Corporate boards need to devote more energy to oversight and improvement of corporate culture and compliance. Over the last ten years, we have witnessed corporate scandals and misconduct that could have been prevented or, at least, mitigated by a corporate board’s proper oversight, and management of a company’s culture and compliance program. All too often, corporate boards fail to identify potential red flags of serious misconduct issues, or ignore obvious risks that result in corporate disasters, reputational harm, and significant enforcement actions, coupled with collateral litigation.

In this era of accountability, and increasing demand by corporate stakeholders, including activist owners and shareholders, corporate boards have to step up and bring about a new and improved level of performance.

There are five steps that corporate boards have to embrace and address:

1. Acknowledgement of a new responsibility to oversee, monitor and manage a company’s culture and its compliance program. Corporate culture is a valuable intangible asset that promotes productivity, improves financial performance and protects against employee misconduct. To promote and protect this asset, board members have to participate in the management and oversight of this valuable asset. No longer can corporate board members sit back and exercise board responsibilities as a passive manager, dealing directly with the CEO and senior management. Corporate boards have to embrace a new active agenda.
2. Attendance at regular training to exercise additional responsibilities for managing a company’s culture. Corporate board members have to increase training on corporate culture and compliance issues. The company’s chief ethics and/or compliance officers, respectively, have to coordinate on these efforts and raise the board’s awareness and ability to exercise meaningful oversight and management.
3. Increased coordination and meetings with CEO, senior management, chief ethics and/or compliance officer(s), respectively, to adopt important strategies and impose robust reporting requirements to ensure that the board is fully engaged on issues relating to culture and compliance.
4. Annual ethics and compliance oversight plans developed at the board level to ensure that the board’s information and review needs are being met. In other words, the board should develop its own requirements to ensure that there is a meeting of the minds with ethics and compliance staff as to annual expectations for ethics and compliance programs and strategies.
5. Annual board evaluation of its performance in conducting oversight and monitoring of company’s ethics and compliance program. The board’s evaluation should be conducted by an independent third party and should be exclusively shared with the board members for development of enhancements to improve overall board functioning relating to ethics and compliance program oversight and performance.

Corporate culture is a valuable asset that must be maintained and promoted by the company’s board. The board must be accountable for managing and overseeing this asset as an important strategy to prevent possible misconduct, legal enforcement, and reputational damage.

Unfortunately, corporate boards are very slow to change.  Historically, corporate boards resist change, despite shareholder demands and even activist investors.  This narrow mindset has to be abandoned.  Corporate change requires leadership from the board, demanding attention to corporate culture as an important intangible asset.  Corporate accountability is an important principle that begins in the boardroom.