There is no need to say how essential it is for companies (as just another economic agent) to comply with the law to ensure the proper functioning of the economy and social welfare. However, there are relationships in companies, both internal and external, that are not regulated by law. In those situations, a company’s Code of Conduct comes into play.
This code of ethics consists of a formal document containing the principles, values and ethical standards that govern the institution. The contents vary depending on the organization, given that business organizations perceive business ethics in different ways. However, there are several key points present in most codes of conduct:
✔️ Safeguarding fundamental rights.
✔️ Impermissible conduct.
✔️ Environmental rights
✔️ Anti-corruption and anti-bribery practices.
✔️ Termination procedures
✔️ Confidentiality measures.
Labor legislation regulates the relationship between employee and employer, as well as their rights and obligations. However, on a day-to-day basis, there are labor relationships that the law does not regulate. Therefore, this Code of Conduct serves as the needed ethical guide for the company whenever the law does not apply and creates a series of specific and inherent norms for each entity. It is needless to say that this code can never go against the law and much less violate the fundamental rights of the people to whom it applies.
Likewise, a company’s code of conduct and its Corporate Social Responsibility (CSR) strategy go hand in hand. The Code of Conduct may serve to design the guidelines for CSR and, in turn, CSR is likely to contain the code of conduct by which the company is governed, i.e., there is constant feedback between the two.
Codes of conduct are, in short, an essential part of companies’ internal and external relations. Therefore, they directly affect the entity’s ability to generate output. For that reason, Fellow Funders takes these codes into account when valuing any company through our Fair Value division.