Is it time to review the ethics of your board of directors?

Often members of boards don't realize when they are treading into situations that may have ethical implications. It is therefore a good idea to conduct reviews at regular intervals.

Most companies have agreements with their boards regarding ethical standards. However, board members and directors often remain unaware of some of the subtle conflicts of interest that they deal with on a regular basis. Such conflicts are prevalent at this level of governance and can cause ethical problems by distorting decision-making. This can lead to undermining the credibility of your company and in some cases the entire business ecosystem surrounding it.

As the year winds down, it is an excellent time to review where potential conflicts may lie and discuss it with the boards on which you serve. There are four potential areas where conflicts may arise; it’s a good idea to examine the questions related to each of them.

A Tier-I conflict is an actual or potential conflict between a board member and the company. The concept is straightforward: A director should not take advantage of their position with respect to salaries and perks, misappropriation of company assets, self-dealing, appropriating corporate opportunities, insider trading, and neglecting board work, among other things. You can read the questions to ask here.

Tier-II conflicts arise when a board member’s duty of loyalty to stakeholders or the company is compromised. This can happen when certain board members exercise influence over the others through compensation, favors, a relationship, or psychological manipulation. Read how to identify and deal with these conflicts here.

Tier-III conflicts are those between stakeholders and other stakeholders. The questions to ask to determine whether these exist on your board can be found here.

Finally, you need to consider whether your company is facing any Tier-IV conflicts of interest – those between your company versus society. Board directors have a moral obligation not to take advantage of the company, but to be loyal to the company, make wise decisions, neutralize conflicts among stakeholders, and act in a socially responsible way. Assess whether your company is doing this well with the questions found here.

Good governance starts with the integrity and ethics of every director on every board.

Further reading:

The four tiers of conflict faced by board directors by Didier Cossin and Abraham Hongze Lu.