As a follow up to my blog last month outlining key considerations with regard to the preparation and administration of a corporate code of ethics, this entry will discuss some important aspects of the substantive content that should be included in a corporate code.
While there can be great variety in the approach, style and industry-specific content of a corporate code of ethics, most well-drafted documents will address the following core topics: compliance with laws; accuracy and integrity of books and records; conflicts of interest; confidential information and intellectual property; and gifts and hospitality. Although this is a non-exhaustive list, the foregoing is a list of “musts” that need to be addressed when one approaches the drafting of a corporate code. Accordingly, I will introduce each of these foundational topics below.
Compliance with Laws
While it may seem implicit, it is important at the outset of the document to set forth that it is company policy to adhere to the letter, spirit and intent of all applicable laws and regulations touching the business and operations of the company. The company should also address its anti-fraud policy here, which, when coupled with the company-wide sign-off on the document discussed last month, becomes an effective enforcement mechanism throughout the organization.
This section should also be utilized to set forth company policy on specific regulated topics, such as environment, health and safety, anti-trust and fair competition, insider trading (if the company is publicly-traded), political contributions, and discrimination and harassment. The company’s broad statements of policy on the foregoing topics can also serve as points of introduction to bolster and unify the company’s secondary corporate policies. For example, company statements of policy in the code on health and safety and discrimination and harassment would support a more detailed statement in the employee handbook.
For organizations with international operations, it is also critical to address federal statutes and regulations applicable to U.S. anti-boycott and export control measures as well as the Foreign Corrupt Practices Act. Specifically with regard to the FCPA, which imposes personal liability upon officers, directors, shareholders, employees and agents for violations of the act and its record-keeping provisions, a statement of policy in the corporate code of conduct with regard to the bribery and corruption of foreign officials is a necessary starting point for an effective FCPA compliance program.
Accuracy and Integrity of Books and Records
Appropriate language in this section should indicate that the company shall maintain its books and records in appropriate detail to reflect transactions accurately, fairly and completely. Furthermore, this section should also serve as a point of introduction for the company’s accounting and whistleblower policy.
Conflicts of Interest
Generally, a conflict of interest may occur when the personal, business or financial interests of a director, officer, employee or agent interferes with the interests, assets or business of the company. Including this statement is in large part driven by the fiduciary obligations that directors and officers owe to the company but is also part of a broader organization-wide commitment.
Confidential Information and Intellectual Property
I recommend that the corporate code of ethics contain a statement that the directors, officers, employees and agents of the company are prohibited from disclosing the company’s confidential information to anyone outside of the company, unless such disclosure is specifically authorized in writing or mandated by law. Furthermore, the code should also define confidential information, and also set forth that it is the responsibility of every individual in the company to help protect the company’s intellectual property.
By requiring employee sign-off on the corporate code and, consequently, the requirement to adhere to the obligation of confidentiality and the protection of the company’s proprietary information, further security is afforded to the company with regard to the preservation of intellectual assets beyond any additional contractual arrangements.
Gifts and Hospitality
The company’s gift policy should be broad enough to cover the company’s top-line policy on gifts, hospitality, travel, meals and entertainment. Additionally, full disclosure and reporting of gifts and hospitality must be emphasized throughout this component of the code. While some organizations may exempt from reporting nominal unsolicited gifts or giving and receiving promotional items, it is important to have in place a reporting, approval and authorization structure that is driven by gift amount, type and recipient. FCPA compliance naturally drives the preparation of this provision as well and should be addressed accordingly. Finally, it is preferable to have in-house counsel as the gatekeeper for the policy to ensure that he or she has access and can address gift and hospitality issues proactively as opposed to reactively.