5 Principles to Improve Corporate Governance

The New York Times had an interesting article recently about an essay by a former corporate lawyer, Jamie Gamble. Gamble has been exposed to the inner sanctums of some of America’s most prominent corporations. In his essay he writes:

“The corporate entity is obligated to care only about itself and to define what is good as what makes it more money.” He goes on to write:  “Pretty close to a textbook case of antisocial personality disorder.”

Gamble doesn’t blame corporations for this. He blames the law. And he proposes a solution:

That every company devise a set of ethical rules to be included in their corporate bylaws.

In so doing, Gamble argues, the companies would risk shareholder lawsuits if they failed to uphold those principles.

---

Gamble suggests these ethical rules address five key areas:

1. The company’s relationships with its employees.
2. The company’s relationships with the communities in which they produce/sell.
3. The company’s relationships with customers.
4. The company’s effects on the environment.
5. The company’s effects on future generations.

---

Let’s imagine what that language might be. Here are five bylaws that a company (let’s call it the Acme Anvil Company) could adopt:

---

The Acme Anvil Company will adhere to these ethical principles in the conduct of its business:

1. To treat all employees fairly, without prejudice or discrimination.
2. To improve the communities in which we work, produce and sell our products and services.
3. To treat our customers fairly, without prejudice or discrimination, as we ourselves want to be treated.
4. To have a net positive impact on the environment.
5. To make sure that future generations will not inherit a world made worse by our actions.

---

Once enacted, then any shareholder could sue Acme if the company violated them. Would this result in Acme being mired in legal battles? Gamble argues no because a plaintiff would have to prove the company acted in “bad faith,” which is a hard test. Could the company simply adopt sham principles and not abide by them? Gamble argues that directors wouldn’t do that because it would expose them to ridicule (and lawsuits). 

I might add that companies should also be required to adopt an ethical principle with regard to their contributions and relationships with political candidates. The language might read:

• To communicate immediately any contributions the company makes to political candidates or campaigns. 

Though it may seem far-fetched, it certainly seems right to adopt all six of these bylaws. I would like to invite all CEOs to consider the benefits of positioning their companies to be moral and ethical citizens.

---

Related Blog: Sharpening the Focus of a Board

---

Leading Resources, Inc. is a Sacramento Board Governance Consulting firm that develops leaders and leading organizations. Subscribe to our leadership development newsletter to download the PDF – “The 6 Trust-Building Habits of Leaders” to learn more about how to build trust with your team.