European codes of conduct

June 3, 2014

Introduction

Each country has its own set of standards for ethics and compliance. While laws may not differ drastically from one country to the next, there can be important differences to consider when writing a code of conduct. Cultural and legal differences can affect the topics covered, writing style, length and design of a code for a particular community.

A company’s code of conduct is the cornerstone of their ethics and compliance programme. A code that is attentively crafted and thoughtfully written is beneficial to the company and its employees, consumers, shareholders and communities. Codes are an invaluable resource for employees who are facing ethical dilemmas or considering making a report about misconduct.

The best practices for codes are evolving. Companies that have never had a code are drafting them for the first time. Likewise, companies that have not examined their codes in many years are beginning to make changes to bring them in line with current laws and best practices.

New legal guidelines are frequently introduced, and these directly impact the content of codes. In Europe, more than in other countries, there has been a focus on privacy; this is reflected in the documents and mechanisms that influence codes. Companies that are located in European-Union countries must follow strict guidelines regarding data privacy and reporting.

The purpose of this study is to assess the current landscape of the codes of conduct in some European countries. For this study, fifty codes each were examined from France, Germany and Switzerland. In looking at the 150 codes that made up this study, there was a wide range of individual scores; however, the country averages were very close. Each of the three countries examined had examples of good and not-so-good codes.

 

There are some companies which obviously put a great deal of effort, time and resources into creating suitable codes, but other companies’ codes were lacking key information and were difficult to comprehend. As the companies used for this study represent some of the largest and most respectable companies in France, Germany and Switzerland, it should be anticipated that their codes would be amongst the best in Europe. Therefore, the overall score of C+ is disappointing.

The companies with the top-scoring codes did a number of things consistently well, such as having clear explanations of risk topics, unambiguous avenues to make reports and well-thought-out designs. More characteristics of great codes include personalised letters of introduction from senior executives which set tone from the top, and narrative-style comprehension aids. It’s not surprising that three out of the six top-scoring codes belong to leading pharmaceutical companies, while another two come from media and beauty companies. While regulatory and compliance pressures undoubtedly help create strong compliance programmes (and, with them, robust codes of conduct), it often takes marketing savvy to ensure that the messages within are communicated effectively.

On the contrary, there were other areas where the codes consistently underperformed. The lowest-scoring areas were comprehension aids, reporting and non-retaliation, and leadership visibility. Many codes did not have any comprehension aids in them at all and therefore received a score of zero, making the average score for this section the lowest of the assessment criteria by far. The next-lowest-scoring area on average was reporting and non-retaliation. Many codes did not list enough avenues to make reports nor contain any language about non-retaliation. Lastly, many codes did not have any visibility from a senior-level executive. It is best practice to have a letter of introduction to the code from a senior member of the company, such as a CEO, president or chairperson of the board; however, many codes omitted this letter, missing the opportunity to establish tone from the top.

 

Hallmarks of best-practice codes

Accessibility

A code should be easy to find. It should be placed on a public website, available for anyone to view. Typically the codes reviewed were placed on the corporate governance pages of their companies’ websites, or in other logical areas, such as on “About us”, “Values” or “Sustainability” pages. Translated versions of the code, if necessary, should also be available on the company’s website, and most companies did make translated versions available. The most practical and common format for a code of conduct is PDF. This format makes viewing the code offline possible and enables readers to easily print a hard copy. The vast majority of codes (97 percent) were available in PDF format. The three countries analysed all performed similarly in making their codes available to the public.

Leadership visibility and values

Codes of conduct should contain some language from a senior executive in order to set tone from the top. Typically, the communication should come from the CEO, president, chairperson of the board or another executive in charge of ethics and compliance (such as a chief ethics and compliance officer or general counsel). Nearly two-thirds of the codes studied (64 percent) had a letter of introduction from an executive.

Another important aspect is the coverage of values and stakeholder commitments. Some codes only briefly mentioned commitments to stakeholder groups or broad corporate values. Other codes were entirely structured around these different values or groups.

To be in line with best practices, a code should be fully structured around stakeholder groups or values to keep the theme of commitments and values running throughout the entire document. Only 16 percent of the codes reviewed utilised a partial or full stakeholder or value-based structure. Most codes (69 percent) contained brief sections about values or stakeholder commitments at the very least. French codes were the top performers in terms of discussing values and stakeholders.

 

Understanding the code

A code should be concise and written in a tone and at a grade level that is easily understood by employees. A code that is in line with best practices is typically between 8000 to 10,000 words in length. Given the wide-ranging nature of codes, the content may be intentionally generalised or presented in a simple manner so as to not overburden the readers with overly complex information. However, a code that is in line with best practices achieves a fine balance of being general in nature but still providing adequate practical guidance.

Nearly all of the codes examined were shorter than the recommended best-practice range. Many of the shorter codes struggled to convey adequate practical guidance. Few of the codes studied were in the recommended word-count range, and only a very small number exceeded the recommended word count. Generally, Swiss codes were much shorter in length than French and German codes.

A code should also be written in a tone and at a grade level that an average employee can easily understand and relate to. Unless the majority of the company’s employees hold PhDs, a code should aim for a readability score of between grades ten and 12 (essentially a high-school level). A complex code risks alienating its readers and can be much more difficult and expensive to translate than a simple and concise document. The majority of codes studied were higher than the recommended grade-level range. German codes were typically written in a simpler, easier-to-understand manner.

 

Risk topics

One of the most important goals of a code is to set consistent standards and expectations for behaviours and provide guidance to those employees facing an ethical dilemma. High-level codes should address nearly two dozen risk topics and reference the related policies so that employees can obtain more detailed information if they need to. By covering complex topics in depth in the related policies and providing only summaries in the code, code writers can leave many details out and increase readability.

Few companies addressed export and import compliance, including trade sanctions and anti-boycott restrictions, although German and Swiss codes performed significantly better than French codes. Almost half of the codes did not address harassment (with little variation between the countries) – a staple topic in American codes. Surprisingly, more than half of the codes did not address privacy and data protection, with German codes scoring somewhat better than Swiss and French codes. Given the guidelines of European data privacy laws, data privacy should be addressed often in European codes of conduct. An extremely small minority of the codes addressed social media (with little variation between countries), perhaps due to greater employee protection in Europe and the variation of approaches to social media in different European-Union countries. It is highly recommended and best practice to cover expectations for managers and their special responsibilities, yet less than half of the codes addressed this (although German codes did lead the trend).

 

Reporting and non-retaliation

Containing information in codes about raising concerns transforms those codes into documents of action. The phone numbers, websites, addresses and other avenues provided to express concerns make codes actionable documents by alerting companies to possible misconduct. These reporting avenues can provide good returns on investment for preventing larger problems, as any company would prefer to deal with problems internally rather than learn about them from the front page of a newspaper or from a dawn raid. Using clear and direct language several times throughout the code (starting with the CEO message) encourages employees to speak up and report their concerns without fear of retribution. This is not only a best practice, it is good for business.

It is recommended that codes list at least three avenues for making reports. These three avenues usually include a phone number, a website and a postal address, with at least one method being explicitly anonymous (where permitted by law). These avenues should be clearly visible, easy to find and mentioned more than once throughout a code.

Codes should also include language about non-retaliation to reassure employees who may be hesitant to report due to the potential consequences for themselves. Most codes (71 percent) had some language about non-retaliation, increasing the likelihood that employees within those companies would speak up about unethical or unsafe working conditions. Non-retaliation should be presented in the code in a dedicated section with a clear heading so that the section stands out to those readers who are only skimming the code. More than a quarter of codes (29 percent) contained no language about non-retaliation.

Overall, the area of non-retaliation and reporting is not a strong area for European codes. Most codes did not list sufficient reporting avenues nor devote enough language to the topic of non-retaliation and whistleblower protection.

 

Comprehension aids

It is best practice to have a number of real-world examples, primarily via question-and-answer sections, placed in codes. These scenarios put the rules into practical application and help make the codes relevant to the situations where readers could find themselves. Unfortunately only 15 percent of the codes reviewed had any sort of learning aids, and many of those were only very basic. There was little variation between the countries, though France did perform slightly better.

It is recommended that codes contain approximately one dozen useful and practical examples, in question-and-answer style and/or in other formats. These real-world examples are an excellent way of putting the code into practical application and assisting the reader to comprehend tricky or ambiguous topics.

 

Look and feel

The saying goes “Don’t judge a book by its cover”, but people are often quick to render judgement on a first impression. If readers are presented with a code which is a black-and-white document which resembles a contract they will assume that it is complicated or boring. Best-practice codes have colours and photographs which properly reflect their companies’ brands.

Overall, most companies did reasonably well in this section as most codes had some elements of layout and design. However, only nine percent of the total codes reviewed had any sort of company branding, and 14 percent were text-only. Germany clearly stood out over France and Switzerland in this area, as German codes more frequently used company-branded images. Swiss codes were the lowest scoring on average, with the highest percentage of codes that were devoid of even basic design elements.

 

Top two codes from each country

It is important to highlight the standout companies from each of the countries reviewed as a way to provide a positive example for other companies to follow. The following codes represent the top scoring codes for each country.

Germany

1 – Merck

Many of the elements of best-practice codes are contained in Merck’s code. There is a personalised letter of introduction from Merck’s chairman that discusses the history of the code and the great strides the company has made since it was first introduced in 1999. Reporting avenues are clearly listed and prominently featured in the opening pages of the document, and the code contains narrative-style comprehension aids which help put it into practical application for readers. Non-retaliation is also mentioned early on in the code. Risk topics are covered in appropriate depth and there are many references to other policies. Overall, the code is very good and was the top performing overall of the 150 codes studied.

2 – Axel Springer

The design of Axel Springer’s code is fantastic. It uses a very innovative map design, where there are islands, oceans and mountains labelled “Compliance” and “Behavior within the Company” etc., with towns and rivers such as “Integrity”, “Conflict of Interest” and “Health Protection”. This visual approach is appealing and makes readers want to advance through the code to find the next portion of the ethics map. The code also covers the applicable industry-specific risk topics as the company is heavily involved in the business of news and public information. Information is clearly presented so employees can quickly navigate to the different topics in the code. There are also myriad contact persons and reporting avenues clearly listed for employees if they happen to be faced with an ethical dilemma.

France

1 – Sanofi

Sanofi’s code includes a fantastic opening letter from the company’s CEO that is well personalised to the work that the company is doing. The interesting letter explains why the code is an important document that contributes to the company’s success. The code is easy to understand and goes into appropriate depth when discussing topics. Of the codes examined, Sanofi’s was one of only a few that was within the recommended word range. Risk topics are extremely well covered in the code, and it adequately covers the extra risk topics specific to pharmaceutical companies, such as dealing with healthcare professionals and promotional activities. Many other companies often omitted essential topics, such as responsible social media or expectations of managers, but these are present in Sanofi’s code of conduct.

2 – L'Oréal

L’Oréal’s code contains multiple learning aids which put the code’s rules and guidance into practical application. There is also a letter of introduction from the chairman and CEO which discusses the history of the code and its importance to the company’s future. The code is also endorsed by the management team (which consists of more than a dozen executives) via a second letter. This second letter demonstrates the very wide scope of endorsement from the company’s top leadership. There are some images in the code of the company’s products and employees, but more visual elements could be added, such as the recognisable products that are made by the company. As L’Oréal is a well-recognised brand it would make sense to feature its products in its code.

Switzerland

1 – Axpo

The main strength of Axpo’s code is its completeness. There is good coverage of all of the key risk topics for employees, and it also covers the specific topics that are important for the work that the company is doing. The behaviours that are expected of employees are clearly explained in the code and clear guidelines are provided. The code lists a variety of ways for employees to speak up, including a hotline, email, fax, postal addresses and contact information for specific members of the compliance team. This multitude of avenues to make reports can only increase the likelihood that a report will be made or a question will be asked. The business principles are simply laid out at the start of the code, and there is a sincere letter of introduction to the code from the leadership team.

2 – Roche

The two major highlights of Roche’s code are comprehension aids and the coverage of risk topics. As risk topics are such an important part of a code of conduct, the top codes had to score well in this area. Roche’s code earns high marks for risk topics due to the fact that nearly every expected area is well covered in the code. There are references to documents, policies or training programmes that employees can access to learn more about a topic on almost every page of the code. Many other top codes utilised these same types of references, but the references in Roche’s code go much deeper. By utilising these extended references to other materials, the code becomes a hub for the ethics and compliance programme. The comprehension aids used in the code are in a question-and-answer format, which is in line with best practices. Using this style makes the code more participatory and engaging for readers.

Conclusion

Overall the codes reviewed for this study were generally mediocre, averaging a score of just C+. Germany had the best codes on average, with France coming in second and Switzerland a close third place.

While each country had some exceptional codes that were closely in line with best practices, the majority of codes could use significant improvements. The areas that could use the most improvement are comprehension aids, non-retaliation and reporting, and leadership visibility and values, with these three areas having the lowest average scores for the examined codes.

The area in need of the most improvement is comprehension aids. The score for this topic was so low due to the fact that the vast majority of codes did not have any comprehension aids at all, resulting in a zero score for those companies for that section. It is recommended that companies start to include comprehension aids in their codes to make them more relatable, interactive and interesting.

Non-retaliation and reporting is another area where significant improvements need to be made. Some of the improvements include simple fixes, such as listing a phone number, website or postal address for readers to make reports or ask questions. Employees must be able to know where to go when faced with potential misconduct, and they must feel comfortable to make a report. Every code should mention that employees who make good-faith reports will be protected from acts of retaliation.

The final area in which codes could significantly improve is in the area of leadership and values. In today’s code landscape, top companies are realising the importance of having a letter of introduction to the code from a senior executive to set appropriate tone from the top; however, many companies are still not including this in their codes. Certain areas of improvement, such as the addition of comprehension aids, rewriting the code in a more simplistic tone or redesigning the code, could take weeks or months to accomplish. A one-page letter can be added to a code in a matter of days and has a number of benefits. This improvement could provide the biggest increase in overall score with the least amount of effort.

While a few codes in this study are close to meeting best practices, most are not. However, standards will continue to evolve and companies must regularly update their codes in accordance with developing trends to make sure their code is in line with legal standards and best practices.

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