Directors are bound by their duty to act in the best interests of the organisation, but occasionally some board members will fall through the cracks:
- Jeff Skilling, CEO of American energy firm Enron, was found guilty of one charge of insider dealing, as well as securities fraud and conspiracy, in 2006. He had sold shares in the business whilst in the knowledge it was not performing as well as the public believed.
- Uber CEO Travis Kalanick stepped down in 2017 following allegations of engrained sexism and sexual discrimination within the organisation. Kalanick was accused of setting the tone of this company culture.
Investors depend on directors to meet their fiduciary obligations in the course of their work, and behaviour that falls short can cause unrest.
The tone of an organisation emanates from the top, which means that directors should hold both themselves and their board colleagues to high standards. This blog explores ways to avoid unethical behaviour in the boardroom.
1. Create an ethics committee
The ethics committee is the place to drive strategic compliance and set the ethical tone for the entire organisation. As well as leading in the creation and maintenance of a code of conduct, it should take charge of appointing a compliance and ethics officer.
The ethics committee should also monitor the regulatory landscape as well as underlying social sentiment within the marketplace to ensure that the board and the organisation remain compliant and are seen to hold an ethical stance.
2. Create ethical standards
By collating and publishing a set of standards for expected ethical behaviour from directors, there can be no excuse for board members who cross the line. You should distribute these standards in the welcome pack when onboarding new board members and deliver them to all directors when they are updated and adjusted.
3. Reinforce consequences for unethical behaviour
If someone contradicts your board ethics standards, you must be seen to deal with it swiftly and effectively. Depending on the type of unethical behaviour alleged, you should have a procedure to investigate and deal with board members.
It might be that directors have to step away from their duties whilst the investigation occurs. If it is found that they did undertake unethical behaviour, you should make sure you hand out the appropriate sanction. If you reduce the punishment, it shows others that they can get away with wrongdoing.
4. Hire the right board members
Your board recruitment processes will already be set up to target candidates who possess certain skills and competencies. This means it will not take a major adjustment to add a requirement for ethical strength to your searches.
Add an ethical element to your interviews and ensure you ask questions that explore how potential directors would act in certain situations to check that they match your ethical code before you advance them through the process.
5. Work on building a loyal community
Directors are busy people, and it is not always possible to get the team together outside of meetings, but dedicating some time to social gatherings or even joint training sessions can help them bond more effectively. The more directors engage with each other and bond, the less likely they are to feel comfortable indulging in unethical behaviour that negatively affects their colleagues.
If you run virtual or hybrid board meetings, you can plot time before the meeting begins for board members to interact and catch up, creating a community that encourages loyalty to each other.
6. Implement monitoring and reporting systems
The scope of the EU Whistleblowing Directive includes the ‘supervisory body of an undertaking, including non-executive members.’ This means that your directors should have access to reporting systems relating to this legislation and training on how to make a report, why it is important to the organisation, and how they will be protected after making their report.
You can also implement automated monitoring and reporting to ensure your board remains compliant with the Market Abuse Regulation, MiFID II and other regulations.
Conclusion
Allowing unethical behaviour to flourish in the boardroom can be detrimental to your relationship with investors and damage your brand.
Implementing automated compliance solutions can provide a route for directors to report wrongdoing. IntegrityLog allows secure, confidential reporting with an easy-to-use dashboard that flags follow-up deadlines and keeps you compliant with the EU Whistleblowing Directive.
For boards, iBabs is the perfect way to deliver documents such as your ethical standards to directors. Due to the fact the documents are stored in the cloud, everyone has access to the latest version at all times.
Euronext Corporate Services are sponsoring Governance Ireland 2022. The Summit takes place on Tuesday, 10 May 2022. Book your place today.
Euronext Corporate Services is a wholly-owned subsidiary of Euronext. It offers a suite of cutting-edge solutions and tailor-made advisory services in the fields of governance (iBabs), communication (Company Webcast), compliance (ComplyLog) and investor relations (Advisory and IR Solutions) to over 3,000 organisations from corporates to the public sector.
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