2021 TRANSPARENCY ANALYSIS: CODES OF CONDUCT

JULY 2021

2021 TRANSPARENCY ANALYSIS:

CODES OF CONDUCT

INTRODUCTIONEvery successful organization knows its purpose and values. Those ideals usually are reflected in a Code of Conduct. The Code’s purpose is to influence behavior and guide employees on how to follow the organization’s principles throughout their daily activities.

For that reason, the Code must reach everyone in the organization—at all levels, across all business units, and sometimes spanning the globe. So how does a company cater to diverse readership? One thing is certain: the Code must offer a clear window into the organization’s expectations by outlining acceptable behaviors and providing options for asking questions and voicing concerns.

2021 TRANSPARENCY ANALYSIS CODES OF CONDUCT 3

METhOdOlOgy

METHODOLOGYWe studied 250 Codes published by companies in the S&P 250. The S&P 250 list was created on January 2, 2021, and the data was collected between May 3 and May 28, 2021. Our analysis starts with the idea that transparent disclosure influences reader behaviors and can inspire positive feedback. We look at over 30 unique features, from details like the document’s name to more specific items, like whether a company includes a decision-making graphic.

ANALYSISA Code can be full of great information, but if it isn’t easy to access or understand, employees will not refer to it when questions arise. For a Code that employees can easily navigate, read, and utilize, companies should focus on writing clearly and ensuring that content is organized and thoughtfully laid out on the page. During our analysis we learned that there is no standard when it comes to Codes. For example, we saw a vast array of titles, but the majority (79%) of companies named the document Code of (Business) Conduct. Similarly, keeping the document relevant, especially in this rapidly changing business environment, is critical. But of the 190 (76%) companies that date their Code, only forty had updated their Code in 2021. Another seventy-nine companies updated their Code in 2020.


ANAlySIS

Availability

249companies provided a copy of the Code on the IR website

96%of companies provide

a version in PDF format

The Code should be readily available to anyone who would like to find it. The easiest, and most likely, way someone would search is by typing “code of ethics [company name]” or “code of conduct [company name]” in a major search engine. We found that such a search would lead to the desired document (within the top three results) for ninety-seven percent of companies. Every company, except Fastenal, provided a copy of the Code on their Investor Relations website. Fastenal required the reader to email or mail a request to the company’s EVP of HR.


ANAlySIS

Usability

84%are written in first

person (you, I)

82%include a table of contents

33average number of pages

A table of contents is a useful feature, especially when the page references are linked so the reader can quickly jump to the information they need. Forty-four percent of companies structured the contents by stakeholders (employee, the company, customer, supplier, society) and thirty-eight percent of companies structured the contents by compliance theme (like conflicts of interest or confidentiality).

Some of the most common items we found in tables of contents were:

• “Values” (50%)

• “Workplace Behavior” (64%)

• “Anti-bribery and Corruption” (73%)

• “Ethics Hotline/Reporting Resources” (75%)

LABRADOR TIPOpt for commonly understood words and simple copy that is easy to read and digest. Aim for a reading grade level of 10-12 to ensure that all levels of employees will understand your expectations.


ANAlySIS

Tone from the Top

78%include a letter signed

by the CEO

5%include a letter signed

by the CCO

19companies included more than one letter

LABRADOR TIPWhether the letter is from the CEO or Chief Compliance Officer, the message should inspire employees to live by the Code and reinforce the company’s values and purpose.


ANAlySIS

Comprehensive

Codes should be comprehensive. Cover all important risk areas applicable to your industry, and include guidance that focuses on actionable behaviors and connects to the business.

Ninety percent of companies included at least seven of the following themes:

• Data protection • Corruption, fraud, anti-bribery

• Conflict of interest • Asset protection

• Human rights • Health & safety

• Sexual harassment • Antitrust

• Political spending • International trade and export control

• Discrimination and diversity and inclusion • Social media

Companies that want to be sure employees understand the Code and the role they play in promoting the company’s values will offer (and usually mandate) periodic training programs. Fifty-two percent of the Codes we reviewed specifically reference a training program. Twenty-six percent of the Codes also talk about targeted training programs--such as programs regarding sexual harassment.


ANAlySIS

Reporting a Concern

94%include a chapter/paragraph on code

violations

70%provide a phone number or email to anonymously

report a concern

5%indicate the response time if an incident is reported

to the hotline

The section on reporting violations should be comprehensive. Codes also should make it easy to ask questions or seek additional guidance. This is accomplished by providing a direct number to the helpline, identifying (by job titles or position) the people a concerned employee can talk to, and explaining how to contact the ethics and compliance department. Organizations can foster trust and transparency by providing as many details about the reporting process as possible. Stakeholders will feel secure knowing what to expect, where to go, and what will happen. Moreover, having an accessible reporting structure emphasizes the company’s interest in compliance, and reinforces the importance of raising concerns.

LABRADOR TIPAt the end of the Code, create a resources page with a list of hotline numbers for all countries where you do business. don’t forget to provide options for reporting (phone call, email, etc.) and reaffirm the company’s stance against retaliation. When it is easy for employees to find information, it becomes more likely that they will report their concerns in a timely manner.


ANAlySIS

Design Features

24%include a decision-making

tree graphic

60%present at least three

practical case studies or examples, often in Q&A

format

8%include a graphic depicting

the reporting procedure

Graphics help readers understand complex information, as do practical case examples in the form of questions and answers. These tools can guide the reader in making an appropriate decision about a possible course of action. They can also emphasize the need for employees to stop and think before acting, and to seek guidance when in doubt.

LABRADOR TIPIntegrate learning aids, such as graphics and real-life scenarios using a question and answer format, to help all types of learners better connect to difficult topics.


ANAlySIS

Accessibility

80%refer to one or more

policies (such as an insider trading policy or a policy on drug and alcohol use)

throughout the Code

41%include direct links

to other policies

64%provide the document in an interactive format, sending

the reader to additional content such as a video or

intranet for more information

On the same landing page as the Code, a reader can find the:

• Supplier Code of Conduct (31%)

• Data Protection or Privacy Policy (17%)

• Anti-bribery Policy (21%)

• Trade Compliance Policy (9%)

• Human Rights Policy (28%)

• Health & Safety Policy (20%)

• Hotline information (34%)

• Political Contributions Policy (33%)

LABRADOR TIPCodes that provide hyperlinked resources, such as email addresses, reporting websites, and policies, are more accessible and user-friendly.


ANAlySIS

Translations

82%translate the Code into

three or more languages, not including English

97%of the companies that offer translations provide the list of translated documents on a single page available on

the corporate website

16is the average number

of translated languages

Some jurisdictions and industries require companies to provide a Code of Conduct to all employees in the local language. All companies will find it easier to enforce their Codes and learn about possible infractions before they become serious problems if they invest in accurate translations.

CONCLUSIONCodes are a tool for strengthening compliance and ethical behavior. Providing your employees with a comprehensive Code instills trust and reinforces the company’s values by facilitating ethical decision-making, highlighting risks, and explaining the available tools and controls to mitigate those risks. Perhaps just as important, a well-drafted and designed Code is also an opportunity to reinforce the company’s purpose, unique culture, business, and brand.

FIVE NOTEWORTHY TIPS WHILE DRAFTING YOUR CODE1. Plain language:

Opt for commonly understood words and simple copy that is easy to read and digest. Aim for a reading grade level of 10-12 to ensure that all levels of employees will understand your expectations.

2. Tone from the top: Whether the letter is from the CEO or Chief Compliance Officer, the message should inspire employees to live by the Code, and reinforce the company’s values and purpose.

3. Reporting made easy:At the end of the Code, create a resources page with a list of hotline numbers for all countries where you do business. Don’t forget to provide options for reporting (phone call, email, etc.) and reaffirm the company’s stance against retaliation. When it is easy for employees to find information, it becomes more likely that they will report their concerns in a timely manner.

4. Reader-centric design:Integrate learning aids, such as graphics and real-life scenarios using a question and answer format, to help all types of learners better connect to difficult topics.

5. Accessibility:Codes that provide hyperlinked resources, such as email addresses, reporting websites, and policies, are more accessible and user-friendly.

FA C T S H E E T

2021 TRANSPARENCY ANALYSIS: CODES OF CONDUCT

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