By Margaret Flaherty

Geneva, 14 September 2004 - As corporate responsibility is under scrutiny, many companies are establishing new or revisiting old codes of conduct to respond to the growing call for transparency, according to findings from the WBCSD's Accountability and Reporting project.

Cracking codes

"The last ten years have seen a tremendous rise in stakeholder demand for corporate responsibility," says Margaret Flaherty, director of the Accountability and Reporting project. "New rounds of global activism are pressuring companies to act with greater engagement toward environmental, social and ethical causes. Companies are looking for tools that provide guidance for improved accountability, enhanced conduct and better performance-codes, guidelines and frameworks are an important but insufficient step along the way."

Codes of conduct are but one way for companies to address a wide range of social and political issues. Covering matters of transparency, measurement and disclosure, they can reduce corporate risk, maintain stakeholder confidence

and keep activists at bay. But what does it take to successfully implement a code of conduct?

The Accountability and Reporting project examines this in Codes of conduct: a decision-making guide. The paper sheds light on the world of codes of Codes of conduct conduct for companies. In addition to defining concepts, benefits and risks, it also highlights examples of WBCSD members in their journey toward implementing codes within their organizations.

Where's the value?

Although codes have spurred further business action on the social and environmental fronts, identifying the economic benefits of conducting business in an ethical manner is a challenging task. "Developing and implementing a code of conduct is a costly endeavor and will rarely show immediate results in any standard accounting measurement," says Flaherty. "Over the long-term, however, there are benefits for companies, especially if the code is anchored within a strategic framework linked to business objectives."

For instance, codes can strengthen legal compliance, promote self-regulation, attract insurers and investors, enhance corporate reputation and brand image and increase employee morale and productivity. Over time, these intangibles often become embedded in the fabric of a company's performance measures. According to Flaherty, at least 95 per cent of Fortune 500 companies already have their own internal code of conduct.

Implementing a code of conduct

It is critical to engage the right people in the development process from the start. Broad organizational representation and collective input are paramount for effective implementation once the code is formulated.

External input can also add value at all stages of development, implementation, monitoring and verification. During the implementation stage, it is critical to find innovative ways to disseminate the code's contents. Those affected by the code must be very clear about what is expected of them. In addition to making the code widely available and

accessible, education and training efforts can strengthen acceptance and compliance.

Whether or not a code of conduct exists within the company, it is worth signing on to an external code from an industry association or external organization such as an NGO or government. It is clear that codes relating to environment, sustainable development and CSR are attractive to companies because they help establish credibility beyond simply claiming that the company is in compliance with laws and regulations. Yet, before signing on to any external guidelines, it makes sense for a company to have its own house in order.

Once again, communication and training are important during the implementation phase. It may require comprehensive integration of new practices as well as new measurement and reporting activities. Where implementation demands these more extensive commitments, training is imperative.

Overcoming risks

Potential risks must be factored into implementing a code of conduct. "It's important to keep in mind that companies often incur significant costs, use internal resources and share competitive advantages throughout the process," says Flaherty. A company that joins an industry group in establishing a code of conduct will have to allocate significant resources to develop the code.

What is more, reaching a consensus can be challenging when dealing with multiple parties. Companies that are not inclined to promote change also have the potential to slow down negotiations. Further, companies with a reputation for ethical principles run the risk of joining a code that falls short of their standards. Unfortunately the reputation of any code of ethics rests with the poorest performer. "Some companies end up lending their name and submitting their reputation to the poor performers within the group," warns Flaherty. "For companies that build a brand on their ethics, this amounts to a loss of competitive advantage."

Lastly, even though the company may have codes that meet regulatory requirements and improve the lives of stakeholders, outside organizations will still scrutinize corporate actions. Including NGOs in the establishment of your code of conduct may mitigate this problem.

Workshops

Two recent WBCSD workshops in the UK and US tackled the challenges related to developing strategies to manage and report on sustainable development through codes, guidelines and frameworks. Key discussion points centered around making codes meaningful to an internal audience while at the same time appealing to external global stakeholders. Participants said that any discussion surrounding codes must be firmly anchored in the company's values, strategy and language.

Part of company culture

Indeed, a code can only be an effective agent of positive behavior if it is implemented and monitored. It also needs to be part of a broader company culture that supports ethical conduct backed up by effective management systems.

Flaherty cautions that "the best code of conduct in the world cannot inoculate you against the bad behavior of individuals, nor can it be your sole tool for insuring against corporate misconduct."

It is critical to have buy-in from top management, ensure the code is clear to all and appoint a champion to secure the code's relevance and longevity for all stakeholders. If you have all these, then you are well on the way.