The Board’s Role in Compliance & Ethics

business_ethics_highlights_2In the piece linked below, lawyer Jeffrey Kaplan discusses the role of the board in ethics & compliance. It’s a challenging question, given that the board is ultimately responsible — responsible for governing the firm and guiding its behaviour, but not in charge of day-to-day management. >>>

LINK: The Role of the Board [scroll to p2 of the PDF] (by Jeffrey M. Kaplan for Compliance & Ethics Professional)

Since the 1996 Caremark case, boards of directors have been expected to oversee
their respective companies’ compliance and ethics (C&E) programs. The legal—and indeed, economic—case for placing this obligation on boards is clear: A company’s directors tend to have more of a long-term perspective than do itsexecutives, and the benefits of strong
C&E are largely long term in nature. But as a matter of law (as well as business logic), boards are not expected to manage a C&E program (or indeed anything about a company).
So what exactly should they focus on?…

What do you think?


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One comment

  1. Melinda Brain

    Interesting question Chris. C&E is extremely important for Boards. Just a Bank (ethical scandals in financial planning and life insurance) and a convenience store (compliance scandals of franchisee under-payment of workers) in Australia. Boards need to be seen to be highly active in C&E. Short term, long term – boards must focus on C&E.

    I see boards being the high level platform where we generate the reasoning of how we are going to do things and why we do what we do and I believe the article misses what I believe to be the most important reason why we have Boards. I’m a strong believer in Adaptive Strategy, however it has to start somewhere and that is – from the top. Strategy is sorely missed in the article. Look at Masters in Australia. Failed. Entry into a market that was saturated by the Bunnings chain. The strategy chosen was similar to Bunnings and “mimic” would never be my chosen strategy.

    The article talks about Culture, but there’s many Boards with poor cultures, which is part of the reason why are seeing a global rise in the Whistleblower phenomena. In some regard, we could argue a hotline as “damage control” – Boards must focus on organisational culture and make sure they have in place a culture that accepts the speaking up of middle managers or those from below. The hotline is important but it’s not enough. Additionally, the statement made “… boards are increasingly becoming adept at understanding and improving corporate cultures” doesn’t resonate with me at all. I argue that we have seen a global rise in cultural problems that stem from the top. Monkey see, monkey do! Culture is an extremely important issue for boards.

    One thing which is also extremely important is having “highly skilled” people, particularly in our most important positions. I look at a courier company in Australia. Highly skilled social media approach on LinkedIn. It’s on key, promotes brand health, is relevant and yet it also educates consumers by providing informative topics for them to consider in using courier companies. We must also not forget we need a highly skilled Board. Without that, we have nothing.

    Final words relate to Government collaboration. If the Board sets the scene, then it should also promote working in with Government and even working to promote change for industry. Look at the automotive company in America who has the “direct sell” approach. Whilst it could drive costs down, Government intervention has prevented the approach in numerous States – or at least limited the approach. Government can clearly impact Strategy.

    Having said the above, Kaplan’s article provokes thought. I think we need to talk more about the role of the Boards, so by him opening the discussion, it is certainly a good thing and I commend him for that.

    I’m working on a Whistleblower blog post, but Kaplan has inspired me to do one on the role of Boards after that. Cheers!

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