Voluntary Codes Guide – What is a Voluntary Code?

Voluntary Codes: A Guide for Their Development and Use

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About Voluntary Codes

What is a Voluntary Code?

Voluntary codes are codes of practice and other arrangements that influence, shape, control or set benchmarks for behaviour in the marketplace. They encourage companies and organizations to conduct themselves in ways that benefit both themselves and the community. They can also serve as a sign to consumers that the organization's product, service or activity meets certain standards.

Voluntary codes exist for a range of industries, products and services, and address many aspects of marketplace behaviour. Some have become so much a part of the culture that consumers may not recognize them as voluntary codes. The care tags on clothing, for example, are part of a familiar standard adopted voluntarily by the garment industry.

Voluntary codes go by several names, including codes of conduct, codes of practice, voluntary initiatives, guidelines and non-regulatory agreements. ¹ No matter what they are called, though, they have certain things in common:

• They are a set of non-legislatively required commitments.
• One or more individuals or organizations agree to them.
• They are designed to influence, shape, control or benchmark behaviour.
• They are to be applied in a consistent manner or to reach a consistent outcome.

A voluntary code may consist of several documents, including a general statement of principles and obligations, as well as technical agreements pertaining to specific operational aspects such as reporting requirements and dispute-resolution powers. In this Guide, all of these documents taken together comprise a code.

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Examples of Voluntary Codes

• The GAP clothing chain Sourcing Code requires suppliers (many in Third World countries) to meet certain labour-related standards, and suppliers must follow the code to keep their contract with the company. Following pressure from consumers, labour and others, third party monitoring of code compliance is now taking place.
• Members of the Canadian Direct Marketing Association (CDMA) must meet the terms of several codes to remain members. For example, one code protects customer privacy and limits the sharing of customer information. Only CDMA members that comply with the codes can display the CDMA logo in their advertisements and on their products. CDMA members include companies, as well as charities and other non-profit organizations, that use direct marketing.
• Consumers International, a non-profit foundation linking the activities of some 200 consumer groups in over 80 countries, has developed A Consumer Charter for Global Business. The Charter obliges participating companies to meet standards pertaining to ethical conduct (e.g., bribery), competitiveness, marketing practices, guarantees, and complaints handling. Companies wishing to adhere to the Charter are subject to an initial investigation by Consumers International.
• The Canadian Chemical Producers' Association's (CCPA) Responsible Care® Program is a system of principles and rules to improve the safe, environmentally sound management of chemicals through their life cycle. More than 70 chemical companies participate in the program as a condition of CCPA membership. The program is subject to regular reviews and revisions, with input and advice from environmental and other advocacy groups. Participating companies must submit to regular compliance verification through a process that involves industry experts, advocates and community representatives. The Association makes monitoring results public.
• The Canadian Care Labelling symbols on tags sewn on clothing indicate suggested care and cleaning procedures. The federal government initiated the standard and the garment industry voluntarily applies it. Although the law does not require companies to use the tags, the government does prosecute deceptive or misleading usage.

Features of Voluntary Codes

• Individual firms or industry associations, governments or other groups such as non-profit, public-interest and standards organizations can initiate, develop or adhere to voluntary codes. While one organization may initiate a code, others may help to develop and apply it.
• A voluntary code can apply to a single store or company, several firms or organizations, an entire sector or many sectors. A code can also be national or international in scope.
• Codes are usually initiated in response to consumer or competitive pressures, the real or perceived threat of a new law, regulation or trade sanctions, or a combination of these.
• While codes are voluntary (they are not legislatively required commitments), they operate within a legal environment that includes consumer, competition, health and safety, labour and environmental legislation and regulations, and contract and tort (personal injuries) law. Sometimes codes supplement legislation. Failure to adhere to the terms of voluntary codes may have legal implications, including regulatory or civil liability. In some cases, an individual or organization may use a voluntary code to help demonstrate or refute due diligence in prosecutions or establish reasonable care or negligence in civil litigation.
• Voluntary codes are flexible instruments to be refined and improved over time. The GAP Sourcing Code and the Canadian Chemical Producers' Association's Responsible Care® Program, for example, added the concept of third-party compliance monitoring after being in place for some time.

Benefits of Voluntary Codes

Voluntary codes offer several benefits to the public, employees and consumers:

• They encourage or discourage behaviours or activities.
• They stimulate public participation in the development and implementation of codes in important areas.
• They promote more informed and less costly interactions between code signatories and the public about such matters as product manufacturing, development or delivery that, in turn, advance public confidence and help safeguard the public interest.
• They address consumer concerns such as quality, price and choice, as well as broader matters such as privacy, the environment, health and safety, labour standards, human rights, advertising and public standards of decency.

For firms and organizations, voluntary codes can do many things:

• They can stimulate more efficient, effective operations that minimize negative social, environmental and economic impacts. This puts firms and organizations in a more favourable light with the public, customers, government and others, and may have the added benefit of reducing the pressure for new regulations.
• They can help maintain or improve market share.²
• They can maintain or improve public image, which can help to attract and retain highly qualified personnel, and lead to other benefits.
• They can help diffuse new technologies and best management practices within an industry, and provide feedback on consumer preferences and other market intelligence.
• They can complement existing laws, thereby improving relations with government agencies and regulatory bodies.

For government, voluntary codes can have several advantages:

• They can further public policy objectives through non-regulatory means.
• They can complement or expand traditional regulatory regimes.
• They can avoid jurisdictional and constitutional obstacles that are part of legislative development. (This may be particularly useful for multijurisdictional voluntary initiatives across provinces or countries.)
• They can assist in establishing the appropriate legal standard of care for an activity.
• They can go beyond the minimum standards set in law.
• They can set and adjust standards more quickly and less expensively than do laws and regulations.

Potential Drawbacks of Voluntary Codes

While voluntary codes can have significant benefits, they can also have harmful effects when not properly developed and administered.

• Poorly designed or implemented codes can frustrate or mislead their intended audience. As well, codes not backed by action can have legal consequences under deceptive advertising regulations and through contract and tort law actions.
• Poorly designed or implemented codes can bring negative publicity and lead to loss of trust or business that can be difficult to recoup.
• Codes that raise expectations but do not deliver can slow or prevent needed laws. In the short term, this can harm the parties or interests that should have been protected. In the longer term, it can cause people or governments to mobilize against the organization in question.
• Codes can be anti-competitive and used to engage in collusive behaviour. Under the provisions of the Competition Act, voluntary codes or other arrangements cannot be used in a way that substantially reduces competition, prevents non-participating firms from entering the market or negatively affects consumers by significantly raising prices, reducing service or limiting product choice.
• Codes should not create barriers to interprovincial or international trade. A code that prevents firms from entering and competing in a market may attract the attention of national or international trade authorities.
• Codes can create an “uneven playing field.” This may not necessarily be a bad thing, since codes can be developed to show leadership in a particular area or activity. However, non-participating firms can potentially enjoy a “free ride” on the positive image that a code helps create. Consumers can develop a false sense of security about the characteristics of a product, service or firm that is not actually the subject of a code. As well, firms that do conform may be penalized: they may have to bear unrecoverable costs associated with adhering to the codes and could be tainted by the non-compliance of others. The need for cooperation and agreement to make a code work and avoid free riders stands in contrast to laws that impose standards on all parties regardless of their individual consent.
• The development and implementation of voluntary codes may not be sufficiently transparent and inclusive. Compared to the well-established consultation and public review processes in place for developing and monitoring statutes and regulatory regimes, voluntary codes may offer less opportunity for public participation and scrutiny that can lead to questions about the code's credibility.
• Voluntary approaches on their own may be insufficient when the consequences of non-compliance are serious (for example, harm to health, safety or the environment).
• Sometimes voluntary codes, as opposed to laws, attract skepticism and negative attention. For example, the Tobacco Industry Voluntary Packaging and Advertising Code developed by the Canadian Tobacco Manufacturers' Council has received considerable negative attention in the media.

As this list suggests, the potential drawbacks of poorly designed or implemented voluntary codes can be significant, so applying some healthy skepticism before actually developing a code might be beneficial. It takes considerable time, energy and resources to successfully develop and implement a voluntary code and even then it may not achieve the hoped-for results.

Common Characteristics of Good Voluntary Codes

While codes can be highly diverse in terms of form, content, and purpose, most of the successful ones share certain characteristics.

Explicit commitment of the leaders — If the leaders of an organization or sector promote the use of voluntary codes, others are more likely to follow. These leaders should be identified early in the process so that they can champion the initiative and be visible during its development and implementation.

Rank-and-file buy-in — Often, it is the front-line workers (cashiers, factory workers, engineers and supervisors, for example) who translate the code's provisions into reality. To be able to give their full commitment and support, they must understand the code and its objectives, how it will work and their role in implementing it. This requires good internal communications, training and, in some cases, fundamental changes in corporate culture.

Clear statement of objectives, expectations, obligations and ground rules — While the need for a code and its initial development may evolve from a brainstorming session or similar free-flowing circumstances, the aims, roles and responsibilities must be clearly articulated early on. This helps to preclude problems such as participant withdrawal. On the other hand, the initial statement of purpose and ground rules should be flexible enough to allow the code to be changed to meet new circumstances and challenges.

Open, transparent development and implementation — Codes are more likely to reflect broader socio-economic concerns and be better received if they are developed and implemented openly and with the participation of the larger community (that is, workers, suppliers, competitors, consumers, public-interest groups, governments and neighbours). This enhances the credibility and effectiveness of the code and its proponents and participants.

Regular flow of information — Everyone concerned must get feedback on how the code is working and how others are responding to it. This can be achieved through self-reporting, internal and third-party monitoring, compliance verification, public reporting and similar techniques.

An effective, transparent dispute-resolution system — A dispute-resolution system that is inexpensive, fair, open, accessible and consistent is often essential to a well-functioning code.

Meaningful inducements to participate — If a code makes good business sense and offers meaningful inducements, firms will want to participate. One such inducement might be access to information, technology or marketing tools not available to others. For example, real estate brokers who comply with their code have access to the Multiple Listing Service, which lists properties for sale and people looking for properties.

Negative repercussions for failure to join or comply — Firms will be more enthusiastic about joining and complying to a code if they discover that they could lose business if they do not. For example, they might lose public credibility or customer loyalty. Associations that publicize non-compliance and levy fines is an example of negative sanctions that work with voluntary codes.

Conditions Conducive to Successful Code Development
Pressures for Code Development

While codes are voluntary — firms are not legislatively required to develop or adhere to them — the term “voluntary” is something of a misnomer. Voluntary codes are usually a response to the real or perceived threat of a new law, regulation or trade sanctions, competitive pressures or opportunities, or consumer and other market or public pressures.

Often, codes are created in response to a combination of factors. In fact, the more factors brought to bear, the greater the chances of a code's success. The Canadian Chemical Producers' Association developed its Responsible Care® Program after a series of high-profile chemical disasters eroded public confidence and raised the threat of tighter government regulation and controls.

It is worth noting that once a code is in place, the initial pressure that led to its creation may dissipate, which could cause compliance among adherents to taper off. It is important, therefore, to build into the code as many mechanisms as possible to sustain or renew the energies that led to its development.

Pressures to improve the quality of operations or access to capital and resources — Codes may be developed to attract new employees, raise money in markets based on a better environmental reputation or effect energy and material savings among other things.

The threat of a new law, regulation or trade sanctions — Some firms and organizations conclude that changing or controlling their own behaviour through voluntary measures, rather than in response to new or more onerous regulations, will be less expensive and allow a broader range of solutions. Government will sometimes allow them to do so if they can show that they can handle the responsibility effectively. Or, government may refrain from primary regulatory activity if a sector shows it is willing and able to manage its own activities. Several years ago, the Canadian Radio-Television and Telecommunications Commission (Canadian Radio-Television and Telecommunications Commission) gave the Canadian Cable Television Association (CCTA) lead responsibility for consumer service standards for cable television. CCTA developed its standards in accordance with Canadian Radio-Television and Telecommunications Commission guidelines. The standards are administered by the Cable Television Standards Council, which receives, reviews and responds to customer complaints regarding cable industry practices. Customers can still appeal to the Canadian Radio-Television and Telecommunications Commission but rarely do so.

Consumer and other market or public pressures — In many situations, market and public pressures are the main reason companies or organizations launch codes. For example, the Canadian Standards Association's Sustainable Forestry Management Certification System was driven largely by the fear of European boycotts of Canadian wood products. A firm or group of firms might also initiate a code to maintain or enhance its market share. For example, Australian fruit juice manufacturers have a code that ensures that the juices are, in fact, pure when they are so designated. The arrangement allows manufacturers to have a competitor's products tested by an independent laboratory if they suspect a false claim of purity. In this way, private sector competitive pressures help to ensure quality for consumers.

Sector-wide Codes

Special considerations arise when the codes apply to a group of firms or organizations that make similar products and serve similar markets. Pressure for such codes may come from a desire among competing firms to raise and standardize performance norms or from a particular group of firms that wants to set itself apart from others in the sector. An important concern is the possibility that issues may arise under the federal Competition Act.

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Possible Issues under the Competition Act

Voluntary arrangements that involve industry competitors can raise many of the same competition issues as mergers and strategic alliances do. Code proponents may wish, as a first reference, to read the Highlights page of the document Strategic Alliances Under the Competition Act, published in 1995 by the Director of Investigation and Research, Industry Canada. Briefly, the text states that most strategic alliances do not raise issues under the Act, and that vertical and conglomerate alliances are less likely than horizontal alliances to do so. The document points out that:

• the few strategic alliances that may raise competition issues are more likely to involve those sections of the Act that include a test of market power
• firms acting as sellers will hold market power when they have the ability to increase prices above competitive levels (or reduce output, quality or choice below competitive levels) for a sustained period of time
• when strategic alliances involve behaviour particularly injurious to competition, an inquiry under the conspiracy provisions of the Act may be initiated.

One point not addressed in this Guide is that involvement by consumer groups or others representing customers can reduce the danger of anti-competitive concerns, but only if these groups have access to the technical information and expertise needed to allow them to contribute effectively to code development and implementation.

The Competition Bureau encourages any group developing a code that might raise issues under competition legislation to work with the Bureau at an early stage. As well, the Bureau provides both oral and written opinions on the applicability of the Competition Act to specific situations through its Program of Advisory Opinions.

Please be advised that a fee may apply to requests for a written opinion. For more information on how the Competition Act might apply to a proposed voluntary code, please contact the Competition Bureau at 1-800-348-5358.

Sector-wide codes work best when they have the same characteristics as those already listed. However, certain of these characteristics are especially pertinent in the case of sector-wide codes.

• A well-established association of firms and organizations can bring parties together, provide a forum for the exchange of ideas and group solutions, serve as an institutional base for developing and implementing codes and, in general, greatly facilitate code development and implementation.
• Leadership from key firms or individuals within firms is particularly valuable in a sector-wide context to persuade reluctant members to join.
• Well-understood, broadly supported inducements for compliance and sanctions for non-compliance are essential. Whether the code will apply to a single firm or organization or across a sector, proponents must carefully explore the incentives and disincentives for voluntary action. Explaining the code in terms of the personal or material advantages that might flow from it may have more impact than broad explanations of the benefits to the sector as a whole.

The Canadian Chemical Producers' Association has articulated eight “Ps” for encouraging compliance with its Responsible Care® Program:

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¹ For discussion of the relationship between voluntary codes and the National Standards System, click here. Back to text

² When the objective of the code is to maintain or improve market position, parties must keep in mind that the methods employed must comply with the Competition Act and other legislation.

• public involvement
• pulling together
• peer pressure
• performance measurement
• public accountability
• payback
• partnership
• pride

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