Poor Performing CEOs and Boards and Compliance Disasters
The business headlines are filled with the latest corporate scandal – Uber’s defective culture, CEO misconduct and reprehensible comments by supervising board members. Uber is just one of several significant companies caught in the headlines. Wells Fargo has been caught in another scandal just when it was thought to be dealing with the sales incentives scandal.
Many high-profile companies are facing difficulties, usually self-inflicted from serious misconduct by CEOs, board members or critical financial executives. Mylan’s Epipen price gouging, Fox’s sexual harassment, United Healthcare’s False Claims Act problems, and Theranos’ medical and financial performance issues all reflect a failure of the board, CEOs and compliance to adhere to basic requirements needed to guarantee a culture of ethics and compliance.
Companies that fall into scandals are not unique. They suffer very common problems, usually the result of senior leaders focused only on business revenues, addiction to short-term gains and revenues, and a complete lack of attention to ethical principles. Businesses can easily fall into this cycle of financial performance, ignoring of potential pitfalls, and blind adherence to quick rewards. Companies and senior leaders in these situations ignore the benefits of long-term sustainable growth and benefits that accrue over the long run instead of the short-term.
While it is easy to point the finger at a misbehaving CEO or senior managers, I would like to see more focus on the role of corporate boards. It is time, in my view, to hold corporate boards more accountable. I am not arguing for liability or prosecutions but there has to be greater accountability for corporate boards.
Corporate boards should be subjected to greater scrutiny and accountability. Shareholders, regulators and prosecutors have to start demanding better board performance. Government prosecutors, especially in the healthcare area, have demanded individual certifications from board members as to compliance with corporate integrity agreements.
That is a welcome development in terms of accountability but more is needed. Corporate directors have to educate themselves and demand instruction from chief compliance officers on how to monitor and ensure that a company maintains an effective ethics and compliance program. Corporate boards have to act proactively, understand corporate governance principles and demand CEO and senior management accountability.
Many companies have avoided appointing a CEO to serve as the chairperson of a board. Corporations should avoid such a conflict. An independent board does not guarantee success but the likelihood of effective oversight increases with greater independence. But there is much more that has to be done.
An active board creates opportunities for success. Companies with effective oversight and monitoring beyond a glorified rubber stamp can be an important component of a company that is committed to sustainable growth and a culture of ethics.
When reviewing corporate scandals, it is easy to cite misconduct and deficiencies and brush them aside as irrelevant or unlikely to occur in your company. In many cases, corporate misconduct reflects poor board oversight and governance. It is too easy to blame corporate boards for every corporate scandal, but in many cases they bear some responsibility for the problem that occurred.
It is easy to blame CEOs as the lightning rods of a company’s culture and behavior. In many cases, there is more to the picture that needs to be defined and understood. So far, many corporate boards have been able to escape such accountability. I hope in the future that we see more accountability and analysis of corporate board performance.