Legal requirements must be observed when developing and introducing codes of conduct.
1. Introduction
When entering markets in developing and emerging countries, considerations of corporate responsibility are becoming increasingly relevant. In many host countries, companies are often confronted with unfamiliar realities: foreign cultural norms, legal uncertainty, volatile political conditions, unpredictable administrative bodies, or irresponsible treatment of the environment, corruption, and violations of internationally recognized labor standards and human rights.
The company must actively address these conditions, as it is expected to apply the high standards of responsible business practices that are customary in its home country within its sphere of influence (suppliers, employees, locations, etc.) as well as in the countries where it sources, produces, and exports.
A well-established tool for avoiding potential interference from stakeholders in a company's sphere of influence is the code of conduct. With a customized code of conduct, a company establishes specific guidelines for action to comply with its core ethical and moral obligations. This instrument has a regulatory (suppliers) and communicative (stakeholders) component and, through practical development and credible implementation, can make a major contribution to the credibility of the company.
2. Reasons for introducing codes of conduct
On the one hand, the reasons for introducing a code of conduct lie in the aforementioned risks, which originate from the internationalization of companies and increasing globalization. On the other hand, the reasons result from dependencies such as the US Sarbanes Oxley Act. This requires listed companies in the US to ensure that misconduct in the areas of accounting and banking, as well as white-collar crime – which covers a wide range of possible offences – is detected and eliminated as quickly as possible. German companies are subject to the obligations of the Sarbanes Oxley Act if their parent company is listed on the US stock exchange.
The measures required to comply with the Sarbanes Oxley Act are implemented in the form of codes of conduct within companies. Specific behavioral guidelines are intended to reduce or minimize the liability risks for companies.
In Germany, there is a growing trend for companies that are not listed on the stock exchange and do not have a listed parent company to commit to introducing codes of conduct and setting up reporting systems for regulatory violations. There are many different reasons for this form of voluntary commitment – from planning an IPO to the realization that a code of conduct is a modern instrument of corporate governance that is expected by stakeholders.
3. Objectives and content of codes of conduct
The objectives of codes of conduct are largely comparable, while their content can vary greatly from company to company.
The main objective—although often formulated in very different ways—is to minimize liability risks by specifying concrete rules of conduct. These usually relate to different organizational units (e.g., sales, human resources, etc.) as well as different processes. In a sense, the company "transfers" the risks arising from misconduct to the individuals involved, thereby claiming a possibility of exculpation. The fact that this is only relative in nature is ultimately demonstrated by the fact that it is usually the company and not the individual employee who is pilloried in the media – with the exception of members of the board of directors or management.
The content, on the other hand, usually varies greatly: some companies limit themselves to briefly and concisely obliging their employees to comply with applicable laws and internal instructions and to report violations. However, most companies' codes of conduct contain a large number of specific, situation-related rules of conduct that, taken together, go far beyond what is required by the Sarbanes-Oxley Act. Here are a few examples:
- confidentiality obligations
- Acceptance of gifts
- Prohibition of alcohol, drugs, and intoxicating medications
- Use of company facilities (telephone, machines, vehicles)
- Non-acceptance of child labor
- Violations of environmental protection
- Employment of family members at competitors
The establishment of rules of conduct is also accompanied by sanctions that are imposed in the event of violations of the rules of conduct. These range from simple disciplinary measures to termination without notice and criminal charges.
Another component of codes of conduct are so-called "reporting systems" (English: whistleblowing systems), through which violations are reported. These are usually hotlines or special email addresses—anonymity and discretion are basic requirements without which such a reporting system would hardly work in practice (who wants to be seen as a "snitch," even if they are obliged to report violations under the code of conduct?
If we compare the development of codes of conduct in the US and Germany, the high number of specific rules of conduct in US codes of conduct can be explained historically by the fact that labor law in the US is much less regulated than in Germany. However, even in Germany, there is sometimes a pronounced "regulatory frenzy" on the part of those responsible for compliance, even though many of the regulated issues have been legally assessed both in substantive labor law and in labor law case law, which has been developed over decades.
About the author
Eckart Achauer, studied law and business administration, postgraduate studies leading to a Master of Business Administration (MBA). In-service training as a European Quality Manager (DGQ), mediator specializing in business mediation, and Certified Compliance Manager (TÜV).
He worked for around 10 years in the international insurance industry in various management positions at a Swiss insurance group (claims department, sales, assistance) before moving into management and business consulting in 1997.
As a consultant and managing director of various consulting firms, Mr. Achauer has specialized in organizational and process optimization as well as the development and implementation of management systems—quality management, risk and compliance management.
At Senator Executive Search Partners, Mr. Achauer is responsible for compliance management. As part of compliance audits, he analyzes their organizational "compliance fitness," raises awareness and trains management, executives, and employees, and supports companies in setting up and implementing individual compliance management systems. In doing so, he always takes into account the specific risk situation of the companies. Thanks to his many years of experience as a manager and consultant, he is very familiar with the practical challenges of business.
