Ethical Process in The Boardroom Case Study Questions kindly, answer the questions which mentioned at the end of case study & taking consideration to Answe

Ethical Process in The Boardroom Case Study Questions kindly, answer the questions which mentioned at the end of case study & taking consideration to Answer each question and write its own answer

in 2 pages is related to ethics & legal

book is Organizational Ethics 2nd edition A Practical Approach

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avoid plagiarism Chapter 8 Leadership Ethics 243
CASE STUDY 8.1
Ethical Progress in the Boardroom?
Prominent executives get most of the press when organizations misbehave, but boards of directors
share much of the blame. Boards are charged with hiring and firing chief operating officers, shaping
policies, monitoring financial performance, and representing the interests of shareholders and donors.
Board members can prevent criminal activities if they take their duties seriously. Unfortunately, at the
beginning of this century, a great many directors did not. Directors at Enron, for example, failed to
exercise proper oversight. Many members of the energy giant’s board didn’t seem to understand the
company’s operations or its numbers. They rarely challenged management decisions. In fact, the Enron
directors helped doom the company by approving exceptions to Enron’s code of ethics. These waivers
allowed chief financial officer Andrew Fastow to create illegal, off-the-books partnerships that ulti-
mately led to bankruptcy. Directors at World
Com, like those at Enron, had no inkling of the company’s
imminent collapse until it was too late. The board of the New York Stock Exchange approved an outra-
geous pay and benefits package ($140 million as well as a car and driver
, private club memberships,
and private jet privileges) for former CEO Richard Grasso. However, some NYSE directors later claimed
they had no knowledge of the details of the agreement.
A number of factors account for the irresponsible behavior of business and nonprofit boards. In theory,
boards are supposed to be independent, but many are beholden to the organization’s CEO. They are
stacked with friends and relatives of the chief executive who generally rubber-stamp his or her proposals
and approve generous raises. For instance, NYSE’s Grasso handpicked his compensation committee,
which was chaired by Home Depot cofounder Ken Langone, a close friend. Far too many board members
have financial ties to the organizations they are supposed to oversee, serving as consultants or suppliers.
They don’t want to endanger their lucrative arrangements by “rocking the boat,” or they may use their
board positions to enrich themselves further. A lack of both time and expertise also weakens board over-
sight. Those who serve on several boards don’t have the time and energy to carry out their duties.
Individuals who lack financial training sometimes staff board compensation and accounting committees
The Enron and World Com scandals sparked board reform efforts. The SEC now requires companies
to disclose whether they have any financial experts on their audit committees. Firms listed on the New
York Stock Exchange must have a majority of independent directors who have no connection to the
firm. These directors must meet regularly without management present. A smaller, more independent
board now governs the NYSE itself. The IRS took a closer look at the generous pay packages given a
number of nonprofit CEOs (see the case study “Nonprofit Executive Compensation” in the Introduction)
State attorney generals also investigated nonprofit boards that misappropriated donations.
Evidence suggests that boards are making ethical progress. A survey by the Business Roundtable,
an association made up of 160 CEOs of the largest companies in the United States, found a significant
increase in the number of firms that tie executive pay to long-term performance. Nearly all of the
companies surveyed have formal qualifications for directors, and the percentage of companies con-
ducting director evaluations is up sharply. More independent directors serve on boards and boards
meet more often in executive session without management present. One half of the Business
Roundtable respondents also reported a significant increase in the number and length of audit and
compensation committee meetings.
244 PART IV PRACTICING GROUP, LEADERSHIP, AND FOLLOWERSHIP ETHICS
Ethical progress will be limited unless those who serve as directors take their responsibilities seriously.
They need to study the company’s operations carefully, challenge management proposals, engage in
vigorous debate, and act immediately when ethics are violated. The board at Apria Healthcare Group
models this kind of activism. Less than a day after learning that the wife of CEO Philip Carter had been
hired for a company position, they demanded his resignation and rescinded her job offer.
Discussion Probes
1. Why do we often overlook the role of the board of directors in ethical scandals or, conversely, in ethical orga-
nizational successes?
2. Can you think of other factors that might encourage boards to act irresponsibly?
3. Which of the reforms is most important to board performance? Why?
4. What other steps could be taken to make boards of directors more effective?
5. How would you rate the board of your college or university? Why?
6. Have you ever served on a board? Was the group irresponsible or active and informed? What elements
contributed to its high or poor performance?
Sources
Borrus, A., McNames, M., Symonds, W., Byrnes, N., & Park, A. (2003, February 2). Reform: Business gets religion.
Business Week, pp. 40-41.
Brooker, K. (2002, June 24). Fire the chairman of the bored. Fortune, pp. 72-73.
Elkind, P. (2004, June 14). The trials of Eliot Spitzer. Fortune, pp. 33-35.
Greed is bad. (2004, May 29). The Economist, pp. 72-73.
Hempel, J., & Borrus, A. (2004, June 21). Now the nonprofits need cleaning up. BusinessWeek, pp. 107-108.
Lavelle, L. (2002, June 17). When directors join CEOs at the trough. BusinessWeek, p. 57.
Lavelle, L. (2002, October 7). The best and worst boards. Business Week, pp. 104-114.
Marshall, J., & Heffes, E. M. (2006, June). Roundtable survey finds clear trends, Financial Executive, p. 10.

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