Companies need sound governance.

• Author: Stephens, Jay B.
• Position: Ethics Corner

Sound corporate governance is the heartbeat of a great company and is more than meeting regulatory responsibilities. It is also more than deploying processes to mitigate operational, financial and compliance risks or defining responsibilities as to how we make decisions, operate our business, or relate to customers, partners and employees.

At its core, sound corporate governance is grounded in shared values that define a company's culture, give employees tools to make ethical business decisions and builds trust that engenders teamwork to pursue and achieve stretch goals.

Sound governance depends on a culture of ethical decision making and a commitment to do things right.

First, it requires the right tone at the top to set expectations and lead by example. Second, employees must have and understand good decision tools and processes, including avenues to raise issues and get advice. The third key ingredient is an interactive, closed-loop education program built on best practices so that employees know what is required and how issues should be resolved. Finally, the fourth pillar is a culture of accountability where people take responsibility for their decisions and are imbued with integrity.

The defense industry is a highly competitive environment where evolving needs of global customers require speed and agility. The rapid advance of technology, a globally networked supply chain, budget pressure and individual customer dynamics complicate day-to-day compliance operations. Global business presents an even higher risk profile made even more complex by less transparency and specific customer relationships and requirements. Amid these challenging variables, the industry must rely on bedrock principles of sound ethical values and good governance processes.

Good governance defines checks and balances that shape roles and responsibilities, as well as the balance of power among competing interests, which sometimes impact the ability to reach good decisions with input from stakeholders.

In publicly-traded aerospace and defense companies, strong internal controls in an organization--especially in business units far from the mother ship--are essential to transparency and process fidelity. Linking the organization together with common processes and systems provides a good antidote to one-off actions and opaque transactions. This is especially important in the national security arena, where customer relationships can provide particular challenges and...