Sunday, September 22, 2013

Can we “carve out a space within which … ethical culture — can play a meaningful role in constraining socially undesirable behavior” in corporations?

I recently came across a couple of seemingly related items that I thought might be of interest to our readers:

Awrey, Blair & Kershaw on the “Role for Culture and Ethics in Financial Regulation”

Dan Awrey, William Blair, and David Kershaw have posted “Between Law and Markets: Is There a Role for Culture and Ethics in Financial Regulation?” on SSRN.  Here is a portion of the abstract:

The limits of markets as mechanisms for constraining socially suboptimal behavior are well documented. Simultaneously, conventional approaches toward the law and regulation are often crude and ineffective mechanisms for containing the social costs of market failure. So where do we turn when both law and markets fail to live up to their social promise? Two possible answers are culture and ethics. In theory, both can help constrain socially undesirable behavior in the vacuum between law and markets. In practice, however, both exhibit manifest shortcomings.

To many, this analysis may portend the end of the story. From our perspective, however, it represents a useful point of departure. While neither law nor markets may be particularly well suited to serving as "the conscience of the Square Mile," it may nevertheless be possible to harness the power of these institutions to carve out a space within which culture and ethics — or, combining the two, a more ethical culture — can play a meaningful role in constraining socially undesirable behavior within the financial services industry. The objective of this article is to explore some of the ways which, in our view, this might be achieved.

Jones & Mendenhall on Board “Oversight Responsibility for Workplace Culture”

Earl “Chip” Jones and Amy Mendenhall have posted “Do Directors Have an Oversight Responsibility for Workplace Culture?” on Boardmember.com.  Here is an excerpt:

Recent legislative, enforcement and compliance trends all suggest that corporate directors should focus on workplace culture and corporate compliance. Shareholder activists have shown increasing willingness to pursue actions to hold directors responsible when corporate scandal and executive misconduct impair shareholder value. Further, with the Dodd-Frank Wall Street Reform and Consumer Protection Act’s bounty program promising million-dollar incentives for whistleblowers who report corporate misconduct to the SEC and employee mistrust of management at an all-time high, those charged with steering the corporate ship cannot afford to ignore employee perceptions and on-the-ground effectiveness of compliance resources.

It is widely accepted that directors oversee the organization’s strategy. To do so, directors must understand how corporate culture and strategy interact in ways that affect organizational performance. To illustrate, Bain & Company’s 2011 Great Repeatable Model Study highlighted one way in which culture can impact the implementation of strategic goals: executives charge that managers are too risk averse. Yet, the executives do not know or appreciate that the managers’ risk aversion is often born of mistrust or the perception that support is lacking from those very executives. As part of their responsibility to oversee the CEO and organizational strategy, directors must address such impediments to achieving corporate goals.

 

http://lawprofessors.typepad.com/business_law/2013/09/can-we-carve-out-a-space-within-which-ethical-culture-can-play-a-meaningful-role-in-constraining-socially-undesira.html

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