A board of directors is often faced with making a decision that has ethical dimensions. This is not a new phenomenon – it’s always been this way.
But in our current environment – one that features intense stakeholder scrutiny of governance practices, heightened expectations around organizational activities, and seemingly limitless opportunities to make a ‘wrong’ decision instead of a ‘right’ one – it’s more important than ever that boards have access to skills and tools that enable them to make visionary, creative and effective ethical decisions.
What is ethics? It’s a field that seeks to answer the practical question What ought we to do? - a question that applies not just to individuals, but to organizations and of course boards. Ethics consists of well-founded standards of right and wrong that prescribe what we ought to do, in terms of rights, obligations, benefits to society, fairness, or virtues.
Decisions with ethical dimensions do not come to the board with a label marked Caution. Ethical Decision Required. It’s up to us, as directors, to take notice that there are ethical implications to a decision that’s before us, and to treat the decision accordingly. Making use of a reliable, repeatable process – a framework for ethical decision-making – gives the board the best chance of making the ‘right’ ethical decision.
Today we’ll explore how board directors might consider their decisions from an ethical perspective.
There are certain types of boardroom issues that frequently involve ethics. I have found that, while some of these may be settled with a one-off decision, many ethical challenges are ongoing and they never completely go away.
Ethics is multi-dimensional – it can be viewed from different perspectives. Ethics in the Boardroom – A Guide to Decision Making (from the Australian Institute of Company Directors and The Ethics Centre) suggests viewing boardroom ethics from four perspectives: external influences, board culture, interpersonal dynamics, and individual values.
External influences: Organizations are subject to external factors they cannot control, and many of these factors have serious ethical implications. It’s important to identify the ethical dimensions of the environment that the organization operates in. Ask questions such as: What aspects of our environment are relevant to this decision? Whose interests should be taken into account, and are their interests aligned or divergent? How do we want to position the organization - as a leader or a follower?
Board culture: Every board is unique, with a culture and character built on its history and structure. Sometimes that culture does not reflect the organization’s stated values and principles. The board needs to be aware of the impact of their decision on the organization’s culture. Even seemingly mundane matters can convey a message about what is truly valued at the highest levels of the organization. Ask questions such as: Does our culture support ethical considerations? Where are the potential ethical blind spots on the board? How is this decision linked to the organization’s values and principles?
Interpersonal dynamics: Interpersonal relationships on the board have the potential to distort ethical judgement. Board members – in particular the board chair - need to be alive to how power dynamics can silence those with unconventional perspectives, making extra efforts to ensure everyone is heard. Ask questions such as: How do our board’s group dynamics impact our discussions? How can we encourage diverse perspectives? Are we dismissing the opinions of some directors because they are not subject matter experts, while giving others too much weight because they are?
Individual values: Each of us is an ethical actor, drawing on a personal framework of values and principles. And we each bring our own decision-making style to the board. Awareness of our motivations, biases and ethical reasoning can help us understand what we bring to the table when it comes to making decisions.
Sometimes ethics involves absolutes, but the hardest decisions are in a grey zone where values and principles of equal weight compete. In these cases, the least bad option might be the best we can hope for. A decision-making framework can help us walk through the process of identifying that option.
There are several different frameworks out there, easily found with a quick Google search. I came across frameworks designed for physicians, pharmacists and social workers, among others. These frameworks all have a lot in common, although the terminology may be different.
I’ve chosen to highlight a decision-making framework from the Australian Institute of Company Directors and The Ethics Centre, because it’s designed for boards. You can access all the details at Ethics in the Boardroom – A Guide to Decision Making.
There are five steps in the framework - frame, shape, evaluate, refine, act - offering a clear, simple process for addressing the ethical dimensions of a board decision. If applied well, this process should help ensure that boardroom decisions are ethically defensible. That doesn’t mean that all stakeholders will agree with the decision, but at least the organization will have a sound ethical foundation for making it.
As individual directors, we can choose to tackle boardroom ethics head on, even though discussing these matters can evoke strong reactions about what’s good or bad, right or wrong.
Personal and organizational values are not always aligned. Resolving that misalignment can require us to expose our beliefs, to go beyond intuition, to challenge and be challenged about our personal ethics and how they relate to the board’s need to make a decision. When we get these issues out in the open, it helps the board to broaden the way it thinks about the decision in front of it.
In preparation, we can flex our ethical muscles by asking ourselves these questions:
Leave a comment below to get in on the conversation.
Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.
Share Your Insight: What factors are considered on your board when making an ethical decision?