Sense of Ethics: An Essential Quality for Individual Board Member Performance
// BY REATHA CLARK KING, PH.D.
For every corporate scandal there are many untold tales of corporate goodness. Corporate directors make the difference.
In every sector of our society today, we see strong ethical cultures helping organizations achieve their missions and reach their goals. Organizations with high ethical standards and value driven cultures operate with discipline and sustainable success, benefiting their shareholders, customers, consumers, and communities. In every case, these organizations ensure that theirown ethical standards exceed regulatory expectations.
During thirty years of service as a corporate board member as well as many years of leadership in the higher education, philanthropic, and nonprofit sectors, I have witnessed both corporate and non-profits, and in each sector, the story is the same.
Values-focused cultures and high ethical standards are essential for the long-term success of any organization- and certainly contributed to the success of the organizations for which I have served as a fiduciary. Indeed, without a determination by the board and organization leadership to govern and manage with strong ethical standards, we cannot achieve sustainable, long term success.
A compelling question for every governing board member today in corporate and nonprofit organizations is how to establish and sustain this kind of culture. It is a question for board members to examine collectively and individually. From my own experience serving on boards, I have found that this is not a question you can satisfactorily deal with once and put aside. Instead, an effective board member has to keep on asking and dealing with this question because of possible changes in markets and strategies or in management or board composition.
Board members must work to keep themselves fit and prepared to ensure that strong ethical principles and standards are used to guide board decisions. I have outlined here some ways individual board members can stay ethically fit and help maintain an ethical board and company culture. These suggestions are not meant to imply that all challenges in board work will be avoided or that setbacks will not occur. However, following them will help the board deal with challenges more quickly when they do occur.
INDIVIDUAL SELF-ASSESSMENT
As we consider the ethical principles that guide our boards, it is important for individual board members to assess their own ethical grounding and preparedness to participate with the board, particularly on the tough issues. Of course, this self-assessment is private. And it is hard work. It requires much more than merely completing the SEC board questionnaire, code of ethics, and conflict of interest statements every year. It means reflecting on those tough decisions that you struggle with as a board member and collectively as a board.
One such decision might be a vote to remove a CEO or to reverse the board’s decision allowing the former CEO to serve on the board. Guided always by a desire to do the right thing and to consider what’s best for shareholders, board members still find these to be difficult moments.
What’s the best way to prepare to handle these challenges? Experience from prior tough jobs before joining a board certainly helps, and these are the kinds of candidates boards seek for membership. Also, directors can pursue continued education on board work. Doing so will expose you to some theory, but also to the best practices and experiences from other successful enterprises that you will find helpful. Take time to do a self-assessment to see where your skills and preparedness for strong ethical leadership are lacking. In our own individual ways, let’s prepare, let’s fill the gaps, and let’s become more able to guide our companies to becoming and remaining top performing enterprises.
Looking back over the many big and little decisions on boards where I have served, I can see more clearly today the ethical dimensions. By analyzing these past situations and their outcomes, I can better understand what the causes actually were. More importantly, I gain insight into ways my fellow board members and I can ensure quality decisions in the future.
Each individual board member must be able to act with honesty, courage, and clarity, and the board collectively must be willing to stand up with integrity. Sometimes, the ethical underpinning of an organization makes acting with honesty and integrity difficult and requires real courage of its board.
Most directors have known challenging situations on boards in the past. All directors may face tough decisions in the future. Certainly, we need to prepare now for this possibility, as market issues will become more volatile in the future and the management of risks in all organizations will become more challenging.
ENSURE A STRONG TONE AT THE TOP – BELOW AS WELL AS ABOVE
We need to consider how well the board lives up to the positive ethical culture that the organization has developed over time, and then how well the good tone at the top manifests itself downward into the organization. While a strong tone at the top is critically important, it is not enough. William J. White, a professor at Northwestern University, says we must be concerned about the tone at the middle as well as the tone at the top when seeking to ensure that ethical standards are applied in the work of companies.
While president of a successful university, I was constantly monitoring the tone at the middle and the bottom. So Professor White’s comments resonated quickly with my own experiences. Organization leaders, especially corporate leaders, cannot be everywhere all the time. Are the people at all levels prepared to assert their ethical sensibilities and use their own judgment when people are not around to direct them on what to do and when to do it?
My work on audit committees over many years has presented great opportunities for input on the strength of the tone at the middle. We can also keep our eyes open when the board goes on plant visits to observe the operations and talk with the people in charge. The director will be able to gather firsthand evidence of whether a strong ethical culture exists throughout the organization.
Going further, we need to consider the tone at the bottom as well. Hourly workers, with proper development, may well be the company leaders of tomorrow, and even today they are often the voice and face of a company as they serve on its front lines via telephone or retail counter.
GO BEYOND COMPLIANCE
We directors take our responsibilities seriously. We want to serve companies that provide excellent products and services with integrity and to safeguard the interests of all stakeholders. Merely relying on regulatory standards alone won’t get us there. Certainly, regulatory guidance is important, and we must comply with the requirements. However, our ethical standards and our expectations for strong ethical cultures must be higher than what the regulations require and must be implemented with exemplary discipline.
THE STATE OF CORPORATE GOVERNANCE TODAY AND TOMORROW
Self-regulation by organizations, ensuring that our organizations are as good as they can possibly be, is the best way to minimize the need for government regulations. Daily news stories about missteps in corporate governance indicate that more work needs to be done to regain and keep the public’s trust.
However, those of us involved in governance understand that the actual state of corporate governance today is not as bad as others might think. To be sure, scandals in organizations have tarnished the images of top-performing organizations. I am confident that these problems will be overcome by renewed dedication by boards and their members. We will continue to establish good policies and take decisive actions to uphold high ethical standards to create the values-driven cultures that produce and sustain long-term success.
