As two of the four female leaders of Baker & McKenzie’s Global Compliance & Investigations practice, we express in this article our view that gender-diversity in the boardroom is a valuable asset in the pursuit of ethical commercial practices.
The Positive Effects of Gender Diversity
Numerous studies have tabulated the positive effects of gender diversity in the boardroom. Diversity brings with it innovations in thinking and approach, as well as a greater propensity amongst women to ask the hard questions and be less accepting of the status quo. A 2013 study conducted by the Catalyst Information Centre (and published under the title “Why Diversity Matters,” www.catalyst.org) found that companies with a critical mass of three or more female board directors had better financial performance, were associated with less corporate fraud, and demonstrated increased corporate social responsibility (CSR)[1]. Another study published in 2015 shows a clear correlation between a high percentage of female board directors and better corporate social performance[2] (corporate social performance being defined as “an evaluation of the impact of a company’s CSR activities compared to prescribed norms and expectations”)[3]. In our experience, women are often more sensitive to ethical issues than are men. They are more likely to believe that codes of conduct, which guide business behavior, can make a positive difference. Many times women seek opportunities to develop their followers. They listen to them, stimulating them to “think outside the box,” and encourage a speak-up culture. Putting it slightly differently, they are often likely to be inspirational, including ethically inspiring, in setting the tone at the top. A recent paper by Jessica Kennedy[4] and Laura Kray[5] entitled “Who Is Willing to Sacrifice Ethical Values for Money and Social Status? Gender Differences in Reactions to Ethical Compromises[6]” discussed the results of three studies by researchers at the University of Pennsylvania’s Wharton School. In the first study, when reading decisions that compromised ethical values for social status and monetary gain, women reported feeling greater moral outrage and perceived less business sense in the decisions than did men. In the second study, the authors established a causal relationship between aversion to ethical compromises and disinterest in business careers by manipulating the presence of ethical compromises in job descriptions. As hypothesized, an interaction between gender and presence of ethical compromises emerged. In the third study, the authors found that women, more than men, implicitly associated business with immorality. Each of the study results indicated that men tend to be more ethically “lenient” in their decision making than women. The findings clearly suggest that women are less willing to sacrifice ethical values for money and social status.
Ethics and Leadership
- Organizations must contend with an ever-changing compliance landscape. OECD demands for greater action in enforcement, aggressive US Foreign Corrupt Practices Act investigations, the UK Bribery Act strict liability offence and, most recently, the Chinese “Tigers & Flies” enforcement regime have had a significant global impact.
- The result is clear: no longer can compliance be confined to a prettily packaged message from the C-Suite. That message is meaningless without the lifeblood of a robust ethical culture where complying with laws and acting fairly, honestly, and transparently are core values demonstrated by the organization’s leaders and are implemented consistently and universally. Strong leadership in this context is evidenced by a business strategy that recognizes corruption risk and empowers employees and third-party representatives to address ethical issues head on.
Leadership is all about “walking the talk.” Board and senior management must be good role models who genuinely invest monies and resources in mitigation and management. Most organizations have mission statements, codes of conduct, and policies, but how many really mean more than a list of aspirational statements where, in fact, the reaction to business delays and roadblocks is for leaders to simply say “do whatever it takes to just get it done”? Baker & McKenzie has encapsulated the array of relevant requirements to “walk the talk” in our “Five Essential Elements: Leadership, Risk Assessment, Standards & Controls, Training & Communication and Monitoring, Auditing & Response.” These Five Essential Elements have been specifically designed to credibly meet community and law enforcement expectations as well as help mitigate the effect of a failure in organizational control measures. CEOs cannot accomplish the Five Essential Elements alone. High-ranking compliance officers with the expertise, authority, and resources to manage a tailored and appropriate compliance programme are invaluable. They must have the confidence of those ultimately responsible: the Board of Directors. Ethical leadership means making it safe for employees and third-party representatives to speak up and report misconduct and non-compliance without retaliation. One way of achieving this is through the use of confidential whistleblowing hotlines. Another way, which is less common, is to positively reward those who act with integrity. In our experience, companies do not tie compensation to good conduct nearly often enough. Finally, when issues or lapses in compliance arise, leadership has to ensure that they are thoroughly investigated and remediated, with proper internal and external resources assigned to the task. Addressing a compliance lapse in isolation is not enough; the fact that misconduct will not be condoned has to be made clear internally and externally.
Conclusion
It is easy to dismiss ethical values and compliance as impositions by regulators that hamper business performance and increase costs. But as studies show, ethical practices aid a transparent business environment, ensure equality of opportunity, and greater innovation that comes with true competition. As an example, following the unprecedented fines levied on Siemens by the US FCPA regulator, that company has demonstrated that ethical business practice is, in fact, more profitable with less financial leakage, less employee fraud, and greater customer and employee confidence. Effective and committed leadership plays a critical role in creating such an atmosphere, and while in no way disparaging the role male CEOs and Board members play, the studies referenced in this paper prove that women leaders are necessary and pivotal in enhancing a moral compass. We firmly believe that ethical and gender-diverse leadership is critical in building and maintaining a culture of corporate compliance and growing the trust that is so vital to ensuring that employees and third-party representatives of an organization uphold its values in practice. [1] Citing to, respectively: i) Nancy M. Carter & Harvey M. Wagner, The Bottom Line: Corporate Performance and Women’s Representation on Boards (2004-2008), Catalyst 2011; ii) Douglas J. Cumming, Tak Yan Leung, and Oliver M. Rui, Gender Diversity & Securities Fraud, Social Sciences Research Network, Working Paper Series (August 1 2012); and iii) Taieb Hafsi & Gokhan Turgut, Boardroom Diversity and Its Effect on Social Performance: Conceptualization and Empirical Evidence, Journal of Business Ethics, vol. 112, no. 3 (2013), p. 463-479. [2] Rachel Soares & Heather Foust-Cummings, Claude Francoeur and Real Labelle, Companies Behaving Responsibly: Gender Diversity on Boards, Catalyst 2015. [3] Id. [4] A doctoral student at the Wharton School of Business, the University of Pennsylvania. [5] A professor at the Haas School of Business, University of California Berkeley. [6] Social Psychological and Personality Science, January 2014 5: 52-59. – See more at: http://web.ethisphere.com/magazine-articles/the-case-for-a-gender-diverse-board/#sthash.YZlXEVL4.dpuf This article was first published on Ethisphere
