ICMLG'15: Does ethics have any place in effective corporate governance?

Patricia Grant of AUT, New Zealand, posed a very interesting question this afternoon. For some time now, she has been wondering whether ethics might be an important element in the oft-discussed but poorly understood relationship between what boards do and business performance.

The seemingly standard response to corporate or systemic failures in recent decades has been to introduce a new layer or new type of structure or compliance framework. For example: Following the failures of the early 2000s (Enron, MCI Worldcom et al), Messrs Sarbanes and Oxley sponsored a new statute in the USA. While the intent was good, the implementation was terrible. In effect, the statute imposed a new set of compliance demands and overheads. A new generation of consulting businesses (to either implement or avoid Sarbox) followed not long after. Further, and worse, Sarbox did nothing in terms of preventing the GFC because, human nature being what it is, directors and executives eventually found ways to circumvent the provisions.

Grant suggested that regulators and boards need to move beyond structural responses to failure because such responses can't be relied on to work consistently and effectively. She added that researchers, regulators and boards need to look at behavioural responses and, more specifically, at the ethics and moral motivations of directors. It turns out these dimensions have not received much attention. Grant has decided to dig into this. However, two rather demanding challenges need to be resolved before much more progress can be made:

• While all directors (individually) have a moral or ethical compass to guide their decision-making, how does one go about making a group decision when there might be as many different moral compasses guiding the process as people in the room?
  
• What exactly is 'ethics'? (yes, it does mean different things to different people, so a common understanding needs to be discovered and agreed.)

The audience seemed to agree that Grant might be on to something quite significant. If you'd like to help Grant, or offer your board as a participant, please contact me and I'll put you in touch with Grant. If her idea gets some traction, it could spawn a whole new field of research, and move the expectations of and on directors to quite a different place. And that could be exciting or scary, depending on your frame of reference.