LAWMAKERS AND REGULATORS NOW REALIZE HOW IMPORTANT THE VIOLATION of ethical principles was in the recent scandals and have increased the governance requirements for public companies. The Sarbanes-Oxley Act of 2002 (S-O), signed by President Bush on July 30, contained several ethics initiatives for public companies. On August 1, the New York Stock Exchange (NYSE) issued a set of rules for listed companies. Among other changes, listed companies must henceforth adopt a code of business conduct and ethics--as well as appropriate compliance standards and procedures--to assure its effective operation. The Nasdaq's similar rule calls for "board-approved procedures for monitoring compliance." S-O calls for a code of conduct for senior financial officers only and disclosure of any change or waiver.
The NYSE statement outlines the minimum topics that should be covered in a company's code of conduct:
* Conflicts of interest--should be prohibited, and a method should be provided for communicating potential conflicts so they can be avoided.
* Corporate opportunities--should be pursued for the benefit of the corporation, not individuals, and corporate property should not be used for personal gain.
* Confidentiality--information harmful to the corporation or beneficial to others should be kept in confidence except when disclosure is authorized or legally mandated.
* Fair dealing--employees, customers, suppliers, and competitors should be dealt with fairly.
* Protection and proper use of company assets--employees should ensure that company assets are used efficiently.
* Compliance with laws, rules, and regulations--the company should proactively promote compliance with all relevant laws, including insider-trading laws.
* Encourage the reporting of any illegal or unethical behavior--the company should proactively promote ethical behavior and ensure there will be no retaliation. Nasdaq is expected to issue similar rules.
Although not stated in so many words, the NYSE rules suggest that an organization's code of conduct should be based on values rather than just a legalistic prescription of forbidden acts.
The Business Roundtable (BRT), an association of CEOs, issued new Principles of Corporate Governance in May 2002. Ethics receives frequent …