Question
We often speak of a "corporate culture" in the context of corporate governance. What is meant by that? Do you think corporate culture has any role to play in effective governance?
The NACD tries to mold corporate culture through its education programs and Kimberly you have written about that and participated in those programs. What do you think are effective drivers in creating an optimal corporate culture in the boardroom and the C-Suite?
Answer
Corporate cultures are very real. Indeed, I would argue that dysfunctional corporate cultures lie at the root of many corporate business failures and violations of the law.
The interesting issue implied by your question is whether boards of directors have much influence over corporate cultures. Personally, while I agree with those who would argue that “tone from the top” is crucial for creating effective and ethical corporate cultures, I suspect that the “top” for this purpose is the C-suite—especially the CEO—rather than the board of directors. They are the folks the employees of the company will look to for guidance, rather than the board. The board does not interact with most employees even in times of crisis. It is the CEO and the other members of the C-suite who are in the office daily, setting the desired tone.
The board’s role in this regard thus is primarily one of monitoring the CEO and the C-suite to ensure that they are setting the proper tone at the top. The ABA Corporate Director’s Guidebook explains:
The CEO and senior management must take the leadership role to promote integrity, honesty, and ethical conduct throughout the organization. The board's role is to assess the CEO's commitment and efforts in this area, support and encourage appropriate values (including through policies and incentives), and provide oversight of the programs and procedures that management implements to support behaviors and identify issues that may arise (including reporting mechanisms). This board role includes directing the CEO and other members of the senior management team to establish the proper “tone at the top” by setting clear expectations for the corporation's ethical behavior and conduct of its business in compliance with law.[1]
[1] The Corporate Laws Committee, ABA Section of Business Law, Corporate Director's Guidebook-Sixth Edition, 66 Bus. Law. 975, 987 (2011).
