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Getting the Board on Board
by Bruce Hamm


Corporate boards have many responsibilities and one of the biggest is to direct the company so it will only wind up on the front page of the newspaper for its success rather than its failures. Another responsibility is to prevent the company from setting off investigations by regulatory agencies (i.e. federal and state prosecutors). One very large area of risk more boards are confronting is ethics and how executives manage ethics at their companies. What do boards need to know to guide the company along the right path?

First, one very concrete standard can prevent undue regulatory attention. In 1991, the US Sentencing Commission established criteria for determining the sentence imposed on a company found guilty of several federal crimes. Typically, these sentences consist of two forms of reprimand, both possibly severe in nature. The first is a monetary fine. In 1996, Archer Daniels Midland agreed to pay $100 million in fines for price fixing. While significant, the second penalty imposed on companies is a consent decree. Typically, this involves some sort of watchdog sitting at the corporation reviewing various decisions to ensure they meet legal/regulatory standards.

At the same time, the commission established criteria for how a company can avoid these penalties. Companies must establish "an effective program to prevent and detect violations of law" (Federal Sentencing Guidelines, Chapter 8, Guidelines for Sentencing Organizations). Cooperating in investigations and meeting these standards, allows companies to avoid the bulk of federal penalties (up to 95%) and in fact, if the programs established are sound, the company could avoid penalties completely. Some prosecutors are now making the determination that because the company has a strong ethics program, the prosecutors do not need to pursue investigations or suits. The elements of the guidelines are:

  1. Establish Compliance Standards
  2. Identify High-level Ethics Personnel
  3. Avoid Delegating Undue Discretionary Authority
  4. Effectively Communicate
  5. Take Reasonable Steps Toward Compliance
  6. Consistently Enforce Compliance Standards
  7. If Offense is Detected, Prevent the Next One
  8. Keep up with Industry Standards

For details on these elements and what they mean see the previously published article Elements of the US Federal Sentencing Guidelines.

Okay, that is the minimum information a board needs to avoid regulatory investigations and prosecutions. What about bad publicity or avoiding employee lawsuits? If an ounce of prevention is worth a pound of cure, then taking the ethics program a few steps further than the bare minimum can really go a long way toward preventing these issues. Creating an environment where the right action is the accepted norm in a company takes more than simply posting notices, creating policies, and trying to catch people when they do the wrong thing.

Creating the desired and the appropriate corporate culture takes an effort by all its members. Company officers cannot simply impose a culture. They must develop it. It is much more like farming, than building a house. With a house, one merely needs to gather the resources (labor, materials, licenses, etc.) and then erect the house and the process is complete. Sure, the house will always need some maintenance but for the most part one does not re-erect the house every time something goes wrong. With farming, one must constantly care for the crops. One must plant the seeds and then provide water, fertilizer and proper harvesting when the crops are mature. Farmers weed the soil, prevent animals from eating the crops, ensure that insects do not ruin the harvest, worry about hail, wind, fire or freeze damage, etc., etc.

That is very much how companies build and maintain ethics programs. They are on-going rather than something with a definitive end-point. Can boards really guide that process? If they want the best for their companies, they can. Boards can ensure Value Statements meet acceptable standards. They can require executives to produce reports that document program success and continual improvement or failure and corrective action. They can require company executives meet the same or higher standards of conduct that all lower-level personnel are expected to meet. They can require executives to undergo ethics training and document that the executives are following up on all required ethics investigations and case resolutions. The board can review ethics programs regularly to ensure they are up to current standards. They can ensure executives are applying the right resources to the ethics program and getting their money's worth.

Ethics programs are like any other resource at the company. They are an investment in company success. If the company uses the investment wisely, company success while not guaranteed, is certainly more likely. This goes a long way toward ensuring that board members can be proud of their association with that kind of company.


The Author

Bruce Hamm

Bruce Hamm studied for the Catholic priesthood obtaining a BA in philosophy with an emphasis on ethics.  He has experience as a volunteer police officer.  He has over eight years in US Navy combat operations, coordinating a tactical data link between various battle group elements, controlling combat aircraft and instructing combat operations.  Then entering corporate management, Bruce conducted numerous workplace investigations, managed compliance for one employer and developed a Business Ethics program for another.  In 2001, he completed the “Managing Ethics in Organizations” Executive Development Course from the Center for Business Ethics at Bentley College and the Ethics Officer Association.  Combining his practical understanding of how organizations work with his desire to create healthy corporate cultures, he earned an MBA in Organizational Effectiveness at Marylhurst University.  Bruce is now also an adjunct instructor with DeVry University Online teaching Business Ethics and other general business topics.  Bruce is WatchIT’s Business Ethics and Compliance, Subject Matter Expert.  With two other professionals, Bruce was instrumental in the formation and continuing development of The Greater Omaha Alliance for Business Ethics.  Contact Bruce at and visit

Many more articles in Ethics in The CEO Refresher Archives
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Copyright 2003 by Bruce Hamm. All rights reserved.

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