companies and investors need fewer ethical codes of conductFebruary 2001
As with reporting standards, so with ethical codes of conduct. There are simply too many of them. Broadly speaking, ethical codes come in two types: general declarations of universal principles applicable to all companies, such as the UN Global Compact, and sectoral codes that contain detailed regulations, such as the ethical trading standard SA8000 for companies and their supply chains. Both types are voluntary.
There are now at least 50 general and sectoral codes of conduct available for companies to sign up to, mostly produced by NGOs and other third parties. They can bring real benefits, helping to raise labour and environmental standards. They also help companies to manage reputational risk, protect investment in products and markets and demonstrate commitment to responsible business practice for prospective and existing employees. A code also allows a company to benchmark its performance.
But having too many codes blunts their effectiveness as a risk management tool and dilutes the social and environmental benefits that flow from them.
Faced with a large choice, companies can cherrypick a code that offers the best commercial deal, but fails to promote best practice or to strengthen social and environmental standards. This course of action is likely to increase social and environmental risk rather than reduce it, especially in the long term.
What is to be done? Companies can hardly monitor the monitors, although if they choose codes carefully the least effective codes, and code providers, should fade away.
Ultimately, investment analysts will force a rationalisation because they require standardised measurement tools in order to assess companies. At present only a small number of investors consider corporate social and environmental performance. As more do so, their influence will grow. Companies which have focused on best practice, and worked closely with providers to develop their chosen code, will then reap the benefits.
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