What Is A Code Of Ethics In Business? Everything You Should Know.

Below we answer the question of what is a code of ethics? And explore the importance of having one in your business.

Within this guide we also highlight the important facts and common questions, to assist you in improving your business practices and maintaining a high standard of operations.

A code of ethics is a framework designed to help your business operate at a higher standard that reflects your businesses core values.

Starting a business? Check out our step by step: How to set up a business.

What Is A Code Of Ethics?

A code of ethics is an effective way to clearly state your business’s stance on certain matters affecting its operations.
A code usually reflects the values of a company, and its terms can relate to anything such as:

  • How your business treats its customers.
  • Who your suppliers and business partners are.
  • How your employees should conduct themselves in the workplace.
  • Your company’s governance structure.
  • How your company contributes to society and the natural environment.

Also known as a Code of Conduct, a Code of Ethics, it’s a reflection of the organisation’s operations, core ideals and business culture as a whole.

As a result, every organisation may subscribe to a unique Code of ethics that represents themselves and their staff. 

A Code of ethics can also refer to several other specific policies that your business has in place (for example, policies relating to bullying & harassment or domestic violence).

The Code may incorporate these policies as part of its guidelines.

Why Is A Code Of Ethics Important?

A well-written code of ethics sets out the company’s core principles, linking them with the standards of professional conduct that your stakeholders should follow.


Your code can give all parties involved in your business a structure to follow. This will reduce the chance of any incidences occurring and make the process of dealing with any issues a lot easier should they arise.

Code of ethics stakeholders
A map of all stakeholders who would be affected under a code of ethics.

For Employees

Your staff will ultimately have a better understanding of the business rules by having a code of ethics to guide them.


It will likely improve their work environment, facilitate transparency and honesty in the workplace and – ultimately – attract new clientele at the same time.


Your employees will also much more likely enjoy coming to work rather than seeing it as ‘just a job’.

For Partners & Suppliers

A code of ethics is critical so that your business partners – including suppliers, contractors, subcontractors, distributors, agents and joint venture partners know what’s expected when they do business with you.


By making expectations clear from the start, you are more likely to find the right partners to suit your organisation.


This will, ultimately, save you time, money and resources by ‘trialling and failing’ those partners that don’t fit the bill.

For Shareholders

If you’re a publicly listed company and are trying to satisfy the expectations of your shareholders, having a code of ethics clearly shows the steps you are taking to ensure their investment is worth it.


This may include declaring your responsible use of human and non-human capital, focusing on long-term sustainable investments and exploring innovative solutions to produce competitive goods and services.

For Society

Having a Code also demonstrates to the general public that your business is more than just an organisation running for-profit – rather, it’s an agent for social change.

You can make this statement by declaring that you are:

  • Supporting human rights across the supply chain.
  • Recognising the environmental footprint that you make, and are taking steps to reduce it.
  • Encouraging the development and education of your local community.
  • Providing opportunities for developing countries.
  • Committing to upholding the best safety standards in your industry.

These examples show that you’re more than just an ordinary business, but a driver of good in the world.

But these mustn’t be just ‘hollow’ statements and marketing fluff. It’s important to truly ‘practice what you preach’ and uphold the values you’re declaring to follow.

If you don’t, your code of ethics will be meaningless and nobody in your company will take it seriously.

How Does A Code Of Ethics Help My Business?

By promoting best industry practices in your code, including a safe and pleasant business environment, your code of ethics can help your business in several ways.


Some of these ways include:

Risk management. The clear steps outlined in a code of means you won’t have uncertainty if something goes wrong. You can always refer back to your Code to ensure you are following the correct procedures.

Improving the quality of your staff. For your employees, a Code will contribute to improving both the physical and mental health and safety of your workforce (as they understand what’s expected from them and are encouraged to talk openly about it). The result is nothing but increased productivity. 

Attracting the right partners. You don’t want to work with business partners who run contrary to your values, as that will only mean a recipe for conflict in the future. It may also mean a potential contractual dispute and, in the worst cases, litigation.

Attracting investmentA company with a robust code of ethics may be more likely to receive investment from third parties. This is because you can demonstrate your company is organised and understands its vision.

Socially Responsible Marketing. A code that subscribes to a set of noble ideals is an effective way to receive praise within society – a society ultimately filled with consumers (and therefore potential customers).

Wrapping this up: Having safe and happy workers, satisfied shareholders, the right business partners and a socially responsible brand can only help the state of your company, both morally and financially.

Mistakes To Avoid In Your Code Of Ethics

Some of the more common mistakes when it comes to the creation and implementation of a company Code of Practice include:

  • Inadequate (or no) training. The training given to your employees or your business partners is brief, inadequate or non-existent. All employees, at least, should be given a comprehensive induction regarding the company policies and procedures before commencing their new position with you. This will help your staff to remember and adhere to your Code. 
  • Using the dreaded “template”. Going online and finding a universal template to create your code of ethics will not include anything specific to your company values, policies or procedures. This may lead to breaches and/or issues if your Code has not been correctly written.
  • No reviews of your Code. Regularly updating your code of ethics is imperative to include all company policies. Over time, things change. Some points may become outdated over time, as well as new issues needing to be added. 
  • Going overboard. Many codes fail to keep things concise and to the point. To implement best practice, draft your code in simple language that anyone can understand rather than including legal jargon. Attention will be lost if your code includes too much information that isn’t necessary. You want your Code to look professional, yet easy to read and understand. 
  • No audits. Enforcement is key. Always make sure you are auditing your suppliers to ensure they are compliant with the code. Also, use performance reviews for employees as opportunities to see if they are properly representing your company’s values.

Conclusion

Your code is nothing if it’s not enforced. Not only should you and your management team take active steps to educate all stakeholders on your code, but you should make clear that any breaches could result in disciplinary action.


Such action could involve, for example, cutting off ties with a supplier that engages in modern slavery or dismissing an employee who is disrespectful to their colleagues.

Some common values espoused in a code of ethics includes integrity, objectivity, professional competence, confidentiality and professional behaviour.

A code may also cover issues relating to conflicts of interest, harassment, the quality of one’s work, health and safety and privacy of information.


Everything should be set out in a clear, concise fashion to ensure that all stakeholders (employees, business partners, suppliers, management, shareholders and others) understand what is expected of them.

Other Important Questions

What are the five codes of ethics? Answer: Integrity, Objectivity, Professional competence, Confidentiality, Professional behavior.

How often should the code of ethics be revised? Answer: At least once a year.