In addition to the structures, policies, and processes that provide checks and balances, effective governance includes an organization’s ethics, values, and corporate culture. Ethics problems can arise at any level; however, most corporate efforts at addressing ethical issues have seemed to involve developing comprehensive programs for the entire organization, with limited attention being explicitly paid to those at the top.
Ethical Behavior for Board Members Is Culturally Driven
Ethical behavior means acting according to what society, individuals, and businesses generally accept as good values. Good values include traits like honesty, dignity, diversity, fairness, and respect for individual rights, to name a few. Integrity drives ethical behavior naturally. That’s why the overall company culture is the most important influence on ethical conduct at every corporation level.
A corporation’s culture starts at the top with the board of directors, CEO or executive director, and other top managers. Everyone else within the corporation gets a sense of the corporation’s values through what they say and what the corporation has to say through its media, advertising, employee communications, and other messages.
The values within a corporate culture significantly influence the relationships between the corporation and its vendors, customers, and employees. Good ethics means that people with the corporation are honest, fair, and respectful toward everyone they deal with inside and outside the company. When ethical behavior is genuine, it sparks ethical conduct in its employees.
All Ethical Issues Point to the Board of Directors
Corporations can perform many of the same activities as people. Corporate entities can form contracts, own property, hire staff, and make purchases. Because a corporation is not human, there is no way to sanction the corporation or hold it accountable for illegal activity. A corporation doesn’t feel guilt or remorse for having harmed its employees or customers.
Governments and regulatory bodies cannot punish a corporation, but they can hold the people running the corporation accountable. The responsibility for ethical behavior anywhere within the corporation falls squarely on the board of directors because they are responsible for oversight and decision-making.
Reshaping Corporate Culture Is a Difficult Task
A code of ethics is merely a code of ethics unless a culture of ethics drives it. It’s nice to develop a code of ethics on paper that the corporation can send out to vendors, employees, and customers, but the real test is whether the board directors and managers put the code into action.
Board directors first need to identify their stakeholders’ legitimate needs and then make sure all their policies and systems align with those needs. The priorities that board directors should have at the top of their lists are the tone of their communications, role modeling, and oversight to make sure that the corporation’s values are being upheld right down to the employees and customers.
9 Recommendations That Drive Organizational Culture
Evaluating corporate culture should be a topic on the board agenda. These tips may help to establish and promote a positive culture of ethical governance:
The board, the CEO, and senior management need to clarify the behavior they expect across the organization regardless of geography or operating unit. They should develop concrete incentives, policies, and controls to support the desired culture.
Directors and company leaders should take a forward-looking, proactive approach to culture oversight.
The board’s nominating and governance committee should ensure that board policy documents and committee charters outline the allocation of culture oversight responsibilities and explain how culture oversight is embedded into the board’s ongoing work.
Directors should regularly review the whole board’s culture and its key committees, both formally in the evaluation process and informally by allowing conversation in executive sessions. The results of these reviews should inform board composition, succession planning, and continuous improvement efforts.
Directors should assess whether the chief legal officer/general counsel and other officers in key risk management, compliance, and internal control roles are well-positioned within management and the board’s relationship to support an appropriate culture.
Integrate culture into the board’s ongoing discussions with management about strategy, risk, and performance, emphasizing that the way results are achieved is as important as whether a given goal is met.
Directors should make culture an explicit criterion in selecting and evaluating the CEO and set the expectation that the CEO and senior leaders do the same in their leadership development and succession planning activities.
Boards and compensation committees should review the company’s recognition and reward system to ensure that they reinforce the desired culture and avoid unintended outcomes that could undermine it.
Shareholder communication should include describing how the board carries out its responsibility for overseeing and actively monitoring the company’s culture.
Effects of Poor Ethics
Poor ethics can cause bad behavior within corporations. When poor ethics trickle down to the lower levels of the entity, it causes good people to make poor and selfish decisions. Devastation can be broad and swift, and it can harm large and small companies’ reputations in the blink of an eye. There’s a lot at stake.
The best thing that board directors can do for themselves and their companies is to have an equal commitment to developing a corporate culture with strong ethical values as they do to planning and strategizing the company’s future.
Govenda Supports Ethical Governance Culture
Govenda focuses on supporting organizations in their efforts for better governance through the secure connection of their board portal software. Ethical governance comes when boards of directors are able to communicate and report on issues in the boardroom seamlessly.
Govenda board management software makes it easier for boards to collaborate and report on critical information for all board members, including executive leadership and committee members, promptly. With rich communication tools like messaging and discussions, boards can stay on top of their ethical corporate culture goals. Leveraging Govenda, admins can report on almost everything, including voting, attendance, and activity. All features translate perfectly onto any device, including web, mobile, and tablet. For more information on how Govenda can support your corporation on its ethical governance journey, start a conversation today.
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