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MarketWatch: 5 Ethical Responsibilities of Corporate Boards
Thursday, Aug. 14, 2014
Source: Pandu Adnyana
By Kirk O. Hanson
Most corporate boards have learned to act quickly when a scandal breaks. General Motors’ board is moving much more quickly to clean up the fallout from its vehicles’ ignition failures than Toyota’s board did to address its rapid acceleration problems of several years ago. It is now the rare board that doesn’t launch an independent investigation quickly when misbehavior is reported.
But the responsibility of the board to prevent scandals is more important than the responsibility to clean up the mess once it has emerged. Here most boards are still at the starting gate. Recent legislation and guidance embodied in the Federal Sentencing Guidelines clearly require the board to take a key role in preventing ethics failures before they happened. This is more complicated than calling in the outside lawyers once disaster happens.
Work we’ve done at the Markkula Center for Applied Ethics at Santa Clara University points to several key steps every board should take to get out front of ethics problems. These include:
1. Know the health of the company’s ethical culture.
Does the culture embrace not just begrudging compliance but a real commitment to the interests of the company, its customers and suppliers? Do employees believe their bosses want to hear about ethical problems and will support the employee who raises one?
2. Evaluating the ethics of the business strategy.
Most boards have learned to ask whether the company is ready to monitor a China-based supply chain to insure worker safety. But few boards have discussed the ethics of tax inversions, big data mining strategies, or staffing strategies which make family life difficult.
3. Monitoring the real ethics risks in the organization.
But this is exactly what the 2010 revision of the Federal Sentencing Guidelines requires of management; boards are charged with oversight over the adequacy of this ethics risk assessment.
4. Monitoring the ethical behavior of the leadership team.
It is harder still to know what constitutes a disqualifying factor. He may be hard-charging, but what if he is a bully? How do you evaluate stories that she shaded the truth in talking to the board in her old job? And what is a firing offense? Falsifying a degree on a resume? Having an affair with a subordinate? Failure to tell the board about reports of a product failure?
5. Verifying that the elements of the ethics and compliance system are strong.
But does the board really know whether each part of the system works? Everyone took the annual compliance training, but did it have any effect? The company has a code of conduct, but is it viewed cynically by the staff? Do people really believe the company wants more than minimal compliance? The board needs a way of evaluating the strength of these systems, not just their existence.
By meeting each of these responsibilities, the board sets the tone for true ethical behavior in the company — and does its best to prevent future wrongdoing. Today it is not enough to be conscientious about cleaning up scandals after they occur.
Kirk O. Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University, is offering a free massive open online course (MOOC) on business ethics for executives, Creating an Ethical Corporate Culture
The article was also published on MarketWatch.com