The valley's mess: why codes of conduct don't work

September 1, 2010: 11:07 AM ET

The Mark Hurd HP scandal showed it doesn't take a codebook to mete out punishment. So why do tech companies waste time and effort on misunderstood and duplicative codes that usually go ignored?

By Eleanor Bloxham, contributor

Former HP CEO Mark Hurd

Corporations are supposed to be the antidote to government. Lean, profit-focused and self-empowered, they get the most done for the least cost. But in one huge yet overlooked way, they mimic the government's endless maze of regulations and red tape. Then, just as government does at its worst moments with regulation, when these companies' self-imposed codes of conduct conflict with their own desires, they ignore or rewrite them to suit their needs.

These codes go by myriad names: partner codes, employee codes, vendor codes, business standards codes, and so on. They often are directed not just at the employees of a company, but also at the company's business partners. Across companies, codes are usually have a lot of redundancies, but may contain subtle differences that are impossible for workers covered by both codes to reconcile. And that would be a problem if anyone actually paid attention or tried to adhere to them.

But mostly, the codes go ignored, either in favor of common sense, or for more nefarious reasons. And that leads Fortune to ask, why write these codes? Why pretend as if top executives like Mark Hurd of Hewlett Packard (HPQ) or Larry Ellison of Oracle (ORCL) are held to these standards, when recent events have shown us quite clearly top executives are ex officio not?  Why have a code at all?

To be sure, some companies try to make codes of conduct relevant. Apple's (AAPL) business code of conduct was updated in July. Dell's (DELL) was updated in August.  This is commendable because it means these companies are keeping their codes fresh – and for both these firms, the updates to their codes of conduct are significant --including more expansive language in a number of areas. But neither update likely addresses the structural problem of codes in general.

The tangle of codes

But employee codes of conduct are just the tip of the iceberg in terms of codes tech employees and others must live by. That's because as mentioned, many employees aren't just subject to one. There are codes of many kinds: while some codes are specifically designed to cover just one category of individuals some apply to wide ranging groups.

Oracle's code of conduct for its employees, for example, applies to "temporary employees, workers (including agency workers), casual staff, and independent contractors" – as well as Oracle partners. Dell's and Apple's are similarly expansive.

In theory, that's a good thing – but it can also create a confusing hodge-podge that can trip people up. For example, in addition to violations of the HP business code, did the HP board realize that Mark Hurd, in his Jodie Fisher scandal, also may have violated both Oracle's business code and Oracle's partner code?  Both apply to Oracle partners and state: "avoid engaging in any activity that involves even the appearance of impropriety". The stated penalty of an Oracle partner code violation is severe, constituting "the basis for the immediate termination of your distribution agreements with Oracle."

Ellison, in commenting so publicly and negatively to the media on the HP board's decision to fire Hurd, may have also violated both companies' codes. But does anyone for a second think HP and Oracle would cease to do business because of code violations? Ellison's outbursts could impact the relationship with HP in the future, but it'd more likely be over hurt feelings than citations of codes. And that reinforces the notion that those in charge are somehow exempt from the morass of agreements and reading material they have created for their underlings to attempt to comprehend and live by.

In a similar way, as longstanding partners, Apple's supplier code could apply to Oracle and Oracle's code and partner agreement to Apple.

Dell holds their suppliers and partners to the Electronics Industry Code of Conduct. With the exception of a few special situations, Dell prefers not to sign on to other companies' codes because they don't want team members to be confused by having to adhere to multiple codes. (But Oracle's Code of Conduct doesn't note any exception that would honor Dell's preference.)

And does the Board of Oracle realize that Dell, in their business code, holds them to similar standards as their own employees, which requires staff to report partners who "act illegally or unethically"? Does the Oracle Board realize that their CEO, Larry Ellison, is subject to not only these requirements but also confidentiality of HP information and objectivity clauses with respect to HP's partner code as well as Oracle's own code related to respectful interaction with Oracle's partners?

What HP harassment policy?

It's not just the codes. In addition to the mountains of codes, there are many multiples of policies too. For example, HP has an entire web page of policies that supplement their business code. Most of them can be accessed with a click of a button, but not all.  Their harassment policy, for example, drops off to a page which says "The page you are looking for is no longer available or has been moved." Who does the policy apply to? Does anyone know whether contractors were or are included? A media relations contact for HP did not provide any insights or make the policy available, so we don't know.

Which, of course, raises a whole host of issues including this one: do tech company employees actually have ready access to the codes which apply to them in one place where they can find them?

The bottom line: should codes matter?

Over the last few weeks the news has been filled with issues at firms with numerous codes to adhere to. For the boards of these companies, the headlines should have been a wake-up call. The solution, however, can't be confined to having company employees add new provisions to codes and policies.

Rather, it's time for these boards (and others) to get serious and review the multitude of codes and policies to which their employees are subject.  It's time to evaluate the unintended consequences of minefields created by setting up a maze of policies and codes, a maze that has the potential for endless litigation related to unequal and unfair treatment

To do the job well, the process needs to start at the top with the independent directors who sit on the board. Those directors need to look in the mirror and ask this fundamental question: "Are we willing to hold a Michael Dell, a Larry Ellison or a Steve Jobs accountable to these standards?" This is especially critical given the contents of some of these codes, which can have the effect of restricting employee freedom of speech and association.  Do these sections apply to the directors and officers as well?

If the independent directors aren't willing to hold the CEO accountable to all these standards, maybe they need a fresh piece of paper and a fresh look, where they can write down what the standards really are – the standards that apply equally to everyone – dividing up which are aspirational and which hold real accountabilities.

Ethics conversations are some of the most difficult conversations you can have. Things get personal.  But they are made much more difficult if you don't know where you stand with regards to the rules. As difficult as the dialogue may be, independent directors on the board are in those seats to be courageous and have that conversation -- to set the tone at the top, making ethics part of the ongoing feedback they provide -- and the accountability they require of - their CEO.
--Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance, a board advisory firm.

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Paul Smalera
Paul Smalera

Paul Smalera is a senior editor for Fortune.com, guiding the website's coverage of tech, finance, investing and the economy. He has written about a wide variety of topics -- from the inner workings of the Google search engine, to the biodiversity protecting Svalbard Global Seed Vault, to the economics behind online dating websites and the impact of the Fed's policies on the national and global economy. A true generalist, Smalera believes every story is a business story if you follow the money.

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