Markkula Center of Applied Ethics

Understanding the Ethical Dilemmas Facing Governing Boards

The Challenge

From corporations to universities to not-for-profit organizations, governing boards have recently come under intense scrutiny. Owners and the public rely on these boards to guide organizations toward their goals and to prevent improper behavior. To encourage accountability, we need to identify and understand the difficult ethical decisions all directors and trustees face.

What's at Stake

The recent failure of some boards to provide adequate oversight has contributed to misbehavior and even to organizational collapse. Though only a very small handful of organizations are involved, great harm has been done to thousands of shareholders, employees, and others dependent on those organizations. But the greatest harm has been done to the trust the public has placed in business and other organizations and their governing boards. While there are hundreds of regulatory proposals for increased accountability, they cannot cover every conceivable issue a board member faces. Board members and trustees are inevitably faced with ethical decisions as well as management, financial, legal, and strategic ones. Thoughtful consideration of the ethical dimension of these choices can lead to better decisions and to greater trust in American governing bodies.

Critical questions

  • How far do the board's responsibilities to all the organization's constituencies go, and what does a board do when these multiple obligations are in conflict?

  • Where does a board draw the line on conflicts of interest? Almost every board member and manager has personal or financial interests that might be construed as conflicts of interest.

  • Where does a board draw the line on marginal ethical practices, such as deliberate late bill payment, that are not specifically illegal?

  • Where does a board draw the line between adequate oversight and unnecessary meddling in the day-to-day affairs of the organization?

  • How can a board size up the ethical character of a leader? When do they know enough to make a choice? When should a board remove a leader for ethical failures?

  • How much should a board be willing to pay to hire the best leader? How much should a board pay a leader even if he or she fails?

  • Where does a board draw the line to balance the short- and long-term impacts of decisions? How much risk in decisions should a board ethically tolerate?

October 23, 2003

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