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Three Markers Of An Ethically Sound Board

For decades, CEOs have largely been seen as the top rung of the ladder, the ultimate decision makers and the source of “tone at the top,” to use an overused phrase. That perception is by no means wrong, but the buck doesn’t stop there. There’s one more rung of the ladder: the board of directors.

Any business executive is well aware the board is essentially their boss, but to the general public, the board’s role in business ethics and values hasn’t always been so visible. In the last few years, that’s changed. The board has emerged as the ultimate and more external-facing layer of corporate accountability.

Why? We’re undergoing an ethical transformation across industries — from Silicon Valley to Hollywood and beyond — and more CEOs are being fired for ethical lapses than ever before. When the CEO messes up, members of the board become the voice we hear most clearly in the midst of corporate turmoil. They may not be the ones “robbing the bank,” so to speak, but they’re the ones who are either going to call the police or drive the getaway car. From Uber to Facebook, boards have had to recently step forward in a more public manner to define not only what steps they will take to rectify an inappropriate situation but also understand the lasting legacy that their response will leave.

Whether you’re a technology leader or a board member yourself, how can you ensure your board is well-equipped to handle improper situations ethically and honestly? It starts with diversity of thought, honest responsiveness and the operationalization of ethics.

Diversity Trumps Credentials Alone

Regardless of how talented a board is, it must have diversity of thought and adequate independence in order to operate ethically and effectively — especially in the tech sector. Lack of diversity and independence is a missed opportunity. The board isn’t there to simply sit through quarterly decks and pat you on the back. You need a board that challenges your decisions when needed, operates via a system of checks and balances and acts as a source of support. Sound corporate board governance means minimizing blind spots, and that can’t happen within homogeneity.

Take Volkswagen, for example. After the German automaker’s huge diesel-emissions scandal back in 2015,  the wrongdoing to major corporate governance shortcomings. People familiar with VW’s inner workings said (subscription required) that a principal weakness was the lack of independence and diversity of opinion on the company’s supervisory board — only one of the 20 members was truly independent. This led to siloed thinking, a lack of independent rationale and, ultimately, a dangerous scandal.

At the end of the day, boards should reflect the company you want to have. By prioritizing diversity of thought, background and independence, you can take a huge step closer to realizing the true potential of ethical transformation at the uppermost layer of company governance.

Transparency And Responsiveness Are Key

It’s obviously ideal to prevent scandals from happening rather than clean up a mess after the fact, but unfortunately, it doesn’t always work that way. How your board handles a scandal — or doesn’t — can have lasting effects on the company’s legacy.

Compare board responses to recent scandals at Wynn Resorts and Lululemon. When CEO Steve Wynn’s decades-long history of inappropriate sexual behavior was revealed, the scandal took 10 days to fester before Wynn stepped down, creating a days-long PR and ethics nightmare. Meanwhile, popular athleisure company Lululemon announced chief executive Laurent Potdevin would resign, effective immediately, due to a breach in the company’s standards of conduct. Clear but contained details were made public soon after, and the news cycle quickly turned over.

Though I’m not advocating for lightning-fast decisions to fire an executive (you have to investigate and consider the situation carefully, of course), there’s a lesson here in how the two boards responded and communicated. Lululemon was prepared with a clear, contained and detailed message that included the steps the company planned to take to rectify the situation. Wynn’s board, on the other hand, was operating with less independence, not to mention Steve Wynn himself was the chairman and largest shareholder. Boards that act ethically will communicate in an open and honest manner that can have a significant impact on the overall reputation of a company.

Ethics As A Daily Job

Ethics is everyone’s job, and it shouldn’t be siloed to a single department, but there is something to be said about having a designated “beacon” whose main role is to focus on the company’s ethical health. Most large companies have a chief compliance officer, and it’s becoming increasingly popular to hire a chief ethics officer, too. Without someone in charge to oversee and maintain the company’s values and how those are put into effect, proactive ethics could play second fiddle to self-protective compliance.

Look at the fascinating example of David Miller at Citigroup. He’s an on-call ethicist for the bank, which has had its fair share of ethical problems. Rather than take a traditional approach to ethics and governance (office hours, for example), he reviews broader business projects and ideas that concern C-suite executives. Miller’s prior experience in the seminary doesn’t hurt, either.

I’m not asking for every company to have their own banker-turned-theologian-turned-ethicist, but it is a forward-looking idea to appoint one person who is completely dialed into ethics and compliance, has a measure of independence and to have that person regularly communicate with the board.

As the business world adapts to changing expectations for companies, it is the responsibility of the board to make sure a company is equipped to handle these changes. And for good reason: The top rung of the ladder doesn’t only dictate short-term responses to ethical dilemmas — it can solidify a company’s long-term legacy.

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