Directors, is ethics on your board agenda?

A part-time board model works against an ethical culture

“At the risk of being provocative, the part-time model of a half or full day for board meetings often deals well enough with finances but, as is evident in recent Royal Commissions, is clearly inadequate on issues of culture. Many cultural issues are buried well away from anyone’s sight, and tools such as engagement surveys are inherently limited. Boards are the custodians of the culture and ethics of the organisations they govern. But boards generally commit insufficient time to probe deeply into culture. Really understanding culture takes a particular set of investigative skills, currently demonstrated by the barristers and others conducting the Royal Commission. Such skilled forensic probing could be a model for the way boards should operate. After all, boards can gain access to information in the company by right. If you held an in-depth board inquiry into your own culture using a Royal Commission approach, what would your board find? What would you be afraid it might find?”

Moral courage is not enough. You need the right systems

“Skilled ethical leadership from boards requires moral courage and the obligation to ensure that the right systems and processes around integrity are in place in a company. Some companies have systems to capture revenues, but not complaints, so they are missing invaluable data about how customers are impacted. Difficult issues such as sexual harassment and bullying need targeted processes so that the information is available on a constant basis to boards.

In a recent case involving an ASX company, when allegations of sexual harassment were made against the CEO, the head of HR said, ‘Oh no, he’s at it again’. Clearly, management knew, but one wonders if anything was written down anywhere that a board could find. Years of records tell you something, especially if such allegations occurred in previous workplaces. Processes also matter — deeply. If the Catholic Church had put in place mandatory reporting to police, how many thousands of children would have been spared the trauma of sexual abuse? Stress-test your own systems and processes.”

Ensure diversity is an ethical issue, not just about results

“Boards that reflect gender discrimination lack the ethical composition to deal fully with the kinds of ethical challenges that play out in businesses in Australia. The debate about diversity has been based on a shallow premise that what matters in diversity is greater productivity and better results. Discrimination of any kind, whether it be gender or race, creates the moral blindness that fails to recognise the gradual decline into unethical behaviour. Do a simple count of the number and percentage of females on your board and ask yourself what this signals to the organisation in terms of inclusion, diversity and unjust discrimination. Ask what message this gives to staff and the wider community about the culture you and your board are setting from the top. Diversity is about rectifying discrimination, not simply getting more profits.”

Think like Aristotle

“Almost 2400 years ago, Aristotle said that ethics started with clarity of worthwhile purpose and that one should test one’s actions against that purpose. Boards should be vigilant guardians of the way management stays true to the purpose of the company. Prior to that, make sure the company has one that counts.

In my view, boards can surely do worse than channel Aristotle and make sure we act to stop the overwhelming pattern of ethical failure as evidenced by the Royal Commission. For Aristotle, integrity was a habit. It’s time for all of us to practise even more.”