The examination of codes is a way to glimpse into the ethics and compliance programmes of publicly traded companies. Much of the information about these programs is often kept away from public viewing and, in turn, public scrutiny. But the code of conduct is often readily available to the public and touches on many aspects of the compliance systems.
The quality of the code of conduct can be telling about how much effort and resources are put into a document that is supposed to unify and bond the company with consistent ethical standards. If the employee code of conduct hasn’t been updated in 10 or more years, it can be assumed that the code is not a high priority on the company’s to-do list. Conversely, a recently updated code that is comprehensive and user-friendly can become a shining cornerstone for the ethics and compliance programs. External audiences care about the code as well. Government regulators look at the company’s code of conduct when there are allegations of misconduct. Investors, watchdog groups and NGOs all have the ability and motivation to look at a company’s code of conduct.
However, it should be noted that the code is just one element of a much larger system and a good code does not mean the compliance programmes overall is in good shape; and the inverse is also true. An examination of the code is a peek into one of few public aspects of the larger compliance program.
Out of the 100 companies that were examined from the FTSE, only 69 codes could be found. Only publicly available information was used to obtain the codes and companies were not directly contacted to request the code if one was not found. Therefore, regardless of the quality of the codes examined, a special commendation should be given to all of the 69 companies that were brave enough to post their code on the public website.
The overall score for the 72 codes examined is 57.66 on a zero to 100 scale or a C+ on the A+ to F scale. The score were above the average benchmark for all codes in The Red Flag Group’s database.
This average scoring represents a better than average score overall but considering the codes are from some very large, global companies, the scores could have been much higher. It could be thought that the companies have the resources and inclination to construct very comprehensive, user-friendly and slick looking codes of conduct.
Generally, most codes, 62 percent, were easily found in a logical place on the website and in a PDF format nearly 90 percent of the time. However, over three-quarters of the codes, 78 percent were available in English only. It would be recommended to have the code available as many languages publicly as makes sense for a global company. While English could be the primary language of operations for most of these companies, it is a good idea to have the code in multiple languages to appeal to a wide audience. It could be the case that these codes are available in multiple languages on the internal network only. But why not post those on the public website as well?
Tone from the top
A good showing for the FTSE codes as 71 percent of codes had a message from a senior executive included with the code. This is a very strong area for the FTSE codes as typically only a third of the codes that have been reviewed have a letter of introduction from a senior executive. The opening letter from the senior executive lets readers know that the code is a document of importance and one that should be taken seriously. Ideally, the letter should come from the senior most member of the company such as a president, CEO or chairperson of the board.
Understanding the Code
Most of the codes on the FTSE 100 were shorter than they should have been. The recommended range is generally 8,000 to 10,000 words for a best practices code. Twenty-one percent of codes were longer than recommended range which is atypical of The Red Flag Group’s benchmarks. Typically less than 10 percent of codes reviewed will exceed 8,000 words. Only ten percent of the codes were in this ideal range:
Similarly, the FTSE codes were larger written in a style and tone that was more complex and authoritative than necessary. Twenty-four percent of codes reviewed were in the best practice readability range of the junior or senior in high school. This is actually far better than the average for the overall database which is around 10 percent. This simplistic writing style represents one of the big strengths for the FTSE codes reviewed.
The coverage of risk topics in the FTSE 100 codes examined was better than the average scores for the entire Red Flag Group code database. As indicated in the table, most key topics were covered universally in around two-thirds of the codes. The major exception was with three topics: expectations of managers, intellectual property of others and social media. Social media is still an emerging topic that is rapidly being added to codes and it is often not a part of codes that haven’t been updated in the past 2-3 years. Similarly, covering the additional expectations of managers is a commonly omitted topic. Topics such as harassment, workplace safety and insider trading were near the bottom of the list of frequency of coverage which is surprising given the legal and personal ramifications for non-compliance.
The inclusion of comprehension aids in the code is a recommended best practice and is readily becoming a standard practice for codes in past four years. Comprehension aids can be a narrative scenario, a list of do’s and don’ts, case studies or similar devices to help readers understand the content of the code. On average, only 15 percent of codes in existence today have these comprehension aids. In the FTSE 100 codes examined, 37 percent of codes had some form of learning aids. This represents another major strength of the FTSE 100 codes.
The reporting avenues listed in the FTSE 100 codes are similar to those of the overall RFG database with three major exceptions: phone hotline, website hotline and fax.
The increase in frequency of the phone and website hotlines is an improvement against the overall database. The phone and website reporting avenues are typically more popular than other avenues due to the ability to remain anonymous, their global reach and overall convenience/ease of use. As for faxing in a report of misconduct, the decline in popularity fax machine usage in all business dealing could be a contributing factor. Lastly, although only one code (Marks and Spencer) included the avenue of text message to make a report, it is suspected that this avenue will grow slowly in popularity, especially with younger workforces. Creating new reporting avenues that people will actually use is something that other companies should work on to increase the likelihood of learning about misconduct issues.
Strengths and weaknesses
The biggest strengths of the codes that were reviewed are the visibility of the senior executives via a letter of introduction, simple writing style and common use of comprehension aids. These areas represent the aspects of the code that stood apart as above the average benchmark for the FTSE 100 against the RFG database standards.
The biggest areas of improvement would be accessibility and look and feel of the codes. The accessibility can be one of (if not the most) easiest areas to improve. The changes made to making the document accessible can be as simple as placing a link on a website. A key aspect of improvement would be to have the codes available in more languages besides English when needed. More work and time is certainly required for a code to be translated and localised if one does not currently exist. If a code is translated into another language it should be on the website right alongside the English version.
The look and the feel of the code could improve primarily with the use of company branded images. These images of offices, equipment, products and global locations can make the code a much more visually appealing document. It can also increase the likelihood that readers will approach the code with an open mind and remember the contents months after the first reading. If a code just looks like a standard contract, it can give a foreboding feeling to employees about the contents that are to follow.
The codes from the FTSE 100 measured up quite well when compared to similar benchmarking done by The Red Flag Group in the past. Previously code benchmarking projects have been completed for large, multinational German, French and Swiss companies?
With only the exceptions of accessibility and look and feel, the codes from the FTSE were top scorers when compared to other average scores from other European countries’ codes. A number of factors outside of the quality of codes could be contributing to the high scores. It was much easier to locate the codes of the FTSE 100 than for the other European countries. Of the 100 companies on the FTSE 100, 69 percent were able to be located. For many of the other countries the rate of finding a code would be closer to 25 or 30 percent. Although the scores in the accessibility section are much lower on average than the other countries this score does not take into account the overall availability of code but rather an average score of how easy the codes were to find on the website, additional languages and format of the code. Similarly, the scores for look and feel were at the bottom of the benchmarking group. The codes from the FTSE 100 were not as well branded to their respective companies as other European counterparts.
While the codes for the FTSE 100 companies were at the top of the benchmarking group, the overall score of 57.66 (out of 100) or a C+ overall leave much room for improvement.