The Handbook of Board Governance

33Corporate GovernanceEthics and Legal Compliance, Risk Management, and Political Activities

John M. Holcomb

Professor of Business Ethics and Legal Studies Daniels College of Business, University of Denver

Corporate boards are supposed to monitor and not manage. That adage raises several questions. Considering the scope and seriousness of legal and ethical violations, often generating scandals, how well are corporate boards fulfilling their monitoring function? Must corporate boards go beyond monitoring legal compliance and ethical behavior and become more intrusive? Are corporate boards structured properly to fulfill even their basic monitoring function? What lessons can be learned from corporate board failures? Finally, are some corporations on the right track in improving their corporate governance, and what more can be done?

In considering the implications of these questions, this chapter will explore the key issues that corporate boards need to address in the areas of legal compliance and ethics. In addressing both law and ethics, a corporation first needs to appreciate the difference between the two concepts and how they could be in tension. Second, both concepts are in turn related to the task of managing organizational and reputational risk. This chapter will specifically address risks involved in executive succession planning and in crisis management. Third, this chapter will examine the legal incentives surrounding corporate risk management efforts. Fourth, the chapter ...