Sept. 2, 2020
The Good News and Bad News About Boards, E&C
Board and committee agendas are very crowded and tend to drive out meaningful engagement on ethics and compliance. That means chief ethics and compliance officers need to work harder to engage boards on deeper issues, such as the cultural drivers of misconduct.
Easier said than done, though.
LRN’s David Greenberg, speaking with CECOs and other E&C executives last week during a Consero Knowledge Bridge forum, shared some good news and bad news about boards and their relationship to the E&C function.
First, the good news. Board members, and boards as a whole, really do care, especially when E&C teams position issues in the right way. Boards want to help you do your job, in the biggest sense of that job: having a company with integrity, one with an ethical culture, where people are doing the right thing.
“The world is set up in a way that ethics and compliance ought to have high priority, and boards ought to be extremely helpful to you in doing your job,” said Greenberg, who also serves as a director and committee chair for NYSE-listed oil tanker shipping firm International Seaways Inc.
Now, some bad news. Greenberg wrote a report for LRN in which he studied E&C programs at 25 major companies. What he found wasn’t so good.
“There is a lot of reality that board oversight is poor to mediocre in most cases,” he said. “While there are great exceptions, and boards that do a fantastic job, I believe somewhere between two-thirds and three-quarters do a poor job of oversight of ethics and compliance.”
Some of the problems are structural, in that board agendas are incredibly busy, and are jammed with absolute must-dos. While people in E&C may all think about ethics and compliance as an absolute must-do, Greenberg said it doesn’t rate as highly as approving the financial statements, overseeing the inside and outside auditors, looking at completing 10Qs and 10Ks, and all the rest of the SEC requirements.
“I find, even as a member of an audit committee who cares very intensely about ethics and compliance, it’s been hard to give it the time and priority it deserves,” said Greenberg.
The second problem is more self-inflicted. Greenberg said when he listens to E&C reports to boards, and E&C board discussions, and compares those to what he hears as a board member from other functions and other parts of the business, E&C “can be pretty boring. We’re not really winning hearts and minds, and we’re not really getting them focused on the core issues that matter to them, and that matter to us.”
When reporting to a board, every function, every executive, faces the choice of playing big or playing small, said Greenberg, who believes E&C plays small too often.
“I think in the conventional approach is ethics and compliance, we’ve painted ourselves into a small corner, talked a lot about activities, as opposed to impact,” he said. “We have never really come up with a compelling picture of how we, and how what we care about, impacts the company.”
CECOs can succeed by building relationships with key directors outside of board meetings. One idea: suggest sessions on E&C strategy with the directors who seem most interested.
Also, board training, when done properly, can serve as a strong spur to forward movement on E&C initiatives. The core philosophy of training is training has to be fit for a purpose, and fit for risk, and Greenberg said he doesn’t think E&C applies that concept correctly to boards.
Boards don’t need to be trained like regular employees; they need to be trained on how to do an effective job overseeing ethics, compliance, integrity, corporate reputation, etc., he said.
“We need to give [them] a picture of what [they] should be doing as board members, and what [they] should be caring about,” said Greenberg. “That immediately broadens the discussion in a way I think is very helpful.”
When he speaks with boards, Greenberg said he often asks them to define what good looks like in E&C, and what it looks like in regard to oversight of E&C--and whether their organization has achieved that.
“Most agree they are not, and that’s both helpful to them and helpful to their CECO, because as they get better at what they do, it allows you to get better at what you do.”
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