Tags: Code of Ethics
Are there any signs that a company doesn’t take its code of ethics seriously? Some research on prompt payment prompts some thoughts.
When you’re thinking of doing business with another company, it makes sense to check whether it’s got a decent code of ethics. However, even though the contents might be good, how can you be confident that the code indicates the kind of behaviour you can expect to experience. How do you know that the company takes its code seriously? Are there any signs that it isn’t just a token exercise but something that has an impact on the conduct and culture of the organisation? Or are there signs that it probably doesn’t, for that matter?
With my academic hat (mortarboard?) on, I recently published a research paper that suggested some clues.* Actually, the research wasn’t about corporate codes of ethics as such, but the results got me thinking.
Using some historical data, we were looking at whether payment codes (forerunners of the current Prompt Payment Code) have an impact. We went back to 2007, because at that time good data was available about how quickly companies paid their suppliers. We compared code signatories with non-signatories. What did we find?
First, the bad news: although signatories seemed to pay a little more quickly, the difference wasn’t statistically significant. In other words, it looked like we hadn’t found any evidence that payment codes were of value.
Next, the good news. When we looked at our data in more depth, we had a bit of a shock: some other companies were still saying that they followed an old code that had been replaced many years before. When we ran the stats again, we found that signatories of the old code were no different to non-signatories, but the signatories of the current, active code were significantly quicker payers.
That’s quite encouraging for promoters of payment codes. It would certainly be worth following up now that the Prompt Payment Code is well established and has many more signatories than the old codes had.
But what might this ‘historical’ finding tell us about judging whether a company takes its code of ethics seriously?
Well, going back to the research, the practice of continuing to cite, every year, a defunct code was a sign that a company wasn’t taking a supposed commitment seriously. It’s not proof beyond a reasonable doubt, but I suggest that if you see one or more of the following, you should be on notice that a code might not be all that it seems:
- When was the code last revised? Life moves on, as does good practice in business ethics, so if a code hasn’t been revised for a long time, that’s not a good sign. At the IBE, we recommend that a code should be revised every three years or so. If it’s more than, say, five years since the code was given a working over, you have been warned.
- Of course, it’s possible that the code doesn’t display a date – but doing so is a good practice that we also recommend, so that’s probably not a good sign. In any case, does the code look up-to-date or a bit tired? That might be a difficult judgement to make, but if you’re a regular reader of codes, you probably have a sense of what excellent companies are currently doing.
- Another good practice we recommend is to have an opening statement from the Chair or CEO. If the company does that, is it the current office holder? If not, when did the previous one leave? If an update isn’t made pretty quickly, you have to wonder.
So, these are a few ideas for trying to judge whether a company takes its code seriously, just from the code’s appearance. You might be able to think of other clues. But remember: others might be looking at your code in the same light.
* C.J. Cowton & L. San-Jose, ‘Settling debts in the supply chain: do prompt payment codes make a difference? A UK study', International Journal of Business Governance and Ethics, DOI: 10.1504/IJBGE.2020.10034002.
Professor Chris Cowton
Associate Director (Research)
Following a long career of leadership, teaching and research in the higher education sector, Chris joined the IBE in 2019 with a remit to strengthen its widely respected applied research and thought leadership, and a specific role of further developing our engagement with the education sector. In pursuit of the IBE's mission to base its work on high quality, relevant research, he now also leads on our training and advisory services.
Chris Cowton is Emeritus Professor at the University of Huddersfield and Visiting Professor at Leeds University’s Inter-Disciplinary Ethics Applied Centre. He was previously Professor of Accounting (1996-2016), Professor of Financial Ethics (2016-2019) and Dean of the Business School (2008-2016) at Huddersfield, having joined after ten years lecturing at the University of Oxford.
He is internationally recognised for his contributions to business ethics, especially his pioneering work on financial ethics. In 2013 he was awarded the University of Huddersfield’s first DLitt (Doctor of Letters, a higher doctorate) in recognition of his contribution to the advancement of knowledge in business and financial ethics.
He is the author of more than 70 journal papers, has edited three books and has written many book chapters. He was Editor of the journal Business Ethics: A European Review for a decade (2004-2013).
He is also a visiting professor at University of the Basque Country, Bilbao (Spain), and has been a visiting professor at the University of Bergamo (Italy) and a member of the Ethics Standards Committee of the Institute of Chartered Accountants in England and Wales (2009-2018).
Discussion of ethics in public life, including business, often makes unhelpful sweeping generalisations that take us nowhere. ‘Politicians are only in it for themselves’, ‘businesses manipulate consumers’, etc. Such comments describe one end of a spectrum, perhaps, but they do a disservice to those who are trying to do so much better. The IBE plays a key role, in supporting high standards of business behaviour and I am delighted to use my research expertise to contribute to that mission.