Developing a code of ethics.

• Author: Boudreaux, Greg

Recent corporate scandals and the subsequent passage of the Sarbanes-Oxley Act have led to a renewed focus on business ethics. Additionally, revised U.S. Sentencing Guidelines provide strong incentives for all companies, not just electric cooperatives, to develop and maintain an "effective compliance and ethics program." * These and other factors have led boards, managers and attorneys to ask how to develop a code of ethics.

WHAT IS A CODE OF ETHICS?

There is no single definition of "code of ethics"; nor is there consistency in the language used to describe such a document. For example, a search of the Internet reveals the following phrases used by different companies:

** Business Ethics Policy (New York Times)

** Business Conduct Guidelines (IBM)

** Code of Business Conduct and Ethics (Ford Motor Company)

** Statement of Ethics (Wal-Mart)

** Credo (Johnson and Johnson)

To facilitate discussion, this article will use the phrase "Code of Ethics." We will define it as an official corporate document approved by the board that forms the underpinning of a comprehensive program for helping to ensure ethical behavior and decision making at all levels in the organization. Here are some suggested ways to think about a Code of Ethics, both what it is and what it is not.

A Code of Ethics is:

** A statement of the values adopted by the company, its employees and its directors. It sets the official "tone at the top" regarding expected behavior.

** A living document that can be disseminated to consumers, the media, and others, such as by being placed on the co-op's web site.

** Part of a broader, on-going program to provide guidance for ethical decision-making and to prevent misconduct. This broader program must be actively managed and should include periodic training for employees and directors, monitoring of compliance, and regular reports to the board.

** A valuable communication tool that the cooperative can use to articulate its commitment to ethical and legal compliance.

A Code of Ethics is NOT:

** The same as a Mission Statement. A Mission Statement is usually brief (under one page in length) and expresses why the company exists, in contrast, a Code of Ethics is a longer document (approximately 3-10 pages) intended to serve as a guide for day-to-day decision making. Rather than stating why the company exists, it guides employees and directors on how to act in certain situations.

** A detailed statement of how personnel issues will be handled. Co-ops usually have an Employee Handbook or similar document that addresses such issues as discrimination, sexual harassment, and employee discipline. The Code of Ethics references the Employee Handbook.

** A board policy. Boards have policies that address specific issues such as conflict of interest or standards of conduct for directors. Those policies are important and should be maintained. The Code of Ethics is a broader "umbrella" statement that applies to the entire company. The Code may make reference to specific board policies that provide additional details.

** Complete or exhaustive. It provides guidance to employees and directors for carrying out their responsibilities. But no document can address every possible situation. The Code should specify that employees and directors must use good judgment and be prepared to raise questions when in doubt.

WHAT BELONGS IN A CODE OF ETHICS?

There are many approaches and formats. There is no "one size fits all." Deciding what goes into the code will first take an examination of what key purposes you want your code to serve--whether you want it to focus on specific types of individual conduct or more general standards--and how the code will operate with existing policies for staff and board members. You'll also need to determine who will be involved in drafting the code. One approach to consider is to form an "ethics task force" or committee that includes key staff representatives. Not only does such a process help to ensure a thorough document, it also helps to make the code meaningful for employees.

Although there is no "one size" for codes of ethics, we can report on the consensus opinion of approximately 200 cooperative directors, managers and attorneys who attended recent workshops on Ethics and Governance. They emphasized the following guidelines to keep in mind when developing a code:

** It should be positive.

** It should be brief.

** It should make reference to relevant board policies and other documents.

** It should be "aspirational" in tone rather than compliance oriented.

** It should help reinforce the fact that as cooperatives, we are different.

Given these factors, the following sections might be included in a Code of Ethics for electric cooperatives *:

** Cover page and statement of values

** Introduction and explanation of the purpose of the Code of Ethics

** General corporate and personal standards of conduct

** Conflicts of interest

** Confidentiality of information

** Member communications

** Financial practices and record keeping

** Legal and regulatory compliance

** Reporting of violations

** Employee and director education

** Monitoring and enforcement

These sections might address the following:

Cover page and statement of values: Identifies the cooperative and the fact that this is its official Code of Ethics. Some co-ops may choose to identify specific values that express the ideals that should govern the behavior of employees and directors. Such values might include:

** Integrity and Accountability

** Safety

** Member Focus and Customer Service

** Respect

** Corporate Citizenship

** Fairness

** Honesty

** Innovation

** Environmental Stewardship

Introduction: Explains that the cooperative is committed to the highest standards of legal and ethical conduct, and that its employees and directors are expected to uphold those standards. It informs readers why the Code is important and the key purposes it serves. The Introduction also explains that the Code of Ethics is not exhaustive and that it provides guidance to employees and directors in how they are expected to carry out their duties. Because the Code cannot address every possible situation, employees and directors are expected to use good judgment and to raise questions...