Why Your Small Business Needs a Code of Ethics

Explore the benefits of a code of ethics, along with examples and instructions for creating a code of ethics for your small business.

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Updated September 25, 2020

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When asked to define pornography, Supreme Court Justice Potter Stewart once famously said, "... I know it when I see it … ."

Ethics are a lot like that. Most of us carry an innate code deep inside that separates right from wrong faster than you can say "Hey, I was here first."

The general principles are pretty universal: honesty, fairness, integrity. But our court systems are overflowing for a reason. What's fair and right and true is often a matter of perspective, and ethical principles frequently clash, creating moral dilemmas.

After all, honesty is a universal virtue, but look how that worked out for Jim Carrey. What do you think 24 hours of perfect honesty would do to your career?

Life is messy, and the right path isn't always obvious or easy. That's why you need a code of ethics, even if you're a company of one.


Overview: What is a code of ethics?

A code of ethics is a written list of principles to promote ethical behavior. Businesses publish codes of ethics to communicate clear expectations and a shared vision of acceptable behavior among all employees.

A code of ethics may be incorporated into a corporate code of conduct, which translates ethical standards into concrete actions. These codes form the foundation of your organizational culture and human resources (HR) practices.

Writing a code of ethics forces you to think through the very real ethical dilemmas that come with your particular business and create a vision for navigating them. That's a valuable exercise, even for a solo enterprise.

Writing your code of ethics also lets you make those universal principles personal to your brand.

Hershey's code of ethics with a test for decision-making.

Hershey’s gives employees a three-part test to help with ethical decision-making. Source: thehersheycompany.com.


Types of code of ethics

Here are the nine types of code of ethics you should implement.

1. Honesty

While perfect honesty can be perfectly inhuman, you simply can't do business if you can't trust people to tell the truth. Honesty is the foundation of a high-functioning workforce.

2. Integrity

Integrity can be summed up as doing the right thing. Most codes of professional ethics begin with a commitment to the code as a matter of integrity.

3. Loyalty

In a code of ethics, loyalty usually means being a team player and working for the good of the company. This includes safeguarding the company's resources, information, and reputation.

Loyalties often conflict with one another and with other ethical values. For example, if you're loyal to your boss, but your boss bends a rule, what do you do? If your company has a policy that conflicts with a customer's legitimate needs, where do your loyalties lie then?

If you include loyalty in your ethical principles, it's important to consider the potential conflicts and write guidelines that address them. For instance, to address the conflicts above, you might encourage employees to speak up no matter who is involved, or you might direct employees to contact human resources whenever a policy conflicts with the code.

4. Fairness

Fairness is the Golden Rule of ethics, or treating others as you would like to be treated. This means giving people what they are due and not playing favorites, cutting corners, or putting your interests above theirs.

To successfully manage employees, it's critical for your employees to feel that they're being treated fairly through all HR processes.

A chart from Disney's code of ethics with tests for determining whether to keep gifts.

Disney's code of ethics includes a decision tree for determining whether to accept gifts. Source: thewaltdisneycompany.com.

5. Respect

In the workplace, respect means treating coworkers, managers, customers, and others with sensitivity and professionalism. This usually includes a commitment to embracing diversity and preventing harassment.

6. Compliance

Your ethics code should include the need to obey the law in every action. That includes compliance with regulatory authorities.

7. Accountability

Encouraging employees to act responsibly and be accountable for their actions is an important element of ethics in the workplace.

8. Excellence

Your code of ethics may include a call for employees to do their best every day and to pursue excellence in all aspects of their work.

9. Doing good

This is an opportunity to translate your core mission and values into actions that benefit others. This could mean making the company a better place to work or making the world a better place.

Chipotle's code with a sample ethics question regarding overtime.

Chipotle gives employees concrete examples for applying the company’s code of ethics. Source: ir.chipotle.com.


Example of a code of ethics

Here are three excellent examples of codes of ethics.

The Hershey Company: Hershey's code is built on six core promises:

  • We have pride in our code
  • We promote an ethical workplace
  • We understand our responsibility to others
  • We do the right thing
  • We safeguard our company
  • We are good global citizens

In addition to being clear and detailed, the code is literally swimming in chocolate. Five stars.

The Walt Disney Company: Disney's code of conduct focuses on six core commitments, each in service of a specific audience or authority:

  • Integrity: Our standards - We do what's right and take responsibility
  • Trust: Our commitment to guests and customers
  • Teamwork: Our commitment to each other
  • Honesty: Our commitment to the company and our shareholders
  • Play by the rules: Our commitment to lawful business practices
  • Respect: Our commitment to the community

Disney includes concrete examples of real dilemmas employees face on the job.

Chipotle Mexican Grill: Chipotle's code of ethics begins with a single premise: "Everything is connected." It just gets better from there.

In service of the company's mission to "cultivate a better world," the code commits to:

  • Cultivating a better world through business with integrity
  • Cultivating a better world for our employees
  • Cultivating a better world by serving exceptional food
  • Cultivating ethical business practices everywhere we work
  • Cultivating better communities
  • The "keeping it real" test

Like Hershey and Disney, Chipotle provides many real-life examples to help employees apply the concepts.

If you look at these examples, you'll see a pattern emerge that can help you develop a code of ethics for your company. Some basic elements to consider:

  • State your mission, vision, and values: Use these as a lens to focus all of your ethical principles, right down to the language. For example, Chipotle's statements all echo its mission to cultivate a better world.
  • Commit to the code: Many codes of ethics begin with a general commitment to the code itself as a statement of integrity or doing the right thing.
  • Group principles by audience: Focus the rest of your code on three to five ethical principles. As you can see from these examples, tying them to specific audiences — fellow employees, customers, the community, the planet — can help organize a world of ethical principles into a manageable, actionable list.
  • Include a version of the three-part ethical test:
    • Is this right?
    • Is it good for the company/my coworkers/customers/the community?
    • Would I be OK if everyone knew about it?
  • Include concrete examples of dilemmas your employees face every day and instructions for dealing with them ethically.
  • Acknowledge the challenges employees may face when applying the code, such as confronting team members or keeping information confidential. Then encourage employees to come to you whenever they're not sure how to handle a situation.

Many HR software programs have templates for codes of ethics, among other critical documents for various HR functions.

Here's a sample code of ethics template from Workable.

Before rolling it out, be sure to check with an attorney to make sure that your code doesn't violate any employment laws.


Code of ethics frequently asked questions

Who is responsible for enforcing a code of ethics?

On some level, every employee is responsible for ensuring ethical behavior, but ultimately the responsibility rests with managers and human resources. HR staff and company leadership should be involved in writing the code, communicating it to employees, and enforcing it as needed.

Is a code of ethics required by law?

No, but it's an HR best practice for all businesses. A published policy gives you recourse if an employee acts in a way that violates your core values.

Why is a code of ethics necessary?

Ethical dilemmas are common in every business. A code of ethics gives your employees clear expectations and specific examples to guide decision-making. It is a way of translating your vision, values, and brand into concrete actions that benefit your employees and your company.


It's the right thing to do

A business is driven by a thousand tiny decisions day after day. A code of ethics helps make sure that each of those decisions reflects your company's mission, values, and brand. That's good for your employees and the future of your company, and it also helps to make the world a better place.

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