[00:00:00] Speaker A: Hi everyone. In this episode, we'll learn about the distinct practices that can help boards be better drivers of ethical business culture. I'm your host, Bill Coffin, and this is the Ethicast.
As businesses face relentless market challenges, technological transformations, leadership misconduct and geopolitical whiplash, boards of directors play a vital role in providing the kind of ethical leadership that will help organizations build value and manage risk. And yet, those same pressures also expose the thin ethical oversight that many boards provide, mainly because they lack practical ways to promote culture, conduct and trust as core business values. In response, Boards of the Future, a US based nonprofit advancing ethical leadership and integrity at the highest levels of corporate power, has released How Boards Should Oversee Ethics, a guide that distills 10 concrete practices to help boards bring ethics into the center of strategy, risk and performance conversations with us today to talk about this exciting new publication is Boards of the Future Executive Director Vera Charepanova. Vera is also the chair of the Global Forum for Governance, Risk and Performance at the association of Certified Chartered Accountants, a member of the International Council at Compliance and Business Ethics association of Kazakhstan, and and she serves on the steering committee of ComplianceNet. A prolific author and speaker on all aspects of ethics, risk, compliance and governance, Vera's insights have been featured in the Financial Times, Wall Street Journal, Law360 and more. Vera, welcome to the Ethicast. We're so excited that you could join us today.
[00:01:40] Speaker B: Thank you so much, Bill, for this wonderful introduction. I'm so happy to join you today.
[00:01:46] Speaker A: The first concrete practice that how boards should oversee ethics calls out is, is ask better questions. And in that you raise the struggle around how boards often suffer from both fofo, that's fear of finding out, and fomo, fear of missing out. And that leads it to ethics and compliance leaders to figure out how to thread that needle during board conversations. So in your mind, what do better questions look like? And how can leaders find the courage to ask them?
[00:02:13] Speaker B: That's a great question. And there is no coincidence that we put this practice Asking Better questions as number one in our 10 practice guide. It's number one because it's fundamental. Let me start with a statistic. I love stats of all kinds and shapes. So it turns out to be that globally just 33% of executives say their boards are asking probing questions. 33%. That means that if we do it in reverse, 77% say that their words are not asking good probing questions questions. So what are they even doing right? And how, how can we reverse that dynamic? Smart people have made classifications of various kinds of dysfunctions and these include subordinated boards that sit too close to management and imbalance boards that lack diversity of insight and perspective, and also bystander boards, which suffer from the diffusion of responsibility and nobody's stepping up on them.
So if there's any kind of common denominator underlying all of those dysfunctions, this has got to be fulfilled. The fear of finding out, it will be present in each of the dysfunctions, although it would manifest itself differently. The clearest example is a bystander board. And the rationale behind not asking a question and the fear of finding out is if I ask, I will own it. And something along these lines. There's a second newer mode and failure that boards should watch out for. This is fomo, the fear of missing out. So today's FOMO boards rush in and want to look decisive whenever something bad already happened and they're trying to fire the CEO or fire the executive or fire whoever is found guilty in the bad thing happening.
But that kind of swift reaction, although it can be warranted, it's only a half of a solution of a problem, right? Because when you scratch the surface, that means that the underlying conditions that permitted the misconduct and the bad thing to happen in the first place are left unresolved and unattended. So also, I should just quickly mention that getting rid of a CEO is a very costly exercise, right? And if that does not help to go to the root cause of the problem, that's not optimal. Let's just put it this way, that's not optimal. So what we like the boards to do more is not to swing between fo, fo, which is not permitting them to ask good questions and find out the problems before the bad thing happens, and FOMO when the bad thing already happened and, you know, there is some costly firing going on and we're not digging down enough to resolve the root cause. Curiosity has been very much oversimplified.
Although it's a kind of a trendy topic in social sciences and there are a lot of research and papers coming out about curiosity. And everyone is saying, like, having curiosity is so good, it's so cool and helps so much, and everyone should have it, everyone should practice it. But given all that, I still think that it has been a little bit oversimplified, because curiosity is definitely not about just information seeking. It's definitely not about one act or one.
One good question or asking one question.
It's a practice, it's a discipline, and it requires persistence. And it also, it's also about connecting the dots, really. It's also about being curious about this particular point of data or information and then the curiosity to connect it to other data points, to connect the dots, understand all of the interconnectedness between the things in the ecosystem of this organization, in the ecosystem and culture of this company at this very moment, with this strategy and with this leadership. So this is how I define curiosity and also being able to, as a second step, connect yourself to everything that you have found out and all of the dots that are on the map in front of you.
[00:07:02] Speaker A: Our world of polycrisis and perpetual uncertainty tends to encourage boards to analyze what went wrong instead of imagining an ideal future state. And we see this so often that public companies that face the whipsaw of quarterly earnings reports. So how would you recommend boards step away from defaulting to past analysis and embracing a greater degree of ethical foresight?
[00:07:23] Speaker B: I gotta admit that this is, this is probably one of my favorite practices from the guide. It's number four.
It's super important because one of the key board functions is to think about the strategies strategizing, right? And strategy requires boards to look in the future.
Yet what we see more often than not is boards are much more accustomed to look backwards than forwards, right? So they, they spend quite a bit of time on analyzing the numbers, the financial statements and balance sheets and profit losses and all side, all kinds of information that is actually looking backwards. We want boards to imagine, we want boards to have the blue sky discussions and we want boards to be prepared for the future challenges that are looming somewhere just around the corner.
So if we, if we, if we take a perspective of sites, right? So what we see now, it's mostly about hindsight. And what we want is more foresight.
And I would argue that insight, insight and foresight are three pillars of oversight, which is defined as responsible and watchful care by Cambridge Dictionary, by the way.
So boards are already doing some kind of those exercises, for example. We know that. Let me give you another statistic. I told you that I like statistics. So we know that boards typically do cyber security breach tabletop exercises.
81% of boards did that in the US in 2025.
And they also prepare for an activist investor. This is the second most popular tabletop simulation. 31% did that.
There is nothing particularly wrong about it except the fact that there is no uncertainty, that once in a while every organization and every board will be confronted with the un, with the one or another.
So it's not really about imagination, right? It's not about foresight. It's just risk Management training. I would say we want something else. We want boards to ask a question.
What if the context shifts in ways we have not yet priced in? Or we want boards to do more pre mortems. Let's imagine that the strategy that we deliberated and approved failed fantastically, spectacularly. What went wrong and why did that happen? So there's a whole host of various kinds of exercises and they're all there.
Boards do not have to reinvent the wheel. They just need to take those tools and have intentionality to apply them regularly.
[00:10:28] Speaker A: An organization can't have a true culture of ethics if its employees aren't fully empowered to speak up when they see something wrong. And our own data, I'll give you a statistic now, our own data shows that some 85% of employees say they would speak up if they saw something wrong. But then when that moment of truth arrives, only about 45% of them actually speak up, mainly out of fears of retaliation or a lack of faith that anything will actually be done about the problem. So, Vera, how can boards, which don't experience the day to day of employees best help set the conditions for SpeakUp?
[00:11:03] Speaker B: Well, this is very nice to wrap the previous two questions with this one, so to say, because you will see now what I mean. It's all very much interconnected.
The directors typically tell me that internal auditors are their best friends. That might be true. And I love internal auditors too because, well, I used to be an internal auditor back in the day too. So obviously I do love them and I think they bring real value, without any doubt. But I would argue that whistleblowers are actually maybe even more valuable, if not equally valuable.
The problem here and the distinction here is that internal auditors are again looking backwards.
And this is why I said that you'll see that everything is very much interconnected. Whistleblowers are reporting something which is happening in the moment other than looking backwards.
Because when, when internal auditors come in, they would again see the facts and go back and understand how those facts have been derived from where and based on what and you know, which processes led to them.
With whistleblowers, it's an unfiltered signal from the ground in the moment. And this is the real value of it.
So everything matters for a whistleblower. I heard once somebody saying that it takes a village to raise a whistleblower, and I think it's very true.
And how bored sets the conditions for, for a speak up culture in the organization, how board role models the norms of behavior and the expectations from the employees plays a very big role. And it is quite curious to say that the curiosity and the courage behind asking harder, better questions leads us to think that in the boardroom, boredom, how hard whistleblowing can be. Because asking, stepping up and asking a hard question when nobody else does that in the boardroom is also requiring a lot of courage.
So we can say that independent directors to a certain extent are like whistleblowers. Right. So they are not necessarily calling out the actual misconduct of problems, but it is still requiring quite a lot of independence of the mindset and courage. Yes, again, courage and level of engagement. Right. Level of caring about your board role so that you can step up and ask that question or float that comment.
So all of that is leading to a consideration that boards actually play a very big role in fostering the boost of law culture in the organization by various means. First of all, by being a board which is not afraid and is courageous, by role modeling this behavior in boardroom discussions.
Also by being intentional and also by responding to whistleblower allegations and reports in a proper manner.
[00:14:39] Speaker A: Well, Vera, thank you so much for sharing your insights with us today and for putting this really awesome report on our radar. How Board Should Oversee Ethics. I've had a look at it. It's really, really quite interesting, and I've just been very excited to speak with you about it today. So thanks for coming onto the show.
[00:14:53] Speaker B: Thank you so much. It was a pleasure.
[00:14:56] Speaker A: To get your free copy of How Boards should oversee ethics, visit newboards.org, we'll provide a link for that in the show notes to this episode.
And for additional free resources on board governance and ethics, visit the Ethisphere resource
[email protected] resources thanks for joining us. We hope you've enjoyed the show. For new episodes each week, be sure to subscribe to us on YouTube, Apple Podcasts and Spotify. If you haven't already, please follow Ethisphere on LinkedIn to learn more about how we help organizations measure and improve their ethics and compliance programs. Together, we can make the world a better place by advancing business integrity.
That's all for now, but until next time, remember, strong ethics is good business.
