Developing Sound Codes of Conduct - How the Top 4 Companies on The Global 100 Stack up

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Introduction

According to the Global 100’s report for 2010, General Electric, PG &E Corp., TNT Nv, and H&M are the four ‘most sustainable corporations in the world’.[1] All publicly-traded companies, The Global 100 bases its rankings on research and analysis of nearly two thousand companies worldwide. These companies are deemed to have the “best developed abilities, relative to their industry peers, to manage environmental, social and governance risks, and to take advantage of new business opportunities”[2] in their respective areas. One would assume that the matter of sustainability and corporate social responsibility in an organization's operation should be reflected in the development of sound codes of conduct. Seeking to establish a unified way of assessing codes, Deborah Leipziger, a global advisor on corporate responsibility and author of The Corporate Responsibility Code Book, developed a set of seven characteristics for evaluating codes. Using Ms. Leipziger’s so-called ‘DNA of an outstanding code of conduct’, do the codes of these four companies meet the classification of ‘outstanding’ and by association fit the assumption one would have for those listed on the Global 100’s most sustainable companies?

Defining an outstanding code of conduct

According to Ms. Leipziger the first of the seven benchmarks for outstanding code of conduct is that the code be clear and concise. She states that “clarity is one of the key variables, as the people tasked with implementing the code in a factory itself may not have a formal education. Clarity is essential for successful implementation of a code, as people will often see what they want to see in it.”[3] The second states that the code must be flexible and dynamic. Specifically, an outstanding “code will promote innovation and ‘breakthrough approaches’ in the workplace, and, as such, it too must be open to change.”[4] The third characteristic is that the code must be written with implementation in mind. Ms. Leipziger states that “standard-setters need to develop clear guidance material for people implementing standards.”[5] The fourth is that the codes should reference key standards. Ms. Leipziger explains this characteristic by saying that “a code of conduct or standard should benefit from the experience of other standards, including normative standards such as the Universal Declaration of Human Rights and specific conversations of the International Labour Organization. Standards do not occur in a vacuum.”[6] The fifth characteristic is that the codes should have broad stakeholder support. According to Ms. Leipziger, “stakeholders need to be involved in the development of the code. Stakeholder participation is necessary not only to make the code or standard more legitimate but also to enhance its implementation. Stakeholders need to feel a sense of ownership of the code and its success.”[7] The sixth is that the code should contain mechanisms for addressing complaints and resolving disputes. Disputes will “arise in most CR [corporate responsibility] systems, given different cultures and different interpretations of CR instruments. The existence of disputes may be an indicator that the system is in fact being taken seriously by stakeholders…However, few standards and codes contain formal, written procedures for addressing complaints or for resolving disputes.”[8] The seventh and final characteristic is that the codes should be based on a ‘genuine desire to change’. Ms. Leipziger goes on to explain that “an outstanding code or standard is not enough in itself to make a difference. The key variable for a successful implementation process is the desire of the company to change.”[9] While a useful and important set of guidelines for assessing codes of conduct, it is important to keep in mind that Ms. Leipziger’s DNA characteristics are not easily quantifiable and therefore are difficult to comparatively apply to any specific company and even more so between different companies.

Codes of Conduct: General Electric

According to Jeffery R. Immelt the CEO and Chairman of the Board for General Electric (GE), GE has, for more than 125 years, demonstrated an unwavering commitment to performance with integrity.”[10] GE’s code of conduct begins by asking its employees and itself to “obey the applicable laws and regulations governing our business conduct worldwide.”[11] What follows is a list of five core principles that help the stakeholders of all kinds to begin understanding what defines General Electric as a company. Chief among these codes speaks to the importance of being “honest, fair and trustworthy in all your GE activities and relationships.”[12] The next code asks its employees to “avoid all conflicts of interest between work and personal affairs.”[13] The next asks that employees “foster an atmosphere in which fair employment practices extend to every member of the diverse GE community.”[14] The next code implores stakeholders to “strive to create a safe workplace and to protect the environment.”[15] The final code reads, “through leadership at all levels, sustain a culture where ethical conduct is recognized, valued and exemplified by all employees.”[16]

Using Ms. Leipziger’s ‘DNA’, GE seems to fit characteristics one, two, three and six very well. For number four, GE does not seem to use international standards except those that are laws that it must abide by to be able to conduct businesses around the world. Ms. Leipziger’s ‘DNA’ would have been better satisfied with the adoption and recognition of applicable international standards and agreements. As for characteristic number seven, it is unclear, using only the codes of conduct as a frame of reference, that GE is truly committed to a ‘genuine desire to change’. This statement is based on the fact that GE’s codes of conduct could be more progressive and innovative. Finally, because characteristics four and seven are weaker than one might expect or hope, commitment to number five is brought into question. Characteristic number five speaks to the ‘eliciting strong support from stakeholders’. Stakeholder support would undoubtedly be stronger if GE gave greater credence to international standards and more innovative about its desire to lead its industry in change.

PG & E Corp

For PG&E corporate codes of conduct for employees are actually more defined in terms of employee actions and company values. Focused on becoming the leading utility provider in the United States by 2014, PG&E uses its values to guide its behavior much like a code. Specifically, PG&E states that “collectively, our behaviors determine how we are perceived as a company. Living these values and demonstrating the underlying behaviors that support them are critical to PG&E becoming the leading utility in the United States in 2014.”[17]

The 'codes of conduct for directors' of PG&E is more explicit than for standard employees. For directors there are 12 distinct codes that should be observed. They are:

1. Values

The Companies have adopted the following values:

• We act with integrity and communicate honestly and openly
• We are passionate about meeting our customers' needs and delivering for our shareholders
• We are accountable for all of our own actions: these include safety, protecting the environment, and supporting our communities
• We work together as a team and are committed to excellence and innovation
• We respect each other and celebrate our diversity
1. Compliance Officer

Each Company has designated the General Counsel of PG&E Corporation as its Compliance Officer to administer this Code. Directors, at their discretion, may make any report or complaint provided for in this Code to the Chairman of the Board of the respective Company or to the Compliance Officer. The Chairman of the Board or the Compliance Officer will refer complaints submitted, as appropriate, to the Chair of the PG&E Corporation Nominating and Governance Committee or to the full Board of Directors.

3. Compliance With Applicable Laws

Directors must comply with all of the laws, rules, and regulations of the United States and other countries, as well as the states, counties, cities, and other jurisdictions, applicable to either Company or its business.

This Code does not summarize all laws, rules, and regulations applicable to either Company or its business. The Companies will on occasion provide to the directors information about specific laws, rules, and regulations, which may include antitrust laws, securities laws concerning disclosure requirements and insider trading, and Federal Energy Regulatory Commission director interlock preapproval requirements. Directors are expected to consult with the Chairman of the Board or the Compliance Officer if they have questions about laws that they think may be applicable to either Company or its business.

4. Conflicts Of Interest

A "conflict of interest" may exist whenever the interests of a director conflict in any way (or even appear to conflict) with the interests of a Company. While our directors should be free to make personal investments and enjoy social relations and normal business courtesies, they must not have any interests that adversely influence the performance of their responsibilities. A conflict of interest may arise when a director takes actions or has interests that may make it difficult to perform his or her Company responsibilities objectively. A conflict of interest also may arise when a director, or a member of his or her family, receives improper personal benefits as a result of his or her position with a Company, whether received from that Company or a third party. Gifts above a "de minimis" value to, loans to, or guarantees of obligations of, directors, or their respective family members may create conflicts of interest.³ Federal law prohibits personal loans from the Company to directors and executive officers.

Although it is not always possible to avoid conflicts of interest, it is each Company's policy to prohibit such conflicts when possible. Conflicts of interest may not always be clear-cut, so if directors have a question, they are expected to consult with the Chairman of the Board or the Compliance Officer. Any director who becomes aware of a conflict or potential conflict of interest is expected to bring it to the attention of the Chairman of the Board or the Compliance Officer.

5. Corporate Opportunity

Except as may be approved by the Board of Directors or a committee of independent directors, directors are prohibited from (a) taking for themselves personally any opportunities that belong to either Company or are discovered through the use of corporate property, information, or position; (b) using corporate property, information, or position for personal gain; and (c) competing with either Company.⁴

6. Confidentiality

All directors must maintain the confidentiality of confidential information entrusted to them by either Company, except when the applicable Company authorizes disclosure or disclosure is required by laws, regulations, or legal proceedings. The term "confidential information" includes, but is not limited to, non-public information that might be of use to competitors of the Company, or harmful to the Company or its customers if disclosed. Directors are expected to consult the Chairman of the Board or the Compliance Officer if they believe they have a legal obligation to disclose confidential information.

7. Fair Dealing

Each director is expected to deal fairly with the respective Company's customers, suppliers, competitors, officers, and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing practice. Inappropriate use of proprietary information, misusing trade secret information that was obtained without the owner's consent, or inducing such disclosures by past or present employees of other companies is prohibited. Under the laws of California, where each Company is incorporated, a director must perform his or her duties in good faith, acting honestly, free from the intention to defraud.

8. Protection And Proper Use Of Company Assets

All directors are expected to exercise their business judgment in a manner that protects the Company's assets and promotes their efficient use. All Company assets are to be used for legitimate business purposes.

9. Accounting Complaints

The Audit Committees of the Boards of Directors are responsible for establishing procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters. Directors who have concerns or complaints regarding such matters are expected to promptly submit those concerns or complaints to the Compliance Officer or to the appropriate Audit Committee. Any such reports may be made anonymously. If requested, such concerns or complaints subject to applicable law, regulations, and legal proceedings, will be treated confidentially.

10. Reporting Any Illegal Or Unethical Behavior

Directors are expected to promptly contact the Chairman of the Board or the Compliance Officer if the director believes that he or she has observed illegal or unethical behavior by any employee, officer, or director, or by anyone purporting to be acting on either Company's behalf and the reporting director has any doubt about the best course of action in a particular situation. Any such reports may be made anonymously. If requested, confidentiality will be maintained, subject to applicable law, regulations, and legal proceedings.

11. Public Company Reporting

As public companies, it is of critical importance that each Company's filings with the Securities and Exchange Commission be full, fair, accurate, timely, and understandable. Directors may be asked to provide information necessary to assure that the Companies' public reports meet these requirements. Each Company expects directors to take this responsibility very seriously and to provide prompt and accurate answers to inquiries related to the Company's public disclosure requirements.

12. Amendment, Modification And Waiver

This Code may be amended, modified, or waived by the respective Company's Board of Directors, subject to the disclosure and other provisions of the Securities Exchange Act of 1934, and the rules there under and the applicable rules of any stock exchanges on which either Company's securities are traded. As a general policy, the Boards of Directors will not grant waivers to the Code.[18]

Codes two, three and six of Ms. Leipziger’s characteristics seem covered by PG&E in their codes of conduct. With regard to characteristic one the codes of PG&E are clear but not necessarily concise. Similar to GE, PG&E is also weak with regard to characteristic four. PG&E's codes of conduct does not reference international standards other than applicable laws that would be clearly enforced for the company to engage in successful business. While explicit with regard to the rules and codes that employees, specifically directors must follow, PG&E’s fifth char characteristic does not show a consistent emphasis on all stakeholder support as characteristic five would indicate. Finally PG&E’s codes of conduct seems weak on the seventh and last characteristic. There does not seem to be a ‘genuine desire to change’ inherent in their codes.

TNT Nv

Unlike GE and PG&E TNT Nv does not have a prescribed code of conduct that is available on its website. However, because it is headquartered in the Netherlands, TNT Nv is subject to Dutch Corporate Governance Code Monitoring Committee. This governing code applies to all companies whose statutory seat is in the Netherlands and whose shares (or certificates of these shares) are admitted to listing on NYSE Euronext Amsterdam.[19] As the TNT Nv website explains, the Code contains principles, set out in the form of “specific best practice provisions, that create a set of standards governing the conduct of management board members, supervisory board members and shareholders. They reflect national and international best practices and may be regarded as outlining the general principles of good corporate governance. Listed companies may choose to deviate from the best practice provisions.”[20] TNT Nv “devotes a separate chapter of its annual report to a broad outline of its corporate governance structure, which states how the principles and best practice provisions of the Code were applied in the past year, or, in the event that a provision was deviated from, states the reason(s) for this course of action.”[21] In keeping with some of its best practices, TNT Nv is in the process of “developing a company-wide Code of Conduct for suppliers and contractors based on the TNT Business Principles and our SR policies.” They do not currently have a specific code of conduct. While the Dutch Corporate Governance Code Monitoring Committee’s codes and standards may well be very impressive, they are unfortunately, not reaffirmed on the company’s website and are not the company’s own words. As the company relies on a third party to establish and dictate its codes of conduct, and given that the codes are not enforced by that third party TNT is inherently weak on all of the characteristics listed by Ms. Leipziger. Furthermore TNT Nv cannot be sufficiently compared to GE and PG&E in this category as the parameters are not equal.

H&M

H & M (Hennes & Mauritz AB), often referred to as H&M is the fourth and final comparative company with regard to corporate codes of conduct. H&M’s codes of conduct includes requirements concerning six categories. They are:

• working environment
• a ban on child labour
• fire safety
• working hours
• wages
• freedom of association[22]

Because H&M does not have any factories of its own, the H&M code of conduct is applicable to all suppliers, their subcontractors and other business partners that do business with H&M. H&M’s Code of Conduct states that,

This Code of Conduct specifies what we require from our suppliers, their subcontractors and other business partners in order to fulfill our commitment to our Board of Directors, to our employees, to our customers, to our shareholders and to other stakeholders. It is the responsibility of H&M’s suppliers and other business partners to inform their subcontractors about H&M’s Code of Conduct and Policy for Homework, and to ensure that these are implemented in every factory and workplace that produces, finishes packs or otherwise handles goods or performs services for H&M[23]

While not legally binding, H&M’s codes are an effort by the executives of the corporation to provide the best possible product given that many of the actual processes are conducted outside of H&M’s direct control. It is unclear how successful this approach is but it is at least commendable that time and effort has been taken by H&M to try and influence, if not require, its participants along the supply chain to conform to company and international standards.

H&M fulfills several of Ms. Leipziger’s characteristic requirements. While the codes could be more concise, H&M’s codes seem to fit characteristic’s one, two, three, four and five reasonably well. The codes are very clear. They lend themselves to being flexible and dynamic, they are clearly written with the hopes of implementation in mind. Unlike GE and PG&E, H&M’s codes reference international standards in addition to applicable national and international laws. Part of the introduction for H&M’s codes reads, “we [H&M] base our requirements mainly on internationally agreed standards such as the Universal Declaration of Human Rights, The UN Convention on the Rights of the Child and applicable ILO Conventions, as well as national legislation.”[24] Because the codes are essential in how the company conducts its business with its stakeholders throughout the supply chain, it is reasonable to assume that stakeholder support is present. The H&M codes fall short with regard to ‘mechanisms for addressing complaints and resolving disputes’, as well as the seventh characteristic that requires a ‘genuine desire to change’.

Conclusion

Through the examination of these four companies many of the assumptions/hopes that one might conjure up for a company listed at the top of the global 100 most sustainable companies hold true. These four companies are likely better than most at achieving the ‘outstanding’ classification that Ms. Leipziger’s characteristics help quantify. Without a more thorough analysis of how the global 100 determines ‘most sustainable’ and how those definitions compare to Ms. Leipziger’s definitions the picture is still unclear why the fourth ‘most sustainable’ company as part of the global 100’s rankings seemed to rank the highest as it relates to its codes of conduct when compared to Ms. Leipziger’s characteristics. Overall, the four companies of GE, PG&E, TNT Nv, and H&M seem to rank favorably, both as the top four most sustainable companies in the world, and as companies that have sufficient codes of conduct to facilitate greater corporate responsibility and therefore sustainability. As corporate responsibility measures grow in the future, perhaps these various metrics for sustainability will continue to grow more harmoniously intertwined, only time will tell.

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[1] http://www.global100.org/annual-reviews/2010-global-100-list.html[2] http://www.businessweek.com/interactive_reports/g100.html[3] Leipziger, Deborah. The Corporate Responsibility Code Book. Sheffield: Greenleaf Publishing Limited, 2003. Page 48.[4] Ibid. Page 49.[5] Ibid. Page 49.[6] Ibid. Page 49.[7] Ibid. Page 49.[8] Ibid. Page 49.[9] Ibid. Page 50.[10]http://docs.google.com/viewer?a=v&q=cache:V9nYz32z6K0J:www.ge.com/files_citizenship/pdf/TheSpirit%26TheLetter.pdf+codes+of+conduct+general+electric&hl=en&gl=us&pid=bl&srcid=ADGEESjq30bpUFODSHJmjaQIGL98HiGPg9RI5icpAG8t2N-fDbM5HnwR-xQPtnvlJhpPcbCXnsQsW1rhylavFCA0f7PCNyVNwXD8OmmVBSO7pYP_VteP3UgG7KlhOPzjAYywluPW1RbO&sig=AHIEtbSxyUilTcrXOhCHWnxMF58YM8qtzA[11] Ibid.[12] Ibid.[13] Ibid.[14] Ibid.[15] Ibid.[16]http://docs.google.com/viewer?a=v&q=cache:V9nYz32z6K0J:www.ge.com/files_citizenship/pdf/TheSpirit%26TheLetter.pdf+codes+of+conduct+general+electric&hl=en&gl=us&pid=bl&srcid=ADGEESjq30bpUFODSHJmjaQIGL98HiGPg9RI5icpAG8t2N-fDbM5HnwR-xQPtnvlJhpPcbCXnsQsW1rhylavFCA0f7PCNyVNwXD8OmmVBSO7pYP_VteP3UgG7KlhOPzjAYywluPW1RbO&sig=AHIEtbSxyUilTcrXOhCHWnxMF58YM8qtzA[17] http://www.pgecorp.com/aboutus/corp_gov/coce/our_values.shtml[18] http://www.pgecorp.com/aboutus/corp_gov/cocd.shtml[19] http://www.commissiecorporategovernance.nl/page/downloads/DEC_2008_UK_Code_DEF__uk_.pdf[20] http://www.postnl.com/about/governance/index.aspx[21] Ibid.[22]http://www.hm.com/dk/corporateresponsibility/supplychainworkingconditions/supplychainmonitoring/ourcodeofconduct__monotoringarticle1.nhtml[23]http://www.hm.com/filearea/corporate/fileobjects/pdf/en/RM_DOWNLOAD_CODEOFCONDUCT_PDF_ENGLISH_1150269822085.pdf[24]http://www.hm.com/filearea/corporate/fileobjects/pdf/en/RM_DOWNLOAD_CODEOFCONDUCT_PDF_ENGLISH_1150269822085.pdf