This article is written by Rahul Sharma, pursuing Diploma in Labour, Employment and Industrial Laws (including POSH) for HR Managers from LawSikho. The article has been edited by Zigishu Singh (Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).

Introduction

The success of any business relies on adding new customers and retaining old ones. Acquiring these customers is based on the competence and professionalism of the entire organization. It is the employees who take responsibility for their work commitments and build trusting relationships with customers and partners. Employees need to conduct themselves with the highest standards of integrity and respect for others. Depending on the nature of the business some companies are highly visible among the people and society in general and are held accountable for the actions and decisions of every employee. For this reason, the continued success is dependent on all employees following a strong code of ethical and professional conduct. This is the reason why companies put a great deal of emphasis on following a code of conduct that is agreed upon and accepted in the organization. 

At a minimum, a code of conduct must describe the right and wrong behaviours in the following areas:

1. Personal conduct: The personal conduct of every employee shapes the work culture and defines our reputation as a company.
2. Anti-corruption: This category is about describing your company’s stand on fair competition, and its commitment to denounce all types of corruption.
3. Internal control: This category is about the governance and segregation of duties. Given the fast-paced VUCA(Volatility, uncertainty, complexity and ambiguity) world, companies must tread carefully when it comes to defining the decision-making process. To succeed in this dynamic environment, modern management believes in a decentralized approach to decision making, which makes the issue of internal control an important element in the code of conduct policy. 

In the next section, we will go over the above categories in more detail.

Personal conduct

Integrity

Employees are expected to demonstrate the highest standards of integrity and professionalism when doing their job. Most companies stress on open and honest communication, and a promise from all team members to do the right thing. One important element here is upholding the trust placed in employees by others. The code must elaborate on the actions that would be taken against employees who are found to be indulging in unethical or illegal business practices. Violations of laws and regulations should not be tolerated.

Diversity

Here the company must include its commitment to equal opportunities for all employees. For this reason, the company must strive to attract a diverse workforce and to create an inclusive work environment that allows everyone to contribute. Any form of harassment, discrimination or other behaviour that may be perceived as threatening or degrading should not be tolerated. 

Confidentiality

All employees have a responsibility to safeguard sensitive information relating to their company, as well as its customers, partners, and stakeholders. The duty of confidentiality is critical to building trust and strong relations with both parties that exist outside, and within, the organisation. 

Privacy

All individuals have a right to privacy, and here the company must ensure its commitment to dealing with issues that are related to privacy and handling personal data with due care. Personal data is defined as any information which can be referenced to a specific and identifiable person. All employees must be aware of the company’s security policy and regulations such as GDPR.

Sustainability

Financial and sustainability goals are not at odds with each other in growing a successful company. They are complementary. Together, they allow us to run a profitable business while making a positive contribution to society. So right behaviours on environmental protection must be listed in the code of conduct. 

Anti-corruption

Gifts and business courtesies

Employees must always exercise care when offering or accepting gifts and business courtesies, including invitations to meals or events. 

Events and conferences

All events involving customers or business partners must have a clear business agenda. Business courtesies such as meals and entertainment provided during the conference must be limited, and not overshadow the business content. When organizing or participating in events and conferences, employees must evaluate the value of business courtesies that are offered during the event. 

Conflicts of interest

Employees will not solicit any personal benefits for themselves (or their closely related people) that may be perceived as conflicting with the interests of the company.

Compliance with antitrust laws and regulation

Competition or antitrust laws are designed to protect free and effective market competition. Competition law prohibits companies from collaborating with competitors against the interest of potential customers. This includes a range of prohibited activities including price-fixing, sharing of price information with competitors, restricting the supply of goods or services, submitting false bids or tenders, and dividing markets or territories. All employees must comply with competition and antitrust laws. This means that employees are prohibited from: 

• being involved in any agreements, arrangements or practices that have as their object or effect to prevent, restrict, or distort competition. 
• discussing pricing or other competitive information with competitors, fixing prices with competitors or entering into any other arrangements with competitors that might restrict free competition. Employees involved in a private or public tender process must always comply with applicable tender regulations and provide correct, transparent, and non-discriminatory data.

Internal control

Authorization of transactions

Usually, companies have a written document that outlines which people or levels in the organization have the authority to approve various types of transactions relating to hirings, contracts, and cash disbursements. Transactions above a specific amount or limit must be approved by the Board of Directors. These maximum amounts allowed for approval at each level of the organization are stated in the ‘Authority Matrix’ for the company.

Contract management

Any contract or agreement which an employee enters into on behalf of the company must be registered and stored in electronic format in the contract database of the applicable country or business unit. This includes all contracts with customers, suppliers, and business partners. It is the responsibility of the individual who signs or executes the agreement on behalf of the company to ensure that the contract is correctly registered and stored electronically in the contract database. Information regarding access to the contract database in each country can be found on the intranet sites of each country. Certain types of contracts will create additional compliance obligations. 

Reporting and disclosure

Financial and legal reporting should always comply with all applicable laws and regulations and be full, fair, accurate, timely and understandable. 

Price sensitive information and insider trading

This is particularly important for publicly traded companies as they must abide by strict laws concerning the handling of sensitive information which may have an impact on the share price. For example: Your company policy may outline that all new contracts with expected sales over 2% of Group revenue are automatically considered price-sensitive information if the outcome of the contract has not already been announced to the public. 

Post defining the misconduct categories and their definitions for your organization, it is also important that you create mechanisms that provide for grievance handling and their redressal. The labour laws provide for mechanisms for terminating an employee when it is proved that the said misconduct had occurred. In case of crimes such as fraud, sexual harassment etc., depending on the severity of the cases, the same can be handled through the Indian Penal Code by registering an FIR against the person. or Internal Disciplinary Hearings mandated by the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013. Moreover, it is recommended that the company makes it clear on how to report such cases and who to report and in what manner. In some companies, there are very strict provisions for making sure that such a forum is not misused for personal vendetta. There is a strong business case of creating a code of conduct policy and following through with it. In India, there are numerous examples when reputed and large organizations were marred by incidents of misconduct that were happening at the very top of the system. 

The great Satyam scam is about corporate governance, greed, and fraudulent auditing practices that were allegedly done in support of auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders. This means a large number of people were involved in the conspiracy of making some quick and easy money. This also shows that it was probably considered okay by the company executives to engage in such wrong behaviours if their ends were being met. Can you imagine what would happen if the top brass of a country was to engage in such behaviour without any working mechanism to uncover such misconduct? The people of the country would suffer, which is exactly what happened in the case of Satyam’s employees. 

Some result-oriented professionals consider misconduct policies and governance as a time taking activity and more of an ‘obstruction’ to value creation. However, this belief does not hold true because behind a well-functioning organization comes the strong ethos of ethical behaviour and proper understanding of what is right and what is wrong even when there is a thin line differentiating them. 

Conclusion

In conclusion, the above categories are important to include in your code of conduct policy to ensure that all stakeholders; employees, suppliers and customers understand the right behaviours when engaging in daily transactions. This will not only safeguard the company’s interests but will also create an environment of trust and mutual understanding. 

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