The collapse this week of the U.K. cafe chain Patisserie Valerie is a timely reminder of the importance of business leaders keeping a close eye on their interests. One interesting aspect of this affair – which began last October with the discovery of accounting irregularities – is that the business is one of several companies controlled by Luke Johnson, a high-profile entrepreneur with a reputation for doing just that. Indeed, a newspaper column he wrote shortly before the problems came to light was a checklist of warning signs that might indicate fraud. For the moment, the company – which went into administration earlier this week – continues to trade, although 70 of the more than 200 outlets are closing immediately and Johnson – who has paid over millions of pounds of his own fortune to keep the operation afloat – is suffering in terms of both his wallet and his reputation. The discovery of “thousands of false entries” in the books has, of course, led to an investigation of the accounting and auditing. But the fact remains that all companies but especially those that grow quickly, like Patisserie Valerie, need close scrutiny by the people running them.
Unfortunately, however, it appears that this is not as widespread as might be hoped. Research by LRN Corporation, an international consultancy that advises companies on ethical and cultural issues, finds, for example, that 60% of chief ethics and compliance officers say their boards do not hold their senior executives accountable for misconduct.
The high-profile case involving former CBS chief Les Moonves can perhaps be seen as an example of this. Although the CBS board ousted Moonves last year in the wake of allegations of sexual harassment, which he denies, it could be argued that – given that the allegations date back several years – there was insufficient supervision of managers. In a company blog post earlier this month, LRN’s Susan Divers is quoted as saying that many scandals have occurred at companies that have what are considered strong codes of conduct, comprehensive training programs and robust audit oversight. “But clearly they haven’t been able to change behavior,” she said. She added that that pointed to a failure of the board to supervise what was happening at the company, she said, referring to the situation at CBS and its ousted chief executive as one of the most publicized recent examples of such behavior. “The #MeToo movement starkly showed, in narrative form that everyone could understand, that boards drop the ball when a high-level executive is at issue,” said Divers.
So, what can be done to change things? LRN has built on its research to set out steps that organizations can take to make leadership more accountable and ethics and compliance teams more effective. In its report, Board Oversight of Ethics and Compliance: Twelve Steps to Operationalize the Tone at the Very Top, it suggests that boards:
- Require chief ethics and compliance officers to present a comprehensive strategy to the board – one that is based on metrics that really matter – and require updates on progress.
- Ensure there is meaningful time purposefully allocated to ethics and compliance on board and committee agendas.
- At the board committee level, assess whether the current committee of jurisdiction is too busy to do an adequate job on oversight of this area.
- Work with compensation committees to ensure that all senior leaders have clear and measurable objectives related to ethics and compliance.
- Require leadership to perform an in-depth assessment of company culture.
- Focus on misconduct and its causes through employee surveys and focus groups.
- Mandate ethics and compliance executive sessions at every board or board committee meeting.
- Speak to the chief ethics and compliance officer between board meetings and meet the ethics and culture team.
- Establish expectations with senior management that chief ethics and compliance officers s are viewed as respected company leaders similar in seniority and influence to other executives.
- Seek out training directly relevant to the board’s oversight role.
[/et_pb_text][et_pb_text admin_label=”Link/Source” background_layout=”light” use_border_color=”off” background_position=”top_left” background_repeat=”repeat” background_size=”initial” _builder_version=”3.0.98″]
Author: Roger Trapp
Source: Forbes
