Corporate ethics code and how employers assess candidates’ ethics
Very often, even in large public companies and flagships of world business, there are facts of serious fraud, discrimination and other things that, in the common sense, do not meet the requirements of normal behavior. As one of the measures to counteract or reduce the number of such situations, many companies came up with a code of ethics or code of business conduct. It is called differently in different organizations, but in fact the meaning of this document is approximately the same: shareholders and management declare things that are unacceptable for the company and do not correspond to the philosophy of its shareholders.
Is this code really needed in business? Let’s figure it out.
According to a sociological study conducted at the Josephson Institute among university students:
- 60% of students admitted that they cheated, used cheat sheets in exams;
- 61% admitted that they deceived teachers during their studies;
- 81% of students admitted that they deceived their parents (not constantly, but there were cases);
- 34% of students copied works from the Internet;
- 27% were involved in petty shoplifting;
- 21% stole something from their own parents or relatives.
Why are these statistics so important in the corporate world? Because these students become employees of companies after they graduate, and not all of them give up their old habits, especially if their working conditions can facilitate the use of their previous, not very ethical skills to achieve as corporate, and their own personal goals.
What can be wrong with corporate ethics
The drivers of wrong ethics in the workplace are multiple and well known to everyone. It can be setting unrealistic goals and pressure from management to achieve them. For example, an accountant / CFO (and sometimes both) makes up beautiful statements and do not show losses in order to avoid negative consequences from shareholders. It can be greed and theft in uncontrolled environment, when an employee steals from the company, knowing that he/she will not be caught.
This can be the use of your high position to satisfy your own complexes, for example, when a manager humiliates subordinates, talks to them using profanity, knowing that they will not go anywhere to complain anyway and are completely dependent on him or her.
Examples of company losses due to unethical behavior of managers or employees
Here are 2 examples of the loss of company value due to the revealed facts bad ethics of top managers.
- Enron Corp. The largest scandal of a public American corporation, which in 2001 ranked 7th in terms of capitalization among US companies. The reason for the fall in the value of shares and further bankruptcy is the revealed long-term fraud with the corporation’s reporting and the conspiracy with the auditor, who issued an auditor’s opinion without reservations.
- McDonald’s. In 2019, the Company had to disclose information and fire CEO (first person) Mr. Easterbrook for sexual harassment with three employees. The company initiated a lawsuit against him, the essence of which boils down to the fact that he, having the authority to agree on an option program, without any reason, issued options to one of his employees with whom he had a relationship. The loss to shareholders due to the fall in shares as a result of the disclosure of this information was approximately 15% (the shares fell from 220 USD to 189 USD).
- From mid-2011 to mid-2016, Wells Fargo Bank employees opened over 3.5 million fake bank accounts. As the New York Times reported in 2016, “Some clients noticed cheating when they were charged unexpected taxes, received credit or debit cards in the mail that they did not ask for, or heard from debt collectors about accounts they didn’t acknowledge. But most of the fictitious accounts went unnoticed as employees usually closed them shortly after opening.” Ultimately, 5,300 Wells Fargo Bank employees were fired for participating in the fraud. The company suffered large losses and brand damage.
5 common cases of violation of corporate ethics by employees
Here are some typical examples of violations of business and corporate ethics, which are quite common among Eastern and Western companies.
- Doubtful use of the company’s IT infrastructure. It is typical for any office worker to spend part of working time surfing the Internet in no way related to the activities of the company and with his direct responsibilities. From the point of view of business ethics, it is not only the use of company assets (software, computer, Internet access) not in the interests of the company, but also a waste of the employee’s time, which belongs to the company.
- Discrimination based on gender, race, etc. In many large companies, management is typically male dominated. Very often women are not promoted up the corporate ladder just because she is a woman for no other reason.
- Sexual harassment. This is still possible especially in small to medium business. Large companies have mostly eliminated this, but not in all countries and businesses.
- Setting unattainable goals. The head of the department sets targets that are unattainable in advance by legitimate means, knowing about it. His subordinates try to achieve them by any means. At the same time, the manager himself turns a blind eye to some of the ways to achieve goals. In this case, there is a violation of ethics on the part of subordinates, but to a greater extent – on the part of the manager.
- Inclination to a violation on the part of a manager. A typical situation: a group of employees goes on a business trip and spends it in restaurants. And manager asks the team to include all receipts in the advance financial report, including receipts for alcohol and other unacceptable expenses, hiding the details if possible. Subordinates are aware that most of the costs are non-reimbursable in accordance with the company’s procedures. In this case, a violation of the code of ethics by the manager is obvious.
What a code of ethics usually contains
There are no regulated sections or topics that must be present in this document. In fact, this is a broadcast of the opinion of shareholders and management, what they consider acceptable and unacceptable in the company and how this is linked to their business philosophy, strategy and goals.
Usually, ethics code of most companies includes the following questions:
- Conflicts of interest / theft;
- Environmental issues;
- Interaction with partners and competitors;
- Discrimination issues on various grounds;
- Information disclosure;
- Industrial safety and labor protection;
- Availability of information for third parties (for example, mandatory informing of partners and contractors in the contract about the unacceptability of a number of issues).
How employers assess candidates’ ethics
The primary task for most large companies is to find employees that already possess required ethics qualities. So, proper candidate’s assessment tools are vital. Large employers use a number of proven pre-employment tools and techniques to assess candidate’s ethics. The primary are:
- situational judgement tests;
- personality questionnaires;
- motivation questionnaires.
Situational judgement tests represent a short case scenario, usually demonstrating some problematic situation that can take place in your job place. Your task is to choose one of 5-6 answer options. Each answer option can show you from different side and clearly demonstrate your ethics. See below an example of a situation judgement test of this type:
You can see the correct answer below but please first try to choose the correct answer by yourself to test your ability and ethics.
Personality and motivation questionnaires represent a number of questions (up to 200) with 4 statements like “I never steal from my work place”. You are to choose which of the 4 statements you agree and disagree with. It can seem easy to disagree with such statement and make the right choice. But in fact, such questionnaires are designed to provoke a first, hasty answer from you. And this way you still can easily make a wrong choice of answer options. In general, personality tests of all types are quite tricky and if you have never seen them before you may face difficulties at the real test. Personality tests and questionnaires are common for any positions in sales, marketing, customer support and for any managerial jobs.
Read more about situation judgement tests and personality tests in our articles: