Learning from others’ mistakes Part 5 – Codes of Conduct missing key elements

The Australian Council of Superannuation Investors (ACSI) published a report today which asserts that ‘poor corporate culture is linked to weaknesses in codes of conduct and whistleblowing systems’ within ASX200 companies.

While the report focuses on large corporations in the for-profit sector, more and more not-for-profit organisations have been aligning their governance standards with ASX Governance expectations in recent years.  The key findings of the ACSI report are therefore worth considering for their relevance to associations, charities and other not-for-profit organisations.

Key points made by ACSI include:

  • Coverage of key topics in codes of conduct is weak The omissions include several well-known risks, such as fair dealing/product responsibility, human rights, data protection and cybercrime, anti-money laundering and counter-terrorism finance.

ACSI Chart2

 

  • Codes of Conduct are not being regularly reviewed. This should occur at least every two years.
  • Tone from the top’ and usability needs to be improved. A key factor in determining whether a code of conduct will be effective is the ease with which it can be read, interpreted and put into action. The use of case studies, questions and answers (Q&As) and frequently asked questions (FAQs) contributes to readers’ understanding of a code of conduct, yet only 34 ASX200 companies (17 percent) do this.
  • Very few Codes of Conduct demonstrate leading practice.
  • Vital features are missing from many whistleblowing systems. Whistleblowing is the initial source of detection for 39 percent of frauds and the code of conduct is the document most widely distributed to employees. Yet 38 ASX200 codes of conduct (19 percent) had no reference to whistleblowing. This is a significant missed opportunity for companies to detect fraud as well as other types of wrongdoing.

As was illustrated in my recent posts regarding not-for-profit entities that have suffered a loss of public trust, corporate culture and the effectiveness of governance measures require the attention of not-for-profit boards and management also.  The following quote from ACSI CEO Louise Davidson could equally apply to your not-for-profit entity:

“Culture failings have been the cause of many scandals that have rocked corporate Australia in recent years. Public trust in business is at an all-time low. Clearly, companies and their boards need to focus on how business is done in addition to what is done.”

Statement by the Council of the City of Melbourne

A Statement by the City of Melbourne Council yesterday alongside the announcement of four adverse findings against the previous Lord Mayor also highlighted the significance of their Code of Conduct.

“We have previously agreed to review our Councillor Code of Conduct to ensure allegations of this nature are dealt with appropriately. We support management’s review of all relevant administrative policies referencing Councillors, including and in particular, the Alcohol and Drug policy. We also support management’s productive discussions with the Victorian Government about improvements to the Local Government Act 1989 for dealing with allegations of this nature across the sector.”

Code Review / Board briefing opportunity

To assist your Board or Policy / Audit and Risk Committees to review your Code of Conduct or to consider the governance lessons these stories offer your organisation, contact me on 0419 347 599 or by email (garry.pearson@polgovpro.com.au).

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