Rules of engagement: Why the corporate world needs a code

As the economy of the UAE continues its growth and opens up to global business philosophies, there is a new need for organisations to draft and clearly outline codes of conducts in order to maintain a competitive edge, a study has said. And failure to implement them could even lead to disastrous consequences, it has warned.

In its research published last week called Business Codes of the Global 200: Their Prevalence, Content and Embedding, financial advisory services company KPMG studied the prevalence of business codes among 200 Fortune companies around the world.
Although a specific number for the UAE or the region is unavailable, percentages indicate that companies in Asia, which includes the Middle East, still lag behind their European and North American counterparts when it comes to the prevalence of business codes.

While all North American firms in the Fortune Global 200 have a business conduct, in Europe the prevalence was 80 per cent while Asia had 52 per cent.

A business code, as defined by the research, is a document developed by and for a company as a guideline for current and future behaviour of its directors, managers and employees. According to Colin Lobo, a partner at KPMG, more and more companies – both here and around the world – are beginning to realise the importance of such a document.

"Over the past 15 years, there's been an increase in companies employing codes of conducts," he says.

"We are also getting a lot of enquiries from UAE companies to help draft their codes. Corporate governance is becoming quite hot here."

The three most important drivers for adoption of codes, says Lobo, is the desire to comply with legal requirements, to create a shared culture and to protect corporate reputation.

"In this region, the way employees and managers conduct themselves was traditionally based on trust and understanding. But as companies seek FDIs and look to compete and participate on a global scale, the need for business codes becomes urgent," says Lobo.

And as organisations continue to emerge and grow, the absence of a conduct framework could lead to devastating repercussions, he adds.

"From cases of fraud that could cost a company millions to legal issues which can damage a company's identity, there is a lot at stake for organisations. And, given the social and economic growth here, there certainly is scope for an increase in bribery and corruption," he says. "Without a proper code of conduct, organisations will not be able to identify these issues.

"When does a gift become a bribe and how far will you go to entertain a client or a business associate?

"A code of conduct will have all the answers."

The KPMG study found that more than 70 per cent of the codes of the Fortune companies discuss the responsibilities of employees regarding confidential information, accuracy of reporting fraud, protection of corporate property and those dealing with gifts and entertainment. Of the 200 companies from around the world, more than 80 per cent have policies to enforce their codes and to investigate violations, while 80 per cent of them have an ethics hotline and whistleblower mechanisms to detect misconduct.

In its latest Global Fraud Report, Kroll, a US-based risk consulting company, recently concluded that the average damage from corporate fraud among large companies – defined as those with an annual turnover of more than $5 billion (Dh18.3bn) – was more than $20 million, with about one in 10 losing more than $100m.

Meanwhile, a report by professional services firm PricewaterhouseCoopers said despite heightened efforts at regulation and control, fraud remains a major threat to companies around the world.

In its Global Economic Crime Survey, the organisation found that the average direct financial loss to companies rose nearly 40 per cent to $2.4m from $1.7m between 2005 and 2007. In the Emirates, the development and implementation of codes of conducts is still in its infancy, says Lobo, but admits that many firms are "starting to do something".

"In a country such as the UAE, where 75 per cent of the workforce is expatriate, sometimes no one wants to rock the boat. So there has to be mechanisms and systems for people to anonymously and safely report cases of misconduct," he says.

"For a booming economy with so much focus on growth, companies need to pay heed to making sure their infrastructures and identities do not face any risks due to misconduct. They need to create a corporate culture in which moral dilemmas can be raised without fear of repercussions and discussed productively."

According to Ahmad Al Banna, the director of HR at Nakheel, the major property developer has a code of conduct which outlines standards for employee conduct in the workplace. "This code demonstrates our intention to ensure that behaviour in the workplace supports our eight defined core values and allows us to conduct our business with integrity without causing offence, while always respecting our local customs and culture," he says. "We recognise that this plays a key role in building a long-term sustainable organisation with responsible employees and global citizens contributing to our overall development."

Nakheel, says Al Banna, has more than 3,000 employees in its payroll.

Sharjah-based Air Arabia, which employs more than 300 people, says its Employee Handbook serves as a guideline for its staff.

"It is given to all employees after they finish their induction programme and it specifies all necessary guidelines about the company and its policies as well as expected behaviour of employees, managers and senior managers," says a spokesman.

A representative of hotel-management company Jumeirah Group, meanwhile, said his hotel company's business codes are currently under review.

Drafting of a proper code of conduct, which is in-line with a company's philosophy and ethos, is not so simple, says Lobo.

"You cannot take what is in the West and dump it here. There are so many cultural aspects that you need to look consider," he says.

"For example, here, when you are entertaining, should you serve alcohol? You need to keep sensitivities in mind." While companies stand to reap the benefits, enhance their corporate governance frameworks and improve employee satisfaction, they have to also follow it through, says Lobo

"Having a business code of conduct is only the beginning," he adds.

"It is not enough to just let it sit on the shelf. To realise the benefits, it is important for the code to be properly embedded throughout the company. It has to live in the organisation."

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