What Is A Code Of Ethics And What Are Its Principles?

By Indeed Editorial Team

Updated 21 September 2022 | Published 20 July 2021

Updated 21 September 2022

Published 20 July 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A code of ethics is a set of guiding principles for professionals and organisations to help them conduct business in a fair and honest manner. It helps you align your behaviour with socially acceptable norms and tells you how you are required to approach problems in your professional life. Creating and following a code of ethics can lead towards a healthy work environment and build a positive image of the business. In this article, we would discuss what is a code of ethics and explore its types and principles.

What Is A Code Of Ethics?

What is a code of ethics, can be described as a set of values that guides the behaviour and decision-making process of an organisation and its people. Companies may create a code of ethics in the form of a document that outlines their core values. The ethical code document usually sets out the broad standards to follow while conducting business or interacting with customers in a business environment. The idea is to run a business equitably under socially acceptable norms.

In some industries, such as finance or public health, specific laws dictate professional conduct. In others, companies and professionals may voluntarily adopt a code of ethics.

Related: Business Ethics: Definition, Principles and Importance

What Are The Different Types Of Codes Of Ethics?

Companies may create and implement different types of codes of ethics. Here are the three major types:

Regulatory code of ethics

A regulatory code of ethics is one that companies are legally obliged to follow. For example, companies in the finance and public health domains may require to follow the ethical rules established by their respective regulatory bodies. Although some laws like the Indian Contract Act and the Sale of Goods Act apply to most businesses, some industries may be subject to specific ethical regulations, especially those related to workers' safety, welfare and the environment.

The regulatory codes of ethics are usually more precise in nature, with clear-cut consequences for violations. Companies often appoint a compliance officer to ensure the implementation of these ethical codes. Companies may also impart formal training to employees to help them better understand and comply with these guidelines.

Related: An In-Depth Guide to Professionalism

Voluntary code of ethics

A voluntary code of ethics is one that a business adopts willingly although they are not legally obliged to do so. For example, a business that does not necessarily focus on climate change might still detail its commitment to sustainability in its official code of ethics. A voluntary code of ethics comprises the core values of the company. It includes the standards of conduct its employees are expected to follow. Such standards usually relate to the larger good of the community or the environment. Compared to regulatory codes of ethics, voluntary codes often require a greater amount of self-regulation.

Sometimes, a voluntary code of ethics may also require a third party to comply with certain values. For example, a dairy products company may refuse to work with vendors that send calves to slaughterhouses or raise cattle in unhealthy environments.

Related: What Is Ethical Behaviour? (With Importance And Examples)

Professional code of ethics

Several professions have ethical codes outlined by their governing bodies. For example, legal, medical and chartered accountancy professionals are required to follow the professional code of ethics set by their respective governing bodies, such as the Bar Council of India, the Medical Council of India and the Institute of Chartered Accountants of India.

These professional codes are based on ethical principles like integrity, transparency and fiduciary duty towards the clients and prevention of conflict of interest. Non-compliance with these codes may attract disciplinary actions from the governing body.

Related: How To Develop a Code of Professional Ethics (With Examples)

What Are The 12 Principles Of Ethics?

Here are the 12 fundamental principles of ethics:

1. Honesty

Honesty is an essential value required to conduct business in an ethical manner. Honesty requires you to be candid with your consumers, business partners and coworkers. An honest company avoids dishonest business practices like under-measurement, over-invoicing, pushing substandard products and making misleading statements. To effectively put the principle of honesty into practice, a company is required to be honest with its employees first. That sends a strong indication to the employees that the company really wants them to be honest.

2. Integrity

Integrity refers to moral soundness as reflected by your thoughts and actions. Maintaining integrity requires you to be principled and scrupulous even if you lose an opportunity to make quick money. It may also require inner strength and courage to side with what you think is right despite great pressure from others. Possessing integrity helps you gain the trust and respect of others. A company that focuses on developing integrity in its employees and management often finds it easy to incorporate other ethical principles in its operations.

Related: What Is a Code of Conduct? Importance and Examples

3. Trustworthiness

Trustworthiness mainly comes from the quality of keeping your promise. You become trustable when you make sincere efforts to fulfil your commitments and promises. This also implies that a trustworthy person tries to comply with an agreement as understood by the parties instead of looking for loopholes to escape its compliance. Trustworthiness helps build a healthy relationship with your customers, vendors and other stakeholders. It can also help a company gain more business over time.

4. Loyalty

It is common for a company to expect its employees to be loyal to it. But, companies may also integrate this principle into their code of ethics with an intention of being loyal to their employees and customers. For example, a company that is loyal to its employees may consider layoffs and job cuts as the last option after exploring all other methods of cost-cutting. Similarly, employees can be loyal to their organisation by avoiding conflict of interest and maintaining the confidentiality of sensitive business information.

5. Fairness

Another essential principle of ethics is to be fair in your dealings. It prevents one from gaining undue advantage from others' unfavourable situations. Fairness also requires that you treat others equally, irrespective of their caste, class, creed, gender, religion or belief. An ethical company treats its employees fairly and provides them with equal opportunities for advancement. Similarly, the company is also required to treat its customers fairly.

6. Empathy

Empathy is the quality of understanding others' feelings. In a business context, it includes caring about employees, customers and other stakeholders. Ethical businesses consider the impact of their decisions on all the stakeholders concerned. They try to achieve their business objectives with minimal negative consequences on others, especially in terms of emotions, health and finance. For example, if a company discovers that one of its products is potentially harmful, it would put the customers' well-being over its profitability and recall the product from the market.

Related: Empathic Skills: Definition And Examples (With Tips)

7. Respect

Ethical businesses and professionals treat others with respect and dignity. They are courteous in their behaviour irrespective of who they are dealing with. They strive to treat others the way they would expect others to treat them.

8. Compliance

Ethical businesses comply with the law of the land. For example, an ethical company would avoid making unscrupulous adjustments in the sales figures to reduce its Goods and Services Tax (GST) liability. Compliance with the ethical codes may also prevent employees from taking shortcuts to make quick profits through unethical actions.

9. Pursuit of excellence

Ethical companies are committed to excellence in whatever they do. They try to add value through their product or service instead of simply focusing on profits. For example, an ethical company trying to develop a Covid-19 vaccine would be more concerned about the efficacy of the vaccine rather than looking at it as yet another opportunity to make money.

Related: Top Personal Development Skills To Improve Your Career

10. Leadership

Ethical businesses and executives strive to be positive role models for others. They exemplify honour and accept personal accountability for their decisions. They try to create an environment of healthy growth and principled reasoning by helping, guiding and inspiring others.

11. Reputation

Ethical companies value their reputation. They may want their employees to conduct in a manner that builds and protects their reputation. While they may be careful about the management's words and actions, they may also take affirmative steps to improve their employees' morale and conduct.

12. Responsibility

All businesses have certain obligations towards their employees, customers, partners and society. An ethical business understands its responsibilities well. They would want their employees to meet the expectations others have from the business.

The principle of responsibility pervades all aspects of the company's operations. For example, it is the responsibility of the company to protect the visitors to its website. Similarly, the business also needs to ensure that the customers making advance payments get timely delivery of goods. As a responsible employee, you are required to think about how your actions can affect others associated with your company.

Related: What Is Social Responsibility and Why Is It Important?

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