The State of Your Board

Lessons on governance from Washington and Lincoln

by Debra Reynolds

When it comes to integrity and duty, we can learn a great deal from our nation’s history and some of its earliest leaders. George Washington once wrote, “I can answer for but three things: a firm belief in justice of our cause, close attention in the prosecution of it, and the strictest integrity.” Some four-scores later, Abraham Lincoln advised, “Be with a leader when he is right, stay with him when he is still right, but leave him when he is wrong.” We may be hard-pressed to find more suitable quotes imparting the wisdom that these great presidents did in the birth and growth of our country. Both Presidents Washington and Lincoln have unwittingly summarized for us how a board of directors should fulfill its duties to the organization it serves.

Duties of Directors Directors owe a duty of care, a duty of loyalty, and a duty of obedience to the organization. Directors are answerable for their actions as well as their inactions. If we could ask President Lincoln, he would likely tell us that sticking with a man one knows is wrong, or doing nothing to oppose him, is a breach of one’s duty to the organization (and arguably a reflection of one’s character). Directors have an obligation to make certain correct choices are made and rules are followed in pursuit of the best interests of the organization. In exercising their duties, directors must not only be aware of the activities of the organization, but also actively inquire about and participate in the decision-making and discussions of these activities.

Recently, a report issued from an independent, special investigation of Penn State University and its handling of the child sexual abuse committed by Jerry Sandusky (the “Freeh Report”) included key findings that the Penn State board did not fulfill its continuing obligation to require university officials to supply information on major risks to the university. According to the report, there were no committees in place and no regular meetings between the board and university officials for this purpose, despite requirements by the organization’s own corporate documents demanding consistent oversight and an unrelenting obligation to inquire and request information into these very issues. It is not enough for an organization’s top-level management to expect someone to bring forward information. The duty demands more than providing a mere vehicle in which to deposit information; rather, it demands reaction to risks and a boldness to stand up to those who jeopardize the integrity of the organization. The Penn State board, with full knowledge of the allegations against Mr. Sandusky, did nothing until months later. It is no surprise, therefore, that the Freeh Report found the Penn State board breached its duties to the university.

Corporate Governance Good governance is not limited to having all the right documents that say all the right things to satisfy legal requirements for the organization. Good governance and duty go beyond words on a page. Good governance demands action. Organizations are run by individuals, charged with a duty to make certain the rules, policies, and procedures in place are followed and that their actions are exercised in good faith. Good governance practices are symbiotic with the duties of the organization’s leadership. Neither can succeed without the other.

The Penn State case is just one example, albeit a flagrant one, of the potentially deleterious effects on an organization when the upper echelons of an organization demonstrate an unwillingness or ignorance to pay close attention, to be active, and to lead with integrity. For Penn State, ineffective leadership and lack of transparency from upper management are unfortunately chronicled through their impact on the lives of innocent victims. Only time will tell what further repercussions Penn State will suffer from the failures of its board of directors to adhere to good governance practices and its duties to the university.

Directors are guardians of the organization, entrusted to navigate the vessel in smooth waters and be at-the-ready for the unexpected storm, all while maintaining a state of high moral principles and professional standards. Hopefully, your organization practices good governance and is led by a board that sets a tone of integrity for the remainder of the organization to follow. Can your president stand up and say with confidence, “The state of our board is strong”?

To learn more about the duties a board of directors owes to the organization it serves, contact us on our website.

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