The Importance of a Code of Ethics

Four Reasons Why Your Business Needs a Code of Ethics

Does your company need a Code of Ethics?

Yes, it does!

The purpose of a code of ethics is to establish a set of standards, guide decision-making, enhance reputation, encourage accountability, foster a positive work environment, provide a basis for enforcement, and promote continuous improvement in ethical behavior. 

Code of Ethics vs. Code of Conduct: What's the Difference?

It's your rule book if you will. Groups such as national medical associations adopt Codes of Ethics that govern members in individual practices across many places of employment. In contrast, individual businesses may adopt more specific codes of ethics to ensure integrity within the company.

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Hot to Create a Code of Ethics for a Business?

A company's Code of Ethics will generally cover behaviour that, while not illegal, is harmful to the company and/or its clients. A good Code of Ethics should include a motivating statement regarding the reason for its existence and the company's purpose. It should also address the consequences of violating the code and ways to report its violations. Its language should be clear, avoid meaningless phrases, and focus instead on directly communicating expectations. A code will not be very useful unless it is widely known and followed; it should therefore be referred to frequently, becoming a part of company culture rather than being read once at the hiring stage.

Seven Items to Include in Your Company's Code of Ethics

Why is a Code of Ethics Important in Business?

The following are several reasons to consider adopting a Code of Ethics for your company.

To Attract and Retain Employees:

One reason to develop a Code of Ethics is that it communicates to employees that your company is committed to doing business responsibly. New employees know right away your company's standards and expectations. If management adheres strictly to the code of ethics, a culture consistent with the code will grow among employees throughout the company. This kind of company culture creates positive peer pressure to maintain a high level of work consistent with your company's values.

To Build Customer Trust:

Additionally, customers feel reassured by a Code of Ethics within a company. They feel that the company values its integrity and will operate accordingly when doing business. Third-party groups also tend to favor organizations that adopt a Code of Ethics, appreciating that some attempt is being made to develop a company culture of responsibility and honesty.

To Prevent 'Innocent' Violations of Ethics:

Another reason to maintain a code of ethics is that they address matters that might not occur to employees independently. While codes don't necessarily touch on matters of illegality, they do address important matters that affect the integrity and reputation of a business. Having a Code of Ethics outlining certain standards and expectations of your company will sensitize employees to things that may not have been obvious to them.

To Provide a Clear Point of Reference When Enforcing Corrective Action:

Lastly, another reason to consider maintaining a Code of Ethics to guide the company culture is that such a document will serve as a reference for corrective action or even termination for employees who fail to meet these standards. A widely known code sets down clear rules when dealing with an employee who consistently fails to behave in a manner that meets company standards. Even one such employee can potentially cause great harm to a company. But straightforward, objective expectations for employee behaviour provide a solid foundation for catching and addressing this kind of problem.

Don't forget to keep it simple. When creating your code, get right to the point. Avoid big legal sounding words and use bullet points instead of long-winded paragraphs. Remember, you have to address all your employees, and they each have their levels of understanding of such documents.


No matter how big or small, a business can always benefit from having a Code of Ethics in place to avoid potential problems and address them when they arise. If you decide to develop one, consider what would motivate and unite your employees in a company culture consistent with the values you want to maintain throughout your organization.

More information on global ethics hotlines.

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photo Amanda Nieweler
About the Author
Amanda writes for WhistleBlower Security about ethics, compliance, workplace culture, and whistleblower hotlines. Amanda brings her nearly two decades of risk and compliance experience to the WBS blog where she is dedicated to helping people and companies promote speak-up cultures.

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