“A leader takes people where they want to go. A great leader takes people where they don’t want to go but ought to be”. – Rosalynn Carter, Former First Lady of the United States.
Successful corporate performance is founded on commitment to basic ethical principles aligned as much as possible to the interests of all stakeholders. The corporate failures witnessed in the recent past which resulted in stricter regulatory oversight, have their root in unethical conduct. Ethical responsibility is not limited to conflict of interest and disclosure obligations of Directors as it entails compliance with all relevant laws and regulations.
The role of the Board in overseeing and supporting a strong corporate culture is a fundamental one. It starts with the Board setting the appropriate “tone at the top”, which will over and above any documented Code of Ethics, guide ethical behavior in the organization. It also entails the Board defining a set of core ethical values that are infused into policies, processes and practices as well as a formal ethics program.
Whilst effective ethics and compliance programs may differ based on the organization’s size, industry, and history of misconduct, having set the appropriate tone that will see Directors living up to high ethical standards, the Board should ensure that written policies and processes, adequate risk assessment procedures, communication and training, monitoring and testing, adequate whistle blowing processes, and corrective actions and discipline are put in place.
To duly perform its oversight responsibilities, the Board should:
– Define the organization’s ethical culture – typically in a Code of Conduct/Ethics – as well as core ethical values;
– Monitor compliance and commitment to ethical behavior;
– Ensure that policies and procedures on ethical conduct are communicated and accessible to all employees as well as relevant third parties;
– Ensure that adequate protection is available to whistle blowers
– Avoid conflict of interest situations – flowing from their fiduciary duties, Directors should always act in the best interest of the Company rather than in their own self- interest.
The Board should ensure that an “ethical values filter” is applied to decision making – hiring, performance appraisal, firing, and reward system and emphasize that when in conflict the ethical values take priority over the bottom line.
With respect to compliance, the Board has the following additional responsibilities:
– Owning the compliance agenda and having a voice in the selection, evaluation, and termination of employment of the CEO and the Chief Compliance Officer
– Attendance and participation at Board and Committee meetings
– Ensuring prompt filing of all statutory and regulatory returns
– Ensuring adequate and prompt disclosures are made as required
– Devoting appropriate time to review periodic updates and reports provided by Management, as well as studying Board materials prior to each meeting.
– Maintaining the confidentiality of all proprietary and sensitive or valuable information of the Company entrusted to them, except when disclosure is authorized or legally mandated.
– Reviewing metrics and key performance indicators with respect to the company’s compliance with law and regulations
All said, establishing the right tone at the top is the best way to preserve an organization’s good reputation, which can easily be destroyed when employees act unethically. This remains the most important responsibility of the Board in enthroning a corporate ethical culture.