Exploring the Role of Ethical Codes in Modern Corporations

In today's complex business environment, incorporating ethical principles is crucial for organizations striving towards sustainability. This analysis explores how corporate codes of ethics serve as foundational tools that guide behavior, influence stakeholder relationships, and promote responsible practices. By examining various theoretical frameworks and real-world examples, the study aims to highlight the benefits and challenges associated with embedding ethical values into corporate culture. It underscores the importance of continual improvement in ethical standards to ensure organizations not only comply with legal requirements but also contribute positively to society.

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Code of Ethics in Modern Corporations
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Contents
Executive Summary...................................................................................................................................3
Introduction.................................................................................................................................................4
Understanding the Code of Ethics...............................................................................................................4
Historical Background.................................................................................................................................5
Importance of the Code of Ethics and their Role in Modern Corporations..................................................8
The Role of the Code of Ethics in Modern Day Corporations.....................................................................9
Conclusion.................................................................................................................................................13
References.................................................................................................................................................14

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Executive Summary
The purpose of this report is to discuss the code of ethics, why it has become common
practice for modern corporations to adopt it and its importance. In detail, an understanding of the
code of ethics is sought. Its historical background, and its importance and the role the code of
ethics plays in modern corporations is discussed.

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Introduction
Ethics has become the top priority for 21st Century corporations. This comes at a time
when a lot of organizations have adopted unethical business principles (Lawrence and Weber,
2014). The society has developed an attitude of impatience towards unethical corporations. Their
actions enrich a few people and impoverish the majority. For example, under the leadership of
Carly Fiorina, Hewlett Packard proved its pledge to the code of ethics. The former Chief
Executive Officer said that under her tenure at the company, she made difficult choices,
including firing individuals who lacked integrity (Ely and Rhode, 2010). Her actions contrast
that of R.J. Reynolds Tobacco Company, which was found to be covering up information about
nicotine addiction (Derthick, 2011). From the two examples, even though in one instance action
was taken against individuals who lacked ethics, it is evident that many organizations lack ethics.
It is a culture that is no longer common in many institutions.
Talking about organizational responsibility and accountability is impractical without
mentioning ethics. Irresponsible behavior in businesses and corporations is so typical in this day
and age. For instance, corporations in the manufacturing sector have failed to ensure the safety of
employees making accidents a common occurrence. Greed and selfish reasons have caused
corporate entities to lose objectivity (Grappi et al. 2013, 1819). As a result, they vindicate
unethical practices while focusing on making profits. It is in this regard that the code of ethics
has become synonymous with many entities, and is a tool that is useful in modern corporations.
Understanding the Code of Ethics
Understanding the code of ethics is fundamental to appreciating its importance in
business or ordinary life. A code of ethics is a set of guiding principles that direct corporate

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practices to reflect societal concerns without necessarily pursuing profits (Erwin, 2011, 539).
Societal concerns signify the growing levels of impatience in the irresponsible and selfish
practices exhibited by many institutions in the 21st Century (Painter-Morland, 2010). The
institutional principles, standards, values, and norms not only apply to the organizations, but also
to the individuals in those entities altogether.
Corporate code of ethics has descriptive and normative dimensions. In corporate practice
and career specialty, the field is predominantly normative. However, academicians trying to
comprehend organizational ethical behavior adopt descriptive techniques. The quantity and range
of issues mirror the relationship between behavior meant to maximize profit, and those that are
non-economic.
Historical Background
Interest in the corporate code of ethics accelerated significantly in the late 80s and early
90s, especially with the advancements in technology. For instance, company executives faced a
dilemma in balancing the privacy of its customers and employees, as well as the freedom
accorded to the workforce. Another difficulty was in ensuring that technology was used for
legitimate business activities. However, this has not been the case in many organizations.
Major businesses in the 21st Century endorse their pledge to non-economic tenets under slogans
such as corporate social responsibility charters and the ethics code. Adam Smith once said that
individuals with the same trade seldom meet, even to make merry. However, their conversations
usually end in conspiracies against the innocent members of the public. In some instances, some
conniving on how to raise the prices of goods (Maon et al. 2010). An example is an ethical
scandal witnessed with Wells Fargo Company. Some company employees created fake account
details using real names of the entity’s clients. Governments have not been spared either. They

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have been accused of enacting legislation that guides businesses and corporate entities in what is
perceived to be advantageous ways. Codes of ethics are meant to regulate details and areas that
are beyond state influence. The advent of large multinationals with limited interactions and
sensitivity to the society in which they operate hastened the development of the code of ethics
regimes.
Ethical business norms have evolved. The result is that it caused the acceptable behavior
to be objectionable. Companies began taking their moral importance seriously to distance
themselves from scandals that were synonymous back in the 80s. The concept of the ethics code
of practice caught the attention of media, corporates and academics by the end of the Cold War.
However, during this era, criticism of corporate practices was attacked and accused of infringing
on the rights of entrepreneurs. Critics, however, were accused of supporting communists. This
scampered the discourse of business ethics in academia and media.
The corporate ethical code reflects its philosophy of activities, where it determines the
principal purpose of an entity that includes transparency among other issues. If a company’s
reason for existence is to maximize investor’s returns, then to concentrate on profits violates its
fiduciary responsibility. Accounting scandals such as that of the pharmacy giant Mylan, who
imposed huge charges to the subscribers of its life-saving EpiPen is one of the examples in this
case.
Corporate entities are considered as persons in many countries. They are, therefore,
legally entitled to liabilities and rights due to citizens as people. Ethics should govern our daily
lives, as employees of business entities or as ordinary individuals who go about their everyday
occurrences. Many people equate it with consciousness or a simple sense of right or wrong.
Others would say that it is an internal code governing individual’s conduct. Corporations and

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professional entities have written code of ethics governing the professional standards expected in
all fields. It is important to be cognizant of the fact that “ethics” and “law” are two different
parameters. Moreover, “ethical” and “legal” courses of action in a particular situation is not the
same. The law is set forth in the regulations and statutes that are enacted by the legislative bodies
and administrative entities. For instance, in America, slavery was considered a lawful act.
However, enslaving another person is unethical.
Milton Friedman, an economist, argues that corporate executive responsibility generally
will be to maximize shareholder value while conforming to the basic societal rules, both those in
the ethical customs and law. He adds that the only entities that can have responsibilities are
people. A business cannot have the same (Carroll and Shabana, 2010, 90). The question is
whether corporate executives, within the law, have other responsibilities in their companies apart
from making money. It can be argued that they do not. A survey in many countries found 30 to
80 % of the respondents were in favor of this view. Friedman’s arguments were considered as
consequentialism rather than logical. It implied that unrestricted corporate freedom would be
beneficial to many in the long term. However, Peter Drucker, a business author and consultant,
observed that there are no separate integrities of business, nor is it required (Drucker, 2017). He
implied that the standards of personal morals apply to all situations of activity. In other instances,
he argues that the responsibility of corporates is not to cause harm to the society in which it
operates. Businesses ought to exhibit corporate social responsibility, an umbrella term signifying
that ethical conduct of firms must be guided by codes of responsible citizenship to the
communities in which they operate. This is regardless of the cost associated with profits or any
other company goals.

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Importance of the Code of Ethics and their Role in Modern
Corporations.
In many firms, the code of ethics serves numerous functions. At the level of the
profession, it documents the principles according to which the position can be held to account for
the conduct of the holders of the detailed post (Benn et al. 2014). Furthermore, the society has
relegated control to many corporate bodies. The line of work has a code of ethics put in place to
provide self-regulation to persons working for these companies. Additionally, the code of ethics
provides a practical guide to members of a profession who are experiencing an ethical dilemma
at a given circumstance. Where employees find themselves in a state of moral tension, it is
evident that the code of ethics can help in providing counsel. It also ensures that corporations
provide fair working conditions for their employees. This is important, especially for those who
work with dangerous chemicals and machines. They should not be exploited at the expense of
their safety.
The existence of a code of ethics is useful because it provides the basis of a corporation’s
ethical program that is intended to encourage ethical practices among its members. Some of the
recommended practices include honesty and integrity. Furthermore, any organization may review
its code of ethics by considering individuals that are subjected to it at the grass root levels. Their
inputs and contributions can help ensure that the code achieves its intended purpose by being as
detailed and comprehensive as possible (Leipziger, 2015). Any code of ethics ought to remain
sensitive to changing values. Corporates depending on it for their continued sustenance on public
support are, therefore, mandated to expand their likelihood of maintaining accountability.
The code of ethics is useful especially for professionals in the corporate world because it
can assist them when charged with misconduct or even in litigation. Demonstrated observance of

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the professional code of ethics is deemed to be an indication of the adherence to the principles of
practice, which are consistent with professional rules. Suppose these methods result in harm, the
code-abiding persons will be less likely to be guilty of having committed such wrongdoing.
However, centered on the belief of trust, the public expects that the best professional judgment
will be exercised.
The code of ethics is associated with statutory force. This implies that it can be enforced
via the administration of some degree of disciplinary action. Indeed, the concept of
accountability and self-regulation that have been referred to previously are associated with some
level of control that can be exercised by the corporation itself (Singh, 2011). Due to this nature
of the code, some corporate organizations prefer to avoid these implications linked to the codes
and go for guidelines. The latter associate guidance which has fewer consequences associated
with it. Other entities avoid both codes and directives. Instead, they develop ethical declarations
for their specific companies.
The Role of the Code of Ethics in Modern Day Corporations
Ethics is not about moral or legal responsibility. It has evolved to become organization’s
priority. Business leaders of today have a lot to deal with in the competitive world today. They
have to keep abreast of rapid changes in the technological field, competition from their rivals,
globalization, and the threats and opportunities in the industry. They must also keep tabs on the
vision and mission of their organizations. In the midst of all this complex environment, it
becomes difficult to find room for other top priorities such as ethics. However, for a corporation
to succeed in the current era, it will have to implement a code of ethics that will make the moral
code a priority. A code of ethics is useful in this case.

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Many modern organizations are now alert to the importance of ensuring ethical practices
guide their ways of conducting their operations. Many have their lawyers formulate a corporate
code of ethics programs that help detect and prevent violations of law and moral standards
(Carroll and Buchholtz, 2014). Bearing in mind the sanctions and probation that may befall such
organizations, it is, therefore, prudent to have guiding principles to ensure that corporations are
not found on the wrong side. Such measures emphasize prevention of unwarranted conduct by
increasing observation, control, and imposing penalties to those found in the wrong.
There has been no objection to the necessity of a well-formulated compliance
requirement for major corporations. Employees may be frustrated and frightened. However,
leaders who use the law to guide ethical conducts act so in ignorance of the fundamental
understanding of multifaceted legal issues. Take for instance a company like Samsung, operating
in more than 75 countries. The franchise has its code of ethics that conforms to local laws and
applies a strict global code to its employees. This has enabled the company to become one of the
most successful in the global arena. Primary emphasis on having a code of ethics is that behavior
is channeled towards a suitable direction. The underlying approach is meant to deter unwanted
conduct (De George, 2011). People act rationally when they want to maximize their self-
interests. They, however, act contrary to moral expectations when they want to legitimize their
choices.
Discipline is a fundamental part of any successful corporation. A code of ethics is useful
because it justifies the penalties rendered for infringing on the legitimate norms. However, it may
be counterproductive in some instances and may even cause employees to rebel against the
organization. This happens in cases where the employees were not involved in the process of
development and formulation of the code of ethics. Many people may be skeptical about the code

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of ethics that they view as a compliance program which management uses as a liability
insurance. This conclusion is valid because many of such programs rarely consider the cause of
delinquency.
Modern day corporations embrace the code of ethics as a necessary tool for safeguarding
their reputation (Collins, 2011). Strict adherence to the ethical conduct as stated helps them avoid
bad publication on the media platforms. A perfect example is a challenge posed to the
International Olympic Committee. There is a growing disillusionment with the games that are
characterized by the worst scandals (Hunt, 2011). Athletes are willing to go to the extreme
lengths to win the coveted medals by adopting unfair advantages over other competitors. The
result is that they have faced the wrath of the unforgiving media houses.
Corporations are held to a stouter standard based on veracity. Compliance may be based
on avoiding legal sanctions. However, corporate integrity is rooted in the concept of self-
governance that follows guiding principles such as the code of ethics. Their level of integrity can
be determined based on guidelines that shape their day to day operations (Verhezen, 2010). A
typical integrity strategy comprises of a conception of ethical practices, which is the driving
force of an entity. Furthermore, the code of ethics is used to shape the search for prospects and
the design of operational systems and policy.
Those who oppose such kinds of ethical compliance argue that it is better to leave people
to use their intuitions when faced with stressful situations as opposed to having the procedure
laid down for them. Furthermore, they argue that some of the corporate policies under the banner
of ‘code of ethics’ are entrenched in the utilitarian view that limits the legal ability of a company
(Fassin, 2011, 600). Moreover, they carry public favor by appearing as a good corporate citizen.
Ideally, the corporations may not have problems, but in instances where it occurs, the

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corporation is likely to argue that it occurred because employees failed to follow the code of
ethics. In addition to that, the disconnect may arise between the corporation’s code of ethics and
the sound practices. Whether or not the code is sanctioned by the top management makes it
deceitful. In most cases, it is used as a plain marketing tool. Jones and Parker, writers in the field
of ethics, suggest that what many people read the name of the business code of ethics is a
sentimental common sense or a set of excuses for the failure to be pleasant. They argue that
many codes are procedural manuals that are not cognizant of the real ethical dilemmas that
people in the corporations deal with. The United States of America Department of Commerce
dealing with ethical business practices suggest that the code of ethics is a set of guidelines and
procedure that ethics officers should follow. Other people argue that the code is simply meant for
people to be ethical.
However, according to Richard DeGeorge, a business author, a corporate code of ethics is
and still important because the exercise of developing it in itself is worthwhile. This, he argues,
that it forces a large number of individuals to rethink strategy freshly (Ciullia et al. 2011). Their
mission and obligations, both in groups and as individuals, to their clients, and the society. Once
adopted, the code can be used as a tool that generates continuing discussions and modifications
where deemed necessary (DeGeorge, 2011). In addition to that, the discussions it generates is
likely to inculcate a sense of perspective and responsibility in new employees, the need to have
moral thinking about individual actions, and the significance of developing virtues considered to
be appropriate in various capacities.

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Conclusion
Many modern corporations are aware of the critical need to have a code of ethics under
their cultural fabric, especially in this era where ethics is lacking in many organizations. Many
have developed theirs, but there is still room for improvement. First, organizations must realize
that they are obligated to ensure they are ethical in their practices. No matter how intelligent an
entity may be, it is unacceptable to hurt others for selfish reasons. The code of ethics will find its
place in institutions and corporations that make it a priority by putting in place relational
expectations that work for everyone’s benefit. Organizations should seize the opportunity of
shaping the future by influencing culture via institutionalizing ethical principles. Through the
creation of a value-based culture within corporations, the society is likely to be improved
through the positive influences that are perpetuated outside these corporations.

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