Boards Must Lead on Ethics, Compliance: The E&C Pulse - January 22, 2020

January 22, 2020 Ben DiPietro
 

Jan. 22, 2020

Boards Must Lead on Ethics, Compliance

 

Forces are bearing down on corporate boards, as people and societies are demanding a more accountable relationship with businesses. Changes in the world are making it more confusing to navigate, leaving companies fraught with uncertainty.

 

Data from LRN shows people expect more from their companies than they used to, with 72% saying they want businesses that are mission-driven, and 64% saying the purpose of a company should be to make the world better.

 

These changes--and the move toward purpose and upholding the values of fairness, opportunity, and transparency--has implications for leaders, LRN’s David Greenberg said last week during a talk before the Corporate Directors Forum in San Diego.

 

Greenberg, who serves on the board of International Seaways, Inc., asked the audience how often long-term plans at the board level are thrown into chaos or made irrelevant by new and sudden developments that seem to come out of nowhere.

 

“That’s in part because there’s something of a new normal,” said Greenberg. “We’re literally skydiving upside down, hoping our parachute still opens.”

 

As an audit committee member, Greenberg said he’s read too many corporate disclosures, and sometimes wonders why anyone would want a board seat after reading the section on risks. ”Yet, even given the almost infinite list of risks, it feels like there’s always something we haven’t quite anticipated,” he said.

 

While there is empirical data showing a link between leadership, culture and improved performance, Greenberg said aligning tens of thousands of people in an organization is harder than ever, akin to “pulling on leash with no one at the end.” 

 

The levers of power are not what they used to be, and even the gold standard of compensation packages and bonuses aren’t working to align people behind a company’s strategy and execution, he said.

 

This is backed up by research from LRN, which shows 13% of employees are fully engaged at work; 23% of consumers are loyal to any one brand; and 19% of citizens trust government. Sixty-four percent said they would trust a robot more than their human manager.

 

So, how can boards improve things?

 

Boards have an enormous stake in this process, and a legal duty, as well, so they should expect moral leadership from themselves, the CEO, and executive team, said Greenberg.

 

They need to see evidence that ethics and compliance is being built into the company’s operations, not bolted on; and need to build stronger relationships with the people who oversee ethics and compliance. They also need to make sure the audit committee has the bandwidth to handle oversight.

 

Law, policy, and best practices all require boards to set the “tone at the very top,” and oversee company programs and initiatives to make that tone come alive. Chief compliance officers report to boards at least annually, and sometimes at every audit committee meeting, on the progress being achieved and the challenges ahead.

 

You would think this oversight would be a critical priority for boards, as it is the single best lens and handhold on how companies can prevent themselves from starring in the next big corporate scandal, said Greenberg.

 

The LRN report took an in-depth look at how boards are doing in this oversight, by having off the record interviews with the chief compliance and ethics officers of 25 diverse, mostly global, companies across many industries. 

 

The results showed much room for improvement. Among the takeaways:

  • Boards don’t understand ethics and compliance;
  • Boards don’t have a plan for the oversight of E&C;
  • Boards don’t devote significant priority and time to E&C;
  • Boards don’t focus on the root causes of behavior;
  • Boards don’t appreciate the competitive advantage of culture; and
  • Boards don’t ask enough of executive management

Oversight of corporate ethics and compliance could offer the single best weapon in a board’s arsenal to prevent scandal and the undermining of company reputation and value that scandals bring,” said Greenberg. 

 

The results weren’t universal, as perhaps one-third of the 25 companies were models of strong oversight of ethics and compliance. “But if you ever ask yourself why, 20 years after Enron, we still see so many instances of corporate misconduct, what we found about what’s going on at the board level is at least some of the answer,” said Greenberg.

 

                                                                                                            BEN DIPIETRO
                                                                                                       @BENDIPIETRO1
                                                                                       BEN.DIPIETRO@LRN.COM

 

 

FROM THE LRN BLOG

In all the hullabaloo surrounding baseball's cheating scandal, LRN's Ben DiPietro wonders why so few people are talking about ethics.

 

READ THE BLOG→

 

SEXUAL HARASSMENT PREVENTION WEBCAST

On Thursday, Jan. 23, join Ethisphere’s Erica Salmon Byrne; Anne-Marie Burns, anti-harassment coordinator for The World Bank; and LRN's Susan Divers as they discuss the latest approaches and innovations companies are taking around sexual harassment prevention and remediation.

 

REGISTER→

 

MIND NUMBERS

56%/48%/18%

The 2020 Edelman Trust Barometer found 56% of global respondents said capitalism does the world more harm than good; 48% said capitalism is failing them, up three percentage points from 2019, while 18% said it is working for them, down two percentage points from last year. 

 

THE ELEVEN

 

Google's chief executive is calling for regulation of artificial intelligence. Microsoft's president opposes regulation.

 

Prosecutors in Brazil filed murder charges against the former CEO of Vale for a dam break that resulted in 25 people dying, Reuters reports. 

 

All of the top long-term threats in this year's Global Risks Report from the World Economic Forum are climate-related. Time looks at why fossil fuel companies now are finally reckoning with climate change.

 

Compliance officer and risk manager are ranked 28th and 31st, respectively, on a list by Glassdoor of the 50 best jobs in the U.S. in 2020.

 

A Japanese politician is taking parental leave, raising eyebrows and sparking debate in a country where few men take time off, BBC reports.

 

Top executives at Samsung Corp. held a public ceremony to sign a pledge to obey anti-corruption laws, and to build a better culture of compliance at the company.

 

More employers are refusing to hire smokers, leading to questions of ethics and fairness, NPR reports.

 

The global chairman of PWC says he is shocked and disappointed at reports the company worked with the daughter of Angola's former president, who is accused of amassing her fortune through corruption and nepotism, Guardian reports.

 

Alison Taylor writes in the FCPA Blog about how the leaked Boeing emails reflect on the company's poor corporate culture.

 

Facebook is setting itself up for a fight with California over the state's new customer privacy law, refusing to comply with a key provision, Street reports.

 

At least 10 states have introduced bills this year to regulate, ban, or study the use of facial recognition technology, Axios reports.

 

THE QUOTE

"The time is always right to do what is right.”

- Dr. Martin Luther King Jr., civil rights leader

 

THE NUDGE

PWC's annual CEO survey is out, and chief executives are sounding more pessimistic than they've been in a decade. What is driving this pessimism? Four themes emerged: uncertainty; unintended consequences of cyberspace; climate change; and upskilling the workforce. Globally, the three top threats are over-regulation, trade conflicts, and uncertain economic growth. In the U.S, the top threats are cybersecurity, policy uncertainty, and trade conflicts. All of which shows just how important ethics and culture are, and just how much work there is to do.

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