Is your Board bored? - By Frank Navran

The King Committee on Corporate Governance launched the King Report on Corporate Governance for South Africa – 2009 (King III Report) at an Institute of Directors (IoDSA) Conference, 1 September 2009. In that report the components of an “effective ethics program were detailed. The Board’s specific obligations regarding ethics oversight were presented in detail. Among those are the obligation to receive periodic reports from the responsible officials within the organization (e.g., ethics officers) regarding corporate practices and conduct.

 

The King Committee on Corporate Governance launched the King Report on Corporate Governance for South Africa – 2009 (King III Report) at an Institute of Directors (IoDSA) Conference, 1 September 2009. In that report the components of an “effective ethics program were detailed. The Board’s specific obligations regarding ethics oversight were presented in detail. Among those are the obligation to receive periodic reports from the responsible officials within the organization (e.g., ethics officers) regarding corporate practices and conduct.

Ever since King III, too many Boards hear the mandatory quarterly ethics briefing, read the reports, mutter about the numbers and then move on to the next agenda item. They can “tick” the box – Ethics Briefing? Check! But is that enough? Would your efforts as an executive, manager, Ethics Officer, be more consequential if the Board was actually more engaged in ethics as a governance aspect of your organization?

Some managers tell me quite directly, the last thing they want is for their Board to be more engaged. That’s asking for trouble – in the form of more work, more scrutiny and more demands on limited resources. The last thing they want is for the Board to give a damn about who they are and what they do. Theirs is a “no news is good news” point of view. Many Board members tell me the same. The last thing they want is for ethics to be more than an item to be “ticked off” the agenda as they move on to issues of consequence. And they cite the same reasons: more demands on limited resources – specifically the Board’s time.

I contend, these Boards are being ill served and are not doing what is required of them, in good faith. A “ticked” box is not effective governance any more than it is effective management. How can you get your board "engaged" - get them to care about the positive aspects of an effective ethics initiative and the resultant ethical culture at least as much as they do about the potential financial consequences of an ethics "problem"?

The goal is to shift the BoD Ethics Brief from being a mundane accounting of training objectives met and calls received and “managed” to closure. What could engage them is a “state of the culture” message and occasionally, a projection of the positive bottom-line impact of positive shifts in the culture. Rather than another predictable report noting that “all Ethics Office goals have been met and all obligations satisfied”, would be a report that goes beyond the obvious. Yes, they need to know that the “i’s” have been dotted and the “t’s” crossed. They need to know that you are in full compliance with all the standards of King III.

But, and this depends on the specific Board in question, they might want to know the state of the organization’s culture. They might want to know the impact of that culture on performance, recruiting, sales, customer satisfaction, share price and profitability, among others things.

In other words they might want to know that the investment you are all making in the development and maintenance of an ethical culture is paying off in “positive” dividends – not just the absence of negative consequences.

  • What is the state of the culture?
  • What do employees believe are the organization’s priorities?
  • What obstacles to effective ethical performance have been identified, lowered and/or removed?
  • What are you doing to address those obstacles that remain?
  • How are you measuring the organization’s ethical effectiveness?
  • What are your “process goals” e.g., training objectives, ethics call investigation/resolution timelines?
  • What are your cultural objectives, e.g., employee beliefs, attitudes and expectations?
  • What is the EO doing to make the organization more effective/successful – not just to reduce exposure under King III with the resultant reductions in exposure from wrongdoing?

Unfortunately, they probably don’t even realize that they should want those things because they cannot even imagine that such information exists and/or that it would be a powerful addition to their understanding of the organization and their roles as its governance body.

Getting your board to want to know more is part of Step One. Figuring out what questions your Board ought to want addressed – what they need more of - is a relatively easy Step Two. They need to know anything and everything that will help them in their governance role – as it applies to establishing and sustaining the optimal “ethical organizational culture” for your unique circumstances. Finding the data to answer those questions may be the more challenging Step Three, but, the “juice is worth the squeeze”. Finding this data and sharing it with the Board underscores that the EO is more than a “defensive” position. It underscores that the Ethics Office/Officer are actually a direct contributor to the bottom line, in both the savings you create by problem prevention and fine reduction, and the positive contribution to efficiency, effectiveness and reputation you represent with your focus on creating and/or sustaining an ethical organizational culture – all tangible assets.

Managing Ethics Up and Down, In and Out!

To create and sustain the position discussed above is a management challenge. Most of us look at management as a “top down” issue. How do we manage the resources under our control? I have always believed that management is four-dimensional.

  • Up - I need to manage the expectations and demands from those above me.
  • Down - I need to manage the performance and effectiveness of those I lead.
  • In - I need to manage the relationships with my “peers” - those outside my direct line of reporting, but inside a sphere of mutual influence. These are people/positions whose effectiveness, support, respect and confidence contribute to my ability to be successful up, down and out, and whose effectiveness I (and my function) influence as well.
  • Out - I need to manage the ethical culture, the context within which these other three sets of relationships exist.

Each of these four “dimensions” of ethical effectiveness is worth a look. By the way, none of this is unique to the “Ethics Officer” position. I believe that these types of questions apply to every person in a hierarchical organization where their actions and decisions fit into a “chain of command”. The only variation is in re the “up” considerations, as they might not apply to a “sole practitioner”. In that case, most of these same questions become part of “in” – as discussed below.

Up

 

For many employees this is the least obvious and most challenging aspect of organizational ethics. Is my leadership setting the right tone and providing the right examples? How much do I respect both the leadership and technical competence of those I report to? Are they “ethical exemplars” in their own right, and if not, what ought I do to address that “issue”?

What am I supposed to do if/when the person I report to directs me to do something that I think might be outside the ethical pall? Do I do what I am told, assuming that I have no choice but to follow a direct order? Do I raise my questions/concerns with that person directly and risk alienating the person who assigns my work and evaluates my effectiveness and may determine both my future assignments and my financial security? Is that a reasonable expectation? Is raising those types of questions/concerns “career suicide”, and if so, how do I work around that concern other than abandoning what I see as my ethical responsibilities?

Does “up” apply only to my immediate superior? What if my boss is an ethical exemplar but his/her peers are not to be trusted and/or his/her senior leadership is ethically inconsistent? Can I succeed as an “island of integrity” in a tumultuous sea of ethical indifference or malignance?

 

Down

Let's start with the obvious. As “leaders” we have obligations to and expectations from those we lead. If you are an Ethics Officer, that includes your direct subordinates and their direct subordinates all the way down. You may also have a “shared” leadership role with some key resources. For example, there may be people in human resources, accounting, audits, personnel or legal that are “assigned” the ethics function as part of their set of responsibilities. You may therefore have a “leadership” obligation towards them or someone in their direct line of supervision even though they do not report to you administratively (e.g., you are not responsible for assigning their work, evaluating their performance, training them, providing the resources they need to do the job, et. al.).

If you are a line or staff manager outside the Ethics Office you are likely responsible for both ensuring that your employees fully understand the organization’s ethical standards and how those standards imposes certain responsibilities and certain expectations re each and every employee. You may also be responsible for ensuring that certain obligations, such as attending ethics training, are met. Inherent in that obligation is the corollary of creating an expectation that your employees do more than check the “attended” box re that training. You are responsible for creating the expectation that they attend, be actively involved in the process and understand that their obligation includes applying what is presented to their everyday roles and responsibilities. You are the one who determines if your employees see ethics training as “significant” or simply a “tick the box” exercise.

As an employee, irrespective of function or level, you are responsible for learning what ethics expectations the organization has of you, and how you are to integrate those expectations into your day-to-day decision-making. You are also responsible for recognizing the ethical or unethical conduct of those around you and addressing any decisions/conduct that you believe violate the organization’s ethical standards. That is not a passive obligation. It is the affirmative obligation of every employee to report any observed or suspected ethical misconduct. Failure to do so is, in itself, an ethics violation and in most organizations, subject to discipline up to and including termination. Looking the other way is as much an ethics violation as violating any of the others ethics standards at work.

Any manager has to be able to objectively look at the function and people they manage and ask the “hard” questions. The questions are familiar to anyone in a leadership role. Some of the most generic questions are shown below. Please do not think of this as an exhaustive, all-inclusive list. There are other questions that only you would know need asking, because only you know the intimate details of the people and circumstances you are facing. And in most cases you know them far better than either those you lead or those you report to.

What is going on within the ethics function, itself? At the macro level, what are you doing, as a manager, to increase functional effectiveness, reduce costs, increase efficiencies, improve image, increase influence? At the micro level, what indices are you using to measure you own effectiveness and efficiency and those of each of your staff?

How confident are you that you have the right people in the right positions within your team?  Who are you grooming for more responsibility? What experiences, resources and training are you providing to ensure continuous improvement within your team? What new tools, skills, knowledge could improve your team’s overall effectiveness in dealing with current challenges and what new responses might be needed to meet unanticipated challenges?

Who has “peaked” in terms of their capacity to take on more responsibility? Is it best for the team that they be retained in their current positions or replaced with someone who might have greater potential?

Are you thinking like a leader or a manager? Is the goal continuous improvement and anticipation of unknown challenges or sustainability of the status quo in what you expect will be a “steady state” environment?

In

 

“In” refers to those within our mutual spheres of influence. In some ways these people depend on me and/or and my people for their success. In some ways I depend on them and their people for my success. “Managing” peers might seem inappropriate and it is in the traditional sense of ”managing” people. In the case of “in” it is really more about managing mutual expectations. What might they reasonably expect from me, and those I lead? What ought I expect from them and those they lead. What can I depend on them to know and do? What do they depend on me to know and do?  How do I meet and/or manage those needs and ensure that whatever is done, is consistent with our shared ethical standards and expectations?

What are my responsibilities and what are the boundaries regarding how I ensure that those I rely on and those who rely on me are operating to at least the same ethical standards as I? And, if their standards are even higher than mine, how do I accommodate those standards? When might it be appropriate to modify my ethical standards to meet the higher standards of an “in”? What about the case where their ethical standards are lower than mine? Is it reasonable to require that they meet my standards when dealing with my people, my issues and me? Is that enough or must I insist that they apply my standards in all cases, even when I am not directly involved? (E.g., is it acceptable to tolerate a liar, who lies to others but not to me?)

Out

There are typically several groups that are critical to your success that exist outside your organizational boundaries and/or span of control: customers, suppliers, competitors, regulators,etc. How does your function influence your organization’s relationships with these entities and how might those relationships be more effective? What aspects of those relationships can and should be measured? What strategies and tactics are in place to ensure that your external cohorts are meeting or exceeding the ethical standards that you impose on yourselves, at least as it relates to their dealings with you and your organization?

You have an obligation to manage those relationships just as surely as you a have a responsibility to manage the others we have discussed – up, down and in. The difference is that in the “out” relationships you may lack any formal “authority” or power to impose consequences if the desired standards are not met. Whatever lack of direct enforceability might exist places added pressure on those who manage those relationships to be crystal clear about the applicable ethical standards and the “consequences” for failing to meet those standards. You and your organization may lack any formal authority to address ethical misconduct “out” of organizational boundaries, but there are other actions that can be taken and others resources at your disposal. Relationships are, by definition, two-way. That means that you bring value to the others just as they bring value to you.

Conformance to your internal ethical standards by those who are “outside” is a reasonable and enforceable expectation. I may not care how you treat your other clients, but when dealing with us you will operate to our standards or we will find an alternative source. Actually, in reality, most of us do care how those outside our organizational boundaries treat others they serve. It reflects on their inner standards and reflects on our inner standards if it is known that we do business with them. It is a weak defense to claim that we choose to do business with known liars, cheats and thieves because while they may lie, cheat and steal with everybody else, they do lie to us, try to cheat us or try to steal from us. Perhaps “weak defense” is an understatement. It is more like “unconscionable”.

The most reputable organizations choose not to do business with vendors, suppliers, competitors and even clients who do not choose to operate to the appropriate levels of ethical business conduct. They are justifiably afraid of “guilt by association”.

Communication

 

All of the above - up, down, in and out - can only become “the way we do things around here” if the Ethics Office/Officer, in particular and leadership, in general, are effective communicators. They need to communicate the ethical standards and expectations as well as provide the tools and resources needed by their employees, to help ensure that ethical decisions get made. They also need to ensure that there are appropriate consequences for misconduct, as well as effective systems to address questions and investigate allegations of misconduct reported by both insiders and outsiders. It is a full time responsibility in all but the smallest/simplest organizations.

Communication is a critical aspect of up, down, in and out. In most organizations where there is a formally designated ethics management function, that function provides various means whereby an employee or other interested party can seek guidance re the organization’s ethical standards and/or report suspected/observed “misconduct”. Those reports then become part of the “database” needed to communicate how well the actual ethical culture (how things are) aligns with the aspirational ethical culture  (how we want things to be). Then, if there are deficiencies in the systems, the Ethics Officer, and leadership in general, need to collaborate in developing strategies and tactics to address those deficiencies so as to prevent recurrences of inappropriate behavior.

Having something of importance to report is only half of the equation. How to report it so that the information and its implications are understood and appreciated is the other half? PowerPoint presentations with lots of charts/graphs of ethics office activities are not going to do the trick. That is all about process. We trained x number of employees. We handled y number of calls. We did z number of investigations. The Board presumes that you will be doing the process stuff correctly. They need to hear about the impact of doing x, y and z. What engages people (and yes, your Board is largely composed of people) is anything that touches them at BOTH the intellectual and emotional levels. It has to be data that matters at a level that gets and keeps their attention. What do you have to tell them that actually matters? What is exciting? What is unexpected? What is encouraging? What signals danger ahead if not addressed? Give me, as a Board member, a real reason to sit up and listen to your report.

Governance is Different From Management

Boards are Different. Reporting to the Board is fundamentally different from reporting to your senior-most executives. That is because their roles are different. Executives have management responsibilities. Boards have governance responsibilities. It is critical that the Ethics Office understand those two roles and prepares their reports accordingly.

In its simplest terms, management is tactical and governance is strategic. Governance defines success and management figures out how to attain that success. That means the Board and the C-Suite need different information from your office. The Board doesn’t necessarily need all the data: how many new employee orientation briefings the EO gave, how many reports came in, how many of those were investigated etc. Your management wants that information because that is at least part of how they measure you and your effectiveness.

Your Board needs “pattern and trend” data.

  • The number of reported instances of “significant” ethical misconduct continues to decline. This represents five consecutive quarters where ethical misconduct that warranted more than simple coaching/counseling was less frequent than the same quarter in the preceding year. That was an EO target and we are on track to meet that goal.
  • We project an average rate of 4% fewer cases this year than last. Our goal was a 2% decrease. We are using survey data to confirm that this represents an actual decline in misconduct and not an increase in the number of observed incidents that go unreported.
  • Our training strategy is under review. Preliminary data suggest that a revised approach could result in increased effectiveness, as measured by incident frequency and incident cost, with no significant increase in training cost per employee. We will have our final proposal ready for executive review by the end of next quarter.

If the Board wants more “nitty-gritty” details, they can ask questions – so be prepared with all the data. Just don't presume that the Board wants to hear it all, every time you report. In most cases they don’t. If they do, they’ll let you know.

Your Senior Management, on the other hand, not only want all that data, they need it. That is how they track your progress and evaluate your effectiveness. Those are legitimate management functions. You need to have systems and processes in place to be able to report on all appropriate metrics – and defend any variances from the projected “success” criteria – both those that went above the line and those that stayed below the line, even if the Board never sees that data.

Ethics in Governance

And, it is a two-way street. Your management team and Board have expectations of you. There are responsibilities and obligations that come with the Ethics Office and the Board expects you to meet all of those demands and execute all of those responsibilities. That is in your “job description” and they are right to expect it.

You are similarly entitled to have expectations of them. You are entitled to the opportunity to earn their support. The “worst case scenario” is where the Board had predetermined that ethics is a “non-issue” and all they agree to is a perfunctory meeting of the rules in order the check the box, “Board involved”.  

Among those expectations, perhaps the most significant are access and support. The key to sustaining that access, once granted, is be certain that what you bring to the Board is what they want and need – and that it is direct, coherent, and to the point. The last thing they want or need is for you to take more of their time than your involvement merits. If you are going to err, choose to err on the side of brevity. They can always ask questions. They can’t always “delete” what you present that they think is superfluous or irrelevant. But they can “uninvite” you from future Board meetings if they think you are abusing their time. And they will.

Not every Board is aware of those mutual responsibilities. You may not have the opportunity to “educate” them but you can “earn” the right to be before them by ensuring that they get value from you each and every time. If you bring value to the table you will be invited back. If you are seen to be wasting their time, then you will not.

The Bottom Line

It is simple, really. Boards have crowded agendas and do not want or need to be inundated with the data your senior management uses to evaluate your effectiveness. What they need is the data required to evaluate your senior management’s effectiveness. “These are our strategic goals and here is where we stand vis. a vis. our benchmarks and milestones.” Put it out there, short, sweet and to the point. Invite comments/questions. Respond as necessary – addressing exactly what was asked. When the last question is addressed, a simple  “ Thank for your attention” and, worst case, at least they weren't bored. Best case, they were informed and engaged and you will be invited to the next meeting for more of the same.

 

Frank J Navran

© 2014