Becoming a valuable resource to your board:

Strategies to successfully navigate the new relationship between ethics & compliance officers and their board of directors.

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Regulatory and market forces have dramatically redefined the fiduciary responsibilities of corporate directors. Success at building a culture of ethical and legal conduct is now the measure by which corporate directors will be judged. The new rigor being applied to directors’ accountability suggests that ethics and compliance professionals have increasing opportunities to work with their board, becoming a valuable resource to help directors make principled performance the foundation of profitable performance.

Given the heightened attention placed on the control environment in corporate governance, the time is right to strengthen the relationship between ethics and compliance officers and their boards of directors. Today’s boards require new perspectives on the importance of culture, new ways to assess effectiveness and new approaches to engage the organization in corporate values. These are precisely the issues on which ethics and compliance professionals are in the best position to provide insight and guidance.

Following are recommended actions that ethics and compliance professionals can take to develop a closer advisory role with their board. Whether you are seeking to connect with your company’s directors for the first time or working to build a more direct reporting relationship to them, pursuing these recommendations will enhance your effectiveness.

Make an effort to understand the board’s unique challenges

Ethics and compliance officers should help directors, first and foremost, to understand and fulfill the two important aspects of a board’s obligations: the Federal Sentencing Guidelines and the Sarbanes-Oxley Act (SOX). The former makes directors responsible for ensuring an “organizational culture that encourages ethical conduct and a commitment to compliance with the law” and the latter establishes rigorous accountability standards for boards. These regulations clearly intensify the need for directors to begin integrating ethics and compliance into their oversight.

But boards need also to evaluate a wide range of risks. As an ethics and compliance professional, you are well situated to assist the board in navigating through the regulatory and ethical risks of today’s business world. You can help directors understand the ethics and compliance practices the company has already adopted to mitigate those risks - effective prevention and detection programs - and the benefits of doing a cultural assessment to evaluate the company’s inner workings.

Understanding the board’s challenges is your starting point, so take time to examine your company, its culture, industry, competitors and relevant legal and regulatory issues so you can provide relevant, up-to-date information and guidance to the board as you build a closer, collaborative relationship with them.

Research board members’ backgrounds

Knowing your board’s background provides insight into what expertise directors bring to the boardroom. A better understanding of their preparation helps you determine the type of information they need to receive in advance of board meetings and shape your strategies to enlist their commitment to the company’s ethics and compliance initiatives. Assessing their background also helps you formulate recommendations for their education in ethics and compliance issues. Some directors, such as certified public accountants, may be required to take continuing education credits (professional or legal) to maintain their professional standing and so will have already received ethics and compliance education as part of their requirements. But directors without such preparation can benefit from educational opportunities about ethics and compliance issues.

Develop channels of communication to your board

If you don’t report directly to the board, it is important, at a minimum, to build communication channels with them. You might be able to gain a foothold by working with your management or corporate counsel to create informal opportunities to talk to board members or meet with them, such as speaking on a matter they are voting on at an upcoming board meeting. Another possibility to gain entrée to the board is to build a relationship with one or two directors who are open to your analysis and recommendations to improve the company’s commitment to ethics and compliance.

Reposition your role as coach, not cop

An analogy to understanding this metaphor is to think of your organization as a soccer team, on which some players play offense to score points while others play defense to keep the team from being scored against. In companies, the offense are those people who invent new products and do sales because those functions score the points (generate the profits). The defense includes people like the general counsel, the legal staff, and others because those functions save the team (protect the company) from the opposing offense. The chief compliance officer is effectively the goalie standing in front of the net to keep the team from being scored against with an ethical and compliance violation.

However, in today’s legal, regulatory and global competitive environment, it is not enough that just a few people in the company be responsible for defense. Instead, managing risk is more effective when responsibility is spread out horizontally across all functions. Leaders and managers of every department must have accountability for motivating the ethical behavior of their reports. Employees, too, must take responsibility for their day-to-day interactions and decisions. Spreading the defensive work around is the only certain means by which the company can create a “self-governing corporate culture,” in which everyone takes ownership of their own conduct and seeks to inspire those around them.

Begin advocating to your board that the ethics and compliance function is best served by your acting as a coach proactively offering wisdom, advice, counsel, tools and resources across all functions rather than as an enforcement cop reacting ex post facto to violations. In fact, try to implement precisely this type of coaching relationship with the board to exemplify the effectiveness you can achieve across all other functions.

Create resources and structures to support the board

Building the right supporting structures and resources has two benefits. It reinforces “horizontalizing” ethics and compliance management, and it enables the board to catch problems earlier. The sooner the board learns of potential problems, the more quickly they can react to protect the company. If your organization is multinational, ensuring that the information the directors have about the ethics and compliance initiatives in the company’s international locations is as good as that for headquarters operations is critical to instilling one corporatewide standard of conduct among all global employees.

Get the board directly involved in key ethics and compliance activities

Get directors to voice tone at the top

You can help directors disseminate their support through numerous channels: formal statements to employees, messages inserted into the education programs, articles in the company newsletter, a declaration in the company’s annual report and other tactics. You might offer to help directors create message points to add to their communications outside the company such as speeches they give.

Involve directors in developing corporate ethics policies and practices

• the corporate code of conduct
• the certification, education and communication programs
• policies about compliance incident management
• corporate compliance goals, benchmarks and measurement practices

Involve the board in developing sound hiring practices and reward systems

• Does management integrate ethics criteria into its recruitment programs?
• Is management receptive to board participation in hiring for high-risk job functions?
• Does the organization publicly recognize ethical role models in the company?
• Are ethical practices reinforced through the company’s reward programs?

Engage the board in the company’s code of conduct

If your company already has a code of conduct, consider whether it is appropriate to ask directors to sign it if they haven’t already. Some companies develop a separate code of conduct and ethics specifically for their board. Ford Motor Company, for instance, has a code intended “to focus the board and each director on areas of ethical risk, provide guidance to directors to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability.” However, other companies believe that the board should adhere to the same standards of behavior as all employees. Talk with your executive team or directly with board members to determine which approach sets the right tone in your company.

Build up the board’s knowledge and expertise

To educate directors, you can find an increasing array of formal programs and courses specifically tailored to corporate boards. There are even “summer schools” designed to immerse board directors in ethics and compliance. Some companies decide to develop their own education programs with workshops, discussion sessions and private coaching to help directors deepen their understanding of ethics and compliance challenges. You can also bring in an outside expert to educate the board on a specific issue. Whichever approach you use, involve the directors in designing the program so that it corresponds to their needs.

One effective technique to open up dialogue with directors is to host workshops using realistic scenarios that force directors to examine their values. For example, create a scenario in which the board role-plays the situation of negotiating with a large potential customer who has asked for “extra” favors in order to win their business. Scenarios that involve gray areas of the law are especially good to get board members to recognize ethical challenges that employees sometimes face. The key is to get directors actively involved in thinking through an ethical dilemma and recognizing the ramifications that decisions can have on the company’s reputation.

Another critical aspect of educating your board is keeping directors abreast of regulatory and legal trends. You may need an ongoing communication that updates directors on what legal areas regulators are scrutinizing, what laws have been modified or are likely to evolve, and how the company can prepare to respond to changes.

Shift the board’s focus beyond compliance to culture

Instead, corporations must focus on instilling in their management and workforce shared values to guide behavior. Those values must permeate the fabric of the culture so that everyone knows them, believes in them and acts by them. Only a corporatewide commitment to an ethical culture can consistently enable companies to achieve higher standards of conduct and, in doing so, set themselves up to self-govern.

Given this reality, one of your primary objectives must be to shift directors’ focus from compliance to culture. Rather than limiting their purview to governing the company’s ability to meet regulatory requirements, directors must come to recognize that their oversight needs to focus on embedding shared values in the corporate culture.

Adopting this perspective usually requires board members to stop viewing ethics and compliance as a cost of business, but rather to recognize it as a valuable investment in higher performance. You can help board members understand this by exposing them to the growing body of research indicating how an ethical reputation helps companies attract customers, retain investors, strengthen recruitment and retention of employees. As board members alter their perspective from concerns about the costs of compliance to the benefits, you will begin to have more fruitful discussions when board members ask such questions as: “What are we getting from our investment of $X in compliance?” “Why do we still have behavior problems in the company if we are spending all this money?” and “How can we make sure we are not going to end up in the newspaper for the wrong reason?”

Another strategy to persuade directors why their focus should be on embedding values into the culture is to do a comprehensive cost-benefit analysis. Just as the safety and quality movements were able to show when companies took into account all the performance advantages gained by incorporating safety and quality thinking into their everyday practices, it will become equally clear to directors that the same powerful results can be achieved when the company fully adopts ethics and compliance thinking into its culture.

Case studies are further way to demonstrate the link between ethics and compliance and performance. For example, directors might reexamine several noted business cases involving supply chain decisions in the clothing industry years ago. The reputational damage to the companies discovered to be using child labor in their overseas manufacturing provides a tangible reminder to directors that ethics should play a role in many business decisions, no matter how distant they may seem from the company’s control.

Finally, one of the most powerful ways to inspire the board to shift their oversight from mere compliance to the company’s culture is to get the directors directly immersed in it. Encourage them to visit the company’s sites to see first-hand whether managers and employees demonstrate respect for its values, make decisions with regard to applicable laws and regulations and conduct themselves with high standards. One useful recommendation is to encourage the board to conduct their meetings at different company locations so that board members have opportunities to visit and observe each site. Directors are more likely to circulate and examine a company location if it is part of a scheduled meeting.

Some companies require directors to make several site visits during the course of a year. GE directors, for example, are expected to visit two GE businesses per year without management present. One large chain retailer requires its board members to visit at least 12 stores per year. Recommend that the board establish their own policy regarding unannounced site visits that allow them to speak directly with managers and employees.

Work collaboratively with the board on a formal cultural assessment

Working with your board to implement a formal cultural assessment serves three goals. First, it strengthens the process to educate directors about ethics and culture. Second, it enables directors to uncover problems that may lie beneath the organization’s surface – issues that might eventually affect performance and productivity. Finally, a cultural assessment provides an opportunity to work closely with your board to analyze the findings and implement substantive changes to the company’s practices.

Conclusion