Defining and Developing an Effective Code of Conduct
Exposure draft issued November 2006
Comments from ACCA
February 2007
General points
ACCA responded last April to the first exposure draft issued in January 2006; we supported the intention behind that document but considered it gave to much attention to enforcement at the expense of using a code to provided a framework based on values for people to do the 'right thing'. We are pleased to read that both the spirit and much of the detail of our recommendations have been reflected in the current exposure draft. We believe that, when finalised and with minor amendment, the guidance should be a highly useful source of concise guidance for accountants and others. In time, the guidance should contribute to a stronger ethical environment in business, and organisations generally, around the world.
We have two related general points to make before responding to the questions in the guide for commentators or to the specific paragraphs:
- The guidance uses the term 'codes of conduct'. The word 'conduct' generally means to behave in a particular way and, in corporate life, tends to be associated in people's minds with a set of rules prescribing dos and don'ts. The exposure draft quite rightly gives guidance on developing a code based on values rather than rules with which to comply. We therefore question whether the word 'conduct' is the best one to use. A variety of terms are used by organisations: 'code of ethics', 'statement of business principles', 'business ethics policy'; and some have both codes of ethics or principles and a more prescriptive code of conduct.
We therefore invite the PAIB to consider either using the term 'code of ethics' instead of 'code of conduct' or making more detailed reference, than in 2.1, in the introduction and in the text to alternative terms such as 'codes of ethics'. - The guidance makes several references to a 'compliance and ethics program'. We believe this term has limited application outside the United States or companies subject to the Sarbanes-Oxley Act and US Federal Sentencing Guidelines. Although we acknowledge the importance of the term, we suggest that it is more appropriate in a document intended for a global readership to use the general concept of ethics and compliance and refer to a 'compliance and ethics program' as an illustrative example.
Our response to the 'guide for commentators'
1. Do the principles cover all the fundamental areas in developing and defining a code of conduct?
Broadly yes, however we suggest using an additional key principle: The board and senior management should have a programme to assess periodically the extent to which the values articulated in the organisation's code are being applied or lived up to throughout the organisation; they should also understand the reasons behind any instances where practices differ from that intended and should learn from this and then act to ensure that the code is being applied or lived as intended.
Arguably this is implicit in principle G but we suggest that our principle above goes substantially beyond 'continuous awareness and enforcement'.
2. Is the application guidance for each principle adequate to guide good practice?
Broadly yes, however as indicated in our general comments above we would prefer that the guidance does not presuppose, as in both key principles C and G, that organisations have a 'compliance and ethics program'. Instead, we would prefer the guidance to refer to the US use of a 'compliance and ethics program' as an example relevant to applying the principle. We are concerned, however, that compliance and ethics programs could emphasise a compliance based approach to ethics. While compliance with rules and policies is important, a compliance approach is incompatible with assessing the efficacy of a values based code.
3. Are the appendices useful? Could they be expanded or should they be removed?
Yes, the appendices are useful. Given the importance we attach to assessing the application of a code we suggest adding the Institute of Business Ethics publication 'Living up to our values' ISBN 09539517 8 2 to appendix E.
Our comments on particular paragraphs
2.1
As indicated in our general comments above, we suggest the guidance should explain why these different terms for codes are used. In particular the guidance should explain that there are some regional or country differences in the terms used but more importantly these different terms can reflect different intent for the codes: e.g. ensuring compliance in contrast with promoting values.
2.5
As stated above, 'compliance and ethics programs' are not common outside the US or companies affected by US law. We would prefer a more generalised expression such as 'a programme to assess ethics and compliance', we think the word 'ethics' should precede 'compliance'. Rather than saying a code of conduct is one part of a 'compliance and ethics program', we suggest that a programme to assess ethics and compliance is part of an ethics programme.
2.7 Principle G
We would prefer to see 'promotion' rather than 'enforcement' of a code.
3.12 Last sentence
A word appears to be missing between 'consideration' and 'ethical'.
3.14
The first sentence is too sweeping. Rather than "Organizations in heavy or resource-based industries are likely to focus on issues of relatively little importance to service-based organizations or technology companies". It would be better to say "While organisations in different sectors will have some issues in common, organizations in (say) heavy or resource-based industries are also likely to focus on a different range issues than would service-based organizations or technology companies."
3.15 Principle C
The principle refers to boards overseeing a 'wider ethics and values program'. We support this, however 3.15 and 3.17 below refer to compliance and ethics programs and what is meant by a 'wider ethics and values program' is not explained. The two concepts are different and suitable explanation should be given.
3.27 Third bullet
In our view it is not appropriate to use the word conformity in 'explaining how employees are expected to act in conformity with the organization's values'. This concept seems to come from the earlier version of the guidance which was more compliance orientated. We suggest it is better to talk about 'living up to' or 'applying' values.
3.35
While we accept that, in some organisations and in some environments, it may be appropriate to seek legal advice before finalising a code, we do not consider this to be necessary in all cases. Nor would we want organisations to be deterred from introducing a code because of a need to involve lawyers.
3.42
This paragraph reflects the compliance based approach of the earlier version of the guidance. As we argue above in calling for an additional key principle, there is much more to assessing the efficacy of the code than investigating breaches of compliance. It is important that boards and senior management assess whether the organisation as a whole is living up to its values and that management learns from and acts on the results of that assessment.
3.43
We suggest adding 'or different' to 'what more'. This would allow for a change in practice rather than only having additional practice.
3.44
We think this paragraph misses the point slightly. The guidance should explain the purpose of the evaluation and the outcomes should be evaluated against the objectives.
3.47
A survey of our members has indicated a strong interest in ethics 'training' that includes discussion of ethical dilemmas.
3.51
While we agree that the task of developing measures used in monitoring 'adherence' rather than 'compliance' is both important and suited to the professional accountant, we are aware that this is much easier said than done. Along with colleagues from ICAEW, CIMA, ICAS and the IIA, we have assisted the UK Institute of Business Ethics in developing a publication 'Living up to our values'. This has taken several years to write and we have become aware how challenging this is and how little good practice guidance exists at present. Assessing compliance or, more appropriately, adherence to a code of ethics is something in very early stages of development.
3.52
Organisations should monitor the prevalence of whistle blowing to be satisfied that people are not deterred from speaking up.
3.59
The point about case studies dealing with ethical dilemmas is important and could usefully be expanded upon.