ETHICS TRAINING FOR CORPORATE BOARDS

Howard Harris

ABSTRACT

Being a director, regardless of the size or nature of the enterprise, is different to being an employee, manager, shareholder or customer. It is not size or dollar value that makes the responsibilities of a board member different from those of an executive. Some, for instance ethical responsi- bilities, are common regardless of size. One key issue is to do with perso- nal integrity and another to do with the integrity of decision making by the board. The chapter looks at who should be responsible for training the board, and provides a conceptual framework on which training could be based. Practice and example are the key ways in which ethics is learnt, and examples are provided of the way in which case studies can be used to enhance personal integrity and moral courage, and to develop and entrench decision processes in the board which enhance the integrity of its decision making.

Keywords: Governance; boards; ethics; training; courage

INTRODUCTION

This chapter is about ethics training for those who are members of boards - whether they be directors of corporations listed on a Stock Exchange, or of small- and medium-sized enterprises, or of not-for-profit, charitable and philanthropic foundations, or family businesses. Whilst that might seem like a disparate group of people, being a director, regardless of the size or nature of the enterprise, is different from being an employee, manager, shareholder or customer, as I explain in the next section. By including managers and employees in that list it will be clear that the focus is on so-called 'indepen- dent' directors, those who are not employees of the enterprise at the same time that they are directors, nor are large shareholders in the business of which they are directors (or both board member and major benefactor of a foundation or not-for-profit). This is not to exclude those who are executive directors, because many of the responsibilities of board membership apply equally to every member. However, the training needs of the non-executive director or the executive director might be more easily passed over in a small business than in a large corporation, and hence this chapter seeks in some small way to redress that balance.

After recalling some of the recent evidence of failure by enterprises which has been sheeted home to directors and boards, the chapter begins with an examination of the reasons why the board is different and why ethics training is needed for directors. It is not organisation size or dollar value that makes the responsibilities of a board member different from those of an executive; some of the responsibilities are common regardless of size. (For consistency I have used the terms board and directors to refer to the governing council of the enterprise and its members, even though other terms may be used in different circumstances, especially in non-for-profit organisations where there is a wide variety of usage and the governing committee might be called a council and its members called governors. Despite the persistent use of the terms 'board' and 'director', the discussion in the chapter applies equally to non-profit enterprises.) The discussion also lists some of the challenges facing boards in the con- temporary economic and social environment, and the section concludes by suggesting that there are two distinct types of ethical issues which boards and board members need to address - one is to do with personal integrity and the other to do with the integrity of decision making by the board.

The next section looks at who is responsible for the training of the board members, especially for training in ethics. Should this be done by the chairman or presiding officer, the board members themselves, the human resources (HR) or legal departments (where there is one), or by a profes- sional body such as the Institute of Directors or relevant professional association?

The third section draws on recent scholarship and research in courage and ethical decision making to provide a conceptual framework on which training can be based. The ideas of moral virtue, critical reflection and moral imagination are introduced here. Noting that courage is often sought by and from board members, the section concludes with a summary of the obstacles to courageous behaviour and the tools that can enhance the propensity to courageous behaviour.

Having set out the distinctive role of the independent director, consid- ered who should be doing the training, and laid some foundations about the content, the next section focuses on implementation - how best to do the training. There is plenty of evidence that ethics training can be effective, although it is easier to measure the impact of training on aspects such as skill in ethical reasoning than it is to measure the impact on future ethical behaviour. Our education in ethical behaviour often comes from practice and example as we learn by doing, and examples are provided of the way in which case studies can be used to enhance personal integrity and moral courage, and to develop and entrench in the board decision processes that enhance the integrity of its decision making.

The purpose of ethics training for board members is then recalled in a short conclusion, followed by seven practitioner-focused suggestions for board members and for those contemplating ethics training for the board.