Aesopâ€™s year in the boardroom
Stories of boards and leadership are the Aesopâ€™s fables of the business world. Tales of power, money, ethics, hubris and the consumers and stakeholders in the businesses that surround us serve as cautionary tales and markers for our future.
This year, we saw stories about active annual general meetings, executive compensation, the governance of newly public companies, diversity in the boardroom and much more. From Japan to Silicon Valley with Olympus, Facebook, Yahoo and HP, geography was no boundary and the themes were universal.
The volume and speed at which board-related stories are hitting the headlines are unprecedented, and the pace looks like it will increase in the coming years.
What has changed? First is transparency: The world is watching and talking. Information moves freely and quickly, so what happens in formerly dark corners of remote areas can no longer be brushed under the carpet or easily smoothed over by slick PR. The democratization of information is such that anyone has access to it and also has a means of spreading it.
Second is connectedness: From the Arab Spring to the Occupy movement and then the â€œShareholder Spring,â€ there has been a distinct sense of interconnectedness among people and consumers. There is a greater understanding that no matter where people live, they have the same fundamental needs, wants and desires, and they deserve safe work environments and fair compensation. People care about where their goods are made, how they are made, and who makes them. Cases like the factory fire in Bangladesh serve to raise peopleâ€™s awareness. Consumers are acting on the knowledge that they have a role to play, speaking out and voting with their pocketbooks.
Third is the global marketplace: Companies are increasingly selling their products where they are doing the manufacturing, which means that to many consumers, the issues are literally close to home. The world is less and less divided into producer and consumer countries. Multinational companies like Apple and Nike are selling their products to people in the same countries and communities where they are being made.
All of this is complicated by doing business in developing countries where rules and regulations might be more flexible or have lower thresholds of fairness of wages, safety, or corporate responsibility. The object is not to go to a country and do the minimum required as a business; the object is to set a global ethical standard and bring that along wherever a business goes. The case of Foxconn and Apple proves that the world is not willing to so easily let companies slide on failing to conduct their business with a global standard of ethics and fairness. Also, an increasing number of cases of corruption involve big businesses, like Walmartâ€™s bribery scandal in Mexico, or most recently the arrest of the former CEO of SNC-Lavalin, the largest engineering firm in Canada.
Fourth is the ecosystem: Boards are no longer only responsible to investors. They are accountable to the entire organizationâ€™s ecosystem, including employees, customers, surrounding communities and investors. Understanding the ecosystem and the companyâ€™s responsibility within it must be a priority. Companies need to look not only at their returns, but at how they get them, and the cost to the communities in which they operate. BP and the Florida Gulf, Union Carbide and Bhopal, Apple and Foxconn, and, most recently, Starbucks, Google, and Amazon and the UK tax authority â€” all serve as examples. Corporate accountability requires more than a token gesture or nonprofit giving. It needs to be central to the business, not an add-on, afterthought or a Band-Aid.
What can boards do?
â€œHear no evil, see no evilâ€ will not work.
Boards must ask questions and demand full and complete disclosure. As board members, having our heads in the sand will not work. As soon as boards become aware of issues, they need to act swiftly and decisively.
We need to ask ourselves if our commitment goes beyond paper. Is ethical practice and holistic thinking in the DNA of the organization?
Is this kind of thinking relegated to separate CSR programs, or is there a comprehensive policy that lives and breathes beyond paper and policies?
We need to recognize that this is about every sector.
Some sectors spring to mind easily, but actually there is no sector that is unaffected: energy, pharmaceuticals, banking, technologyâ€¦ This applies to any company that does manufacturing, uses anything manufactured (as FoxConn proves, you are responsible for your sourcing), uses raw materials in its manufacturing (conflict minerals), does business in developing countries (fair wages, decent working conditions, bribery), and more.
We need to take a hard look at ourselves and ask, as board members and boards, are we passive or engaged? It is time for an active approach.
It is possible to take a tick-box approach and leave it to the risk register. But if we are committed to the long-term strength and viability of a company, we need to be asking hard questions and making sure we are genuinely satisfied with the answers.
Many corporate stories of last year were negative â€” hereâ€™s hoping that 2013 will bring some positive stories of bravery, integrity and independence of thought and deed. I look forward to bringing them to you here.