Director General's Preface
Foreword
About the Guide

About Voluntary Codes

What is a Voluntary Code?
Features of Voluntary Codes
Benefits of Voluntary Codes
Potential Drawbacks of Voluntary Codes
Common Characteristics of Good Voluntary Codes
Conditions Conducive to Successful Code Development
Pressures for Code Development
Sector-Wide Codes

Developing and Implementing Voluntary Codes

Processes for Developing Effective Codes
An Eight-Step Model for Developing Codes
Tips and Suggestions
Labour and Voluntary Codes
Components of Effective Codes
Effective Implementation of Voluntary Codes
Phased-in Compliance
Implementation Roles
Private Law Implications

Summary of Key Points
Where can I get more help?
Comments Sheet

Director General's Preface

A growing number of firms and organizations are using voluntary codes to respond to competitive pressures, meet consumer demands and further public policy objectives. A supplement to traditional regulatory approaches and, in some circumstances, an alternative to regulations, voluntary codes can be an inexpensive, effective, flexible market instrument. Several codes have been developed with the active involvement of officials from Industry Canada and other departments and agencies.

However, considerable uncertainty still exists in the private and non-profit sectors, the nongovernmental organization (NGO) community and government regarding the nature of voluntary codes, how and when they work best, and how to develop and implement them. This guide, a joint initiative of Industry Canada's Office of Consumer Affairs (OCA) and Treasury Board Secretariat's Regulatory Affairs Directorate (RAD), is designed to help all parties better understand voluntary codes. It was prepared by a multi-stakeholder working group, with valuable input and advice from many others.

This guide represents the culmination of a joint OCA/RAD research program into voluntary codes, undertaken in 1995 and 1996, which led to a symposium in September, 1996. Attended by representatives of government, the private sector and NGOs, symposium participants broadly supported the initiative to create a guide such as this, similar to those already in place in Australia and New Zealand.

While this guide is designed to be of assistance in developing and implementing voluntary codes, it is intended only to be a departure point and does not answer all of the possible questions that could arise in various circumstances. I hope it will encourage members of the private sector, government and NGOs to initiate and support voluntary codes where they are appropriate, and to develop fair, effective codes that benefit Canadians.

David Fransen
Director General,
Office of Consumer Affairs
Industry Canada

Foreword

Well designed and implemented voluntary codes can help to achieve public-interest goals, attract customers and minimize regulatory and taxpayer burdens - to the benefit of everyone concerned. However, a code that is poorly designed, improperly implemented, or used in inappropriate circumstances, can actually harm both its proponents and the public. The challenge is to know when voluntary codes are most likely to succeed and to establish solid development and implementation processes that are fair, effective and efficient. This guide is intended to help individuals and organizations interested in meeting these challenges.

The Office of Consumer Affairs, Industry Canada, and the Regulatory Affairs Directorate, Treasury Board Secretariat, thank the many individuals and organizations who provided input, advice and support leading to the preparation of this guide. Particular gratitude goes to the members of the multi-stakeholder Voluntary Codes Guide Working Group whose membership included (in alphabetical order):

David Cohen, Dean, University of Victoria Law School and Academic Advisor to the Voluntary Codes Project

Brian Glabb, Senior Project Officer, Regulatory Affairs Directorate, Treasury Board

Ellen Lesiuk, Manager (Policy), Standards Council of Canada

Mamie McCall, Director of Policy Research (now Executive Director), Consumers' Association of Canada

Ken Ogilvie, Executive Director, Pollution Probe

Marie Vallée, Policy and Regulatory Analyst, Federation nationale des associations de consommateurs du Quebec

Brian Wastle, Vice President, Responsible Care, Canadian Chemical Producers' Association

Kernaghan Webb, Senior Legal Policy Analyst, Office of Consumer Affairs, Industry Canada

Peter Woolford, Senior Vice President, Policy, Retail Council of Canada

The guide discusses several codes already in place, and highlights certain code development and implementation processes. Mention of any particular code or process should not be interpreted as endorsement by the federal government or by those who participated in the guide's preparation.

About the Guide

This guide is designed to assist individuals and organizations interested in developing and implementing voluntary codes. Drawing on the experiences and ideas of others, it highlights issues and considerations of code design and operation.

The first part of the guide discusses the strengths, weaknesses and other characteristics of voluntary codes and the conditions in which they tend to be most successful. The second part presents suggestions for developing and implementing codes. Recognizing that readers may already be familiar with various aspects of voluntary codes, each section of the guide is intended to stand on its own.

All suggestions for improving the guide will be welcome. A comments sheet is provided for this purpose at the back of the document. Based largely on this feedback and the practical experience of users, we will review, update and improve the guide.

For more information, contact:

Kernaghan Webb
Senior Legal Policy Analyst
Office of Consumer Affairs
Industry Canada
Phone: (613) 952-2534
Fax: (613) 952-6927
E-mail: [email protected]

Brian Glabb
Senior Project Officer
Regulatory Affairs Directorate
Treasury Board
Phone: (613) 952-8290
Fax: (613) 957-7875
E-mail: [email protected]

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 broader 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 our culture that we 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. (See box.)

Voluntary codes go by several names - codes of conduct, codes of practice, voluntary initiatives, guidelines, non-regulatory agreements and several others. No matter what their nomenclature, they share common elements. Voluntary codes are:

• a set of non-legislated commitments

• agreed to by one or more individuals or organizations

• designed to influence, shape, control or benchmark behaviour

• to be applied in a consistent manner and/or reach a consistent outcome by all participants.

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

Features of Voluntary Codes

• Voluntary codes can be initiated, developed or adhered to by individual firms or industry associations, governments or other groups such as non-profit, public-interest and standards organizations. While one organization may initiate the codes, others may help to develop and apply them.

• A code can apply to a single store or company, several firms or organizations, an entire sector or many sectors. They can also be national or international.

• 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 in that they are not legislatively required, they operate within a legal environment that includes consumer, competition, health and safety, labour and environmental legislation and regulations, contract and tort (personal injuries) law. Sometimes codes are a supplement to legislation. The failure to adhere to the terms of voluntary codes may have legal implications including regulatory or civil liability. In some cases, voluntary codes may be used to assist in demonstrating or refuting due diligence in prosecutions or in establishing reasonable care or negligence in civil litigation.

• Voluntary codes are flexible instruments which can be refined and improved over time. The GAP clothing code and the CCPA Responsible Care program, for example, added the concept of third-party compliance monitoring after the projects had been in place for some time.

Benefits of Voluntary Codes

Voluntary codes offer several benefits to all concerned. For the public, employees and consumers, voluntary codes can:

• encourage or discourage behaviours or activities;

• stimulate public participation in the development and implementation of codes that they consider important;

• promote more informed and less costly interactions between code signatories and the public about such matters as product manufacturing, development or delivery which, in turn, advances public confidence and helps to safeguard the public interest; and

• 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:

• stimulate more efficient, effective operations which minimize negative social, environmental and economic impacts. This, in turn, 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;

• maintain or improve market share;¹

• maintain or improve public image which, among other benefits, can help to attract and retain highly qualified personnel;

• help diffuse new technologies and best management practices within an industry, and provide feedback on consumer preferences and other market intelligence; and

• complement existing laws, thereby improving relations with government agencies and regulatory bodies.

For government, voluntary codes can:

• further public policy objectives through non-regulatory means;

• complement or expand traditional regulatory regimes,

• avoid jurisdictional and constitutional obstacles which are part of legislative development (this may be particularly useful for multi-jurisdictional voluntary initiatives across provinces or countries);

• assist in establishing the appropriate legal standard of care for an activity;

• go beyond the minimum standards set in law; and

• set and adjust standards more quickly and less expensively than do laws and regulations.

Potential Drawbacks of Voluntary Codes

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

• Poorly designed or implemented codes can frustrate or mislead their intended audience. As well, codes not backed by action can have legal consequences under deceptiveadvertising 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 which 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 inter-provincial or international trade. A code which 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 " Non-participating firms can potentially "free ride' on the positive image that a code has helped to create. Consumers can develop a false sense of security about the characteristics of a product, service or firm which is not actually the subject of a code. As well, firms that do conform may be penalized in that they may have to bear unrecoverable costs associated with adhering to the codes and/or 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 which 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 which, in turn, can lead to questions about the code's credibility.

• voluntary approaches on their own may be insufficient in situations where the consequences of non-compliance are serious (for example, harm to health, safety or the environment).

• Sometimes voluntary codes, as opposed to laws attract scepticism 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, and some healthy scepticism before deciding on this route 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. Voluntary codes, while potentially beneficial in some situations, may not be appropriate in others.

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 in its development and implementation.

• Rank-and-file buy-in. Often, it is the frontline workers (cashiers, factory workers, engineers, supervisors) 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 at an early stage. This helps to preclude problems such as participant withdrawal down the road. 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 by all concerned if they are developed and implemented openly and with the participation of the larger community (workers, suppliers, competitors, consumers, public-interest groups, governments, 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 selfreporting, internal and third-party monitoring, compliance verification, public reporting and similar techniques.

• An effective, transparent dispute-resolution system. A dispute-resolution system which is inexpensive, fair, open, accessible and consistent is essential.

• 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 or people looking for properties.

• Negative repercussions for failure to join or comply. Firms will be more enthusiastic about joining and complying if they discover that they could lose business if they do not. For example, they might lose public credibility or customer loyalty. Publicizing non-compliance and levying fines are two examples of negative sanctions that work in the voluntary code context.

Conditions Conducive to Successful Code Development

Pressures for Code Development

While codes are voluntary in that firms are not legislatively required to develop or adhere to them, the term "voluntary" is something of a misnomer. Actually, 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 Responsible Care® program, for example, grew from a series of high-profile chemical disasters that 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 and this 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. For example, codes may be developed to attract new employees, raise money in markets due to a better environmental reputation or effect energy and material savings.

• 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 (CRTC) gave the Canadian Cable Television Association (CCTA) lead responsibility for consumer service standards for cable TV. CCTA developed its standards in accordance with CRTC guidelines. The standards are administered by the Canadian Cable Television Standards Council which receives, reviews and responds to customer complaints regarding cable industry practices. Customers can still appeal to the CRTC 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 purity problem. 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 (see box on next page).

Sector-wide codes work best when they have the same characteristics as those already fisted under the title "Common Characteristics of Good Voluntary Codes". 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.

Developing and Implementing Voluntary Codes

Processes for Developing Effective Codes

Because voluntary codes deal with so many subjects and are initiated for so many reasons, there is no single preferred approach for developing them. There is also no guarantee that any development process, no matter how complete and thorough, will lead to a successful code. However, to give a general idea of the kind of process that might be involved, we present here one model based on several case studies, followed by some tips and suggestions.

An Eight-Step Model for Developing Codes

1. Gather Information
2. Preliminary Discussions with Major Stakeholders
3. Create a Working Group
4. Preliminary Draft of the Code
5. Consultations on Preliminary Draft
6. Publication and Dissemation of the Code
7. Implementation
8. Review

1. Gather information. Define and discuss the basics such as:

• have all persons and organizations that could be involved or affected by the code been identified, and their interests or concerns taken into account?

• is the issue clearly articulated and agreed upon by the key players?

• what are the objectives and does everyone agree on them?

• how can the identified problem be resolved and what are the potential costs, drawbacks and benefits of each solution?

2. Preliminary discussions with major stakeholders. The objective of this stage is to test the tentative conclusions reached in the information-gathering phase and identify the partners willing to help develop the code. It can be useful to reach beyond like-minded colleagues, employees and other firms and organizations to include representatives of more broadly affected Interests such as consumer, labour and environmental organizations, community representatives² and government officials. This can help to confirm initial perceptions of their interests and concerns, and could lead to additional people and organizations willing to participate in code development. Focus groups, representing like-minded peers or a broader cross-section of interests, can also be useful for testing new ideas.

3. Create a working group. Having the right people on the working group is essential. They must be dependable, credible and knowledgeable, represent different elements of the community affected and have the necessary time and resources to commit. Frank discussion should take place at the outset about the group's objectives, members' responsibilities, anticipated workloads and outcomes, and ground rules about how the group will operate (consensus, majority, rotating chairs, etc.). Regular updates between the working group and the larger community of affected members are also useful.

4. Preliminary draft of the code. In preparing a preliminary draft, members will likely identify who (people, organizations, new groups) will be responsible for which specific aspects of implementation.³ For example, certain employees may perform key functions, and a new agency or management structure may be created to assist in implementation. As far as possible, persons who have been identified as performing key roles should be part of the working group discussions so that their ideas, capabilities and support or resistance can be factored into the terms of the draft code.

5. Consultations on preliminary draft. Thorough consultations at the beginning can prevent problems later. One good approach is to work outward - that is, to start with the people most likely to be directly affected by the code and who are already aware of it, to more formal information dissemination and discussions with groups and people who may not yet know that the code is being developed. A consultation plan can be useful. It should include high-profile officials with good communications skills to explain the code and receive feedback. This feedback will go to the working group for discussion as to how and to what extent it can be reflected in the final text.

6. Publication and dissemination of the code. A good communications plan is important. It should identify who must be made aware of the code, who should receive a copy and how the individuals and groups will be reached. The communications plan might include an awareness campaign addressing such matters as the use of a logo, publicity endeavours such as advertising and speeches, and a notice that firms and organizations can hang in their premises.

7. Implementation. This step is discussed in detail later in the guide but it is worth noting here that implementation is part of code development in the sense that codes are ongoing, flexible documents that can be changed to reflect new circumstances and perceptions. For example, when compliance data is collected and analysed it might reveal new insights into parts of the code that should be changed.

8. Review. As discussed later in the guide, regular review of the code's terms and code operation should be built into the code's terms. When and how often the reviews are scheduled should be based in part on how long it will take to generate data on impacts, effects and objectives achieved. To measure the impact of a program, data is needed on the situation prior to, and at frequent intervals after the code is in operation. This data can be used to not only determine weaknesses in code design and operation, but also to demonstrate results achieved (if any) and progress made through use of the code. In setting the review methodology, it can be useful to revisit the initial code development process - that is, information collection, identification of key stakeholders, establishing a working group, etc.. The use of an independent third party to conduct parts or all of the assessment can provide a more detached perspective and perhaps lend more credibility to the process. With respect to review techniques, many of the tools used to evaluate government programs, measure the impacts of regulatory schemes and analyse the benefits of strategic alliances and other corporate arrangements can be adapted for the review of voluntary codes.

Tips and Suggestions

Be flexible. Original conceptions of the problem and possible solutions will likely change as new information becomes available, better understanding of capabilities and difficulties develop and circumstances change. Remaining flexible and alert to the need for change can make it easier to modify expectations and outcomes.

Be patient and be prepared to accept a less-than-perfect first try. Code development is essentially a learning process - once a code is in place, trust, communication and experience can lead to the creation of more rigorous obligations, accountability structures and institutions in the first round of code amendments. Building structured, regular reviews into a code's terms encourages a process of continuous improvement which will help to make the code increasingly effective and credible.

Take advantage of existing institutional structures. For many firms and organizations, industry associations represent known quantities - trusted intermediaries with the profile and experience to bring parties together and broker differences. Associations can provide forums for discussion and serve as a basic institutional structure for moving codes from the concept stage to implementation. However, for many associations, developing and implementing codes may represent new territory, a step away from simply promoting a sector's interest to actually supervising and even disciplining member organizations. This can be a fundamental change in orientation and it should be undertaken only with the full cooperation of the association and its members.

Get input and advice from employees and/or their organizations. When a code particularly affects employees or is of special interest to them, they and/or their organizations should be invited to participate in its development and implementation. (See box.) In the case of The GAP clothing store code, for example, labour organizations played a key role in disseminating information concerning incidents of code non-compliance which led to changes in the code and its implementation, including the use of third-party monitoring. Standards developed by organizations such as the International Labour Organization can form the basis for voluntary codes initiated by individual firms or groups of firms.

Draw on the credibility and expertise of nongovernmental organizations (NGOs). NGOs represent a wealth of information and valuable perspectives, and their input can give the code additional legitimacy in the public eye. (See box.) For marketplace-oriented codes, consumer groups in particular represent an excellent "hands on" source of market intelligence about customer preferences, experiences and attitudes. NGO participation can take several forms including a "one off' advisory role, ongoing input through a more formalized panel, or direct involvement in implementation, monitoring and dispute resolution. Even where NGOs do not participate in actual compliance verification, they may endorse processes conducted by others. NGOs may expect payment for their expenses and services (for research, consultations with members, attending meetings, etc.) just as consultants do. NGOs and code proponents should work together to ensure that the credibility and independence of the participating NGOs are maintained. Regular communication with the broader NGO community can also be useful.

Select NGOs and their representatives with care. A good fit is important. Selecting which NGOs - and which individuals within those organizations - to invite should be done carefully. Discuss with them early the code's goals, the development and implementation processes and the roles and responsibilities of NGOs. This ensures mutual understanding, builds trust and sets the groundwork for a good working relationship.

Solicit input from community representatives early and often. In a fundamental sense, industry is a guest of the community and, as such, has an obligation to respect community norms and values. While community representatives often do not have the same degree of expertise as NGOs, they can help to gauge the community's concerns and perspectives and help to ensure its support in the industry's endeavours.

Explore the feasibility of using National Standards Systems (NSS) members (standards development organizations, certification and testing organizations, registration organizations). NSS standards are developed through a consensus process involving teams of volunteers representing many stakeholders. (See box this page.) Standards development organizations (SDOs) represent a preestablished, credible approach to developing a standard. In addition, certification organizations and accredited testing laboratories can test and audit compliance with standards.

No clear dividing line exists between voluntary codes developed through SDOs and those created outside the SDO system. However, the SDO network of rule-making and implementation expertise may make that approach particularly appropriate for broad, nation-wide and international standards. For example, a multi-sector national standard for the protection of personal information was developed under the auspices of the Canadian Standards Association by a diverse group of industry, government, consumer and other representatives. The CSA Model Privacy Code represents the only existing national consensus standard on personal information protection.

Broach relevant government agencies for input and advice as early in the process as possible. Even when government does not play a catalyst role, relevant departments and agencies should be notified as soon as possible of intentions to create a voluntary code. Once a code is in operation, government officials should be kept informed of any changes or developments.

In the short term, government agencies can provide important expertise and advice. In the longer term, failure to inform them could leave the code and its proponents open to regulatory enforcement actions. (See box below for more details about how government can help.)

CODE DEVELOPMENT

Note: While the process outlined here appears linear, in practice, there may be feedback from later to earlier stages.

Components of Effective Codes

Effective codes vary significantly but most contain the following key attributes.

• A "plain language" statement of code objectives. Ideally, the entire code will be written in plain language so that everyone can read and understand it. However, in some cases - for example, when the code addresses highly technical matters and the intended audiences are specialists - it may be impossible to avoid technical language. , In all cases though, at least the objectives should be written in a simple, straightforward manner. A code that goes to a "plain language" editor should be reviewed carefully to ensure that the final product retains the original meanings and key terms.

• Clear, concise obligations. The heart of the code is the statement of commitments or standards that participants must meet. These obligations must be written in precise, unambiguous language so that they deliver the guidance required at the operational level. Otherwise, people may interpret them differently which, in turn, can frustrate those who apply the code, the intended beneficiaries and the individuals responsible for evaluating compliance. However, there is also value in writing obligations in a way that promotes operational flexibility. For example, rather than set out in detail how an obligation should be met, the code should specify the performance result to be achieved.

• A range of information-oriented provisions governing compliance. For fairness and credibility, the parties themselves and the greater affected community must have information about the state of compliance with code provisions and how non-compliance is being addressed. The code's information-related provisions should include some combination of self-reporting obligations for adherents, powers of monitoring, compliance verification or auditing, and the ability to publicize compliance/non-compliance data.

To ensure openness, fairness and honesty, it may be best to have community and NGO representatives involved in compliance verification. From the public's perspective, third-party verification offers more credibility than does self-reporting. Under the Responsible Care program, a combination of competitors, community and NGO representatives are involved in compliance verification. Meaningful compliance verification and auditing can take considerable time and energy on the part of third-party experts. For National Standards System standards, compliance auditing can be undertaken by third parties such as certification organizations, quality registrars and testing laboratories accredited by the Standards Council of Canada.

• Provisions creating positive inducements for parties to comply. When adherence to codes attracts customers or offers privileges not available to others, businesses are more likely to comply. (Please see box on next page for examples of positive inducements.)

• Provisions creating penalties for non-compliance. The ability to respond to non-compliance with appropriate penalties can induce compliance on the part of all adherents and instill notions of fairness, and enhance the credibility of the code in the eyes of the public. For penalties to work, procedures concerning identification of breaches, hearing of cases and opportunities to respond should be set out in the code. Graded responses are also appropriate as they allow administrators to tailor the sanctions to the seriousness of the non-compliance.

Penalties can include negative publicity, fines, suspension or revocation of membership and withdrawal of certain privileges. The Ontario Press Council, for example, requires that decisions concerning complaints be published in the newspaper where the complaint occurs. The Ontario Real Estate Board levies fines. The Canadian Direct Marketing Association and the Canadian Chemical Producers' Association can revoke membership. In Australia, consumers who have been overcharged due to incorrect bar coding can get the product for free.

• Dispute-resolution provisions. The ability to resolve complaints and respond appropriately to non-compliance in a fair, transparent, consistent manner will help to maintain or enhance the reputation and credibility of a code and its administrators. Effective dispute-resolution techniques can often help to preclude bad publicity and costly court cases. Graded responses, that start with, for example, low-profile attempts to resolve matters internally, through to mediation (where a mutually selected third party helps disputants to find a solution but the solution is not binding) and finally arbitration (a binding third-party solution) gives parties the opportunity to avoid the more costly and adversarial public approaches. Litigation is used only as a last resort.

If disputes happen, they tend to do so in two areas: between code adherents and code administrators, and between code adherents and the public. Different resolution approaches work best for different types of disputes. For example, if the dispute involves two code adherents or code adherents and administrators, an internal approach such as mediation might be best because both parties know the code well and mediation requires this level of knowledge. Disputes involving the public (for example, consumer complaints) might benefit from the ombudsperson approach because these individuals have the knowledge and ability to investigate and resolve complaints on behalf of the public.

The Canadian Competitive Telecommunication Association's (CCTA) customer service standards have established an ombudsperson to address customer disputes. Formal decision-making tribunals are another option. This is the last resort mechanism provided by the Cable Television Standards Council. The tribunal consists of a neutral chair with tribunal experience, a cable television industry representative and a consumer representative. The judgements of each tribunal member are published and available to the public.

Whatever approach is adopted, the powers, duties and administrative structures underlying the dispute-resolution techniques should be fully set out in the code or in a subsidiary agreement to the code.

• Periodic review and amendment. By building in progress reviews at predetermined intervals (for example, after two, years and every three years thereafter) and the authority to amend terms, adherents and the public will see that the code's administrators are willing to improve the code as required. As everyone concerned becomes familiar with how their code works - or does not work - in practice and, as circumstances change, periodic reviews provide the opportunity to revise and strengthen the code to reflect the needs and concerns of affected parties. Depending on the code and the circumstances surrounding it, it is usually preferable that third parties such as consumer groups, NGOs, outside auditors and evaluators participate in the reviews.

• Financing and commitment of key human resources. Administering the code - whether it be, monitoring, reporting, publicity, dispute resolution or sanctioning - costs money. Adequate resources must be explicitly built into the code. Such provisions should address issues such as authorization to pay NGOs and other outside parties that participate in code development and implementation and self-financing through such approaches as levying dues and charging for the use of logos and materials, inspections and testing, and training.

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Effective Implementation of Voluntary Codes

A code must be properly implemented to influence behaviour as intended, to have the sought-after market and community impact, and to safeguard the reputations of participants and those who supported it or contributed to its development. A poorly implemented code can prevent or delay necessary legislation. if necessary legislation is put off too long, deficient code implementation could lead to a public crisis which can result in quickly - and poorly - drafted statutes. Poorly implemented codes can also confuse and frustrate the public, government officials, the community, clients and customers. A bad impression, once made, can be difficult to dispel. This can jeopardize later attempts to correct the code and could even affect new, unrelated measures. Codes that are not complied with can also have legal implications for code adherents and others. This section discusses the roles of code adherents, associations, affected parties, NGOs and government in implementation.

• Phased-in Compliance

Ideally, everyone will eventually commit to the terms and conditions of the code. However, 100 per-cent sign-on at the beginning is usually not feasible and may not even be the best approach. Compelling all members of an association to comply immediately can result in the adoption of "lowest-common-denominator" terms and conditions. It is often useful to allow a transition or phase-in period in which only those members that want to sign on voluntarily and have the required implementation capacity, adhere to the initial code. Once implementation experience and a critical mass are achieved, commitment can be made mandatory. This allows sector leaders to forge the way and the rest to follow when success and benefits have been demonstrated.

• Implementation Roles

Code adherents. The main responsibility for the successful implementation of a code lies with the individual adherents. Several techniques are available to ensure that firms or organizations can achieve an appropriate level of implementation. One is to assign a senior manager to be responsible for developing a compliance plan. Another is to provide training and orientation to employees so that they know and carry out their responsibilities. As well, spot checks and audits can reveal problem areas before serious non-compliance occurs.

In the case of sector-wide codes, participating firms and organizations can notify each other of incidents of non-compliance. It is in their best interests to do so because the reputation of the entire sector can be at stake and notification of non-compliance helps to keep the playing field even. The Australian fruit juice code discussed earlier is an example of a formalized system which in effect encourages companies to check up on the activities of their competitors. Peer pressure can also be exerted in the form of frank discussions among parties where the reasons for noncompliance and possible solutions are explored.

Industry associations. An industry association involved in a code's implementation might consider developing a compliance policy which explains how, when and why it will carry out its responsibilities. The policy should be drafted in close consultation with all concerned to help preclude misunderstandings or surprises later. Associations might also develop separate but affiliated bodies to undertake specialized tasks.

NGOs, other affected parties and the public. NGOs, employees, clients, customers and members of the community can all play important roles in implementation. In many ways, these groups and individuals represent an extra set of "eyes and ears" for code participants, alerting them to incidents of non-compliance and even taking part in monitoring, compliance auditing and verification, and dispute resolution. This kind of involvement can enhance a code's credibility. Third-party compliance verification is increasingly common in multi-jurisdictional codes pertaining to treatment of workers. For input from NGOs, community representatives and others to work, code adherents must receive it in a genuine manner - that is, with respect for the expertise and perspectives provided (for example, take appropriate action in response to concerns), giving credit where it is due (and not over-stating it for public relations purposes) and providing remuneration for investments of time, energy and resources.

Government. Government can play an important role in code implementation. In some instances, non-compliance with codes may constitute breaches of federal or provincial laws. For example, a firm that falsely claims to adhere to certain standards could be liable to enforcement actions under federal or provincial laws against misrepresentation. Failure to comply with codes pertaining to environmental, health and safety, consumer or labour protection laws could be factors in convicting organizations pursuant to regulatory laws if the non-compliance is based on lack of due diligence. The government's role also extends beyond the legal arena. For example, government officials can share their experiences and information concerning the implementation of other codes or how related regulatory schemes could be applied to improve the effectiveness of a voluntary instrument. Governments can also encourage compliance by recognizing code efforts in licences, compliance and enforcement policies, and procurement activities.

• Private Law Implications

Non-compliance with voluntary codes may also have implications in terms of private law such as in actions in contract and tort. Private law suits can be brought by other firms or organizations, consumers or other members of the community. Failure to comply with a voluntary code can be taken as evidence that a firm or organization is not meeting industry standards and is therefore not exercising reasonable care or due diligence. In some circumstances non-compliance may also constitute evidence of breach of contract.

Summary of Key Points

1. Codes may be initiated for a variety of reasons but should not delay needed laws. Research suggests that codes are typically developed in response to consumer and/or competitive pressures, the threat of a law or regulation and/or an opportunity for social improvement. While voluntary codes can be useful supplements and forerunners to statutes and regulations, and may have significant legal implications, they should not delay needed laws.

2. Look before leaping. Before initiating or participating in a code initiative, all parties should thoroughly investigate the advantages and disadvantages of involvement. They should explore, at a minimum, the likelihood of the code's success, financial and other benefits, costs, the time and energy required to make the code work, and the potential results if the code fails.

3. Be clear about objectives and roles from the outset. To prevent problems arising later, proponents should articulate as early in the code development process as possible a clear statement concerning the code's objectives and the roles, rights and responsibilities of all parties.

4. Involve all affected interests. Early, regular consultation with all potentially affected parties and the meaningful involvement of key stakeholders can increase the likelihood of a code's success. The credibility and legitimacy of a code may be enhanced by the meaningful participation of non-governmental organizations (NGOs) in the development, implementation and review stages. Proponents should be prepared for the possibility of having to pay NGOs for their expertise and time. Government agencies should also be consulted as early as possible, since codes frequently have regulatory implications (for example, in the areas of consumer, competition and corporate law, workplace health and safety, and the environment).

5. Be sure the code addresses all aspects necessary to ensure compliance. The code should address monitoring and reporting requirements, dispute-resolution mechanisms, incentives for code compliance and sanctions for non-compliance, and review and amendment procedures.

6. Emphasize fair, consistent, transparent implementation. A code must be implemented in a fair, consistent, transparent manner to achieve maximum buy-in from all parties, deliver the greatest good and protect the reputations of everyone concerned. Each code adherent should designate officials within its ranks to be responsible for compliance, and train and educate fieldlevel employees so that they can carry out their responsibilities. Industry associations, NGOs, affected parties, the general public and government agencies can all play important roles.

7. Be patient and flexible. Rigorous terms, 100-per-cent buy-in and full compliance may not be feasible at the outset. Rather, an incremental approach may be necessary, which involves leading by example, transition periods and phased-in commitments over time.

Where can I get more help?

This guide is intended to be a source of information and encouragement for those interested in developing and implementing voluntary codes. To explore the subject in more depth, several options exist:

• for more information on the Voluntary Codes Project, visit Consumer Connection, the website of the Office of Consumer Affairs, Industry Canada, The website can be accessed at: http://strategis.ic.gc.ca/oca, or phone 1-800-328-6189

• for further information concerning regulatory alternatives, visit the Treasury Board Secretariat's website, at http://www.tbs-sct.gc.ca/tb/home-eng.html, or phone (613) 957-2400

• for information regarding standards and standards organizations, visit the Standards Council of Canada website, at: http://www.scc.ca/ or phone 1-800-267-8220

• for information regarding the Competition Act, contact the Competition Bureau at http://strategis.ic.gc.ca/sc-mrksv/competit/engdoc/homepage.html (telephone: 1-800-348-5358) (Link no longer available)

• for research studies on non-regulatory approaches including voluntary codes prepared by non-governmental organizations, contact the Consumers Association of Canada at: (613) 238-2533 and the Public Interest Advocacy Centre at http://www.web.net/piac/ or by telephone at: (613) 562-4002

• for information on consumer attitudes to voluntary codes, and consumer group-business partnerships, contact the Consumers' Council of Canada, by telephone at: (905) 713-2740, or by e-mail at: [email protected]

Comments Sheet

If you have suggestions for improving the guide, or any questions or comments, please send them to:

Kernaghan Webb
Senior Legal Policy Analyst
Office of Consumer Affairs
Industry Canada
Room 965A East Tower
235 Queen St.
Ottawa, Ont.
K1S 1M3

Phone: (613) 952-2534
Fax: (613) 952-6927
E-mail: [email protected]
Thank you. Your assistance is appreciated.

NOTES

¹ Where 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 provisions of the Competition Act and other legislation.

² Code developers may also find the Canadian Standards Association's "A Guide to Public Involvement" helpful.

³ Discussion of key components of codes is provided in the next section of the guide.