In the first installment in this series, Julie Anne Preng, managing partner, Korn/Ferry International used a recent story – that of General Motors’ mishandling of a fatal ignition switch issue – as an example of how leadership failures can be sins of omission. While Preng pointed out that we certainly don’t know what executives at GM were aware of, or if there was any specific wrongdoing at the top, the incident can be seen as a hypothetical cautionary tale. Because, while every executive knows that there will inevitably be problems that must be addressed, not everyone in the C-Suite knows how best to address them.
“A big part of corporate governance is ethical culture,” Preng says, “but you have to substantiate it with behaviors.” There is a regulatory component, of course, be it Sarbanes-Oxley or Dodd-Frank, but what it often boils down to is enterprise risk management (ERM) and the risk tolerance level in an organization’s leadership. This dictates whether bad behavior or situations — such as corporate officers who fail to act in accordance with their duties– result in investigations.
When something goes wrong, what will the people in the C-Suite do? “Will they go the distance and make sure that the baby bear does not turn into Godzilla, or will they say, ‘we just have a baby bear; if we neutralize it we can go forward’?” Corporate officers who are real leaders will have enough judgment and intuition to make the decision to dig deep and carry an investigation through to the end.
Frequently, corporate officers throw around the phrase “tone from the top,” indicating that the executives should lead the way for the rest of the company when it comes to ethical behavior. But, says Preng, just because it is a cliché does not diminish its importance. The tone from the top can help distinguish between compliance – meeting rules and guidelines that an external agency has established – and ethics, which Preng says covers everything from who you hire to what your business goals are beyond just making money.
There’s another saying out there: “Good compliance is good business.” If you run an organization that can stay off the radar of regulators, you don’t have to spend big money getting out of a deferred prosecution agreement, for example, and can spend it on innovation. But, Preng notes that “a strong ethical commitment is great business,” as that gives pride to employees. And, she notes, studies show that the best leaders are the ones who combine practical intelligence with emotional intelligence, and one of the biggest drivers for employee engagement is feeling that they are valued by the organization. With a strong governance program and ethical behavior, executives can demonstrate leadership and create a culture that fosters loyalty and engagement. And that is good for business.
Preng will be speaking on this topic and more at SuperConference. The event, taking place from May 12-14, 2014 in Chicago, Ill., will bring together senior-level in-house counsel from around the country to help attendees elevate legal knowledge, foster innovation in legal departments and help counsel become better strategic partners. For more about the event, click here.
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