Code Of Ethics

Loading the player...

What is a 'Code Of Ethics'

A code of ethics is a guide of principles designed to help professionals conduct business honestly and with integrity. A code of ethics document may outline the mission and values of the business or organization, how professionals are supposed to approach problems, the ethical principles based on the organization's core values and the standards to which the professional is held.

BREAKING DOWN 'Code Of Ethics'

Both businesses and trade organizations typically have some sort of code of ethics that its employees or members are supposed to follow. Breaking the code of ethics can result in termination or dismissal from the organization. A code of ethics is important because it clearly lays out the rules for behavior and provides a preemptive warning.

Regardless of size, businesses count on their management staff to set a standard of ethical conduct for other employees to follow. When administrators adhere to the code of ethics, it sends a message that universal compliance is expected of every employee.

Compliance-Based Codes of Ethics

For all businesses, laws regulate issues such as hiring and safety standards. Compliance-based codes of ethics usually not only set out guidelines for conduct, but also lay out penalties for violations.

In some industries, including banking, specific laws govern business conduct. These industries tend to formulate compliance-based codes of ethics to ensure that legalities are being followed. Employees usually undergo formal training to learn the rules of conduct. Because noncompliance can create legal issues for the company as a whole, individual workers within a firm may face penalties for failing to follow guidelines.

To ensure that the aims and principles of the code of ethics are followed, some companies appoint a compliance officer. This individual is tasked with keeping up to date on changes in regulation codes and monitoring employee conduct to encourage conformity.

This type of code of ethics is based on clear-cut rules and well-defined consequences rather than individual monitoring of personal behavior. Therefore, despite strict adherence to the law, some compliance-based codes of conduct do not promote a climate of moral responsibility within the company.

Value-Based Codes of Ethics

A value-based code of ethics deals with a company's core value system. It may discuss standards of responsible conduct as they relate to the larger public good and the environment. Value-based ethical codes may require a greater degree of self-regulation than compliance-based codes.

Some codes of conduct contain language that addresses both compliance and values. For example, a grocery store chain might create a code of conduct that discusses the company's commitment to strict adherence to health and safety regulations above financial gain. The chain might also include a statement about refusing to contract with suppliers that feed hormones to livestock or raise animals in inhumane living conditions.

RELATED TERMS
  1. Ethical Investing

    Using one's ethical principles as the main filter for securities ...
  2. Business Ethics

    The study of proper business policies and practices regarding ...
  3. Internal Revenue Code - IRC

    The comprehensive set of tax laws created by the Internat Revenue ...
  4. CFA Institute

    Formerly known as the Association for Investment Management and ...
  5. Standard Industrial Classification ...

    A standard series of four-digit codes created by the U.S. government ...
  6. Tax Code

    A federal government document, numbering tens of thousands of ...
Related Articles
  1. Markets

    What is a Code of Ethics?

    A code of ethics is a collection of principles and guidelines an organization expects its employees to follow.
  2. Investing

    Ethical Investing Tutorial

    Learn everything there is to know about ethical investing.
  3. Markets

    The Ethics Of Investing

    The proper application of ethics to the world of investments is a highly subjective topic.
  4. Financial Advisor

    Asset Manager Ethics: Acting Professionally and Ethically

    To aid managers in understanding the requirements for ethical and professional behavior, we offer some basic guidelines.
  5. Trading

    Code Climate: How it Works and Makes Money

    Learn more about Code Climate and its suite of static program analysis tools used by software developers to produce and maintain high-quality software code.
  6. Markets

    Can Japan's Stewardship Code Turn Passive Funds Into Active Managers?

    Institutional investors in Japan have been criticized for being too cozy with corporates. Can a code force them to focus on the needs of beneficiaries?
  7. Investing

    Standards And Ethics For Financial Professionals

    Scandals and fraud have given financial professionals a black eye. Learn how to avoid typical ethical dilemmas.
  8. Investing

    What are Business Ethics?

    Business ethics is the system of laws and guidelines by which business professionals and corporations operate in a fair, legal and moral fashion. It’s a broad topic, covering everything from ...
  9. Personal Finance

    Making Sense Of The Tax Code

    If tax rules and regulations are Greek to you, read on to learn how to decipher them.
  10. Managing Wealth

    Common Interview Questions for Compliance Officers

    Prepare to ace your compliance officer interview. Learn how to answer some commonly asked interview questions and what you need to know to come out ahead.
RELATED FAQS
  1. Why are business ethics important?

    Learn why ethics are an integral aspect of management philosophy and how sound business ethics benefit business, both large ... Read Answer >>
  2. Are investments in the drug sector appropriate for ethical investors?

    Explore the question of whether investments in the pharmaceutical industry are appropriate for investors who wish to pursue ... Read Answer >>
  3. How have business ethics evolved over time?

    Learn about the evolution of business ethics over times, from the rise of social responsibility in the 1960s to ethics in ... Read Answer >>
  4. How do business ethics differ from industry to industry?

    Learn how business ethics differ based on industry, from energy companies' environmental stewardship to tech firms' respect ... Read Answer >>
  5. How important are business ethics in running a profitable business?

    Learn how business ethics as a guiding philosophy within a company can have a drastic impact on long-term profitability and ... Read Answer >>
  6. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't ... Read Answer >>
Trading Center