Code of Conduct

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A code of conduct is an essential set of guidelines that every organization should have clearly defined and consistently enforced. While the textbook defines it as “a published listing of procedures and/or actions that simply will not be tolerated by [a] company,” it is also used as a means of outlining proper behavior so that the employees of a company know and understand what is expected of them (Hosmer, 2011). Laws surrounding codes of conduct have evolved over the years but there are certain factors that a company can generally look to when attempting to develop a solid set of ethical standards. When it comes to ethics in the field of accounting, there are a number of items that should be covered in a code of conduct, some of which may be insufficiently addressed in the industry’s current code of conduct. The importance of having that code is crucial, particularly because there have been countless companies over the years that have been discussed in the news for being in violation of their own rules, often times for doing things that they failed to address in their code of conduct. Ensuring that no stone is left unturned helps to eliminate any possibility of a misunderstanding, as well as to protect the company and its employees from a potential financial and/or legal matter.

Violating an organization’s code of conduct can result in a variety of moderate to severe consequences, either from the organization itself, the law, or in some cases both. While each organization is responsible for creating its own disciplinary acts for any employee who violates that organization’s code of conduct, the organization must abide by written standards set forth by the government, many of which are listed in the Sarbanes-Oxley Act, which was created in 2002. Under Section 406 of this Act, it is made clear that companies are not necessarily required to adopt a code of ethics; however, “if a company has not adopted a code of ethics, it must disclose why it has not done so” (Northrup, 2006). Professionals in specific industries, such as accounting and finance, must also comply with additional rules set by the United States Securities & Exchange Commission, which require companies to report events identified in internal control assessments (Northrup, 2006).

For companies that have adopted a code of ethics or are looking to do so, there are some common elements to include that will help to ensure that the code is adequate and successfully enforced. In his article titled “Developing an Effective Code of Conduct”, Everett Gibbs points out the three key elements to executing a successful code of conduct. These elements include proper definition, effective communication, and appropriate warning signals as monitoring tools (Gibbs, 2003). By properly defining the code in a way that all members of an organization will understand and then effectively communicating it to them, there is little chance for confusion or misunderstanding. Once posted and distributed, it is important to have employees sign an agreement stating that they have read and understand the set of guidelines and agree to abide by those rules.

Properly defining and effectively communicating a code of conduct is insignificant if that code is not routinely practiced and enforced. It is the responsibility of the managers of an organization, as well as the board of directors, to watch for signs of inconsistencies. The board of directors, in particular, has three main responsibilities when it comes to the code of conduct. These responsibilities include determining that the code is consistent with values that most stakeholders hold in the highest esteem, complying with the code, and providing appropriate oversight to ensure management is operating the business in a manner consistent with the code (Gibbs, 2003). When there is a general consensus among all members of an organization and everyone involved has a shared understanding of what is appropriate and expected, a code of...
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