Boards of directors set the ultimate tone at the very top. What they say, what they do, and how they spend their time in board meetings cascades from the C-Suite all the way through the grassroots of companies around the world. One of boards’ many critical roles is to oversee ethics and compliance and the systems that are meant to drive companies to do the right thing.

I know from my own board experience that directors are committed to helping their companies do the right thing—and that most board members at some point in their tenure wake up at night worrying that their company will be the next one to experience a headline-making corporate scandal. And, as a former chief compliance officer, I also realize that companies spend millions of dollars on people, processes, and programs meant to bring their core values to life in everyday business decisions.

Yet, despite the investments in time, people, and resources, there is little evidence that we have figured out how to get things right. Too many instances of corporate misconduct make the evening news, destroy company and individual reputations, and drive valuations in the wrong direction.

To explore the question of how boards oversee corporate conduct, LRN Corp. conducted in-depth, off-the-record interviews with the chief ethics and compliance officers (CECOs) of 25 companies from diverse sectors around the world.

LRN’s recent report on those interviews, “What’s the Tone at the Very Top? The Role of Boards in Overseeing Corporate Ethics and Compliance,” reveals a big disconnect on board ethics and compliance (E&C) oversight. Most of the CECOs say that their boards give E&C short shrift despite the significant business, legal and reputational risks involved in ignoring it.

Here are just a few of our key findings:

  • 52 percent of CECOs estimated their boards spend less than two hours a year on E&C.
  • 40 percent of CECOs reported that their boards have metrics in place for measuring E&C effectiveness.
  • 40 percent of CECEOs say their boards are willing to hold senior executive accountable for misconduct that happens on their watch
  • 50 percent say their board has not been educated on their E&C responsibilities
  • 40 say their boards have not done a “deep dive” on compliance failures and scandals, despite recent Department of Justice guidance urging them to do so.

In addition, only one third of the CECOs surveyed do not have an executive session with their boards or board committees, despite the 2017 Department of Justice guidance that this is a critical component of an effective ethics and compliance program.

The real dynamics of the relationship between boards and CECOs come through in the verbatim comments of the CECOs themselves. It is painful to read their actual words in describing board oversight of ethics and compliance. Here are some quotes from our interviewees:

  • “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.”
  • “Some board members are asleep at the wheel because they either do not care or do not understand. It is really hard for board members to know what they are doing.”
  • “Directors know what auditors do, but they do not understand ethics and compliance enough to ask intelligent questions.”
  • “We need to make ethics and compliance a priority. Management does not get that sense from the board at all.”
  • “Compliance is the last thing on the agenda, sometimes reduced to five minutes.”
  • “I want the board to ask for an open, honest report on the status of compliance and do not 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.”
  • The board “does not look to business leaders to talk about ethics and compliance.”
  • “I wish the board had more discussion on the consequences of incentives and pressures that are created by board action toward management. I get one shot a year to talk to them and usually my time is cut short.”
  • “The board should make it safer for me to have a conversation with them.”
  • “We need more independence. There is a lot of pressure. Many of us think ‘I do this and my chances of staying at the company are low.’”

Not all the findings in study are bad news, however. There were a few critically important behaviors of high-functioning boards in the companies in our report. High-functioning boards:

  • View E&C as foundational to the business.
  • Hold leadership accountable for E&C outcomes.
  • Develop long-term E&C plans and rigorous metrics focused on behavior and outcomes, not activities.
  • Establish strong, direct relationships with CECOs.
  • Devote time to their E&C responsibilities.

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 need more support and scrutiny from boards if it is to safeguard company reputation and performance.

As I said at the outset, I know boards and individual directors want to do the right thing. I also know how much pressure there is on board agendas and how many competing priorities are on their plates. Our interviews of chief compliance officers make plain that it is time for boards to take a hard, in-depth look at how they are overseeing ethics and compliance. Human behavior in the organizational context is extremely complex. Therefore, board oversight needs to become much more sophisticated if it expects to get the job done on ethics and compliance.

Our upcoming webcast, What’s the Tone from the Very Top: The Role of Boards in Overseeing Ethics and Compliance, will provide deep insight on this important question. To learn more, join LRN on October 10th for this webcast as I interview Gary Hayes, Marcus Brauer and Anthony Goodman from the Board of Directors and Leadership Practices of Russell Reynolds Associates.