Ethical Culture: Boardroom Perspective

What is Ethical Culture?

Culture is the unique set of values and beliefs that determine behavior — the manner in which things get done — in an organization.

Research from Philip Zimbardo has indicated that corporate misbehavior is seldom “bad apples in the barrel”, rather it is often the culture created by “the barrel-makers” that is, the leaders of the organization.

Sarbanes-Oxley and other legislation conclude corporate boards of directors have responsibility for creating ethical cultures as a means to reducing legal risk. Directors must be able to engage in systems thinking with awareness of the various psychological and social dynamics that influence the workplace environment and company performance.

Challenges the Board Faces

Directors often have limited first hand interaction with the company’s operations, particularly those that manufacture and conduct business in multiple countries.

Many companies have subcultures within the company, making it difficult for a Director to have a firm grasp on the company’s inner workings.

Tools Available to the Board

A Statement of Values and Code of Conduct are both necessities, but they must be lived documents: leaders must model the way and transgressions must be rectified.

Create opportunities for interaction with various parts of the company. Whether it is regular meetings with executive officers or management by walking around, directors need to be proactive in submersing themselves within the company’s culture.

Hiring workers with strong values is crucial and must be considered a core criterion for hiring decisions. The board should ensure that the hiring process is both fair and selects ethically sound employees.

Creating an ethical culture is a continuous process. The board must be committed to continual reflection and evaluation to ensure that systems, practices, and decisions are aligned with the company’s values.

Boards are increasingly using culture assessments to diagnose their corporate environment and better understanding the risks, strengths, and weaknesses in play.

Panelists representing the Markkula Center and a company that contracted the Center’s Ethical Culture Assessment, described the process and its impact within the company.