Imagine you’re driving down the highway when, suddenly, a light flickers on your dashboard. Maybe it’s the “check engine” alert, a low tire pressure warning, or the dreaded battery light. These signs aren’t just inconvenient; they’re your car’s way of telling you that something needs attention before it escalates into a costly or dangerous problem. Ignore them, and you could be stranded by the roadside – or worse.
On a board of directors, early warning signs for an organization’s culture work much the same way. Small signals – an executive cutting a discussion short, a refusal to put uncomfortable topics on the agenda, or an uneasy dynamic between the CEO and other team members – are often the first indicators of a deeper problem. These signs don’t always spell immediate disaster, but they can point to underlying cultural issues, that, if unaddressed, could lead to bigger challenges down the road.
A prime example of a cultural unwillingness to escalate matters posing grave economic and reputational risk is Credit Suisse. The bank racked up $5.5bn in losses in 2021 after it repeatedly ignored warning signs that investment fund Archegos was heading for impending disaster. A 165-page postmortem analysis found conspicuous signs that risks were mounting: the fund persistently breached risk limits and ignored requests for new margin proposals. Although junior risk controllers raised the alarm, these were ignored by more senior bankers who overrode safety limits and failed to raise concerns with more senior executives and the board until just days before Archegos’ collapse.
As a board director, your job is to encourage a culture of openness, where people feel just as free to share their ideas as voice their criticism and doubts. Without a speak-up culture, you risk repeating mistake after mistake, with employees pursuing narrow objectives like growth and profitability at the expense of the integrity and values needed to sustain it.
How, as a board member, can you help to foster a culture of transparency and trust?
Examine closely whether your organization is truly incentivizing ethical behavior. Often, rewards are heavily performance-based, with the most handsome pay packets going to those who drive the most revenue. However, this approach can overlook critical factors, such as contributions to risk culture or the balance between economic profitability and personal gain. The Archegos report found management was overly focused on short-term profits and enabling the fund’s “voracious risk-taking” rather than engaging in adequate risk management.
To avoid such situations, effective performance assessments should include at least two key dimensions: results and behavior. Measuring behavior can involve gathering input from the control functions and across the organization, ensuring it is not based on isolated incidents, and that feedback is concrete. For example, “In this meeting, I observed how you shut down colleagues who raised concerns about the long-term objectives.” This approach reinforces accountability and encourages a culture where ethical behavior is recognized alongside measurable performance.
Learning to welcome rather than shoot the messenger is key.
Frontline employees, junior staff, and even mid-level managers notice issues that senior leadership might overlook. They are more likely to spot emerging problems, risks, or untapped opportunities. However, speaking up isn’t always easy as the Archegos example illustrates. Many employees experience conflicting pressures: the desire to contribute weighed against the fear of repercussions; the impulse to raise concerns tempered by the worry of being labeled as disruptive.
Leaders should actively reward those who report failures or bravely raise concerns, even if it puts them in a vulnerable position. Learning to welcome rather than shoot the messenger is key. While many large organizations have whistleblower lines, a lack of activity on these lines can itself be a warning sign, potentially pointing to a culture of fear that prevents employees from sounding the alarm.
It’s pointless lamenting a lack of diversity on executive teams if no tangible steps are taken to increase the representation of women and minorities.
In leadership, actions speak louder than words. People are far more likely to follow what you do than what you say. For board members, this means ensuring that your behavior matches the organization’s values and culture. If you’re striving for a more inclusive environment, examine your conduct in meetings: do you allow certain voices to dominate, or do you make an effort to include perspectives that are often overlooked?
Following through on these values is crucial. It’s pointless lamenting a lack of diversity on executive teams if no tangible steps are taken to increase the representation of women and minorities.
As a board member, you hold ultimate responsibility for hiring and, if necessary, replacing the CEO and senior executives should unethical behavior persist. However, before considering such drastic measures, explore how you can best support and guide them toward responsible action. Senior executives operate under intense pressure. Look for ways to alleviate some of these pressures, perhaps by facilitating smoother relationships with key investors, stakeholders, or regulatory agencies. Between board meetings, reinforce the organization’s values in your interactions to shepherd leaders onto the right path.
True change calls for a commitment to transparency – where problems are not swept under the rug but brought to light for all to see.
Responsible leadership demands a careful balancing act among competing priorities and diverse stakeholders. When an organization has spent years prioritizing one goal to the detriment of its values and ethical standards, restoring integrity and trust cannot happen overnight. Persistent issues and scandals rarely stem from isolated individuals; rather, they tend to signal deeper systemic problems that require a holistic solution.
True change calls for a commitment to transparency – where problems are not swept under the rug but brought to light for all to see. By examining and addressing underlying issues honestly and comprehensively, organizations can foster a resilient culture rooted in integrity and respect.
May 5, 2025 in Governance
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