Code of Ethics: Definition, What's Included
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What Is a Code of Ethics?
A code of ethics, also referred to as an ethical code or statement of ethical principles, is a document that sets forth the expectations, standards of practice, and principles of conduct for a business or organization. This type of policy statement details clear penalties for employees or members who violate the code. Absent these sanctions, the code of ethics serves more like a list of expected duties.
A code of ethics sets higher standards of behavior than what is required by law. Ethical behavior is more complex than legal behavior. For example, it is unethical to be dishonest, but it is not illegal to lie except under certain circumstances. Business ethics demand a higher standard of behavior.
The History of the Code of Ethics
The social responsibility movement in the 1960s contributed to the development of business ethics. While the origin of business ethics goes back much further, it was in the 1960s when companies started to embrace social responsibility. The social responsibility movement states that individuals should act in a way that benefits society as a whole rather than simply protecting one's own personal interests. In the 1980s, many governments and corporations began to set forth formalized codes of behavior.
Here is an analysis of 150 of these corporate codes of ethics completed in 1989. This found five key elements that were similar among many of them. These codes of ethics addressed:
- The proper treatment of employees
- How to handle whistleblowers
- Guidelines for inter-employee relationships
- Regulations regarding employees' political contributions and actions
- Instructions for preventing bribery and handling conflicts of interest
How a Code of Ethics is Published
A code of ethics must be a published document, but it can take many forms. The code of ethics might exist in several forms within a single organization with each document tailored to a specific department, such as finance or sales. In some companies, employees are required to sign a document verifying that they have read the code of ethics. This requirement may apply to all employees or only to corporate officers.
The code of ethics may stand alone, or you might find it accompanied by the organization's mission statement, corporate values, and other policies. If you are an investment advisor, the code of ethics must be available if the corporation trades its stock publicly and is regulated by the Securities and Exchange Commission (SEC).
In addition to the code of ethics produced by an individual organization, you will also find codes of ethics which apply to entire industries, such as:
- The National Society of Professional Engineers (NSPE) Code of Ethics for Engineers
- The Institute of Internal Auditors (IIA) Code of Ethics
- The Code of Ethics for the Nutrition and Dietetic Registration Board
- Association for Institutional Research (AIR) Statement of Ethical Principles
- The Code of Ethics and Standards of Practice of the National Association of REALTORS
What's Included in a Code of Ethics?
A code of ethics includes both internal guidelines for ethical behavior and an outward statement of commitments and values as well as guidelines that an individual's behavior can be measured against. The code of ethics should include:
- Introduction: This preamble makes a clear statement about the company's values and commitment to supplying and enforcing an ethical code for conduct. This may appear as a message from the CEO.
- Statement of Company Values: This details the company's mission statement, financial objectives, social aspirations, and professional goals. Here, the organization may refer to other professional standards or standard-setting bodies that it follows, such as the American Medical Association (AMA)'s Code of Medical Ethics, which applies to physicians and dental practitioners.
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Rules of Conduct:
This is the bulk of your code of ethics, outlining all of the rules that employees are expected to follow. It may discuss topics such as:
- Compliance with industry regulations
- Regulations for disclosure and privacy
- Truth in advertising
- Moral values, such as respect, responsibility, fairness, kindness, and trustworthiness
- Involvement and interactions with the community
- Discrimination policies
- Handling of interpersonal relations
- Rules regarding conflicts of interest
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Implementation and Sanctions:
This section details how the code of ethics is enforced and what consequences will occur if the code is violated. This will specify:
- Guidelines for reporting a violation of the code of ethics
- Consequences for code violations
- Handling of employee termination or litigation
- Additional Resources: The code of ethics should conclude with compliance resources that refer to laws, policies, and procedures relevant to this code. You should also provide contact information for your department of ethics or human resource department. These resources will make it easier for employees to understand the code in depth.
How to Implement a Code of Ethics
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A code of ethics is a beneficial document for nearly any type of business that will serve the company well alongside other essential contracts. When drafting a code of ethics, it's important to carefully consider the company's values, goals, and potential challenges. The code of ethics can mitigate many problems by setting forth clear rules and guidelines that employees review upon hiring.
To develop a code of ethics, you should:
- Collaborate with leaders throughout the organization. Set forth clear objectives, values, and regulations that are easily agreed upon.
- Review laws and regulations in your industry. Ensure that your code of ethics adheres to all the latest regulatory developments in your area of business.
- Simplify the language. Avoid legal jargon, so the code of ethics is easily understandable for employees, investors, clients, partners, and anyone else interested in your company.
Here is an article with some common provisions to consider for your code. Once a code of ethics has been reviewed, edited, and approved, it's ready for implementation. This code is only effective when it's disseminated properly throughout the organization. To do this, you must:
- Have the code of ethics endorsed by the Chairman and CEO.
- Circulate the code throughout the company and have employees review and sign as needed.
- Integrate the code into daily business operations.
- Implement procedures for managers and other leaders to review the code with employees regularly.
- Set forth a schedule for corporate management to review and update the code routinely.
- Detail the process of enforcing the code.
- Train all leaders involved in enforcement in the proper way to uphold the code and implement consequences.
The Value of a Code of Ethics
A well-written code of ethics will:
- Provide guidance for the actions of individuals within the organization
- Provide a public statement of values which serves as a form of marketing
- Mitigate risk by outlining the consequences of ethical misconduct
- Establish benchmarks for personal and professional evaluation
- Promote quality standards of practice
A code of ethics is an important document for any well-established business. Drafting and implementing this code early on will help solidify the company's values and morals. Consider having a contract lawyer review your code of ethics prior to publication to ensure that it is clear and easily enforceable.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Faryal A.
Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal problems, as well as filling LLC and other business entity formation documents. To know more about her practice, please visit https://ayublawfirmpllc.com/.
"Faryal has been wonderful to work with! Very fast in reviewing my contract and answered all of my questions."
Briana C.
Legal services cost too much, and are often of low quality. I have devoted my law practice to providing the best work at the most affordable price—in everything from defending small businesses against patent trolls to advising multinational corporations on regulatory compliance to steering couples through a divorce.
"Briana was responsive and quick to put the draft together. It has been a pleasure working with her!"
Tim E.
I am a business attorney focused on providing practical, targeted legal services for small businesses, startups, contractors, consultants, and service providers. I help clients efficiently review, draft, and improve everyday business contracts, including service agreements, NDAs, independent contractor agreements, vendor contracts, commercial leases, and purchase documents. My approach is straightforward: identify the terms that matter, explain risks in plain English, and deliver clear, usable edits or drafts without unnecessary complexity. I regularly handle fixed-fee, quick-turnaround projects such as contract reviews, agreement drafting, and demand or termination letters. While I offer streamlined, project-based services for routine matters, I can also assist with broader business legal needs as they arise.
"Tim was excellent! I gave him project details (liability waiver and rental agreement) and what I needed and he produced the day he said he would with ZERO revisions needed. Highly recommend."
Michael B.
Michael has extensive experience advising companies from start-ups to established publicly-traded companies . He has represented businesses in a wide array of fields IT consulting, software solutions, web design/ development, financial services, SaaS, data storage, and others. Areas of expertise include contract drafting and negotiation, terms of use, business structuring and funding, company and employee policies, general transactional issues as well as licensing and regulatory compliance. His prior experience before entering private practice includes negotiating sales contracts for a Fortune 500 healthcare company, as well as regulatory compliance contracts for a publicly traded dental manufacturer. Mr. Brennan firmly believes that every business deserves a lawyer that is both responsive and dependable, and he strives to provide that type of service to every client.
"I'm a solo developer launching my first app and needed privacy, terms, and disclaimer documents done properly. Mike delivered all three and they were thorough — the disclaimer in particular covers the specific ways an alarm app can fail, which is exactly the risk I needed addressed. What stood out was the follow-through. When I found a typo in one of the paragraphs he'd written, he confirmed the correction the same day and made a point of saying I could reach out again in the future. He was responsive throughout and easy to work with, and he clearly understood what a small software business actually needs rather than handing over boilerplate. If you're a small developer or single-member LLC trying to get your legal documents right before launch, I'd recommend him."
Scott S.
I specialize in business law and contracts, with an emphasis on commercial transactions and negotiations, document drafting and review, employment, business formation, e-commerce, technology, healthcare, privacy, commercial real estate, data security and compliance. Specifically, I've drafted, reviewed and/or negotiated thousands of MSA's, NDA's, TOS', SAAS, sales, service, managed services, referral, reseller, royalty, finder’s fee, employment, contractor, consulting, advertising, marketing, manufacturing, distribution, management, artist, author, agency, photography, rental, lease, vendor, partnership, website, platform, application, privacy, non-compete, non-circumvent, confidentiality, IP ownership and licensing agreements so I'm very familiar with these types of documents. Practicing law since 2006, I worked in-house before starting my own solo practitioner law firm in 2011. I've worked with individuals and start-ups, Fortune 500 companies, and every type of entity in between, always providing quality legal work that fits the exact needs of the person and/or business. I’m a graduate of the Benjamin Cardozo Law School and also have an English degree from Penn.
"Scott helped me reviewed the contracts and saved me from getting into a trap of an outsourced sales services provider from Philippines and Australia"
Robert A.
Robert A.
Robert McMillan Arthur is a collaborative attorney and mediator practicing across Wisconsin, with offices in the Metro Milwaukee area and Northeastern Wisconsin. He is a general practitioner, concentrating in Small Business Law, Entertainment Law, Intellectual Property Law, Nonprofit Law, Divorce and Family Law. Robert’s business law practice focuses on the needs of small, closely-held businesses and startups. As a veteran of a family owned business, Robert applies his extensive experience to advise his clients in a broad spectrum of legal issues, including contracts, licensing, trademark, copyright, employment, and business formation. With multidisciplinary qualifications and experiences, Robert chose his career in law to help people caught up in difficult situations in their personal or professional lives. His core principle of law practice is based on empowering and informing clients, advocating for their interests when appropriate, and guiding them in difficult problem solving.
"Robert helped us with a contract review and addressed all of our concerns. He gave us a thoughtful analysis of the risks we would be accepting upon execution."
March 29, 2024
Charles D.
I have practiced civil law for 13 years and have concentrated my practice serving the construction and real estate industries.
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