The board's role in promoting an ethical culture: Boards that prioritize corporate culture, watch for red flags, and set clear expectations will encourage ethical behavior throughout the company.

Author:Vollmer, Sabine
 
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Research over the past 20 years has continued to underscore that integrity drives performance. Corporate culture and tone at the top are considered key drivers of ethical behavior, but boards of directors often devote little time to the topic.

Board members generally recognize their responsibility to oversee ethics and compliance, said Pat Harned, CEO of the Ethics and Compliance Initiative, a U.S. think tank. What they struggle with, she said, "[is] to know what questions to ask and what information to look for. I don't think directors are particularly well-versed in recognizing red flags."

Serving on a board is a big job, Harned said. Business strategy and expansion, risks, and enforcement frequently take priority. Board members are aware of the importance of an ethical corporate culture and that it is driven from the top down, but 87% considered culture and engagement a top challenge, according to a Deloitte survey published in 2015. A separate Deloitte study published in 2016 found that just 28% of executives said they understand their organizational culture and 12% thought their company was driving the "right culture."

The problem often starts right in the boardroom. Research from a 2016 survey by the Rock Center for Corporate Governance at Stanford University and The Miles Group suggested that only 46% of board members strongly believe their board tolerates dissent. The same percentage believes that a few directors have an outsize influence on board decisions.

A 2017 Blue Ribbon Commission of the National Association of Corporate Directors (NACD) suggested that boards can tackle the challenges. What they need to do is become as disciplined in overseeing corporate culture as they are in overseeing risk management, commission members said.

LOOKING FOR RED FLAGS

Many businesses have codes of ethics that employees are supposed to follow and mission statements that promote values such as ethical behavior.

It is important that these statements and codes exist, but what really counts is having the board and senior management know and buy into them, said Christy Pickering, CPA, a sole proprietor in Ocean Springs, Miss., who focuses on tax and litigation support. She has been a member of the board of directors at Hancock Whitney Corp., one of the largest banks in the Southeast, since 2000 and has served on the board's audit, compensation, corporate governance, and executive committees.

"Corporate culture defines why a company exists and what...

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