Building Boardroom Ethics

By | November 16, 2017

Eskil is a boardroom development company - supporting boards in such areas as governance, compliance, boardroom ethics as well as the focus shift to the future board - we help master the dynamic in the room

Organizations are measured, primarily on balance sheets and perceptions: the strength of recent-past revenues, cash-in-bank, assets, revenue pipelines as well as leadership & management strength, protection against competitors, height of barriers to entry.  Add to this, we have organizational culture, management philosophy and ethics.  No matter the size or industry of an organization, boardroom ethics is a key determinant of long-term success.

Add to this, we have organizational culture, management philosophy and ethics.  No matter the size or industry of an organization, ethics is a key determinant of long-term success.

Your ethics help to shape the behavior of employees: ethics guide how people conduct themselves in every aspect of their lives, including the workplace.

  • Values are the things people determine to be the most important in their lives i.e. ‘I value making money’.
  • Morals would tell you that robbing a bank would be an inappropriate way to pursue your value.
  • Ethics would be the law of your country that states that robbery is illegal and punishable.

Boardroom Ethics

Ethics tends to be a top-down issue – leadership sets the tone for how the entire organization runs.  If we consider such corporate lawsuits as Madoff (Ponzi scheme), Barclays (LIBOR rigging), and Volkswagen (emissions), in each case, regulation was weak and boardroom ethics were poor.

When your prevailing corporate philosophy is based on ethical practices and behavior, your leaders can direct employees by example and guide them in making decisions that are not only beneficial to them as individuals, but also to the wider ecosystem.

You could say that ethics is the ‘Nudge’ for people to do the right thing.

Simply, monkey-see; monkey-do.  Poor boardroom ethics translates into how targets and activities are measured and this determines how employees are rewarded.

The United Nations Global Compact is a guideline to corporate social responsibility and business ethics is the deployment of such policies and practices.  This includes such aspects as corporate governance, insider trading, bribery, discrimination, financial probity, etc.

Whereas a commitment to Corporate Social Responsibility is an optional exercise, business ethics isn’t: they are fundamental to the governance and management of every organization.  Decisions at every level in a company have ethical implications – strategically in the boardroom, managerially throughout the organization, and operationally in each of its activities.

The Gap Between Words & Actions

Most boards will insist that their company should not break the laws of any jurisdiction in which they operate.  But there are organizations that fail to follow through with deeds: corporations like Google, Amazon, and Apple have all been criticised for ‘aggressive tax avoidance’ when they move funds through tax havens to reduce global taxation.

Even though the manoeuvring is perfectly legal, it doesn’t mean that it’s right.

Results of the Ethics Gap

Sadly, there are too many cases to refer to when it comes down to poor ethics – here are a few examples:

  • Wal-Mart : in 2000, a collision with a semi-trailer left 52-year-old Deborah Shank with permanent brain damage and in a wheelchair. Her family secured a $700,000 settlement from the trucking company. After legal costs and other expenses, the remaining $417,000 was put in a special trust to care for Mrs. Shank. However, six years later the providers of Mrs. Shank’s health plan, Wal-Mart, sued the Shanks for the $470,000 it had spent on her medical care.  Wal-Mart was fully entitled to the money; in the fine print of Mrs. Shank’s employment contract it said that money won in damages after an accident belonged to Wal-Mart. A federal judge was obliged to rule in favor of Wal-Mart, and the family of Mrs. Shank had to rely on Medicaid and social-security payments for her round-the-clock care.
  • DynCorp : a Private Military Company (PMC) deployed in 2001 as part of the American “war on drugs” where a group of Ecuadorian farmers filed a class-action lawsuit regarding having herbicide (sanctioned by US congress) sprayed daily causing severe health problems and the destruction of the food crops and livestock. The plaintiffs alleged that the toxicity also caused the deaths of four infants.
  • DynCorp : it was revealed by a whistle-blower that DynCorp employees engaged in sex with 12-15 year old children from such countries as Russia and Romania, and sold them to each other as slaves.  The whistle-blower was sacked and had to seek protective custody.  In the summer of 2005, the United States Defense department drafted a proposal to prohibit defense contractor involvement in human trafficking for forced prostitution and labor. Several defense contractors, among others, DynCorp, stalled the establishment of a final proposal.
  • Chevron : the Nigerian government took control of land in the 1970s and forced people to leave without compensation (an ethical issue in itself) before distributing to such oil companies as Chevron.  Resistance continued for over 20 years leading to the government to declare that disturbing oil production was an act of treason.  Chevron had a military base at their Escravos facility and, in 1999, when leaders of the Ikiyan people came to negotiate with the soldiers, over 60 people were killed.
  • Blackwater : now branded as Constellis, this PMC had it written into their employee contracts that if you defy a direct order, for any reason, you will be abruptly terminated and Blackwater will withhold all back salary and bring legal action against your family.  In addition to this, if you died or were injured on a mission due to the negligence of Blackwater, you can’t sue them. If you sue them, they will withhold all your back salary and bring legal action against you and your family.

In each case, on the face of it, there is some level of legal sanction – yet we can easily see the lack of ethics in play.

Business Ethics Benefits

There are obviously moral considerations for not only speaking about your ethics but also being 100% true to them – and there is a business case for having high ethics.

  • attract and retain highly talented individuals
  • build and maintain a positive reputation within the community
  • build a stronger bond between individuals in the leadership team and this creates stability within the company
  • attract investors interested in ethical organizations

Exploring Your Boardroom Ethics

I spent some time the CEO of $100m organization as we explored board ethics.  One thing that became obvious was how board ethics communicated to the workforce and this was through process and policies but not necessarily in culture.

The first day that we spent together set out the foundations for a plan to review current value statement, write out a full CSR commitment including policy documents, and an implementation plan including a stakeholder communications map.

The first day covered:

  • Principles of Business Ethics
  • Benefits of sound business ethics
  • Understanding why the organization wants to have sound business ethics
  • Implementing Corporate Social Responsibility
  • Aligning & Embedding CSR into the organization
  • SWOT of the organization’s current ethics framework

The outcome of the sessions was a newly-formed Value Statement that bridges from the current workforce and board activities to board ethics and Corporate Social Responsibility.  In addition to this, we were able to write out their policy document and an implementation plan that we presented to the senior management team 12 weeks’ later.

Your ethics help to shape the behavior of employees: ethics guide how people conduct themselves in every aspect of their lives, including the workplace.


Eskil engages with an international network of facilitators experienced in such industries as Banking, Financial Services, Insurance (BFSI); Business & Professional Services; Education; Government; Healthcare; Manufacturing; and Pharmaceuticals.


Contact Information

For further information about Eskil:

Contact: Eskil (UK)
Tel.: +44.1926.497.211
Email: [email protected]
Website: eskil.co

 

 

 

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About Neil Fogarty

Neil Fogarty is CEO and co-owner of the international boardroom development company Eskil. He is an international speaker, business writer, Principal Practitioner with the Association for Business Psychology, member of the International Association of Facilitators, and an Advisor to the Corporate & Business Services Division of MSA University.