COMPANY CODES | What Are They?

The Company Code of Conduct addresses
sustainability issues - social (workplace),
economic, environmental.

A company code of conduct is a statement of how seriously the company takes its environmental and social responsibilities.

The company code can refer to industry-wide codes and multi-stakeholder-initiative (MSI) standards, which are two other building blocks in the CSR framework.

Companies may create their code of conduct in response to governmental or NGO concern about the adequacy of the company’s social and environmental behavior.

A company code is a beginning because it establishes that the company not only plans to operate to ensure its financial survival but plans to do so while maintaining certain standards of conduct.

Extensions of the Company Code

The company code is the beginning of a multi-step program for bringing itself into line with public social and environmental expectations.

The second step is to identify what it might cost to fix workplace or environmental abuses, including increasingly those in the company's supply chain. For industries and situations where abuses are widespread, it may take years for a company to meet even minimal environmental or social standards.

A company and its executives – or an industry-wide coalition of companies seeking to improve practices – must decide how much and over what period to invest in CSR. This affects how soon it can meet mandated and voluntary standards. The company's and industry's response will depend only partly on the ethical concerns of its executives – it will depend also on how deeply rooted and extensive existing noncompliances are and how expensive it may prove to end them.

The company code typically articulates its mission in a way that recognizes that it sits at the intersection of three circles – markets, ethics and law, the common element of which is reciprocity (quid pro quo, fairness to stakeholders). The sustainable company must make a profit, must obey the law and must operate in an ethical way.

Examples of Company Codes

Among the many company codes that have been written, the following are of special interest: Aeon (Japan), Coop Italia, Dole, Hasbro, Mattel, McDonald’s, Nike, Otto Versand (German), Phillips-Van Heusen, Reebok, Timberland, Toys R Us, Disney and Voegele (Swiss). Smaller and less well-known companies with codes include Kesko (Finnish), Switcher (Swiss), Cutter & Buck, Eileen Fisher and Patagonia.

When the Council for Responsible Jewellery Practices was first set up, it drafted an industry code of conduct. Many of its members, like Rio Tinto, already had a company code of conduct and some produce well-regarded CSR reports.

The Weaknesses of Company Codes

Many companies who develop their own codes may find that this was an expensive and unnecessary step if the company then proceeds to adopt an MSI standard. The public relations and internal-efficiency value of an industry code or MSI standard is much greater than that of a company code, even a high-quality one.

The main weakness of individual company codes is that without some standards their proliferation adds to the confusion. Unique company codes make it difficult for suppliers trying to sell to multiple buyers, for consumers comparing company policies and practices, for retailers trying to factor CSR into their procurement, and for workers seeking to determine their rights.

In an attempt to sort through the confusion and look at the actual content of company codes, the ILO and OECD a few years ago discovered that only two-thirds of company codes they reviewed addressed workplace discrimination. Fewer provided for workplace safety. Only one-fifth addressed freedom of association or training. Fewer than 20 percent required one day’s rest in seven. Fewer than one-third commited the company to monitor implementation.

Evolving Corporate Strategy on a Company Code

Since company codes are being questioned, two main corporate strategies for developing a company code seem to be evolving:

• A company code is presented as just a first step. The code may be adopted as a preliminary to adhering to higher standards. In this approach, a company code is an acknowledged preliminary step before adopting an industry code or MSI standard. In this case, the company code will set standards somewhere higher than the level company is already achieving, but not at the level required by the industry code or MSI standard. The investment in the code should be kept to a minimum because the company will be reinventing the wheel.
• A company code is presented as a substitute for higher standards. Some company codes are designed give the company time to consider the cost and feasibility of adopting an industry-wide code or MSI standard. In this case, the company may design its code of conduct so that it is not challenging and creates no pressure for the company to set its standard above the level it is already achieving. The code’s main purpose could be as a place to refer NGOs and other public inquiries–the buck stops there. Such codes of conduct are properly criticized.

The social and environment issues facing companies go well beyond creating a code of conduct. They require implementation – monitoring, auditing and remediation, especially among suppliers. These issues point toward a challenging code of conduct and toward group solutions, whether at the industry-wide code level or through MSI standards.