Ethics in the Boardroom - A Case Study
Ethics are vital in boardrooms.
Across the last 30 years, commission after commission in British society has found that when things go wrong in companies and organisations, there can often be a link to the lack of scrutiny in the boardroom. At the same time, we increasingly have case studies showing that when you get a good, active governance culture going then those businesses thrive and grow in strength and in impact. The benefits of having a robustly diverse board membership, where the non-executive directors are in overall control, sharing power with the executive, enables better decision-making and mitigates against some disasters. Yet, as with all things, the complexity is that this is all about human processes and the group dynamic.
In this case study, I'm going to give an example of the kind of ethical conversations that need to happen in your boardroom, whether it be charity, corporate, or foundation, in order to do what is known as due diligence. I've written this example because:
- It is from my own practice as a non-executive director.
- It is a grounded piece of work where the complexity of the situation needs to be understood as part of the reality that the non-executive is separate from the executive, and why, in this case, the non-executive is unremunerated.
- It illuminates the processes and distinctions by which having a remunerated executive on salaries and a unremunerated non-executive means that if carefulness happens, you can work with diversity of thinking, and that conflicts of interest that do occur are declared and properly discussed, preventing a U-turn or an embarrassing incident further down the line.
How my work is embedded into Ethics in Boardrooms.
In my work as a Public Appointments Adviser with the Ethical Standards Commission, I regulate the way that the Scottish Ministers recruit people for board member positions on public bodies, such as health boards, Scottish Fire and Rescue Service, Police Authority, or Scottish Enterprise. It is essential that we test each of the candidates against The Nine Principles of Public Life in Scotland¹. These principles include: objectivity, public service, respect, leadership, and integrity. They are originally based on the work of the first Committee on Standards in Public Life which was established in 1995 (the Nolan Committee). The Cadbury Report, published in 1992, predated this work and referred to the principles of openness, integrity and accountability. It shook up the private sector. Sir Adrian Cadbury who is now deceased, reviewed the ways that governance in the private sector, particularly the financial sector, needed to be improved so that there was more separation between the executive and the non-executive². His review remains very current, but has been built on by the likes of the Higgs Report, the Nolan Report, and various others published in the last 25 years. They have all pointed the way for how to have effective boards. In fact the Ethical Standards Commission recently produced a report on the diversity profile of public boards in Scotland showing the progress made over the last 15 years to create boards that are reflective of the society that they serve. Of course, we all use the health service, the Fire and Rescue Service, transport services when we need to. Therefore, their boards as such need to reflect the society that they are seeking to provide services for.
A Case Study in Ethics in the Board Room -
The Organisation and Board
On the board of Unity Enterprise, we oversaw a range of businesses that were housed together in one business entity providing an anti-poverty response across the west coast of Scotland. The businesses included employing people, housing people, a travel agency, several cafes, a cleaning service for factoring of flats, and the support services like, literacy support, employment support, and housing support, etc. The founding principles of the charity, founded by George McSorley at the beginning of the 1990’s, were based on Christian thinking and so the governance structure of the organisation always had a tradition of asking to get non-executive directors from different faith traditions within Christian denominations. Quakers, the Religious Society of Friends, were approached, and I was asked whether I would like to serve on the board, which I was happy to do given my membership and endorsement of Quakers in Business.
A Question of Ethics
One day in the boardroom, it came to light that there was a sponsorship deal for boats that we had acquired from Glasgow City Council. These were three canal boats that we were re-purposing to run to rent out to other charities and corporations for away days where you would go on the canal around Glasgow and have a great away day. And these three boats were being refurbished by BAE Systems, which is one of the major employers on the River Clyde (above is my photo of one of their offices in Scotland). This had already been presented as a whole area of success. Apparently BAE Systems were doing the refurbishment of the boats for free. All to which we as directors were expected, I assume, to applaud such use of public money - such a good way of getting a local employer involved in the charity. However, as a Christian director, I objected to the use of BAE Systems in a corporate sponsorship deal. My objection was not understood. So, I asked the question,
‘what are BAE Systems getting back in return for helping us with these boats?’
That was a vitally important question, because we live in the era where there is always green-washing, where corporate social responsibility very often is not done without an idea that there will be some publicity, some praise, some newsletter that gives the corporation publicity for their good deed. Of course, the corporation was also, no doubt, avoiding their tax bill, improving their staff retention, their staff enjoyment, and enjoying economic benefits coming with sponsoring our boats, as is the whole point of corporate social responsibility.
The Context of this case study about Ethics
I was concerned that as an anti-poverty charity, we were going to have some publicity that linked our anti-poverty charity to the business by which weapons of mass destruction are delivered around the planet in the vehicles that BAE Systems build. BAE Systems is one of the biggest weapons manufacturers in Britain, and is the manufacturer of war planes, ships, and other war vehicles and developments. To give us a further bit of context about poverty in Govan, which is where the BAE Systems refurbishment was happening, you can see this statue to Mary Barbour and the movement she was part of⁴. Mary Barbour was a famous woman who helped those that are in Govan with the poverty that they were experiencing because the shipping companies in essence weren't paying enough to them, and nor was the quality of housing and living conditions good enough. And so, Mary Barbour is linked heavily to the Red Clydesiders. The Red Clydesiders are very linked to the founding of the SNP in Scotland and the development of the Labour Party movement⁵.
The Outcome of taking an ethical stance in the Boardroom
Back to the board meeting.
In the boardroom, some of the other 10 voluntary Director board members were shocked that I was questioning the executive about an area where they thought the executives should be praised. In fact, it turns out that one of my fellow board members had arranged the deal because he was an ex-military Chaplain. So soon, this led into a very clear conversation in the boardroom about ethics, public service, objectivity, and conflicts of interest.
That conversation, and the areas it threw up between the Board will remain confidential, as they should be, under the principle of all and severally liable. I am, however, pleased to report that the charity distanced itself from BAE Systems who had refurbished our boats. Which believed ‘guarded the purpose of the charity.’ (which is the technical language of the main duties of Directors in the Charity Act Scotland 2006.)
The charity learned a lesson about the principles of the duties of Board Members in Scotland (and Britain).
Despite not all the directors being happy about this decision, we continued to make sure the charity looked at its founding objectives about combating poverty and did not end up with green-washing in its balance sheet. We continued to steer the charity to be clearly about the fundamental purpose about combating poverty.
In some ways the language of having a ‘conflict inside the board room’ and ‘combatting’ poverty were skills and practices that we all developed through the process.
A few years later the then Chief Executive, George, thus said these words in a personal communication to me about my contribution to the board as a non-exec:
“Many thanks for the contribution you have made not only to the organisation in general but also in keeping our values of service to those experiencing disabilities and/or disadvantages to the fore. On a personal note many thanks for your friendship and fellowship which I valued greatly. Best wishes to you and the family for the future” - George, former CEO Unity Enterprises, 25th October 2012
Resources and Bodies to Support Good Boardroom Governance
The overall point of this article is not actually about the conflict in the board. It is about the reality of having a good due diligence conversation, disagreeing, and declaring your conflicts of interest. It is about ‘digging in’ at times and enabling values and ethics to come clearly to the surface, so that the U-turn does not happen later on and nor does any backlash.
In my work as a Public Appointments Advisor at the Ethical Standards Commission, the Commissioner for Ethical Standards in public life has developed three pillars of diversity of thought⁶. In the first pillar the framework identifies the behaviours that you would see in the boardroom, of which I've named several in this case study. The second column shows the outcomes. In the third column you can see the long-term impact of these behaviours.
Of course, good governance practices are having to evolve in the age of Covid. A remunerated executive may inadvertently find space to hide or force through decisions in remote meetings which can present a lack of opportunity for physical communication and being in the room to ask questions, sometimes to the detriment of unremunerated members. To me, it is clear that we need to think carefully about the executives’ efficacy when in remote or blended meetings, and instilling the confidence to ask questions, have an impact, and add value to the organisation they are running.
Diversity does Deliver - What you can do Next about ethics in your Boardroom
In these good practice case studies, like the one in Dumfries, NHS 24, and the Scottish Legal Complaints Commission, you can see in the working methods of these boards good examples where they are harnessing the experience of diversity in the boardroom . It takes a lot of effort, requires the Chairs and the board Secretaries to put the extra effort into recruitment selection, and on meeting structures, and on support for board members between meetings, all to harness diversity of thought. But when you're running a big organisation, like the Fire and Rescue Service, which turns over £333.3 million, you don't want mistakes happening. Unfortunately, we are all human. Mistakes will happen. However, if you're trying to prevent mistakes in the future on public bodies such as health, you want diversity in the boardroom.
Diversity is diversity of thought which, by proxy, you can look at diversity of characteristics such as gender, sexuality, age profile, that will give you a guide to representation of how likely you are to have diversity of thought and diversity of postcode. Visible diversity and /or diversity of protected characteristic is not, though, a guarantee of diversity of thought, knowledge, skills, experience or values. Visible diversity can, though, be an indicator. Yet there's a lot more that you can see in the Diversity Delivers webpages, with the statistics the Ethical Standards Commissioner has just reported to Parliament, and annual updates on how we are doing in our work, available on the ESC website.
To summarise, conflict in the boardroom is a worthwhile thing to have. We all need to have the highest ethical standards in order to create good business, which is why the subtitle to my brand of work is 'business as force for good'. If you need someone to support your ethics in the boardroom, I can either coach you and/or consult or facilitate board development processes. Contact me to find out more about how I can help:
Latest update: Ethics in hybrid board meetings needs your leadership.
In my workshop for Institute of Directors members in August 2022, which was all about Top Tips for Chairing Hybrid Meetings, we explored the leadership needed right now in order to co-create inclusive etiquette for your board meetings. Ethics starts with the desire to lead the cultural change about hybrid working. You can all do this. My PlacesWork courses will build you and your organisations skills. Start now on this next phase of ethics in the boardroom journey.
Footnotes
1. Ethical Standards Commissioner. 2013. Code of Practice for Ministerial Appointments to Public Bodies in Scotland.
2. Cadbury, A., 1992. The Committee on the Financial Aspects of Corporate Governance.
3. Carlton, K., 2008. Diversity Delivers. [online] Ethical Standards Commissioner.
4. Photo of Mary Barbour Statue in Govan from Flickr
5. Remember Mary Barbour. n.d. About Mary Barbour.