Calls for FTSE 350 companies to enhance their Codes of Ethics: 5 key recommendations

The Institute of Business Ethics (IBE) recently published a research report assessing the codes of ethics of the FTSE 350 (the Report).

The Report provides a useful summary of good practice in relation to a code of ethics, including:

1. focusing on a values-based approach;
2. ensuring the code is user-friendly;
3. publishing the code;
4. explaining how concerns can be raised (and committing to non-retaliation); and
5. refreshing the code periodically.

We have set out below the Report’s findings in relation to each element of this framework (as well as our recommendations).

1. Focusing on a values-based approach

The Report identified a positive shift towards a values-led approach, in which employees are guided to consider the values of the company when faced with difficult decisions, rather than seeking in each case to apply a rule.

This approach is in line with the 2022 Values Added Report published by Transparency International, which recommended a model in which employees are empowered to navigate grey ethical areas by reference to corporate values and culture. Our blog summarising the broader shift towards values-based compliance programmes be found here.

We strongly recommend a values-based approach: a code of conduct cannot legislate for every eventuality; what’s important is communicating the company’s approach to ethical issues and ensuring that issues are identified and escalated.

2. User-friendliness

The Report recommends that a code of ethics should be accessible and easy to navigate (and the IBE found that many companies had improved the user-friendliness of their codes and made them more accessible).

In our experience this is a real positive: it is far better to have a code of conduct that employees can understand and apply, rather than seeking to be exhaustive.

3. Publishing the code

The Report notes that while 90% of the FTSE 100 publish their code, the figure is much lower for FTSE 350 companies (around 50%). The Report highlights the benefit of companies publishing their codes of ethics, in order to engage all stakeholders, including investors and counterparties and communicate both internally and externally that the company is taking its ethical responsibilities seriously.

4. Speak up and non-retaliation commitment

The Report notes that while most codes refer to a “speak up” process, within the FTSE 100 only 50% of companies explicitly commit to non-retaliation for individuals raising concerns.

The Report recommends the inclusion of an explicit commitment of non-retaliation in order to promote a speak-up culture and ultimately reinforce the values of the company. In our view, this is crucial: the most effective compliance programmes encourage individuals to raise issues in order that they can be dealt with (and any necessary broader remediation can take place).

5. Refresh the code periodically

A key takeaway from the Report is that codes of ethics which have been refreshed within the last three years were more likely to be judged effective.

This tallies with our experience: a company’s ethical risks change as it evolves and as new ethical issues come to the fore (for example ESG). Regularly refreshing the report also helps to emphasise to employees and business partners the importance placed by the company on ethics.