Why have so many companies updated their code of conduct since Covid?

Research from GoodCorporation revealed that there has been a fifty percent increase in the number of FTSE 100 companies updating their codes of conduct since the pandemic. Our latest 2023 House of Lords debate sought to investigate this rise, questioning why it has occurred, how changes have been implemented and whether other companies should be following suit.

The debate, hosted by Baroness Kingsmill, was attended by senior representatives from across the corporate sector.

Lynne Kellett, Head of Legal, Corporate and Regulatory at Sizewell C, opened the debate by interrogating the motives behind so many updates to the code; is this a positive development of adequate procedures or the compliance world jumping on the ESG bandwagon? Should codes be updated regularly to reflect compliance needs?

The following possible explanations as to why so many codes have been updated were put forward: –

Covid and the widespread adoption of the hybrid workplace.

In a post-Covid world, codes of conduct needed to perform several duties, embracing the widespread adoption of the hybrid workplace and setting out appropriate ways of working to accommodate this shift in working patterns. This presented the additional challenge of maintaining in-office culture whilst also cultivating a strong distributed culture and merging the two equitably. This can be hard to achieve and has added a new dimension to codes, namely privacy, and the extent to which a company can create rules for what people can and cannot do within their own homes, albeit on work time.

Changes in the legal and investor landscape have shifted the code of conduct’s function.

With a growing emphasis on EU Directives, UN Guiding Principles and ESG requirements, companies may have updated their codes of conduct to perform the additional function of publicly reflecting their business values and ethics. As such, they have evolved into tools for showcasing a company’s goals and aspirations, as well as expectations of behaviour. Consequently, codes are increasingly being written for multiple stakeholder audiences, rather than being solely focused on employees. But is this asking too much from a code of conduct, and straying too far away from its primary purpose? This looks likely to be a source of some debate moving forwards.

Recruitment and retention.

Employees, especially from the younger generation, have high expectations of the businesses they want to work for and their ethical commitments. They will do their homework to see what commitments and statements about ethics and values a business is making, checking this against any publicly available code of conduct. As a result, many businesses have updated their codes, developing relevant, engaging and often interactive material.

The debate discussion

Companies were asked if updating the code regularly should be considered best practise and if so, should the remaining FTSE 100, who have not yet updated their codes, make this a priority? Those in favour of regularly updating the code put forward the following arguments:

Key points in favour of regularly updating Codes of Conduct:

• The code of conduct as a living document: a code of conduct should be a living document and should not be set in stone. It should therefore be reviewed regularly to ensure that it reflects any changes in the business environment, be they operational, regulatory or societal.
• Regular updates allow a business to stay in tune with evolving legal, cultural and geo-political landscapes: As a code needs to be a living document, it should evolve in line with changing compliance requirements, corporate sustainability commitments and stakeholder expectations.This helps companies stay in tune with industry best practice and keeps the code relevant and effective in guiding employee conduct.
• Codes increasingly used by investors to assess ESG criteria: Investors are increasingly looking beyond financial performance to evaluate companies. Codes are therefore being used by investors as a means of evaluating a company’s commitment to environmental, social, and governance (ESG) factors. In light of this, many companies are reviewing codes more regularly in order to communicate these wider issues to the investor community.
• Growing awareness of the need for wider accessibility of the code: Greater DEI awareness may also be a driving factor behind some of the recent changes that have been seen, with companies taking advantage of technological developments to distribute the code on multiple platforms and in more accessible formats.

Key points against regular Code updates as best practice

• Stability and clarity are essential, and too much change can cause confusion: Constant updates to codes of conduct may create confusion and uncertainty among employees. Stability and clarity in expectations are crucial, and excessive changes may hinder employees’ understanding of the code’s core principles.
• Practicality should be considered, as frequent updates can be time-consuming and costly: For larger companies with extensive codes of conduct, regular updates can be resource intensive. The process of updating and translating codes and providing corresponding training and communications programmes can require significant time, effort, and financial resources, which is not always feasible or realistic. This is particularly the case for large international entities faced with embedding a single corporate culture and rules of behaviour across multiple jurisdictions with very different cultural mores.
• Enhancing the supporting documents and policies may be more practical than rewriting the code itself: Rather than rewriting the code, it may be more practical to focus on updating the supporting documents and policies referenced in the code. This approach allows for necessary adaptations while maintaining the stability of the code’s fundamental principles.
• Risk assessment should drive changes, focusing on learning from incidents: Instead of regularly scheduled updates to the code of conduct, a more targeted approach could be taken. Conducting comprehensive risk assessments can identify areas where changes are necessary based on lessons learned from past incidents or emerging risks. This approach ensures that updates address specific issues rather than making broad, frequent changes.
• Balance between stability and change: There is a core challenge of adequately maintaining stability while simultaneously adapting to changing times. Striking a balance between preserving core principles and addressing emerging concerns is an ongoing consideration.
• A code may not need updating: When a code may be a set of short principles around expectations of behaviour, these principles may be constant and therefore some companies may feel that no updates are necessary.
• Avoid change for change’s sake: Codes should be changed to reflect a real need rather than a perceived need to follow a trend.

Suggested best practice for effective code of conduct implementation

• Presentation: To ensure that a code is a living document which reflects how a company does business, care must be taken to ensure that it will be read, understood and acted upon. For some, this means moving away from detailed lengthy tomes in favour of shorter, more concise documents. Simplifying and streamlining the code’s presentation and accessibility should also be considered. Formats such as apps, digital platforms and QR codes are increasingly being used for this purpose. Including relevant dilemma discussions and possible scenarios can also bring a code to life and ensure that it is a meaningful document for stakeholders.
• Training and embedding: An effective code must influence behaviour and be more than a tick box exercise. Providing appropriate training to employees following code updates may be considered as essential as updating the code itself. Effective training can ensure that employees understand the code’s revisions and can apply its principles in their day-to-day work, fostering a culture of compliance.
• Monitoring: Knowing that the code is working on the ground is a key component of corporate risk management. Businesses need to measure engagement and devise metrics to provide tangible evidence that their codes are working. This is increasingly being regarded as a board item and these engagement metrics should be presented to the board on a regular basis.
• Speak Up: Giving stakeholders the ability to raise concerns and showing that concerns will be fairly and properly dealt with is an essential component of developing a robust and ethical corporate culture. Codes should ensure that speak-up channels are clearly communicated, and this should be emphasised in the relevant training and communication programmes.

The GoodCorporation view

The Code of Conduct has evolved considerably in recent years, and individual organisations will need to develop their codes in ways that are relevant to the needs and make-up of their different stakeholder groups. This shows that codes are being treated as far more than standardised compliance tools. Some are developing their codes as short, principle-based documents while others are using interactive platforms to encourage engagement. In essence though, the Code of Conduct should encapsulate an organisation’s purpose, values, and commitments, both protecting the business and promoting its positive impact. An effective code will take account of all the areas where poor behaviour or decision-making might occur. Taking this approach will help ensure a business is well-protected from the risks of misconduct, malpractice and reputational damage.

GoodCorporation offers a range of services to help companies build codes of conduct that really work. We work with clients across multiple sectors and jurisdictions to design, build and embed codes of conduct that encourage responsible behaviour and set clear expectations.