due diligence by the organization's board of directors
14. Above all, lead by example