What happens when the board goes global?

December 5, 2011

By Lucy P. Marcus

The views expressed are her own.

In the past couple of weeks we’ve seen board-related stories from Japan with Olympus, India with Tata, Italy with Finmeccanica, South Korea with the Korea Exchange Bank (KEB), and more. Each story brings up a different issue around corporate governance, but taken together they raise a fresh question: Is a new global approach to board ethics emerging?

Corporate governance rules and requirements are distinct in different countries, and are often bound up in local attitudes and cultures. Yet there now seems to be emerging an overarching and universal ethic and attitude towards boards, board service, and the responsibilities boards and their members individually and collectively need to fulfill.

Part of the streamlining stems from the fact that most companies of a certain size operate across several jurisdictions, and therefore companies that are subject to differing rules operate to the strictest or highest standard. Another factor is that with transparency comes a new ability to look into the operations and actions of boards, and with this shift, public sentiment and ethical judgments come into play. Yet another factor is that in an increasingly globalized workplace where cultures mix, long-established cultural norms are challenged and the (mal-) practices they have given rise to get publicly questioned, as in the case of a British CEO of a Japanese company.

Also, there are issues that capture attention in one country and then move their way around the world. For example, the issue of gender diversity in the boardroom has been discussed for a number of years internationally, but Norway’s introduction of regulations for quotas has had a galvanizing effect, and legislating for gender diversity beyond simple non-discrimination rules has become a substantive item of discussion in other parts of the world, as can be seen with proposed EU legislation, as well as individual European states including France, Germany, and even the UK.

“That is the way we do things here” doesn’t work in Japan anymore. “We can’t find good enough candidates to fill the slots” won’t fly in the face of calls for diversity. Filling posts with big names who are comforting on the face of things, and then are left to operate without proper oversight, doesn’t seem as convincing or reassuring in the face of Rajat Gupta or John Corzine.

What are some of the emerging universal ethics that come from a “pick & mix” of best practice from around the world?

  • International board of directors
  • A preponderance of independent non-executive board directors
  • Separation of the chair and CEO roles
  • Term limits for independent non-executive board directors
  • A voluntary code of diversity in the boardroom
  • Ongoing board education through training, both inside & outside the boardroom
  • Director performance review by independent outside assessors

Boards shouldn’t be guided by the minimum of what they need to do to live by the legislated obligations they have in their primary jurisdiction; rather, they should think about the larger reasons why they gather and exist, and how their actions will be perceived on a broader stage. Board members should not be calculating how little time they can spend, or the minimum amount of effort they can put in to protect their liability and the liability of the company, but rather be driven by building shareholder value as well as community value and a better sense of responsible stewardship.

Over the next several months we are sure to see more news stories about the role of boards and their individual directors from around the world, from both developed and developing economies, particularly in high growth countries like the BRICs. As companies move onto the global stage and are judged by their actions in this larger context, the one thing that comes clear to me is that boards that strive to meet only the minimum requirement of legislated behavior are short-sighted, as that will not serve them well in the future in the global marketplace where their actions and performance are scrutinized in greater depth and in public. How well they discharge their responsibilities in an ethical way will therefore increasingly affect their organizations’ bottom line.

PHOTO: Former Olympus chief executive Michael Woodford (R) leaves after meeting with members of the Justice Department and the FBI in New York November 29, 2011. REUTERS/Brendan McDermid

One comment

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Another great post, Lucy, and an important addition to thinking about the civic moral obligations of the fiduciary role. Phooey on those who dismiss the idea of a “universal ethic”–we can learn a lot from the world’s great religious and humanist / philosophical traditions about what’s core to stewardship, which have practical ramifications in the boardroom.

Posted by MarcyMurninghan | Report as abusive