Creating an Ethical Business Culture: The Role of the Board of Directors

The board of directors can play a critical role in establishing an organization’s ethical compass. While board members do not actively manage the day-to-day operations, they do serve as guardians of the organization and help to determine its overall operating strategies. As such, directors are in a position to significantly impact the organization’s ability to create an ethical business culture.

Ideally, the board works in tandem with top management to develop and maintain an ethical organizational climate. While the board typically oversees the creation of the organization’s ethics policies and procedures, management’s primary responsibility is to develop and execute the ethics program and, along with the board, monitor its ongoing implementation.

Three Key Ways Board Members Can Impact an Organization’s Ethical Culture

According to Michael L. Hackworth, who served as chair of the Markkula Center for Applied Ethics at Santa Clara University and as chairman of the board of Cirrus Logic, Inc., a board can impact a business’s ethical culture in three important ways:

  1. Always ask the question: Is it ethical?
    When evaluating any new or existing organizational policy, program, or procedure, the board should always weigh its merits from an ethical standpoint by asking the question, “Is it ethical?” This ensures that ethics will remain a top priority throughout any decision-making process.
  2. Monitoring executive behavior
    Since top executives set the ethical tone for the entire organization, the board should take on the responsibility of monitoring the behavior of the organization’s CEO and C-level executives. In this way, it can spot unethical behavior early on and prevent it from mushrooming out of control. According to Larry Colero, founder and principal consultant at international management consulting firm Crossroad Programs, Inc., directors have historically been reluctant to confront top executives they suspect of engaging in unethical behavior, particularly if the organization is performing well and earning large profits.
  3. Determining how employees are incented
    By playing a role in determining how and why employees are promoted, rewarded, etc., the board can help to eliminate practices that can lead to unethical behavior in these areas.

Other Key Board Activities

The board can take a number of additional steps to ensure that an organization develops an ethical culture. For instance, when the organization engages in strategic planning activities for the upcoming fiscal year, the board should verify that management has developed clear-cut objectives in the area of ethics management. It should also stipulate that the organization must have mechanisms in place to recognize and respond to ethical dilemmas, such as the existence of a dedicated ethics officer, a code of ethics, appropriate ethics training programs, and an anonymous third-party ethics hotline for reporting ethics violations.

Board of Directors Code of Ethics

As an organization’s commitment to ethics is established by its leadership, it’s also important that the directors themselves are held accountable for their behavior. Many organizations have developed a code of ethics to provide guidelines for the behavior of employees, management, and vendors. As a key component of an organization’s leadership team, it stands to reason that a board of directors should also be required to follow an established set of guidelines for its own ethical conduct.

One way to accomplish this is by creating a separate code of ethics for its board of directors. Organizations can establish a development team to oversee the code’s creation, including members of the board as well as individuals from all levels of the organization. Having a separate code for the board can provide a more comprehensive approach to creating an ethical climate, as some areas of the standard employee code may not pertain to the actions of its directors.

To view Larry Colero’s article “5 Questions That Corporate Directors Should Ask” click here.

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