326Codes of Conduct, Ethical and Professional

enforced. Legal scholars have applied the Coase

theorem to determine what legal rules lead to the best
outcome from the standpoint of economic efficiency.
Because the Coase theorem combines thinking about
legal rights and economic efficiency, it has been an
important spur to the development of the interdisciplinary field of law and economics.
The circumstances under which the Coase theorem
applies have been widely debated by economists and
legal scholars. The Coase theorem has never been
formally proved or disproved, although it has been
subjected to numerous theoretical, empirical, and
experimental challenges in the law and economics literature. Medema and Zerbe survey the controversy
and discussion surrounding the Coase theorem in an
article published in 2000. Although still controversial,
the Coase theorem has caused economists and legal
scholars to refine their thinking about externalities
and the proper role of government in addressing them.
James A. Overdahl
See also Chicago School of Economics; Coase, Ronald H.;
Contracts; Free Riders; Market Failure; Pollution
Externalities, Socially Efficient Regulation of; Property
and Property Rights; Public Goods; Transaction Costs

Further Readings

Coase, R. H. (1959). The Federal Communications

Commission. Journal of Law and Economics, 2, 140.
Coase, R. H. (1960). The problem of social cost. Journal of
Law and Economics, 3, 144.
Coase, R. H. (1988). The firm, the market and the law.
Chicago: University of Chicago Press.
Coase, R. H. (1992). The institutional structure of production.
American Economic Review, 82(4), 713719.
Medema, S. G., & Zerbe, R. O., Jr. (2000). The Coase
theorem. In B. Bouckaert & G. De Geest (Eds.),
Encyclopedia of law and economics (Vol. I, pp. 836892).
Northampton, MA: Edward Elgar.

CODES OF CONDUCT,
ETHICAL AND PROFESSIONAL
Codes of conduct are statements of values, beliefs,
standards, legal compliance, or organizational policy
and procedures that are articulated to inform those

governed by the codes or hold those affected by the

codes accountable to this type of ethical behavior.
Every professional association has created and promulgated a code of conduct for its members. There are
more than 1,000 codes of ethical conduct developed
by business organizations. Recent surveys of Fortune
500 companies report that more than 97% of all large
multinational businesses have codes of conduct.
Codes are understood as the primary means of institutionalizing ethics into the culture, religion, profession,
learned societies, or business organizations. A Touche
Ross national survey revealed that their respondents
believed that codes are the most effective measure for
encouraging ethical behavior at work.
Historically, the Code of Hammurabi contained
almost 200 paragraphs of rules governing business,
moral, and social life reaching back to the third millennium BCE. Other early codes included the Codes of
UrNammu (ca. 20602043 BCE), the Code of LipitIshtar (ca. 19831733 BCE), and the Code of Eshnunnia
(ca. 1950 BCE). These codes were compilations of customs, laws, and rules of ancient Mesopotamia, going
back to Sumerian times. The United National Universal
Declaration of Human Rights (1948) is a contemporary
counterpart to these early codes of conduct.

Corporate or Business
Codes of Conduct
Nearly every large business organization today has a
corporate code of business conduct. Many of these
codes were developed in response to some legislative
action. For example, in the United States, a plethora
of activity manifesting itself in the development or
revision of corporate codes followed the passage of
the Foreign Corrupt Practices Act in 1977, the creation
of the 1991 United States Corporate Sentencing
Guidelines (which exonerated businesses to clearly
state expected ethical behavior for their employees), and the Sarbanes-Oxley Act of 2002. In other
instances, companies or entire industries responded to
an ethics scandal by developing or rewriting codes of
ethics, such as in the 1980s when the U.S. defense
industry and the financial community on Wall Street
were rocked with numerous discoveries of unethical
behavior. Many non-U.S. businesses have developed
codes of conduct so that their employees are in compliance with U.S. law when the company conducts
business in the United States.

Codes of Conduct, Ethical and Professional327

Types of Corporate Codes

The titles given to ethics policy statements are

quite varied. Some are called codes of business conduct or guidelines for ethical behavior. Some companies have unique names for their codes, such as
Johnson & Johnsons Credo or Hewlett-Packards
The HP Way. In the 1970s, when many codes were
first being developed, they were called corporate
directives or administrative practices until the more
common terms of code of ethics, code of business conduct, or similar terminology was adopted.
Max Clarkson and Michael Deck, scholars at the
University of Torontos School of Business, separated
ethics policy statements into three categoriescodes
of conduct, codes of practice, and codes of ethics.
Codes of conduct are statements of rules, indicating
for the employees what expected or prohibitive
behavior is. Often included in codes of conduct are
penalties for code infractions, along with a discussion
of numerous ethics topics: conflicts of interest, political contributions, the acceptance or offering of gifts
and bribes, and so on. These codes intend to ensure a
commonality of behavior among the organizational
employees or to protect the firm from the likelihood
of costly unethical employee behavior.
Next are codes of practice. These codes are interpretations and illustrations of corporate values and
principles. These codes typically intend to empower
the employee as an ethical decision maker. Rather
than provide strict rules for compliance or avoidance,
as indicated in codes of conduct, codes of practice
identify for the employee how we do things around
here. A code of practice seeks to shape the expression
of the corporations stated values through the practice
of its employees, using rules of thumb such as act and
disclose or seek advice.
Finally, codes of ethics are statements of values
and principles that define the purpose of the company.
The intent is to generally define for the organizations
employees various responsibilities to stakeholders.
These statements also have been identified as corporate mission or constituency obligation statements.
The popular Credo from Johnson & Johnson, mentioned earlier, would be considered a code of ethics
according to Clarkson and Decks designations.
Corporate codes are developed to highlight company philosophy or policy; to define employee rights
and obligations; and/or to specify certain responsibilities, such as regarding the treatment of employees, the

environment, or other company stakeholders. Most

codes speak to the purpose, administration, and authority of the code; the nature of the company; employee
issues; legal requirements; and civic responsibilities.
Content of Corporate Codes

Many codes cover specific topics to delineate for

employees or other stakeholders what is expected of
them. There is a growing trend to develop a code of
conduct for the companys customers or suppliers. In
the case of the company suppliers, these stakeholders
are required to comply with the companys expectations of ethical standards or risk losing the business
relationship.
Some of the more common topics covered in
corporate codes include

conflicts of interest;
use of confidential information;
use of company assets or property;
sexual harassment;
employment hiring, promotion, or termination;
health and safety issues;
proper reporting of company-incurred expenses,
gifts, bribes, and entertainment expenses (especially
for global businesses);
accurate accounting and reporting practices;
antitrust or other legal compliance issues;
government contract relationships;
environmental responsibility;
intellectual property; and
political campaign participation or involvement in
public office.

Compliance with corporate codes does not have

the force of law behind it because compliance with
these codes is technically voluntary. However, in most
corporate codes, there are sanction provisions that state
that if an employee does not follow the rules established
in the companys policy the employees could face disciplinary sanctions. These sanctions could include verbal
reprisal, suspension, probation, demotion, transfer, or, in
the most serious of cases, termination.
Code Drafters

Various business personnel have been entrusted

with drafting the companys code of ethics. At times,

328Codes of Conduct, Ethical and Professional

senior management or the chief executive officer is

involved in writing or suggesting content for the
corporate code. Involvement by the highest level of
management in the organization often signifies for
employees the importance of the document and of
behaving ethically.
If the codes purpose is primarily to ensure that
employees are legally compliant with the law, then the
companys general counsel (chief attorney) or staff
primarily will be given the responsibility to draft the
code. Sometimes the code is burdened by the legalese
that accompanies having the legal department write
the document.
Finally, the drafting of the company code could be
entrusted with the human resources department
because many of the important issues are governed by
employment law, such as sexual harassment or equal
employment.
Communication of Corporate Codes

One of the most important elements for an effective

code of conduct is the communication of the document
to all employees or other stakeholders governed by the
policy. Some companies are negligent in developing
frequent means of communicating the code, thus the
policy is often filed in a drawer and forgotten. If the
document is not a living document, then it has little
effect on the employees or other stakeholders of the
company. However, most companies have developed
active and extensive communication procedures to
ensure that the code is known and followed.
Most companies provide new employees with the
company code at an orientation training session or
distribute the code to all employees acquired through
a merger. Periodic dissemination of the code occurs
in some firms annually or after a breach of the code.
Rarely is the code circulated more often than annually,
but some companies supplement the distribution of
the code with a requirement that employees, typically
managers, sign-off on a document that attests that the
manager has read the code and has reported any violations of the code to the proper company authority.
Companies with global operations might translate the
companys code into many different languages so that
their employees, customers, or suppliers can read the
code in their native language.
In nearly all cases, companies distribute their code
to all their employees. There is a growing trend to
make the code publicly available and to distribute the

code to various company stakeholders, such as customers, suppliers, and investors. The posting of the
code of ethics to the companys Web site also is
increasing as a practice for communicating the ethical
standards held by the company.

International
Business Codes of Conduct
Attempts to develop international business codes of
conduct have been undertaken by various international governmental bodies with minimal success,
such as the
International Chamber of Commerce (1972),
Organisation for Economic Co-operation and Development (1976),
International Labour Organization (1984),
European Social Charter (1996),
Code of Conduct for European Multinationals
(1998), and
United Nations Global Compact (2000).

Some specialized United Nations agencies have

achieved success on industry-specific issues, such as
the World Health Organizations code on pharmaceuticals and tobacco. The International Monetary Fund
and the World Bank have codified specific industry
practices between nations.
Despite these efforts, most international government or nonprofit organizations have had limited
successes in developing codes of conduct. Conflicts in
ideologyfinding common values or practiceand
special interestsprotecting economic advantages or
political influenceoften plague these efforts. International efforts also are thwarted by the lack of an
international governing body or the ability to prosecute violators of the code.
One organization, comprising Asian, European, and
North America business organizations, has drafted an
international code of ethics. The Caux Roundtables
code emphasizes two fundamental ethical principles
kyosei, working for the common good, and a respect
for human rights. While a promising start, this organization, like their predecessors noted above, is finding
it difficult to promulgate their code because there is no
enforcement body to ensure that the code is being followed or to punish those that violate the international
business standard.

Codes of Conduct, Ethical and Professional329

Professional Codes of Conduct

As noted earlier, every professional organization has
a code of conduct. By definition, a professional organization drafts and enforces expected ethical behavior
of its members and typically will banish members
from the professional association for gross violations
of the associations code.
A professional code, like most corporate codes,
provides standards of practice by describing what is
expected or prohibited practice by association members. These stipulations do not apply to everyone, just
those who are members or seek to be members of
the association. For example, in a business organization not all employees are governed by the
American Institute for Certified Public Accountants,
just those employees who also are certified public
accountants (CPAs) in good standing with the association. In some organizations, there may be multiple
professional codes governing individuals activities,
such as at a health care facility where doctors and
nurses have different professional codes of conduct.
Professionals, through their codes, set a higher
standard for their members. Professions are more
demanding in the conduct of their professional members. This establishes a clear distinction between
what is professionally expected and legally compliant.
Professionals are often asked to go beyond the law in
their behavior and how they treat those they serve.
Professional codes often entrust the individual association member to seek the higher purpose or act without compromise to certain ethical principles, such as
honesty, integrity, and justice.
In instances where there is a conflict between professional ethical expectations and workplace practice,
members of the profession know that the professional
standard is the higher and expected rule. For example,
in the accounting field, CPAs are often pressured to
recommend additional and costly consulting services
for their clients to bolster revenues for their companies. But this practice is contrary to their professional
standards detailing a responsibility to their clients and
acting on behalf of society and now is prohibited by
the Sarbanes-Oxley Act.

What Constitutes a Profession?

The service provided by a profession must be of

any morally permissible sort from which its practitioners can earn a living. Most professions are a collection

of relatively well-educated occupations, such as physicians, nurses, engineers, educators, CPAs, and so on.
Members of a profession believe that there is some
benefit to belonging to the professional association and
being in compliance with the professions code of conduct. Sometimes, a profession provides collective bargaining strength to acquire better wages or working
conditions, as seen with teachers or nurses. Professions
might also organize around a sense of prestige or reputation, such as physicians, attorneys, or CPAs, who
serve society in a special way through their work.
Whatever the reason, the profession possesses a code
of conduct to govern its members and to serve society
in a special or highly ethical manner.
Examples of Professional Codes of Conduct

One of the more well-known professional codes is

the physicians Hippocratic Oath. This is an oath
sworn by all medical doctors where they attest: I
swear by Apollo Physician and Asclepius and Hygieia
and Panaceia and all the gods and goddesses, making
them my witnesses, that I will fulfill according to my
ability and judgment this oath and this covenant.
Similarly, there are codes of conduct for lawyers,
who belong to the American Bar Association (ABA).
Until 1983, lawyers ascribed to the ABA Model Code of
Professional Responsibility and since 1983 there is the
Model Rules of Professional Conduct. In addition to the
federal professional standards, each state has adopted its
ownPledge of Professionalism (Alabama), Ideals and
Goals of Professionalism (Florida), Code of Civility
(Maryland), and Working Rules for Professionalism
(Pennsylvania), among others.
Engineers, as members of the National Society for
Professional Engineers (NSPE), commit to the NSPE
Code of Ethics for Engineers. The codes preamble
states,
Engineering is an important and learned profession.
The members of the profession recognize that their
work has a direct and vital impact on the quality of life
for all people. Accordingly, the services provided by
engineers require honesty, impartiality, fairness, and
equity, and must be dedicated to the protection of the
public health, safety, and welfare. In the practice of
their profession, engineers must perform under a standard of professional behavior which requires adherence
to the highest principles of ethical conduct on behalf of
the public, clients, employers, and the profession.

330Codes of Conduct, Ethical and Professional

Nurses take the Florence Nightingale Pledge and

are guided by a number of professional associations and their codes of ethics. The American Nurses
Association states that their Code of Ethics for Nurses
has three purposes:
1. It is a succinct statement of the ethical obligations
and duties of every individual who enters the nursing
profession.
2. It is the professions nonnegotiable ethical standard.
3. It is an expression of nursings own understanding of
its commitment to society.

University and college professors who belong to the

Academy of Management have developed a code of
ethical conduct to govern their professional activities.
In the Academy of Managements code, five responsibilities are delineated to their students, to managerial
knowledge, to the Academy of Management association, to practicing managers, and to all people they
work with in the world community.
Codes exist for public sector employees, such as the
U.S. Code for Federal Civil Servants, as well as codes
for city managers, the International City Managers
Association Code of Ethics with Guidelines, and public administration officials, the American Society for
Public Administration Code of Ethics.
Within business, some function-area professions have developed their own code of conduct. The
American Institute for Certified Public Accountants
(AICPA) has a Code of Professional Conduct. The
AICPA code consists of two sectionsthe Principles
and the Rules. The Principles provide the framework for the Rules, which govern the performance
of professional services by members. The Code of
Professional Conduct was adopted by the membership
to provide guidance and rules to all membersthose
in public practice, in industry, in government, and in
educationin the performance of their professional
responsibilities.
For managers practicing in finance, some belong
to the Association for Investment Management and
Research (AIMR) and are governed by the AIMRs
Code of Ethics and Standards of Professional Conduct.
The Code states that members of the profession will
act with integrity, competence, dignity, and in an ethical
manner when dealing with the public, clients, prospects,
employers, employees, and fellow members;

practice and encourage others to practice in a professional and ethical manner that will reflect credit on
members and their profession;
strive to maintain and improve their competence and
the competence of others in the profession; and
use reasonable care and exercise independent professional judgment.

In the marketing field, there is the American

Marketing Associations Code of Ethics. In this professional code, the members pledge their commitment
to ethical professional conduct. This conduct focuses
on various responsibilities, the practice of honesty and
fairness in their actions, respecting the rights and
duties of parties whom they affect, and adherence to
numerous organizational responsibilities.
In the ethically volatile information systems domain,
the Association for Computing Machinery (ACM) has
developed a Code of Ethics and Professional Conduct.
This code consists of 24 imperatives formulated as
statements of personal responsibility. It contains examples of many of the issues professionals in the field
might likely encounter in their performance of their
technical duties. The general expectations for ACM
members include the following:

Contribute to society and human well-being

Avoid harm to others
Be honest and trustworthy
Be fair and take action not to discriminate
Honor property rights, including copyrights and patents
Give proper credit for intellectual property
Respect the privacy of others
Honor confidentiality

All professional associations and many business

organizations have codes of conduct to guide their
members or employees and to protect the organization
from wrongdoing. In general, these statements are
important guides to behavior, but their effectiveness
depends on the professionals and employees being
aware of and adhering to these codes.
James Weber
See also Caux Principles; Certified Public Accountants
(CPAs); Ethical Role of the Manager; Federal Sentencing
Guidelines; Foreign Corrupt Practices Act of 1977 (FCPA);
Human Rights; Professional Ethics; Sarbanes-Oxley Act of
2002; United Nations Global Compact; World Bank; World
Health Organization (WHO)

Coercion331

Further Readings

Adams, J. S., Tashchian, A., & Shore, T. H. (2001). Codes of

ethics as signals for ethical behavior. Journal of Business
Ethics, 29, 199211.
Bayles, M. (1989). Professional ethics. Belmont, CA:
Wadsworth.
Benson, G. C. S. (1989). Codes of ethics. Journal of Business
Ethics, 8, 305319.
Brooks, L. J. (1989). Corporate codes of ethics. Journal of
Business Ethics, 8, 117129.
Callahan, J. C. (Ed.). (1988). Ethical issues in professional
life. New York: Oxford University Press.
Clarkson, M. B. E., & Deck, M. C. (1992). Applying the
stakeholder management model to the analysis and
evaluation of corporate codes. In S. Waddock (Ed.),
International Association for Business and Society, 1992
proceedings (pp. 21224). Chestnut Hill, MA:
International Association for Business and Society.
Codes of ethics and conduct. Retrieved from
http://onlineethics.org/codes
Gaumnitz, B. R., & Lere, J. C. (2004). A classification
scheme for codes of business ethics. Journal of Business
Ethics, 49, 329335.
Hammaker, P. M., Horniman, A. B., & Rader, L. T. (1977).
Standards of conduct in business. Charlottesville, VA:
Olson Center for the Study of Applied Ethics.
Manley, W. M., II. (1991). Executives handbook of model
business conduct codes. Englewood Cliffs, NJ: Prentice
Hall.
Messick, D. M., & Tenbrunsel, A. E. (Eds.). (1996). Codes of
conduct: Behavioral research into business ethics. New
York: Russell Sage Foundation.
Murphy, P. E. (1998). Eighty exemplary ethics statements.
Notre Dame, IN: University of Notre Dame Press.
Touche Ross. (1988). Ethics in America. Detroit, MI: Author.
Weaver, G. R. (1993). Corporate codes of ethics: Purpose,
process, and content issues. Business & Society, 32,
4458.

COERCION
To be coerced is to be forced to act against ones will.
Coercers are unable to use rational persuasion to convince victims of coercion into performing a specified
action and so resort to physical force and threats.
Coercion is widely understood to undermine individual
freedom, and because of this, its use requires justification. Coercion is relevant to the conduct of business
in several ways. For example, coerced contractual

agreements are typically regarded as invalid both

in ethics and in law. But to determine whether or not
coercion has taken place, one must first determine what
constitutes coercion.

The Nature of Coercion

To know whether or not a persons freedom has been
undermined by coercion, it is first necessary to understand the nature of coercion. Coercion may be usefully
divided into two categoriesphysical coercion and
psychological coercion. Physical coercion occurs when
ones bodily movements are physically forced. In cases
where one person physically coerces another person,
the victims body is used as an object or instrument for
the purpose of fulfilling the coercers desires. Physical
coercion does occur in business. For example, a factory
worker may be physically compelled to remain at work
until a quota is met. Nazi Germany used physical coercion to force laborers to work in wartime factories. In
Alabama, as recently as 1928, African American men
were taken from city streets and brought to mines
where they were physically coerced into mining coal
for large mining companies. And in workplaces
throughout the world, women employees continue to
be physically coerced by coworkers, or managers, into
complying with sexual demands.
Unlike cases of physical coercion, psychological
coercion involves the threat of violence or of some
other form of harm such as economic harm. But what,
precisely, constitutes coercion? Is someone who must
choose between a bad, poorly paid job and no job at
all coerced? To answer this question, it is necessary to
have a proper understanding of the nature of psychological coercion. Philosophers have produced a substantial literature that seeks to clarify this matter. Two
principal views have emerged in the literaturethe
moralized view of psychological coercion and the
empirical view of psychological coercion. The moralized view maintains that the truth conditions of coercion claims rest on prior moral claims. According to
this view, we cannot determine whether one person
has coerced another person into performing a specified action without first determining whether the
alleged coercer has a right to make the supposedly
coercive proposal and whether the recipient of the
threat has an obligation to resist that proposal. The
empirical view maintains that the truth conditions of
coercion claims are empirical. According to this view,
we cannot determine whether one person has coerced