Ethics Newsline®

Contemplate the global reach of tomorrow’s business, and three things are exquisitely self-evident:

1. Power is gravitating rapidly toward corporations and away from states.

2. This power is concentrated at the top, principally in boards of directors.

3. Whether or not this power is used responsibly depends on the character of the individuals serving as corporate directors.

How to make sure that directors are up to that task? Well, think about how chief executives assemble their management teams. Of course, they look for a record of successful experience. But they also want proof of basic competency. Hire lawyers that never passed the bar? Engineers without degrees? Accountants who aren’t certified? Unthinkable.

Directors have far more capacity to shape the world than any management team. But where do directors come from? How are they chosen? What standards distinguish good ones from bad ones? Is there any particular education that makes someone a better board member?

Last week, Britain’s prestigious 60,000-member Institute of Directors (IoD) stepped up to those questions. It announced a new certification, the Chartered Director, which it describes as “the world’s first professional qualification for directors.” To earn the right to append the designation “C. Dir.” after one’s name, the applicant needs to pass a demanding examination, demonstrate at least three years’ experience contributing to the work of a board, and commit to “act with probity and honesty.”

This last point is especially noteworthy, because it is not at all obvious that ethics ought to be emphasized in such criteria. One would expect certification to cover such things as corporate law, boardroom practice, finance, marketing, and strategy. And so it does. What’s refreshing is the focus on ethics.

In fact, this new designation makes quite an issue of demanding adherence to the IoD’s Code of Professional Conduct. That Code demands that a director avoid conflict of interest, respect confidentiality of information, observe “a duty to respect the truth and act honestly” in business dealings, and “exercise responsibilities to employees, customers, suppliers, and other relevant stakeholders, including the wider community.”

The Code even penetrates to private life, noting that when issues arise that are not covered by the Code, “personal adherence to the generally accepted principles of honesty, professionalism, and justice should determine a director’s behavior.”

The London-based IoD is clearly energized by this step, which it sees as one of the most significant things it has accomplished since it was granted a royal charter in 1906. Nobody expects this new accreditation to catch on quickly, however. “As more and more people become Chartered Directors,” says the IoD’s announcement in carefully qualified language, “it will increasingly be recognized as the profession’s benchmark.” Tim Melville-Ross, the IoD’s director-general, struck a similarly cautious note in predicting that “over time it will help ensure that codes and guidelines are translated into effective action.”

But that measured outlook should not obscure the remarkable step that’s been taken. To see it, look at a fourth exquisitely self-evident premise: Corporations are only as ethical as their senior leadership. Without strong support from the very top, ethics can easily become mere window dressing. Only when the CEO and the board understand that genuine integrity is essential for long-term success will ethics really take hold.

So factor in a fifth self-evident premise: The public is increasingly concerned about the ethics of multinational corporations. So far, that concern has taken shape in a focus on chief executives — in part because journalism finds it remarkably easy to zero in on single personalities, and devilishly hard to write about groups.

As ethics continues to rise in public concern, however, the board of directors itself will increasingly become the focus of attention. If the new C.Dir. designation wins a serious look among corporate directors, it will signal that this ethics message is finally getting through where it most needs to be heard — at the very top of the pyramid.

(c)1999 by Rushworth M. Kidder