A corporation’s Board of Directors has a fiduciary duty to represent the interests of the company’s shareholders. In particular, the Board does that by selecting a CEO (and sometimes by participating in selection of other members of the management team) and by helping set the company’s strategic course. The work they do is of crucial economic importance — both to investors (to whom they are directly accountable) and to the functioning of the economy more generally. But (or maybe precisely for that reason) good governance and board effectiveness are also ethical issues.
By way of illustration, take a look at the recent controversy over the departure of Mark Hurd as CEO of Hewlett-Packard.
The short version: HP’s (now former) CEO, Mark Hurd, got caught fudging his expense reports. Sexual improprieties were also implied. So, the Board fired Hurd, and payed him a huge severance package. Then just a month later he joined HP’s rival, Oracle, which was very bad news for HP. Now HP’s Board is suing Hurd. It’s a huge mess, and much of it reflects badly on HP’s Board. See, for example, Joe Nocera’s recent piece in the NYT: H.P.’s Blundering Board
The Hewlett-Packard board is back to doing what it does best: shooting itself in the foot. By filing an embarrassing lawsuit against the company’s former chief executive, Mark V. Hurd, this week — a suit that unwittingly highlights the mistakes it made in the way it let Mr. Hurd go — the H.P. board can now lay claim, officially, to the title of the Most Inept Board in America….
I’m not qualified to judge HP’s Board from a strict governance point of view. But the governance experts quoted by Nocera seem convinced that the Board is, shall we say, not exactly doing a bang-up job. What should we say about that from the point of view of ethics?
To begin, we should note that ineptness itself is not generally considered unethical. We generally are not to blame for our own weaknesses. If you’re physically clumsy, then it’s not your fault that you’re not good at juggling. If you have no mind for numbers, then it’s not your fault that you don’t excel in math.
But there are exceptions to that general rule.
In fact, there are at least two factors that can allow us to hold an individual or group responsible for ineptness. One of those is the fact of having voluntarily taken on a job that you knew would require certain talents and aptitudes. If you know you’re prone to clumsiness, you shouldn’t take a job requiring dextrous manipulation of, say, dangerous chemicals. Likewise, you shouldn’t take a position on the Board of Directors of a major corporation if you don’t have the wisdom and strategic skills such a position demands. Unfortunately, with things like wisdom there’s a difficult catch-22: some people aren’t clever enough to realize that they’re not clever enough to be on a corporate Board. (Note that I’m not accusing anyone on BP’s Board of lacking the requisite talent; I’m merely outlining the ways in which one can be held responsible for incompetence.)
A second factor that can justify holding someone responsible for their own level of competence is the availability of relevant training. If they have reason to think their skills are not what they could be, and if relevant training is available, and if they have not availed themselves of it, then they are culpable for the resulting deficits. Now, being on a modern corporate Board is no trivial task. Corporate Boards are no longer the window dressing they once were. Business today is increasingly complex, and so being on a Board today requires a lot of knowledge (about business and law and regulations and so on and so on). So, there are organizations out there that are set up to provide training. (In Canada, we have this and this, for example.) Now, it’s not clear that Board training would have helped BP’s Board avoid the errors it apparently made in dealing with Hurd. Again, I’m merely trying to outline the conditions under which a lack of skill (something others have accused them of) becomes something ethically problematic.
In the end, the point is this. Modern Boards face enormous challenges. And while we most often think of corporate governance as a legal matter and as a matter of interest to shareholders, in the end it is really about making sure that the right decisions get made by the right people for the right reasons. Add to that the fact that executive decisions have the potential to have enormous impact — financial and otherwise — on people both inside and outside the corporation, and it becomes easy to see why governance must be considered an ethical issue as well.