S6E1 | Activating culture and ethics from the boardroom
“You’ve got to dive deep into the bedrock, and that starts with activating trust and zeroing in on culture, and it starts with the board.” - Dr. Marsha Ershaghi Hames Abstract: Evidence is mounting that corporate culture eats corporate strategy for breakfast. In this episode of the Principled Podcast, LRN Special Advisor David Greenberg, who is also on the board of International Seaways, is joined by Dr. Marsha Ershaghi Hames, Partner at Tapestry Networks, to talk about recent findings in their joint survey of board members from major corporations on ethics, culture, and compliance. While board members agree that activating culture and ethics from the boardroom is important, there is less clarity around how to make this happen. Listen in as Marsha and David discuss the genesis of the study and key themes that emerged from these candid conversations with corporate directors. What you'll learn in this episode: [2:03] Who is Tapestry Networks and how was this report made? [5:11] What is David’s perspective on this report and why is this report so timely? [7:26] Why is ethical culture a business imperative? [9:34] Apart from trust, what were the other big themes in this report? [14:46] Why do board members struggle to make a home in ethics and compliance? [17:12] Did the chief E&C officers’ views differ from others in the report? [21:22] How can this report be leveraged in the E&C community? Featured guest: Marsha is a partner with Tapestry Networks and a leader of our corporate governance practice. She advises non-executive directors, C-suite executives, and in-house counsel on issues related to governance, culture transformation, board leadership, and stakeholder engagement. Prior to joining Tapestry, Marsha was a managing director of strategy and development at LRN, Inc., a global governance, risk, and compliance firm. She specialized in the alignment of leaders and organizations for effective corporate governance and organizational culture transformation. Her view is that compliance is no longer merely a legal matter but a strategic and reputational priority. Marsha has been interviewed and cited by the media, including CNBC, CNN, Ethisphere, HR Magazine, Compliance Week, The FCPA Report, Entrepreneur.com, Chief Learning Officer, ATD Talent & Development, Corporate Counsel Magazine, the Society of Corporate Compliance and Ethics, and more. She hosted the “PRINCIPLED” Podcast, profiling the stories of some of the top transformational leaders in business. Marsha serves as an expert fellow on USC’s Neely Center for Ethical Leadership and Decision Making and on the advisory boards of LMH Strategies, Inc., an integrative supply chain advisory firm, and Compliance.ai, a regulatory change management firm. Marsha holds an Ed.D. and MA from Pepperdine University. Her research was on the role of ethical leadership as an enabler of organizational culture change. Her BA is from the University of Southern California. She is a certified compliance and ethics professional. Featured Host: David serves as Chair of the Governance and Risk Assessment Committee and a member of the Audit Committee of International Seaways (NYSE: INSW), one of the largest global crude oil and petroleum tanker companies. His previous board experience (2006 to 2016) was as the independent director – and member of both the Audit and Compensation Committees --of APCO Worldwide, a private communications and government affairs consultancy and as a director (2013 to 2016) of Clean Tech Group, which creates opportunities for industrial companies to invest in innovative, clean technology. He also served for 5 years as Chairman of the Board of Trustees of The Keystone Center, a Colorado non-profit that brings together oil, chemical and pharmaceutical companies with leading NGOs to find solutions to complex public policy challenges at the federal and state levels. Mr. Greenberg is currently Managing Director of Cortina Partners LLC, a private equity firm that owns companies in the air medical, addiction treatment, bedding, textile and outdoor recreation industries and is CEO of Acqua Recovery, a residential drug and alcohol addiction center. He also advises boards and executive teams on strategy, compliance, leadership, and culture as a Special Advisor for LRN Corporation, and from 2008 through the end of 2016 was a member of LRN’s Executive Committee. For 20 years prior to 2008, Mr. Greenberg served in various senior positions overseeing government affairs, corporate affairs, communications, and strategy at Altria Group, Inc. – then the parent company of Philip Morris USA, Philip Morris International, Kraft Foods and Miller Brewing – culminating in his role as Senior Vice President, Chief Compliance Officer and a member of the Executive Committee. Transcript Intro: Welcome to the Principal Podcast, brought to you by LRN. The Principal Podcast brings together the collective wisdom on ethics, business, and compliance, transformative stories of leadership, and inspiring workplace culture. Listen in to discover valuable strategies from our community of business leaders and workplace change-makers. David Greenberg: Hello, and welcome to a special episode of the Principal Podcast by LRN. This is first in a series of conversations this season about the role of the board in shaping ethical corporate culture. And we're presenting all of this in association with Tapestry Networks. I'm your host today, David Greenberg, Special Advisor at LRN and a member of the Board of International Seaways, the second largest global oil tanker company. Today I'm joined by Dr. Marsha Ershaghi Hames, partner at the management consulting firm, Tapestry Networks. We're going to be asking each other about activating culture and ethics from the boardroom, a major study we co-authored that examines boardroom oversight of culture, ethics and compliance. Created from in-depth interviews with 40 directors, occupying 80 seats at global public companies, the study is a window into how directors think about, feel about and act on culture, ethics and compliance. Today we're going to be focusing on the big themes that emerged. In later podcasts, we'll be inviting participants in the study to join us to dig deeper into the findings and implications. Marsha, thanks so much for coming on the Principal Podcast today. Marsha Ershaghi Hames: It's great to be here, David. David Greenberg: Before we dive into the results, let's talk about how activating culture and ethics from the boardroom came to be. Can you tell us about who Tapestry Networks is and how this report was created? Marsha Ershaghi Hames: Yes. Yeah. Thank you. And good afternoon, everyone. It's great to be here. And a little background, I think on Tapestry and then we'll kind of jump into the report. So Tapestry Networks' mission has been to help leaders of the most important institutions in the world do their work most effectively and with great confidence. And each year hundreds of independent directors and senior executives participate in our networks and our research initiatives, and they represent large, global organizations from North America and Europe. And our focus is to design networks, and these are across financial services, corporate governance and healthcare, to really kind of center conversations and candid dialogue from these top leaders on the pragmatic realities of leading these organizations and complex firms. And last year, while the pandemic challenged the resiliency of so many of these organizations, we were noticing that in a lot of the dialogue, it pushed leaders to surface and adopt kind of what is our broader view of risk and responsibility? And so in collaboration with LRN, and specifically, David, you and I had a number of conversations as we sort of started to explore, is there something there that we need to really unpack? The ethics culture and compliance forum came together. And we brought together directors and executives to begin exploring what is the role of values? What is the role of corporate culture and ethical decision-making in helping organizations secure long-term sustainability and viability for business? And we had a series of meetings last year. So we kind of kicked off in July, kind of at a mid point, we're a year now, and concluded at the end of last year. And when we concluded these sessions, the input from all of the participants in the dialogue was that we all kind of collectively stepped away and said, we need to go out. We need to go out and assess these current realities of board oversight of corporate culture. We need to understand from the director perspective, what is practical here? How is information being received? What is being measured? What do they need to investigate more? How do they need to build and bridge some of this dialogue? So when we kicked off 2021, our goal in collaboration with LRN was to conduct this study to glean the perspectives of sitting public company directors, and activating culture and ethics from the boardroom reveals these insights. These were confidential discussions, as David mentioned, with 40 directors representing 80 public company board seats. So fascinating, fascinating work, and looking forward to discussing it more. So, David, maybe we can actually turn to you and get started. You've been in ethics and compliance for two decades and a board member at three companies since a decade and a half ago. So what is your perspective on this report and why do you think the work that we've done here together is so timely? David Greenberg: Marsha, I think it's not only timely, it's overdue. The issue of where was the board has been an issue for the whole 20 years I've been associated with ethics and compliance. It's the first question people ask in the aftermath of a serious scandal or major corporate misconduct, where was the board of directors? And the truth is, that's a question that chief ethics and compliance officers and their teams can't always answer. [crosstalk 00:05:49] ... are obviously a huge force in the conduct and culture of a company. But what directors say, do and influence from the boardroom is often a bit of a black box to the ethics and compliance community, even within the same company. So boards are really fairly new at this. Even though ethics and compliance has been around for 20 years, it comes on top of so many other things that boards have to do. And so many processes, and procedures and structures at the board level that are already well-ingrained, it's hard to add these new topics, even as important as this one is. And we know from the perspective of CECOs, how they feel about boards and board oversight, because we've been talking to them for 20 years. But also, LRN did a study of this a couple of years ago, talking to 25 chief ethics and compliance officers from global companies, again, off the record with no one being quoted. And the results were that CECOs are really disappointed in the amount of time, priority, resources, focus and strategy they get from the board. They're asking for more. And I think we're seeing in this study, that boards are also asking themselves for more. So Marsha, let me turn it back to you and ask, in the report we say ethical culture is a business imperative. Why do we say that? Marsha Ershaghi Hames: Yeah. So there's no question, as you sort of point to, that boards play a significant role in shaping the conduct and the culture of a company. Every time there is a lapse or a scandal, as you mentioned, the number one headline or question is where was the board? However, I'd like to call out that an interesting kind of component that surfaced throughout our conversations was the importance of extending trust, and the currency of trust and where that plays in this notion of building business. So trust is hands down one of the most valuable assets a company can cultivate. Within an organization, trust can percolate into culture. And outside an organization, it translates into loyalty. And we've seen this play out with countless examples, even most acutely during the pandemic. And we've seen how the erosion of trust can impact business, and confidence and consumer loyalty, and how deep trust and consistency of trust can build communities and can help sustain business. So a trust-based culture is an ethical culture, and this is the business imperative that was evident and it was coming through threads of conversations that board members really hallmark they care deeply about this. And it's not just that the directors care about this and that the executives care about this, but investors are demanding ethical cultures. They want to see businesses that are investing in trust-based ethical cultures. But it's important to get the foundation right. And I think this is where we're going to dig deeper too in this study, you've got to dive deep into the bedrock, and that starts with activating trust and zeroing in on culture, and it starts with the board. David Greenberg: So Marsha, you talked a lot about trust, but I'd also like you to talk a little bit about the other big themes that came out of this study of the points of view of 40 directors of some of the biggest companies in the world. So what were some of those other themes? Marsha Ershaghi Hames: Yeah. Yeah. So, first of all, I mean, a big kind of, I would say macro theme was the importance of embedding practices around ethics and compliance programs into all segments of the business. So culture change tends to be catalyzed by having a very clear and ethics and compliance strategy. And one big theme was that ethics and compliance doesn't have a home. And I think we're going to try to get into that a little bit later. But without sort of finding a home for it, where does it sit? Who oversees it? We're not really focusing on assessing, measuring, keeping a pulse on it. And that kind of reveals theme number one, which would be measurement. So measuring, what are we measuring? Are directors really positioned to even interpret the metrics and the data that is sort of emerging from what chief ethics compliance officers, and CHROs and other kinds of stakeholders are presenting to the board. Is the board's view sometimes refracted through this management filter? So some of that we're going to unpack a little bit more over the course of actually our upcoming summit. A second big kind of theme was oversight. So lots of conversations around structures and processes, and this is a challenge. So one of the questions that emerged was how can boards really ensure there's adequate time and space being sort of devoted to focus on culture, ethics and compliance matters? Several directors had examples of committees, subcommittees that have been formed around which committees might or should have ownership. Is culture a committee issue or a full board matter? Several raised questions around how necessary it is to consider bringing in someone with a background with a chief ethics and compliance officer background or equivalent, with that kind of expertise onto that board, would that sort of change the dimensions of the types of questions being asked and the types of challenges being investigated? Another big theme was accountability. So again, several directors discuss the importance of building better bridges with management and to engage more directly with management on matters of culture. There were several directors who've mentioned that there's a lot of reports on activities, so they're looking at all these different metrics, but one, I think very in particular highlighted the need for directors to be able to sit back and look for key signals. There's a lot of noise, a lot of activities, but what is the true narrative that we're seeing here? How do we sort of interpret that? And who and what function is really accountable? So I would sort of summarize the four themes as it all starts and ends with trust, however measurement continues to be a challenge, oversight, instructors, and processes and accountability. So, when we were having these conversations, directors continue to sort of pound the table to reaffirm that the words of one that's a corporate culture eats corporate strategy for breakfast. And something that I found really compelling during these 40 interviews was how directors pounded the table to reaffirm that in the words of one, corporate culture eats corporate strategy for breakfast. And this really underscores LRN's long held view, that compliance is principally an outcome of values-based ethical cultures and not a driver of them. What did you think about this consensus from directors in the study? David Greenberg: Marsha, to me that's the absolute bedrock foundation of everything that needs to happen now. It's really fantastic that the directors almost to a woman and man get the idea that if we're going to get the outcomes we want, we've got to get culture right. But as you said in discussing the themes about trust, and accountability and measurement, beyond the consensus of culture really matters, directors are still unclear on the path forward. And in fact, sometimes they even fail to make a connection between ethics, and compliance and culture. By that, I mean, we had a few comments from directors that culture's really hard, compliance is much more straightforward, but the truth is doing the right thing in a company or in any organization is really a complex set of interactions that is very hard to get right. So I think it's why it's important that we continue this conversation and continue the exploration, because I think we learned that director's hearts are in the right place, but some of the mechanisms to take that feeling forward still need a lot of work. Marsha, we talked about the idea of board members struggling with ethics and compliance finding a home. What did you make out of that? You mentioned it before, but drill down a little bit Marsha Ershaghi Hames: Yeah. Yeah. And I think that this theme came up in a number of different segments of conversations, and it really comes down to creating a focus. So creating a board focus gives ethics culture and compliance a true home. And without a home, there is no oversight, or responsibility, or regular pulse on that strategy. There's no regular check on what's the progress? Are we moving forward? Have we stalled? Who are the stakeholders we need to bring into the conversation? How do we assess and measure the data that's presented to us? So without a home, these conversations are not happening. And as you and I know, last couple decades, what gets measured gets done, what gets measured gets the attention. So without a true home, there's no way to have the accountability and the standing anchor for directors to sort of watch, and assess and to challenge management, ask the right questions. How is the program being designed? Are we capturing the right metrics? Are we able to link these data points into the narrative that gives us a pulse on culture? Now, we had some mixed responses from directors in terms of where this should truly sit. And a few directors, as I mentioned earlier, mentioned that within their organizations, they've designed and developed some subcommittees. Now we know that there are some components sometimes, let's say compliance of risk may be under audit, or there may be a subcommittee to audit. Certainly as a number of directors pointed to some of the survey in HR and people workforce data being presented in comp committees. However, there were, I would say across the board, directors were saying that culture is a full board matter and it comes up at the full board, but it needs to have a more focused home. And I think this is where a nice springboard to the types of conversations we're going to have over the next few weeks, where we sort of learn from each other and directors will share how they are approaching this, how they are thinking about this and the need to really find a true home for ethics and compliance. David Greenberg: Thanks, Marsha. Another really interesting aspect of this study is that 10 out of those 40 board members either are or were chief ethics and compliance officers in their executive lives. Did their views differ from the others? Marsha Ershaghi Hames: Yeah. Well, they essentially brought a stronger, more grounded view that carried greater emphasis. One of the CECOs said that essentially you bring a current credibility on the subject to the board. So it makes it very clear to the CEO and it makes it very clear to the board that I understand how these priorities live, unlock and reveal themselves. And they emphasized certain pragmatic steps in our conversation. So one of the areas of emphasis from CECOs that contributed to this study, CECOs that are former CECOs or current CECOs who sit on boards, is that it's important to link and incentivize culture. So finding strategies or examples that they had shared around linking ethical outcomes to compensation is important to at least put on the board and start to have a conversation around. Another area that they really emphasized was it was very critical for the board to have deliberate dialogue around culture that's grounded in metrics. So start identifying what needs to be measured. How do we sort of find the examples and hallmarks of metrics and data that would be representative collectively of culture? Also, they emphasize thirdly, that organizations can't play culture, they need to do culture. So there needs to be a responsibility to stop talking about it, but to start creating and building a strategy. Going back to our conversation on, we need to find a home for this, we need to bring in the right stakeholders to challenge, and ask the questions and start to build a plan. And then lastly, this sort of resulted in the importance of giving a culture a home at the board. But I'm curious, you are a former chief ethics and compliance officer. You also have served on a number of boards. What do you think are the key stake aways from this report, both for chief ethics and compliance officers, and for the teams and staff that they're building within their organization? David Greenberg: I think the report says a few things loud and clear, and I think I could sum it up by saying it is an endorsement of the view that ethics and compliance has to be strategic. It has to be values-based. It has to focus on creating cultures, not on creating rules, procedures and programs. Ethics and compliance has got to go deep into the drivers of both misconduct and the kind of behavior that we want to inset. Ethics and compliance and the CECOs who drive it have to help companies, and their boards and their teams find metrics that really allow for tracking and improving culture. Must focus on core issues, like trust, fear, organizational justice, willingness to speak out, willingness to listen and hear. So one way I've characterized this is, CECOs and their teams have to play big, not little. It's time to have a clear strategy that encompasses how to build and maintain an ethical culture. It's time to move away from reporting on activities, to having a discussion with their boards about the culture drivers of misconduct, having a narrative about what's happening in the company, why and what needs to happen to change it, having a new set of metrics that measure what matters, like trust, fear, justice, and how to knock down the barriers to what we call a true speak-up culture. And it's time to find a way to strengthen their relationships with their boards inside and outside of board and committee meetings. That's what I'd say, if I were a CECO still, I'd be taking away from this, Marsha. Marsha Ershaghi Hames: And then David, then how do you think our colleagues in the compliance and ethics industry could use or leverage this report in bridging and building conversations with their own peers, senior executives and their board members? David Greenberg: Well, I mean, I think CECOs need to start a deeper conversation with management and with boards on issues like board training, board reporting, the board relationship with ethics and compliance. They've got to find a way to elevate. They have to find a way to kickstart a stronger relationship with members of boards and members of the key committees. They have to have a discussion with directors about, are we doing the right kind of training? Are we doing the right kind of reporting? Do we have the right metrics? What does good oversight look like? Do we have a real culture strategy as it applies to doing the right thing? Do we have the right structure? What's our relationship, both inside the boardroom and outside the boardroom, and how do we strengthen it? How do we find the themes, narratives and trends and talk about them and not talk about activities? I can tell you as a board member, there's no other function, or no business unit, or no executive who simply stands up and talks about activities. And that's been the tradition of ethics and compliance. We've got to shift the focus to outcomes, not to activities. Marsha Ershaghi Hames: I couldn't agree more. And I think this report really points to a lot of that. So fascinating, fascinating. David Greenberg: Marsha, I think this is a conversation we could have all day and we will continue this conversation in future podcasts. But we're out of time here today. So my name is David Greenberg. My guest has been Dr. Marsha Ershaghi Hames from Tapestry Networks. And I want to thank you and everyone for joining us on the Principal Podcast by LRN. Outro: We hope you enjoyed this episode. 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