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Board engagement: A crucial lever in steering ethical corporate cultures
By Jon Bricker and Christine Brown
The role of a well-informed board is central to the governance of any organization, particularly in shaping its ethical and compliant landscape. A board’s values and actions reflect significantly on an organization’s culture. Board members serve as cultural architects and have a crucial role in fostering value-driven leadership.
The tone at the top mattersNew regulations are in place to ensure company leaders are creating the right kind of culture. Now, it’s not just about focusing on governance but also about leading with a moral compass in an ever-evolving business world. For example, the Department of Justice’s (DoJ) March 2023 guidelines stress the importance of organizational compliance, incentivizing compliant behavior and penalizing non-compliance at the top level.
‘The company’s top leaders – the board of directors and executives – set the tone for the rest of the company,’ the DoJ says. ‘Prosecutors should examine the extent to which senior management has clearly articulated the company’s ethical standards, conveyed and disseminated them in clear and unambiguous terms, and demonstrated rigorous adherence by example.’
An unengaged board poses potential risksA board that does no more than oversee business operations on a surface level invites potential crises. A board must have a close-knit, intimate knowledge of protocols.
The Delaware Chancery Court’s Caremark ruling, for instance, underscores the importance of deep board engagement. This ruling raised the bar for board accountability, mandating that boards possess a deep understanding of specific industry risks. Now, corporate directors must ensure systems are in place for legal compliance monitoring within their companies.
Other recent incidents, such as Boeing’s flight issue when a cabin panel broke mid-flight on the 737 MAX 9, highlight the dire consequences of inadequate board oversight in risk management and quality control. The Federal Aviation Administration heightened its oversight of Boeing, requiring additional inspections and considering having an independent entity oversee certain safety aspects that Boeing had previously managed.
Five ways to improve board engagementBelow, we offer five actionable steps to maximize your board’s positive impact.
1. Implement accessible, continuous board training: Board members often have demanding schedules, necessitating training formats that are brief yet impactful.
First, training should offer insights and tools that are easily digestible during short breaks, such as at a child’s swim meet or during an unexpected flight delay at the airport. This non-regimented, on-the-go approach to consuming information makes the training process less of a checklist item.
Using technology for mobile-friendly formats can significantly enhance the accessibility and efficiency of the learning experience. Additionally, digital formats make updating training content a seamless and quick experience and ensure the information people are studying is always up to date.
Second, regular updates on new potential risks and regulatory expectations are crucial.
2. Establish resource allocation for ethics & compliance programs: Allocating resources to ethics & compliance programs is both a procedural step and a strategic decision reflecting the board’s commitment to ethical stewardship.
As new risks emerge – particularly in areas such as ESG – a board’s agility and informed decision-making become crucial. Boards must proactively engage and allocate resources to ensure these programs are established and foster the support necessary for effective implementation and quick-witted adaptation.
3. Have a deep understanding of ethics & compliance programs: Board members must have an intimate knowledge of their organization’s ethics & compliance structure. This includes being aware of responsibilities and actively overseeing the implementation and effectiveness of various programs.
Understanding these programs in detail will enable the board to provide better oversight and guidance, which in turn ensures the organization’s adherence to ethical standards and regulatory requirements.
4. Drive more proactive board oversight: A passive approach is insufficient for effective board governance. Active oversight involves a detailed understanding of how ethics & compliance activities are integrated into the organization’s operations. Board members should be knowledgeable about the specific risks pertinent to their industry and how their company’s programs address these challenges.
This active role is crucial in shaping an organization’s ethical direction and maintaining its integrity in the face of industry-specific challenges.
5. Ensure adequate resources for compliance programs: The board’s role extends to ensuring that the ethics & compliance program is well supported and resourced. This responsibility involves understanding the intricacies of risks the organization faces and providing the necessary backing – financial, structural and strategic – for managing these risks effectively.
The board’s active involvement in resource allocation demonstrates its commitment to upholding the highest standards of ethical conduct.
Final thoughtsBoard training, when done correctly, must ultimately be three things: concise, impactful and adaptable. Proactive engagement, flexible training opportunities and a comprehensive understanding of the organization’s ethical framework are essential. A board’s commitment to these principles reflects its dedication to integrity and transparency, shaping a culture that values ethical conduct at all levels.
Jon Bricker is vice president of sales for the Americas and Christine Brown is vice president of learning product at SAI360