A British chairman of a major listed company was once asked how he handled the ethical questions a board faces. His reply has been quoted in more governance courses than I can count:
> I have no problem with ethics. I merely ask myself whether I would mind if my old mother read about this in the press.
The line is more demanding than it sounds. It forces the question of perception, not just legality. It catches the cases compliance misses — the executive who uses the company plane within the rules but in volumes that would embarrass any junior employee, the board that approves a bonus pool in a year of mass redundancies because the formula technically permits it.
Three things ethics is not
Ethics is not the law. A great deal of behaviour I have watched over the years was perfectly legal and seriously wrong. The law tells you what you must not do. Ethics tells you what you ought to do, including in the cases the law does not reach.
Ethics is not compliance. Wells Fargo was compliant on every page of its policies when the cross-selling scandal emerged in 2016. Employees opened millions of unauthorised accounts to meet aggressive sales targets. The code of ethics existed. The compliance function functioned. The culture incentivised behaviour that was legal, compliant, and deeply wrong.
Ethics is not corporate social responsibility. A company can run an exemplary CSR programme while being run by people who lie to their auditors. The foundation's wells in Africa do not settle the question of whether the foundation's parent is ethically run.
What boards must do
The board's job is not to be the ethical police. It is to set the tone at the top — through conduct, not speeches — and to ensure that mechanisms exist for ethical questions to reach the board. This means:
The most important ethical work a board does is invisible: the conversation the chair has with the CEO about why something does not feel right, even though no rule has been broken. That conversation, had early, prevents the scandal. Had late, it manages the scandal. Not had at all, it becomes the scandal.
This article is adapted from The Director's Craft by Peter Burchardt. Read the full chapter in the book →