Companies have changed the way they do business in Brazil. In the following article, Compliance Insider® examines 25 codes of conduct from some of the largest and most profitable companies in Brazil in order to understand their strengths and weaknesses.
A code of conduct is often viewed as the heartbeat of a company’s ethics and compliance programme. It touches on many different aspects of a company, such as its core values, the responsibilities of executive leadership, the reporting of misconduct, and the content of dozens of other policies. In this sense, a code can act as the hub for many other parts of a compliance programme.
For this study, 25 codes from the Bovespa Index (IBOVESPA) were scored with The Red Flag Group’s proprietary methodology. The companies featured in the IBOVESPA represent some of the largest, in terms of market capitalisation and trading traffic, on the São Paulo stock exchange, the BM&FBOVESPA. All codes were gathered in mid-July 2014 via the companies’ respective websites.
As not all company codes from the IBOVESPA have been examined, it is not possible (nor desirable) to make any blanket characterisations of Brazilian codes. All codes, too, had to be available in English.
The scoring methodology takes into account seven distinct aspects of each code, namely:
- leadership, visibility and values
- understanding the code
- risk topics
- non-retaliation and reporting
- comprehension aids
- look and feel.
Each section was scored on a scale from 0 to 100, with the average scores below.
The combined average of 54.86 is not overly impressive as the codes emanate from some of the largest companies in Brazil.
The study uncovered a number of significant trends for the examined codes – some strengths and some weaknesses.
Over a third (36 percent) of the codes studied had a letter of introduction from a senior executive that summarised the importance and function of the code within the company. This is in line with best practice as it shows that the code is a document of importance and one that needs to be taken seriously. As the letter typically introduces the code and will be the first item that readers will likely see, it is also a great opportunity to start the code off in a positive tone. However, the quality of the opening letters varied greatly. Frequently, the letter was not personalised to the company and failed to mention important information such the need to speak up and the promise of protection against retaliation. So, while a letter of introduction is an overall strength, some more work needs to be done here.
An additional strength was the frequency in which a company’s corporate values were mentioned, as well as references to stakeholders. Approximately 80 percent of the codes had, at a minimum, a clear section that stated the core values and commitment to stakeholders. Even more encouraging is that nearly a third of companies studied (32 percent) actually structured the content of their code around values or stakeholder groups. By utilising a stakeholder-based or value-based structure, companies are able to emphasise these commitments throughout the entire code, instead of relegating values to just one area of the code.
Another strength worthy of mention is the use of company-branded images and photographs of products, equipment, facilities and people. Some 36 percent of codes used images of their own products, property and people to make the code more visually appealing and accessible. While the presentation of a code can sometimes be an afterthought for some companies, it remains an important consideration and should not be underestimated. A well-designed document is more likely to be read and digested by employees than one that is not. On the other hand, nearly half of the codes studied (48 percent) did not have any sort of images or photographs in them whatsoever.
The codes studied were generally not sufficiently comprehensive. For example, approximately 68 percent of the codes were less than 5000 words in length – much shorter than the typical and recommended length of between 8000 to 10,000 words. While a shorter code may take less time to read and construct, it is likely that vital information on important topics will be omitted and readers will be left with unanswered questions.
Similarly, the studied codes were often too complex and had a negative or authoritative tone. Most of the codes were written at the reading level of someone with at least some college education. The recommendation, however, is to have a code written at high-school level, so that all employees can fully understand the content.
Another concern was that the codes did not sufficiently cover all of the risk topics that should be in a code. While some crucial elements (such as conflicts of interest, confidential information and discrimination) were covered in the majority of codes, other important topics were not covered in many (such as anti-competition laws, political contributions and workplace safety).
Furthermore, even if topics were covered, very often the coverage was too cursory and more information should have been provided. While some coverage of topics is better than none, additional details would have provided readers with a clearer picture of proper and impermissible actions.
While the findings of the study point to the need for general improvements with the examined codes, the same can be said for company codes in other parts of the world, with studies of codes from large German, Swiss, French and United Kingdom–based companies all producing similar results.
It remains important to remember that a company’s code is also part of a much larger system. Even the best-written and best-designed code becomes meaningless if nobody reads it or it is not enforced. Training on the code is vital in order to make employees aware of its content and how they can apply it in their everyday working lives. Avenues to make reports need be in place and frequently communicated to employees so that they know where to go when faced with a difficult situation. In short, after a code is brought in line with best practice, it must be properly utilised.