Corporate Eye

Corporate Governance Redux

I was pondering the current state of Corporate Governance in light of the Financial Crisis and found a McKinsey article –“Change across the board–Investors are angry. Directors can run but they can’t hide.”

How long must corporate boards look bad? A swathe of scandals has eroded trust in US corporate conduct to levels last seen a century ago, when the abuses of monopolies ushered in an era of trust-busting.

Hmm, looks like something I might use. Then I saw the date NOVEMBER 2002. I dislike the saying “the more things change, the more that stay the same”, but in this case it seems appropriate.

Then I came upon a recent discussion by SEC Commissioner Elisse B. Walter:

“Tone at the Top”

So far, I have discussed where I believe the Commission can work to restore investor trust through action in the corporate governance arena. I do not, however, think that directors and corporate managements should rely solely on the government to bear that burden. Instead, I believe strongly that directors and managements must take it upon themselves to improve accountability by setting a “tone at the top” honoring the responsibilities that arise from the trust placed in them by investors. Some have, but all directors and managements should implement their own best practices for corporate governance that promote integrity, transparency, and accountability.

The message, regulations can go just so far –you can’t regulate/legislate compliance. Therefore it falls to the Board and the C-Suite to establish a culture of trust to ensure that the company follows effective ethical practices throughout the organization.

I think Steve Priest, head of the Ethical Leadership Group, says it best —

Compliance is simply adherence to rules and regulations. It is a necessary, but not sufficient, business attribute. Compliance is not doing the wrong things. Ethics is about doing the right things. Ask yourself which company you would rather do business with or work for – a company that has as a standard ‘don’t break the law’ or one that has as a standard ‘do the right thing’.

Many companies did little more than “check the boxes” on ethics, …abiding by the letter of the law by publishing codes of conduct, without really changing the culture of a company or tackling wider ethical issues.
…there was a wide gulf between how business defines “ethics and compliance” and how the public see it.

So how do you establish a “Culture of Trust”? Here are some examples.

First there’s Starbucks

How do we bring a Culture of Trust to life?

  • Define what you stand for —  Our Mission and Guiding Principles
  • Communicate it broadly and often–  Leadership Conferences
  • Use it as a decision filter– What you don’t do is as powerful as what you do
  • Allow your organization to hold you accountable– Mission Review
  • Measure your progress– Partner View Surveys

Then there is IBM. This one surprised me since there seems to be a “Trust Void” in large organizations. IBM offers employees a comprehensive “Corporate Trust and Compliance” section on the website. It includes an engaging statement from the Chairman. This is a good example of setting the “Tone from the Top”.

Another surprise is GlaxoSmithKline, one of the big pharmas.

The surprise is not that they address Trust/Ethics, since this industry has its share of risks, but that they address marketing and sales.

They do touch on the need to embed ethics into the corporate culture, but to their credit this reference addresses specific issues such as “Is GSK unduly influencing doctors?”. Well done GSK.

This subject is important–look for future posts.

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Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.

Many of the corporate governance “issues” today can be attributed to homogeneity and “group think” in the board room. Any solution, legislative or otherwise must first look at WHO is sitting in the board room and even HOW they got there.

Patricia – that’s an interesting point. It isn’t easy to ensure diversity, particularly at a very senior level, and there is a risk of ‘hiring in your own image’. What are your views on action such as the recent Norwegian quota legislation on female representation at Board level?

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