A Model Code of Conduct

A training presentation sponsored by SHRM’s Ethics Special Expertise Panel

©SHRM 2008

Topics to Be Covered

• Purpose • Why a code of conduct?• The impact of a code of conduct• Legal implications• Considerations and recommendations• “Complementing” the code• A model code of conduct• Case study: Time Warner Inc.• References• Open forum

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Purpose

• The purpose of this training presentation is to establish a guideline for HR practitioners who would like to benchmark best practices in the development of a code of conduct for their companies.

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Why a Code of Conduct?

• A code of conduct represents a commitment to integrity and high ethical standards in a company’s business operations. The code of conduct is a document that summarizes the standards of business conduct for a company of any type—be it a public or private company, large corporation or small business.

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The Impact of a Code of Conduct

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Ethics and Integrity

• Embracing the need for a code of conduct and making it visible to employees, shareholders and any other stakeholders demonstrates a commitment to ethics and integrity in every aspect of running the business operations. This commitment is essentially embedded in the company’s mission statement and is inherent in its strategic objectives.

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Principles and Values

• A company’s code of conduct showcases its principles and values, giving clarity and unified purpose to the company’s employees, shareholders and any other stakeholders.

• It is the “face” of the company culture.

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Practically Speaking…

• A code of conduct defines acceptable practice and behavior in the workplace and helps guide them.

• Employees know where they and others stand and can use the code to support raising their concerns about unethical, discriminatory, unsafe or illegal work practices.

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Legal Implications

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Sarbanes-Oxley Act

• The Sarbanes-Oxley Act of 2002 established corporate obligations and responsibilities, including governance of the day-to-day conduct of employees of publicly traded companies.

• SOX primarily sets forth requirements for financial and operational controls and disclosures.

• Note: Publicly traded companies must publish a code of conduct and ethics (i.e., a “business conduct statement”) that must be proactively communicated to its employees, including “live” or online training.

Source: Falcone, P. (2006, June). Management tools: Reporting for SOX duty. HR Magazine, 51(6). Retrieved from www.shrm.org/Publications/hrmagazine/EditorialContent/Pages/0606managementtools.aspx.

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International Matters That Support the Need for a Code of Conduct

An investment banker in Credit Suisse's Global Energy Group allegedly netted more than $7 million from improper trading in advance of the TXU buyout and eight other transactions and now faces criminal charges of insider trading. (May 7, 2007)

Miscalculations by hungry hedge funds in a giant game of brinksmanship appear to be the key reason behind the crash of an AUD$11 billion takeover offer for Australia's Qantas Airways, analysts said. (May 7, 2007)

Siemens AG, embroiled in a six-month corruption probe, was ordered by a German court to pay 38 million Euros ($51 million) as two former managers were found guilty in a bribery case. (May 14, 2007)

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Considerations and Recommendations

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Consider…

• Public or private corporation• National vs. multi-national • Company size (<100, 100-999, >1,000)• “Ownership”• Relationship to P&P Manual/Employee

Handbook• Labor relations• Communication• Accountability • Enforcement

> Certification> Disciplinary action

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Not One Size Fits All

• The extensiveness of a code of conduct depends on the company.

> Public and private corporations will likely have a more detailed and lengthy code of conduct and publish it publicly on their web site along with internal communications

> A smaller company may have a less detailed and less extensive code of conduct, depending on the scope of its business operations.

> Regardless of size, any global company or one that has business dealings globally needs to address its commitment to the Foreign Corrupt Practices Act to prevent bribery and other unethical dealings with agents, representatives and contractors.

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Recommendation I

• Work with your company’s legal counsel to determine the code of conduct that best fits:> The scope of your organization’s business

operations

and> Your culture

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Recommendation II

• For companies that have multiple subsidiaries and affiliates, consider creating a template of the code of conduct. The template will outline business principles common to all parts of the company and will also allow for “localization” to address specific operations or functions.

• Write it in “layman’s” terms so it is best understood.

• Include key contacts who can assist with interpretation and address concerns.

• Include answers to frequently asked questions for emphasis.

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Recommendation III

• Similarly, for companies that do business globally, consider creating a template for the code of conduct to ensure awareness of standard business principles.

• For international offices, translate the code into the national language and require local employee acknowledgement.

• There may be a need to “localize” to address specific global operations or functions or applicable laws.

• Write it in “layman’s” terms so it is best understood.

• Include key contacts who can assist with interpretation and address concerns, particularly corporate contacts who can speak on behalf of the company and explain and give guidance on the tenets of the code.

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Recommendation IV

• Get buy in> Ensure that all senior managers of the company have

an opportunity to review and comment on the code before it is finalized.

> Address any questions and resolve any concerns that are raised.

> You may not be able to gain total agreement, but it is necessary for the management team to fully support and exhibit the tenets of the code in their everyday roles.

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Recommendation V

• Consider multiple methods of communication to those inside the company:

> Hard copy> CD> Online> Video

• Include the code in your Employee Handbook.• Feature articles in your company’s newsletter or on your

bulletin boards.> Include testimonials from your employees and managers.

• Emphasize aspects of the code during employee meetings and business meetings.

• Provide links on the home page of your company’s intranet or from other related sites, such as policies and procedures, human resources, etc.

• Issue special communications or progress reports on matters of significance.

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Recommendation VI

• Consider multiple methods of communication to those outside the company.

• Post the code of conduct in the main reception areas of your company facilities.

• Provide links on the home page of your company’s web site or from other related sites, such as investor relations, corporate governance, etc.

• Include the code of conduct in your company’s annual report and feature key accomplishments.

• Sponsor awards or foundation efforts to recognize ethical practices in the business community.

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Recommendation VII

• Consider training> Conduct computer-based training on the code.> Include important and related concepts from the code

in any compliance training.> Hold “live” seminars to focus on certain aspects of the

code.> Provide an overview of the code as part of your new-

employee orientation.

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Recommendation VIII

• Consider certification> Require all employees to attest to their understanding

and acceptance of their responsibilities under the code.

> As part of new employee orientation.> As part of incumbent employee recertification any

time the code is updated.

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Recommendation IX

• Where a collective bargaining agreement is in effect, engage in discussions with the union leadership to adopt the code of conduct as part of the CBA.

• Note: Disciplinary procedures may still need to revert to the CBA.

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Recommendation X

• Keep it dynamic!• Revisit the code annually or at any time that

your business operations significantly change:> A merger/acquisition or divestiture> Plant closing> Large expansion> New product line, new market or new business

development initiatives> Engagement of outside resources (agents,

contractors, etc.)

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Recommendation XI

• Make it yours!• Ensure that the code—in every aspect—reflects

the fundamental tenets of your company, its guiding principles and its culture.

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“Complementing”

the Code

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Ethics and Compliance Hotlines

• Hotlines support the reinforcement of the code of conduct.

• Third-party providers collect information about critical issues involving ethics and risk.

• Key Advantages: > Anonymity for callers> Timely alerts to your company to ensure prompt

investigation> A call-back process to advise the caller of the results

of the company’s investigation

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Ethics and Compliance Training

• Companies have the responsibility to educate their employees about the code of conduct.

• Online learning companies can help provide situation-based training on a variety of courses that the company designates.

• Broad-based or targeted training can occur through the company’s identification of specific employee audiences.

• References to the code or other company policies can be woven into the course content.

• Most online courses are less than 60 minutes and generally include interactivity, feedback, animated graphics, role plays, case studies, learning aids, job aids, multiple-choice testing/certification.

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A Model

Code of Conduct

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Sample Outline of a Code of Conduct

• Introduction• Employment practices• Corporate assets• Customer relations• Relationships in the marketplace• International relations• Public and investor relations• Government relations and political activity• Miscellaneous (table of contents, index, FAQs)

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Sample Outline: Introduction

• The introduction is a message from the CEO and/or chairman reinforcing the code of conduct as the documented vehicle to guide all business and employment practices within the company’s workplace.

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Sample Outline: Employment Practices

• Statement of equal employment opportunity and zero tolerance for discrimination in any hiring practices

• Zero tolerance for sexual harassment • Worker health and safety• Environmental protection• Other employment practices• Disciplinary action

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Sample Outline: Corporate Assets

• Accuracy of books, records and representations• Proper use of corporate assets

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Sample Outline: Customer Relations

• Honoring commitments to customers• Conflict of interest• Gifts, gratuities and entertainment

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Sample Outline: Relationships in the Marketplace

• Unfair competition laws• Disparagement of competitors; marketing• Gathering intelligence on competitors• Protecting proprietary, confidential and

classified information• Relations with vendors• Retention and use of consultants, agents,

representatives and lawyers

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Sample Outline: International Relations

• International activities• Bribes, kickbacks and other unlawful payments

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Sample Outline: Public and Investor Relations

• Relations with media• Insider information• Relations with investment analysts• Relations with the financial community overall

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Sample Outline: Government and Political Activities

• Relations with government representatives and agencies

• Political contributions and political activities• Regulatory policies

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Sample Outline: Miscellaneous

• Table of contents• Topical index • Key contacts • Frequently asked questions

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Case Study:

Time Warner Inc.

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Time Warner

• The Time Warner family of companies:> AOL Domestic, HBO, New Line Cinema, TBS, Time Inc.,

Time Warner Cable and Warner Brothers • The Time Warner Code of Conduct is located on its

corporate governance site at www.timewarner.com• The codes of conduct adopted by Time Warner include:

> The Standards of Business Conduct, which applies to all corporate employees of Time Warner Inc.

> A supplemental Code of Ethics for Senior Executive and Senior Financial Officers

> A set of Guidelines for Non-Employee Directors, and the Policy and Procedures Governing Related Person Transactions

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The Time Warner Standards of Business Conduct

• In June 2005, the company's board of directors revised its Standards of Business Conduct, which applies to all corporate employees of Time Warner Inc. This code has served as a model for similar codes of conduct that have been adopted at each of the company's businesses.

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Outline of the Time Warner Standards of Business Conduct

• Overview• Maintaining a professional workplace• Protecting company records and information• Conflicts of interest• Conducting business in a global marketplace• Designated internal contacts (appendix)• FAQs included in each section

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Overview

• The Time Warner Standards of Business Conduct emphasizes the company’s commitment to the highest standards of ethics and integrity.

• It is expressly stated that the Standards of Business Conduct not a contract of employment.

• A toll-free ethics and compliance hotline is provided.

• Comprehensive ethics and compliance training is offered.

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Maintaining a Professional Workplace

• Equal employment opportunity• Harassment and sexual harassment• Drug-free workplace• Environmental, health and safety laws

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Protecting Company Records and Information

• Integrity of financial records and statements; public disclosure and reporting

• False statements• Dishonesty and fraud• Code of Ethics for Senior Executive and Senior

Financial Officers • Securities trading• E-communications and information security

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Conflicts of Interest

• Gifts and entertainment• Investments in other companies• Providing service to other companies• Working with family members• Corporate opportunities

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Conducting Business in a Global Marketplace

• Fair dealing• Foreign corrupt practices act• Antitrust laws• Export, import and anti-boycott laws• Political activities and solicitations

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Designated Internal Contacts

• Ethics and compliance department• Legal department• HR department

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FAQs

• General information about the code• Definitions of certain terms• How to apply the code in certain situations• Key telephone numbers and address• Key company representatives or departments,

such as legal and HR

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References

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Professional Associations

• Ethics and Compliance Officer Association

www.theecoa.org• Professional Association for Compliance and Ethics

www.pacecompliance.com

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Corporate Codes of Conduct

• Time Warner Inc.> www.timewarner.com/corp/corp_governance/pdf/SBC_External_06

2205.pdf• Dow Jones

> www.shareholder.com/dowjones/governance/CG_conduct.cfm• Johnson and Johnson

> www.investor.jnj.com/governance/conduct.cfm• UPS

> www.ups.com/content/corp/code_conduct.html• AT&T

> www.att.com/gen/investor-relations?pid=5595• SHRM

> www.shrm.org/ethics/• Ethics and Compliance Officer Association

> www.theecoa.org

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Sample Outline for Code of Ethics and Business Conduct

• For SHRM members only> www.shrm.org/hrtools/policies_published/CMS_014093.asp

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Articles

• Business Ethics www.shrm.org/research/briefly_published/Business%20Ethics%20Series%20Part%20I_%20Business%20Ethics%20Overview.asp

• Business Ethics-Corporate Governance www.shrm.org/research/briefly_published/Business%20Ethics%20Series%20Part%20II%20-%20Business%20Ethics%20---%20Corporate%20Governance.asp

• Business Ethics-Codes of Conduct/Ethics Programs www.shrm.org/research/briefly_published/Business%20Ethics%20Series%20Part%20III_%20Business%20Ethics%20---%20Codes%20of%20Conduct_Ethics.asp

• Business Ethics in the Global Arena www.shrm.org/research/briefly_published/Business%20Ethics%20Series%20Part%20IV_%20Business%20Ethics%20In%20the%20Global%20Arena.asp

• Management Tools: Reporting for SOX Duty www.shrm.org/hrmagazine/articles/0606/0606managementtools.asp

• The Corporate Governance and Compliance Hotline Benchmarking Reportwww.secureworldexpo.com

• Compliance is Not Enough: Law Enforcement Looks to a Company’s Ethical Culturewww.shrm.org/hrresources/lrpt_published/CMS_009941.asp

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Other Resources

• Ethics and Compliance Hotline> www.lrn.com> www.twinc.com

• Ethics and Compliance Training> www.integrityinteractive.com> www.lrn.com> www.skillsoft.com

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