Ethical dilemmas impact boardroom decision-making on a daily basis. In a recent interview with the AICD, Dr Longstaff discussed the new guide Ethics in the Boardroom: A Decision-Making Guide for Directors and outlined how directors can go about navigating this ethical terrain. He proposed that the role of directors needs to go beyond a ‘tick-the-box’ compliance approach, towards a strategy relying on judgement, leadership and an opportunity to develop a new skill set.
Why is ethical decision-making so important for boards?
Ethics is becoming a more complex issue for boards, suggests Longstaff, brought on by changes in technology (and the implications for society and traditional employment), social pressures from new geo-political realities, and changes in the way the markets operate. When all these things are put together, boards are starting to deal with some extraordinarily complicated issues and will play a vital role in ensuring the transition to this new environment is both just and orderly.
Dr Longstaff also suggested that we’re going to see the continuing development of a principles-based approach to decision-making. This will include looking to community standards and certain basic principles which we all expect.
How will the new guide help directors and boards?
The guide is a practical tool, explains Longstaff, that essentially provides a decision-making framework so directors can become more competent and more structured in the way they go about making ethical decisions in the boardroom.
It applies four lenses to help frame conversations about ethical issues: the first lens looks generally at the way society is developing and the external pressures facing firms, the second lens looks at the company itself, the third looks at the relationships between directors within the boardroom so that these dynamics can be managed, and finally the self-awareness lens looks at the personal disposition that individuals bring to ethical questions.
The guide includes questions to ensure important considerations aren’t overlooked and a matrix for applying an organisation’s own values and principles.
It is designed so that a board is not suddenly confronted at the end of the decision-making process with a series of considerations they had not considered. Longstaff suggests it is like having a wise friend sit with you through the decision-making process.
What are the three key actions for boards from the new decision-making guide?
Longstaff suggests board firstly need to clearly identify the purpose, values and principles by which ethical decisions are going to be made.
Secondly, they need to make sure the decision-making processes they use are distributed through management and the organisation.
Thirdly, they may request that board papers not only take account of financial and strategic considerations, but also explicitly address the ethical dimension of the choice the board is being asked to make.
Why do some directors find ethics confronting?
This is because there is no absolute certainty. Ethics is an area that confronts day in, day out – with dilemmas where options may be equally balanced and there is no right answer. And yet in the boardroom directors have to make a decision.
Longstaff argues that people are not used to making decisions within that structure. If directors have brought to the board table a lifetime of experience and skill that is simply not applicable in this situation, the tendency is to shrink away a little and say ‘that’s not important or why are we doing that?’, rather than embrace it as an area where a new skill set can be developed.
What opportunities does this present for directors?
Directors should not see this not as a compliance requirement or as something that is being imposed upon them, but as an opportunity to get back to a form of decision-making that does not rely entirely on compliance but instead improves the ability of directors to add value by the quality of the judgement they bring to bear.
What can boards do better when making ethical decisions?
For a long time, directors have been focused on compliance, often with a view to protecting themselves. And Longstaff says this hasn’t worked.
His hope is that boards will learn to manage the more difficult areas around having a shared sense of purpose, values and principles that they can define. This involves managing complex things that are not easy to measure – like the ethical foundation of a culture and how its expressed – but boards need to do this. This is done best, according to Longstaff, in the military where if risk and performance are not managed well, people can be wounded or killed. The military discovered decades ago that you cannot manage that risk through compliance, it’s all about culture and the quality of leadership. And in the corporate setting, that begins with the board.
Dr Longstaff suggests that boards should look to the world’s best risk managers, those who are best endowed to drive performance, and think ‘if they have come to that conclusion – why can’t we?’
This article draws from an AICD interview with Dr Simon Longstaff that can be accessed here.
The AICD’s Governance Leadership Centre and The Ethics Centre recently released Ethics in the Boardroom: A Guide to Decision-Making. Download your copy from the AICD website today.
You can also register for the Ethics in the Boardroom webinar on Thursday 21 November at 12pm AEDT, where Dr Simon Longstaff AO and an expert panel will discuss the guide and how to navigate the complex ethical terrain encountered in every boardroom.