Corporate culture: are boards of directors responsible? A panel of experts discusses the role of boards of directors in driving corporate culture.

The game has definitely changed for boards of directors, and this subject was high on the list of topics in June at the Changing the Game Forum, the second annual such program sponsored by the Vail Leadership Institute's Center for Corporate Change. Representatives from the business and academic communities were invited to Beaver Creek, Colo., to identify, discuss and debate key issues affecting the ethical conduct of business and its leaders.

Three core issues were researched and debated: the separation of the CEO and chairperson positions; the roles and responsibilities of boards of directors in driving corporate culture; and multiple stakeholder valuation.

Following is a brief summary on the session related to the board's role in shaping corporate culture:

ATKearney Inc. Vice President Rand Garbacz presented a position paper by ATKearney, a strategic management consulting practice headquartered in San Francisco. Garbacz said, "Culture impacts the interests of all other stakeholders, and thus derivatively has a direct, measurable impact on shareholder wealth." Culture, as a governance factor, he added, is neither optional nor tangential.

ATKearney maintains that boards need to take action in five critical areas of governance:

1. Monitor corporate performance with forward-looking and nonfinancial business indicators;

2. Strengthen business strategy through diverse perspectives and ongoing attention;

3. Improve risk monitoring and mitigation;

4. Shift from succession policy to successor readiness;

5. Foster a constructively challenging culture, engaging as owners vs. as reviewers.

The Panel Discussion

Financial Executive Managing Editor Ellen M. Heffes, serving as moderator for a panel discussion, led with opening remarks. "While it's obvious that not all boards have neglected their responsibilities," she said the general business press has included boards among today's culprits in the spate of corporate malfeasance. Yet, Heffes noted that it's not perfectly clear that the board has or should have a role in shaping the corporate culture and the panelists would present their views.

A critical question she posed is: "What was the culture and ethical behavior like at companies like Enron, WorldCom, HealthSouth and Adelphia that allowed the malfeasance or misguided judgments to happen?" And, she asked, "Where were the boards?"

James Sprayregen, partner at the law firm of Kirkland and Ellis, said that board culture and activity, or inactivity, is a major driver of company performance. In its most malignant form, he said, such a culture can lead a company through three levels of poor performance: 1) a long process of decline caused not by malfeasance but by non-feasance; 2) denial of a problem associated with the rejection of unpleasant corrective action recommendations; and 3) crisis management requiring extreme measures. Throughout the process, he said, people in the role of independent and responsible directors make an enormous difference, and governance processes are an important and powerful tool for the board.

Former J.D. Edwards CEO Edward McVaney, relying on his years as an effective CEO of a very successful company, said that corporate culture is the responsibility of the CEO, and not the board of directors. "Any board that tries [to manage corporate culture] will find itself and the CEO frustrated," McVaney said, adding, "... your corporate culture runs your business 90 percent of the time--especially when you're not there," and is an important ingredient in the company's performance "way before the board ever gets there."

David Nadler, Chairman of Mercer Delta Consulting, said that while critical, corporate culture is not the board's responsibility. Noting that a great deal of data show that corporate culture is a profound driver of a business, he stressed the difficulty of changing corporate culture, saying the largest influence on the culture is company leadership--both institutional leadership and day-to-day. The board should not try to shape the company culture, he said, but it should be very concerned about it. Culture, he said, should be addressed as any other key issue on the board's agenda such as financial performance or risk assessment.

Bethany McLean, senior writer at Fortune magazine, relying on her extensive knowledge as a reporter and author studying and writing on the rise and the fall of Enron, observed that the corporate culture of Enron was a key factor in the company's apparent success and dramatic demise. Rather than the board shaping the Enron culture, she said, the company's executive management shaped the board's culture. The board became too much a part of the Enron culture and lost its ability to provide independent oversight.

Daniel J. Sweeney, a founder of the Center for Corporate Change and a trustee of the Vail Leadership Institute (www.vaillead ership.org.), also serves on the Board of Directors of West Marine Products Inc.