From the top down: Establishing ethics from the boardroom
Although board members understand the importance of establishing values, defining ethical standards, and designating oversight of workplace culture, it’s often overlooked on the board agenda. We think that’s a miss, as company culture (or lack thereof) could pose a risk to a company’s financial position, reputation, and current or potential investors if improperly managed – or not managed at all. In the age of the #metoo movement, financial scandals, and other misconduct, it’s crucial now for boards to ensure that their E&C initiatives are organized, measurable, and up to date. If not, the company can experience enormous financial and reputational consequences, even leading to bankruptcy or its demise.
Founders, chairs, other board members and CEOs should consider the following when reviewing ethics policies and culture issues, and when considering new board appointments and even new senior-level staff:
Prioritize culture over strategy
Our research shows that directors feel companies need to improve their corporate culture. Understanding that culture is paramount and requires a lot of attention is the foundation for getting things right from the beginning. Understandably, boards are busy pursuing a plethora of other priorities. However, keep ethical workplace culture at the top of the list. It’ll be useful to check in with your Chief Ethics and Compliance Officer to ensure they are set up for success. Several questions you should ask include:
- Do they have other senior corporate officers’ standing, resources, and access?
- Do they have open and independent communication channels with the board and board committees they report to?
- Do they know the state of the company’s ethical culture? How do they know?
Staying on top of how your organisation is tracking when it comes to your culture is vital to sustainable company success and employee retention.
Board directors are looking for an effective culture strategy plan
Over the years, corporate scandals and misconduct have taught us that getting the ethical culture to an appropriate standard isn’t easy and will take time to adjust, as all organisations are different. In our Benchmark of Ethical Culture report, we found that companies with the strongest ethical cultures outperform their peers by up to 40% across key business metrics including innovation and growth. Exuding exemplary culture is a must and it requires a strategy – just like any other business goal or objective. Further, our study of board member experience in Activating Culture and Ethics from the Boardroom also showed that reporting focused on the number of complaints rather than the reason for the complaint. It’s time to replace that reactionary strategy with a new plan.
Accountability + Trust = Success
Ethics and culture start at the top and require senior management to do their part and take absolute accountability. If your senior team isn’t talking about purpose, mission, and values and isn’t modeling desired behaviors, how can you expect middle and lower management staff to do so? This is an example of a failing E&C practice. Having a senior leadership team that focuses on and models these dynamics is best facilitated by them being prioritized at the very top, too: the board.
Boards should ensure that their ethics and compliance teams:
- Ground E&C activities (training, communication, policies, procedures, etc.) in values.
- Focus on creating ethical cultures, not just rules, procedures, and programs (all of which can play a role in safeguarding a great culture).
- Go deep into the drivers of both misconduct and productive behavior.
- Identify E&C metrics that genuinely allow for tracking and improving culture.
- Prioritise core issues like trust, fear, organisational justice, willingness to speak out, and willingness to listen and hear.
Boards, Senior & E&C teams need to “play big” in culture change
When we say “play big,” it means that companies take culture seriously and provide an extensive game plan when looking at a culture change. This would include:
- Having a clear strategy that encompasses how to build and maintain an ethical culture.
- Moving away from reporting on activities to having a discussion among board members and senior leaders about the cultural drivers of misconduct, a narrative about what is happening in the company, why, and what needs to happen to change it.
- Creating a new set of metrics that measure what matters, like trust, fear, justice, and how to knock down the barriers to an actual speak-up culture.
- Embedding incentives for ethical behavior into key practices and processes (e.g., performance management).
- Finding a way to strengthen the relationships between all members of the E&C team, which includes board members, inside and outside of board and committee meetings.
Again, creating an ethical culture is not something that is going to happen overnight, especially if isn’t on the leadership and board agenda in a meaningful way. But, it’s essential to continue to stress that making ethical workplace culture a priority and having a united front when setting an example are all crucial. These are all characteristics you look for when looking to take on potential board members who will honor these steps needed to take your organisation to a new level.
Emily Miner is a Director in LRN’s Ethics & Compliance Advisory practice. She counsels executive leadership teams on how to actively shape and manage their ethical culture through deep quantitative and qualitative understanding and engagement. A skilled facilitator, Emily emphasizes co-creative, bottom-up, and data-driven approaches to foster ethical behaviour and inform program strategy. Emily has led engagements with organisations in the healthcare, technology, manufacturing, energy, utilities, professional services, and education industries, as well as education, non-profit, and inter-governmental agencies.
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