The link between ethics and respect
A code of ethics turns values into profits

Results from this spring’s survey of the 10 best and worst regarded companies appear to demonstrate the link between ethical corporate conduct and consumer respect.

The best of the companies, as determined by the Harris Interactive Inc. poll of 29,963 people, are those who are perceived as being committed to honest dealings. It is clear lesson that should not be lost on marketers.

“The public — including customers and prospects — prefers to give its business to responsible and highly ethical companies,” says COCO+CO. President and Chief Executive Officer Tim Coco. “Those wishing to succeed in the marketplace must develop a strong code of ethics and live by it,” he says.

Seven of the 10 least admired companies operate in the financial services sector. Many of them are accused of shady business dealings that contributed to the recent economic meltdown. These companies include American International Group Inc., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase and Bank of America Corp. All of them benefitted from government intervention or bailouts. Rounding out the least admired list are Freddie Mac, Fannie Mae, Chrysler and General Motors.

To the contrary, the most admired corporations include Warren Buffet’s Berkshire Hathaway Inc., Johnson & Johnson, Google Inc. and Coca-Cola Co. These companies are all perceived as placing customer interests ahead of profits, and then profit as a result, Coco explains.

What business is doing wrong

In practice, examples of unethical conduct include misleading advertising, e-mail and fax marketing; placing excessive conditions in small print; “bait and switch” schemes; false or exaggerated claims; and commission and quota systems that encourage employees to be dishonest.

Dishonest conduct takes many forms and may also expose companies to civil and criminal penalties. Novartis Vaccines & Diagnostics Inc. and Novartis Pharmaceuticals Corporation, for example, agreed to pay $72.5 million to resolve civil False Claims Act allegations arising from marketing of the cystic fibrosis drug TOBI. A settlement with the U.S. Justice Department resolves allegations that the drug-maker caused false claims to be submitted to federal health care programs.

Write a code of conduct

A code of conduct, sometimes known as a code of ethics or code of business standards, states which lines a business will never cross when seeking sales and profits. Standards typically require honest communication, prompt and accurate responses to inquiries, safeguarding confidentiality, avoiding conflicts of interest, “arm’s length” relationships with customers and vendors, discouraging behavior that harms the reputation of the company, prohibiting attempts to improperly influence government officials and banning personal use of company assets.

In practice, these policies may require prohibitions on gifts that attempt to influence purchasing decisions, not paying for certain leads, reporting of business relationships with employees’ family members and creating compensation systems that do not pit employees’ interests against those of prospects or customers.

Other codes of conduct also address issues such as which parties must be copied on e-mails and other correspondence, social responsibility, intra-office dating and nepotism. Ethisphere Institute, an international ethics think tank, further evaluates codes of conduct based on public availability, tone from the top, readability and tone, non-retaliation and reporting, values and commitments, risk topics, comprehension aids and presentation and style.

No institution is too small to have a code of conduct for leaders and rank-and-file employees to follow, says Michael Connor, editor and publisher of Business Ethics. He was recently quoted by Inc Magazine as saying, “The reality these days is that the business that does not have a code of ethics subjects itself to a much greater risk in its day-to-day operations and if there is an unfortunate incident, they expose themselves to much greater risk [from] regulatory and prosecutorial authorities.”

Experts recommend employee input be gathered before writing codes of conduct and that leaders be visibly involved and committed to the plan.

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