Category: Ethics

Ethical Codes in Action

July 2000

In 1995, the Financial and Management Accounting Committee of the International Federation of Accountants initiated an empirical study of Ethical Codes used in corporations. The focus of the study was on how corporations developed and used ethical codes, under various labels and in various guises. The study was based on interviews conducted with appropriate persons in corporations in a number of countries, guided by a detailed questionnaire designed to bring a range of common issues to the surface. As a result, reports were developed on about thirteen codes in eight corporations in four countries, along with a report of telephone enquiries about codes of ethics used in Canadian corporations. In reviewing the outcomes of the study, it became possible to suggest why ethical codes are used as practical tools of management, and propose situations when their use might vary. The outcomes of the study have been published as an International Management Accounting Study, with the title Codifying Power and Control: Ethical Codes in Action.


COMMUNITY ETHICS AND CORPORATE CODES

Corporations operate within the systems of ethics and moral principles of their host communities. Within these communities, such ethical systems or moral principles are seen as just, fair, normal, or even uncontestable; they represent "correct" or commendable ways of thinking or acting. Accordingly, when they are drawn into use within corporations, they are unlikely to be rejected; they will be more likely to be accepted voluntarily and willingly by the constituents of corporations - by employees, customers, suppliers, agencies of government, and the community at large.

Corporations not only operate within the systems of ethics and moral principles of relevant communities, they can also draw power from them in framing the patterns of thought and action of their constituents. This power is deployed as guiding values, decision premises, or preferred forms of conduct or behaviour. Effectively, the power of community ethics and morality is reconstituted as a legitimate form of corporate power. Corporate Codes of Ethics are the vehicle through which this transfer of power occurs. Different types of Codes of Ethics frame ethical or moral power differently within corporations and focus it on different organisational variables.

In this study, three types of Corporate Codes of Ethics are identified: Codes of Ethics - statements of the values and principles that define the purpose of an organisation; Codes of Practice - which guide and direct decision-making; and Codes of Conduct or Behaviour - which prescribe or proscribe certain behaviour. In practice, corporations tend to use varying mixes of each type of code, under various labels.

DEPLOYING POWER

The power invested in Corporate Codes of Ethics may be deployed with varying degrees of force. Codes of Ethics, for example, may simply espouse a set of guiding values or principles, or they may be used to ascribe them in such a way that they "belong" to employees and are embedded in their consciousness; in the latter case, corporate values will "become" employee values. Codes of Practice may be used to guide choices, by supplying grounds or premises for choice while leaving options open otherwise; alternatively, they may direct or otherwise govern the choices to be made, leaving little room for discretion. Codes of Conduct or Behaviour may prescribe what will be done, and how - leaving little room for discretion; alternatively they may proscribe what may not be done, leaving a space for the exercise of discretion otherwise.

The different types of codes may be used interactively to differently influence the patterns of thought and the patterns of action of a corporation's constituents, particularly its employees. For example, different patterns of thought will be induced if values are simply espoused and choices guided, compared to values being ascribed and choices guided, or values espoused (or ascribed) and choices directed. Again, different patterns of action will be induced if choices are guided and behaviour is proscribed, compared to choices being directed and behaviour prescribed.

CODIFYING CONTROL

Corporate Codes of Ethics thus are vehicles for reconstituting the power of community ethics and morality as corporate power, and then deploying it to influence the patterns of thought and action of a corporation's constituents. The assignment of powers to a corporation's constituents, in turn, will establish "zones of discretion" within the corporation, with constituents having varying levels of discretion within these "zones" for the exercise of thought and action.

If "autonomy" refers to the degree of discretion retained by a party in a situation of interdependency, then "control" can be used to refer to its reciprocal - to the degree to which autonomy is restrained or contained. Corporate Codes of Ethics can be used to induce different patterns of control over a corporation's constituents through the selective assignment of powers. Used in this way, they become vehicles also for establishing controls over the values, choices, and behaviours of a corporation's constituents. Thus, Corporate Codes of Ethics are vehicles for codifying both power and control in corporations, distinctively and selectively.

CONTEXTS AND CODES

The distinctive patterns of thought and action produced by such codification of power and control in a corporation may be taken as representative or illustrative of its culture. Thus, a review of Corporate Codes of Ethics in action should illuminate the cultural make-up of corporations, and a way in which this can be created and sustained. Moreover, these codes do appear to embody national characteristics, suggesting that they might be points of interface between corporate cultures and the cultures of the communities in which corporation's operate. This is a plausible suggestion, because Corporate Codes of Ethics draw community ethics and moral principles into corporations - even if only as a source of power that can be put to good use, in fashioning control within a corporation.

The study illustrates, however, that more pragmatic and immediate factors have a bearing on the use of Corporate Codes of Ethics. Corporations facing different contexts are seen to use the codes to frame patterns of control differently. The types of codes used, their mix and content, and the force of the powers with which they are invested will vary in terms of the contexts that a corporation faces at a particular time, and in terms of significant changes in such contexts. Thus, it is proposed that corporations operating in fast-changing, competitive contexts will use the codes differently than those operating in less dynamic and less competitive contexts. In the former case, ongoing innovation may be required as an effective corporate response; in the latter case, marginal adaptations or reinforcement of existing actions may be sufficient response. Different contexts will call-up different patterns of control in corporations, with these being produced (in part) through the selective use of Corporate Codes of Ethics.

Drawing from the empirical materials analysed in the study, it is possible to suggest the following two ways in which Corporate Codes of Ethics might be used to suit a corporation's pattern of control to the type of response required by the context it faces.

Possibility 1: Corporations facing contexts that require dynamic and ongoing innovation will pattern their deployments of power to secure control over the thought and action of their constituents in the following ways:

a) They will utilise Codes of Ethics in seeking to deeply ascribe values to employees (particularly), thus governing the value premises drawn into choices;

b) They will utilise Codes of Practice as guides or illustrations of choices that are deemed worthy, thus allowing considerable discretion in opportunities to be investigated and courses of action selected;

c) They will use Codes of Conduct proscriptively by identifying actions that may not be pursued, while allowing greater space for actions that might be taken.

Possibility 2: Corporations facing contexts which require some adaptation while reinforcing existing modes of strategy realisation will pattern their deployments of power to secure control over the thought and action of their constituents in the following ways:

a) They will direct the choices to be made, through Codes of Practice;

b) They will prescribe and thus limit actions to be taken, through Codes of Conduct;

c) They will simply espouse the values embodied in Codes of Ethics, as thought and action will be sufficiently governed by a) and b).

Of course, corporations may be operating in contexts which differ in some ways from these two possibilities, and so different deployments of power and patterns of control might be expected (if not predicted). Moreover, as the contexts facing corporations change over time (for example, from that described in Possibility 2 above, towards that described in Possibility 1), the new patterns of control required are likely to be induced by shifts in the deployments of power embodied in Corporate Codes of Ethics. Thus, the differences illustrated in the empirical materials in this study are likely to have captured not only corporations facing different contexts, but also corporation's changing as they perceive changes in the contexts they are facing.

CONCLUSION

Corporate Codes of Ethics are not incidental to a corporation's functioning; they are neither ornamental, nor simply expressions of good intent. Instead, they are practical instruments of management, designed to capture the power of social or community morality and put it to "good" corporate use. Used selectively, Corporate Codes of Ethics assist corporations in deploying power so as to fashion frameworks of control that will provide effective responses to different types of changing contextual condition.

For a copy of the complete study on Codifying Power and Control, visit IFAC's Web site at www.ifac.org.