Integrity Is Vital in the Boardroom - Corporate Governance and Business Ethics

The importance of integrity in the boardroom is well established (Gay and Dulewicz 1997). Directors are in no doubt of its importance to board performance. In a study by Gay and Dulewicz (1997), integrity was consistently rated by directors as the quality/competence that has the greatest impact on successful board performance (please Table). In a study of 713 directors with at least one year’s experience from domestic (546) and international (167) companies, integrity was rated out of 38 personal qualities/competence's as having (i) the greatest impact on successful board performance for all directors combined (chairmen, chief executive/ managing Director (MD), executive directors and non-executive directors), (ii) third highest for the chief executive/MD overall, and (iii) second highest for chief executive/MD of domestic and international companies.

Ranked-personal-competences

These results confirm that integrity has the greatest impact on future personal performance on the board as rated by directors themselves. The results of their research indicate that integrity is vital to boardroom performance. Therefore, integrity is an important area for study because the boards believe it is important. This area of study demands greater scrutiny and raises questions such as what role does it play in the boardroom? In the following, we briefly review the role of integrity in leadership and direction.

Business scions such as Warren Buffet claims integrity is the most important out of the three qualities he looks for in any new hires: “If you don’t have integrity, then intelligence and high energy don’t matter” (as quoted in Gostick and Telford 2003). On hiring associates, Dee Hock, ex-CEO of Visa International, clearly positions the importance of integrity relative to other personal qualities:

The anecdotal evidence of the importance of integrity to leaders and leadership teams is explored in the literature through the scrutiny of two key stakeholder groups, employees and shareholders. MacGregor Burns (1978) and Yukl (1998) argue the willingness of followers to be led is based on the extent to which followers identify personally with the integrity of the leader. Employees continually informally judge the integrity of leaders. Fields (2007) asserts that a lower level of consensus amongst followers about a leader’s integrity reduces the leader’s influence or “follower ship”. A perceived lack of integrity can create disease amongst followers in the form of resistance to work for a particular boss, and hence, limit the ability of a leader to influence the organizational culture.

Six, de Bakker, and Huberts (2007) highlight the overlooked role of stakeholder groups’ who judge the integrity of leader and leadership teams when they break commonly held norms. They found that stakeholder groups scrutinize a leader’s integrity at two key junctures: I when he/she is first selected and (ii) when allegations are made about misconduct. Using the case of Royal Ahold’s executive misconduct, they investigate “disintegrate” that is defined as a judgment of breaking the law and ethical codes of conduct. In the Royal Ahold case, they examined stakeholder groups’ judgment of disintegrate and how it ultimately led to the then new CEO Anderes Moberg renouncing his guaranteed bonus of several million euros. Cor Herstroter, CEO of Shell at the time of the Brent Spar affair (1995), declared that companies have to comply with broader notions of stakeholders’ values and norms to earn its “license to operate”. Other examples of this public outcry, e.g., to US ex-Home Depot CEO Bob Nardelli’s $210 million severance pay, reinforces Six et al.’s (2007) finding that a leader or leadership team’s values and integrity may cause discomfort and dis-ease amongst a company’s wider stakeholder group if they are sufficiently different from stakeholders’ values and norms. The literature indicates that integrity is vital to board performance, intrinsically linked to leadership in a leaders’ ability to attract follower ship, and, hence, ability to implement the vision of and create value for the organization as well as central to an organizations’ “license to trade”. The literature also raises questions, such as, what is meant by integrity? And does it mean the same thing to different people? And if it does, how can we understand it in a practical way to help boards? In the next section, definitions of integrity will be reviewed following an outline of the different elements of integrity with a focus on the link between values and integrity.


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