By JOHN CARVER and MIRIAM CARVER   

WE argue that ethics are the underpinning of all of the
governance job. All the decisions made by the board are derived
from ethical considerations of one sort or another. When there
is inadequate control over the company, or when the controls
exerted by the board are inappropriate or misguided, the damage
wrought results from ethical failure.

Recent disclosures of appalling circumstances at a number of now
infamous companies should cause every board to seriously examine
its governance. The belief that "it can't happen here" is
comforting only so long as "it" has not happened here or, more
frightening, until a board finds out it already happens here.

What the "it" is, of course, is a breakdown in trusteeship or,
in Robert Greenleaf's terms, a failure in the board's
responsibility for servant-leadership. Except in those cases
wherein all the shareholders are board members, each board
carries out its work with someone else's money and in someone
else's interests.

The corporate board is a trustee for shareholders. The size of
its trusteeship is frequently far larger than the wealth
individual board members control in their separate lives. The
degree of personal responsibility that characterises a normally
moral and responsible person is insufficient, for when one acts
as a trustee for others, the natural sense of responsibility for
one's own behaviour is not enough.

Those with greater authority owe a debt of far greater and more
systematic accountability - noblesse oblige. This fact alone
should cause board members to demand a commensurately heightened
sense of accountability in systems of governance. If they do
not, boards and their members can easily fail to rise to the
occasion.

But even with an appropriately heightened sense of
responsibility in individual directors, the phenomenon of group
responsibility calls for even more. Group responsibility commits
each board member, beyond his or her own responsibility, to
assure that the group of which he or she is part must observe an
irreproachably high set of ethical standards. Those group ethics
must underlie board norms about the way in which the board
governs itself, the way in which it governs the company, and the
expectations it states for the maximisation of return for the
shareholder within proper controls.

The Policy Governance model places heavy emphasis on the
ownership concept and the board's role as
shareholder-representative.

The model prescribes that the board be a proactive, deciding
body, not a reactive receiver of management initiatives. It sees
the board as fully accountable for a company's prudence and
ethics as well as its achievements.

Therefore, as the top organisational authority, the board is
responsible for its own ethics and accountable for the ethics of
those under its purview. In fact, the board's ethical duty can
be viewed as the greatest obligation of all, one that subsumes
all others including appropriate productivity with others'
money, honesty, transparency, prudence, and lawfulness.

Since the board is a trustee for the property of others, its
basic obligation is to fulfil that trusteeship responsibly.

That means taking proper care of what it holds in trust, acting
with the most minimal of principal-agent slippage, and
accomplishing with its property-in-trust what the ownership
wants produced.

Said another way, it is because the board has an ethical
obligation to owners that it is accountable not only that the
company maintain certain levels of probity and treat others
ethically, but also attain suitable economic achievement.

Our point here is that appropriate establishment of shareholder
value and appropriate limits on the organisational behaviour are
themselves driven and determined by the board's ethical
obligation to owners.

From this perspective, ethical concerns rise to the top of all
governance issues. The heart of governance, its foundation and
central core, is ethics.

Dr John Carver, whose international consulting practice is based
in Atlanta, and Mrs Miriam Carver will be in Kuala Lumpur to
present the Policy Governance Model on Sept 6 & 7. For details,
call MIM Customer Service at 03-2165 4611, e-mail
enquiries@mim.edu or visit our website www.mim.edu