How Big Does a Company Have to Be to Require a Code of Conduct?


Being in the tech industry, I’ve spent time in and around start-ups and of course I’ve worked for well-established companies as well. So I have firsthand knowledge of how organizations can evolve as they grow, both from a culture standpoint as well as an operational standpoint. In other words, when you’re small, you’d be surprised which functions you really need and which you don’t. If you’re small enough, believe it or not, you really don’t need an HR department. But at some point in the growth cycle, you do. In the early days, you need some people to write code, some people to start selling and someone to write the checks. But when the growth happens (hopefully), you really have to start paying attention to things like governance, ethics and compliance (sound familiar?).

I stumbled across this great article and infographic based on new research from the Association of Accounting Technicians (AAT), a UK-based accounting organization. Their research shows that the bigger the business, the less likely that business owners trust their employees to act ethically.

Are you surprised to learn that only 37% of large organizations trust their staff to do the right thing compared to 66% of microbusinesses (less than 10 employees)?                     Code of conduct training, code of ethics training for businesses

Infographic source: AAT

The AAT report shows that as a company grows in number of employees, it is more likely to have a formal code of conduct as well as a member of staff dedicated to ethical behavior. Nearly two thirds of microbusinesses do not have someone looking after ethical behavior and one third do not have a code.

This begs the question, how big does a company have to be to have a code of conduct or a code of ethics? Certainly here in the US we know that public companies, regardless of size, must have a published code of conduct, but what about the mom-and-pop shop down the street with 5 employees? Owners of microbusinesses may feel a code is not necessary because since they have so few employees, they have a small risk and therefore do not need to outline or establish the guidelines of behavior they expect.

However, the report also pointed out that 37% of microbusinesses do not “consider the ethical conduct of suppliers before agreeing to work with them,” which is much scarier.

And if they are not considering their suppliers’ ethical conduct they are certainly not offering third party code of ethics training. This report comes from a UK organization so presumably even microbusinesses in that region are familiar with the UK Bribery Act, which is one of the world’s toughest anti-corruption laws. The guidance that the Ministry of Justice issued explicitly points out third party risks; the guidance also suggests using tools like ethical questionnaires to assess the risks of third parties prior to actually doing business with them.

It seems I’m not alone in this thinking. Commenting on the research, Adam Harper, Director of Professional Development of AAT said: “It’s important for microbusinesses and small businesses to examine their supply chains and to ensure that the people they are doing business with also act ethically to protect brand reputation but also to ensure fair play within industry sectors. A business supply chain is as much a reflection on their organization as their employees are.

It is interesting to point out, as the article does, that the ethics of a small organization are very heavily influenced by the owner or manager, even more so than in a larger organization. “Tone from the top” can take on a whole new meaning in a microbusiness. Given that, these business owners should not ignore the advantages to having a formal ethics policy in place. Obviously, just like for larger enterprises, a policy reinforces the values and principles that are part of the culture and shows employees that the company is committed to ethical decision-making. Secondly, the policy will provide guidance and support to employees on how they are expected to behave and what they should do if they witness non-compliant behavior.

Having a formal policy is necessary, but it does not eliminate the need for a code of conduct for microbusinesses. I would argue that a code of ethics is a great vehicle to ensure that the tone from the top is articulated clearly and appropriately for employees, even if there aren’t very many of them. Further, a short, interactive code of ethics training course will help drive home the company values and be yet another vehicle by which microbusiness owners can build ethical awareness with their employee base. Microbusinesses should also establish clear ethical business standards with their suppliers. Implementing a supplier code of ethics and rolling it out for the vendors in their supply chain will help mitigate the risk of non-compliant behavior coming back to haunt them.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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