5/2/2019 Boards of Directors Fall Short on Ethics Oversight, According to New Study by LRN Corporation – LRN

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/  BOARDS OF DIRECTORS FALL SHORT ON ETHICS OVERSIGHT, ACCORDING TO NEW STUDY BY LRN CORPORATION

BOARDS OF DIRECTORS FALL SHORT ON ETHICS

OVERSIGHT, ACCORDING TO NEW STUDY BY
LRN CORPORATION
Written May 31, 2018 by LRN Corporation

TOO LITTLE TIME, PRIORITY, DEPTH, AND

STRATEGY ON ETHICS AND COMPLIANCE, SAY
CHIEF ETHICS AND COMPLIANCE OFFICERS;
THEY FEEL LIKE “SECOND-CLASS CITIZENS”
NEW YORK, May 31, 2018 (GLOBE NEWSWIRE (https://globenewswire.com/news-
release/2018/05/31/1514911/0/en/Boards-of-Directors-Fall-Short-on-Ethics-Oversight-
According-to-New-Study-by-LRN-Corporation.html)) — Ethics and compliance (E&C) – the
function designed to help companies’ meet their legal and ethical responsibilities and
protect their reputations – is too often neglected by boards of directors at major
companies, say many Chief Ethics and Compliance Officers (CECOs) in new research from
LRN Corporation.
“It is settled law and policy that boards of directors are required to oversee company
compliance with law and regulation, but it’s not shocking that boards may not give E&C its
due, considering their huge range of responsibilities,” says David Greenberg, LRN’s special
advisor, about LRN’s new report: “What’s the Tone at the Very Top? The Role of Boards in
Overseeing Corporate Ethics and Compliance. (https://pages.https://https://lrn.com/role-
of-boards-report)”
“But the failure to oversee E&C robustly can have huge consequences, since the ethics and
compliance function is tied directly to the board’s central concerns: value and reputation.
An ethics and compliance failure can and does blow up companies, devastating their
reputation and valuation alike,” says Emily Miner, member of the E&C advisory team at LRN.
“And individual board members may also be in jeopardy in the event of E&C failures.”
The report, based on in-depth interviews with 26 present and past CECOs of large
companies, found that:
Only about 40% of CECOs reported that their boards have metrics in place for
measuring E&C effectiveness.
Only 40% of CECOs say that their boards of directors are willing to hold senior
executives accountable for misconduct.
Nearly half say that their board has not received education and training on their E&C
responsibilities.
Over 50% say that boards spend two hours or fewer working on E&C each year.
About 40% say their boards have not done a “deep dive” on compliance failures and
scandals, despite recent Department of Justice regulations requiring them to do so.

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5/2/2019 Boards of Directors Fall Short on Ethics Oversight, According to New Study by LRN Corporation – LRN

Giving E&C short shrift is tied to many of the corporate scandals that boards seek at all
costs to avoid. Says Greenberg, a former CECO and current governance committee chair of
an NYSE-listed company: “Even if ethics and compliance oversight were not a requirement,
boards would still be well advised to take a hands-on approach. Smart boards do, as they
recognize that one of the first questions that comes up when a compliance failure happens
is, ‘Where was the board?’”
The report quotes individual CECOs on the relationship between boards and the E&C
function, and the CECOs remarks underscore the gap between E&C and most boards. For
instance:
“The board should think of compliance as beyond FCPA and Sarbanes Oxley. Board
members’ understanding beyond those two statutes is fuzzy at best.”
“Unless there is a big issue, the tendency is to [just] make ethics and compliance part
of the board’s pre-read packet.”
“Boards don’t often ask ‘Tell us something we don’t know. Where are the difficult
issues that we should know about that we haven’t been talking about?’”
“The board is passive – it doesn’t have a plan or strategy for ethics and compliance. 
It needs one.”
“The problem is the board doesn’t spend enough time on any ethics and compliance
issue. We’re last on the agenda and often there is not time at all.”
“I want the board to ask for an open, honest report on the status of compliance, and
don’t phrase it nicely or in a way that looks good for your CEO.”
“We don’t measure ethical culture, but we should.”
“The board should be asking senior management something – anything – about
ethics and compliance. Neither the CEO nor CFO need to report what they have
done.”
Not all the findings in the study are bad news. LRN and the report emphasize how
important it is for boards and leaders to create business operations and company cultures
in which E&C is “built in” rather than “tacked on.” In fact, “the high-functioning boards in the
companies we studied see ethics and compliance as foundational to the business, hold
leadership accountable for E&C outcomes and develop a long-term game plan and
rigorous metrics for the E&C function,” says Miner.
“Ultimately, the gulf between CECOs and boards can be bridged – and the companies that
get it right in our study show the way – but it requires boards to take meaningful steps to
acknowledge the very real financial, tactical, and moral benefits of the E&C function. Ethics
and compliance needs more support and scrutiny from boards if it is to safeguard company
reputation and performance,” Greenberg says.
Click here (https://pages.https://https://lrn.com/role-of-boards-report) to download the
report.

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