July 26, 2017
Ian Warner

Actions speak louder than words: How Boards can model organizational ethics

With our thanks, we share this rebroadcast of an earlier article by respected corporate governance advisor Fay Booker.

The Board is the Leader of the Organization’s Ethics

Ethics is part of the brand of your organization. Your company’s ethics create the culture of the organization. Every few months there is a high profile issue with respect to ethics – the GM ignition switch scandal, the questionable spending of tax dollars by senators, and the latest: the Volkswagen emissions scandal (did they learn nothing from GM?).

What is the Board’s role in an organization’s ethics framework? Those at the top of the organization create the culture of the organization through their actions and behaviours. Many think that the culture of ethics is created through corporate values and codes of conduct. However, actions always speak louder than words.

Headlines over the years identify the ire which is drawn with the abuse exercised in leadership positions. London Mayor Resigns After Fraud Conviction; Dynalife Executive Resigns over $75,000 Expense Scandal; Toshiba CEO Resigns Over Doctored Accounts. What type of culture is set when staff are aware of Directors padding their expense reports, or the generous perks Directors decide to give themselves, like Christmas gifts, clothing allowances, computers and tablets?

The Board needs to be aware of the elements in the ethics framework and consciously seek assurance that all are in alignment to uphold the desired framework. The ethics framework starts with the values of the organization which need to be lived within the organization, by the people of the organization in all actions and interactions. Words on a poster do not establish culture, actioning the values does.

We recommend two codes of ethics (or conduct) for an organization – one to address Directors and Officers and one to address all staff. We expect that the leaders of the organization will be held to more stringent standards. The code of conduct for Directors and Officers needs to strongly set the bar for expectations of actions and behaviours, and must address expectations for safeguarding of the organization’s assets, confidentiality of information, gifts and entertainment, observing and respecting policies and laws, and conflicts of interest.

Only once this code has been clearly set and agreed to by each Director and Officer, can the rest of the ethics framework be built.

The processes which are needed in the framework include the following:

  • Involving employees in developing the code of ethics policy for employees
  • Communicating the policy to the employees – at least annually, and acknowledgement of their understanding and commitment to adhere
  • Demonstration of holding Directors and Officers accountable to the terms of the policy
  • Reputable process for reporting potential breaches to the policy
  • Handling and investigating potential breaches to the policy including a reputable process for dealing with violations
  • Reporting on adherence to the policies to senior management and to the governing level.

The Board is responsible for gaining assurance that all of the necessary processes which enable the ethics framework to be active are established and operating effectively. The graphic below provides an illustration of the ethics framework.

Integrity of the framework is gained through the employees’ observation of how the code is lived and honoured. The employees will watch for consistency of application across all levels of management and the Board members. Effective ethics depends not only on the stated commitment of leaders to the organization’s values but also their actions which demonstrate their actual dedication to uphold the values and ethics. The Board’s actions and decisions and the organization’s actions and decisions must be aligned with the values and ethics. It is not about matching the behaviours of others but acting in a manner which meets the organization’s own standards.

Organizations that truly see the importance of the ethics framework will take the next step and audit the framework to test its effectiveness. Having a good-looking picture is not the same as actualizing the framework.

The Board and each Director needs to demonstrate leadership for ethics through their own behaviours and actions and the Board needs to gain assurance that the framework is sturdy enough to achieve the actual ethical standards desired. The Board is the steward of the organization’s ethical standards.

About the author – Fay Booker

Fay Booker is the president of Booker & Associates, a consulting firm focused on promoting excellence in corporate governance, risk management and operational effectiveness. Booker’s clients include public sector bodies, financial services and not-for-profit organizations.

Read more posts by Fay.

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