Topics:   Business Ethics,Corporate Social Responsibility,Risk Management

Topics:   Business Ethics,Corporate Social Responsibility,Risk Management

January 15, 2021

A Call for Boards to Uphold Truth, Fact, and the Rule of Law

January 15, 2021

January 6, 2021 was a day of untold tragic proportions. The shocking images of mob violence and destruction at the US Capitol and the deep political divides they represent was but the latest example of the huge challenges we face as a country. And this comes in the midst of a global pandemic with high death rates and a resulting economic crisis as well as calls to address deep racial injustice, among other threats to our world’s welfare, from climate change to cybersecurity to geopolitical insecurity. These challenges may seem beyond solution, but they must be overcome.

Business, by nature, is about solutions. It meets demand; creates products, services, and value; and through its unique structure, solves challenges that we, as individual citizens, could not begin to address on our own. The success of our economy and the businesses that drive it rely on a few critical features that, at least until recently, served as the foundation of our economic success story: the rule of law, a commitment to facts, and a shared sense of community. This foundation is at risk. Companies and their boards have a major role to play in the preservation of our economic and social systems.

What, then, can boards do to stabilize the foundation of business and society?

Commit to truth, facts, and the rule of law.

American businesses have been a steady voice around the world and here in the United States on the importance of a clear, reliable set of laws and a justice system that enables commerce to thrive. But the emerging threats to the rule of law, whether in the form of racial injustice or the breakdown of democratic norms and constitutional processes, put these enablers of the business enterprise at great risk.

The advancement by some of election fraud without evidence and political attacks on judges and their decisions point to a corrosive trend in society—the subversion of facts and truth to politics and preferences. While business has, as a general matter, withstood this barrage, it is not immune and the path back toward stability will require a steadfast commitment from boards.

The lack of a clear national response to the COVID-19 pandemic highlights this challenge starkly. Business was put in the middle of science and politics. Calls to “open the economy” from political leaders seemingly ignored the scientific facts and jeopardized the health and safety of American workers and citizens. Business so far appears to have been able to navigate this tension. While we are still struggling through the mistrust by some of the science behind the vaccine and the need for widespread inoculation, that businesses and science were able to deliver vaccines in record time and with high rates of reliability was a cause for at least momentary celebration—and is perhaps a good example of how to begin chipping away at disinformation.

Know what you stand for.

Business can be and has been a tremendous voice for good. It occupies a unique position in our society and that voice—both from businesses and individual business leaders—is a powerful and influential tool. A decade ago, the US Supreme Court’s Citizens United v. Federal Election Commission decision allowed corporations and groups to spend unlimited amounts of money on elections. The insurrection at the Capitol and subsequent calls for accountability have put that voice in a stark new light. In the last week, dozens of corporations have publicly declared that they would pause political donations to causes affiliated with the tragedy.  

The current crises present an opportunity for boards, along with management, to deeply reflect on how they want to use their corporate voice and resources and to what ends. They must question whether certain uses of their voice and resources align with their organizational purpose and values. This is as serious a responsibility as boards have. And one that boards must embrace.

Build public trust.

Stakeholders are becoming increasingly aware of these risks. Also evident is that stakeholders reward companies whose boards make public trust their lodestar in identifying and addressing the issues relevant to their operations and missions. The recent announcement of a coalition of companies organized under the auspices of the Pope—the Council for Inclusive Capitalism with the Vatican—further indicates how important that public perception of business leadership is and how far it may have fallen.

It is no coincidence that this focus by stakeholders comes amid a trust deficit by the public in institutions. While trust has fallen in other groups—government, the media, and religious organizations—the public trusts business most. And so, business has both the opportunity and the responsibility to foster that trust.

For boards, building and maintaining that trust is less about the individual business decisions that they make—whether on corporate political activity or spending, renewable energy, or employment—and more about the process and the principles of transparency and communication.

While the sources of some of our current social challenges go back years, decades, and generations, COVID-19 has dramatically accelerated these forces of great change, presenting both opportunities and significant risks. Certain risks are more relevant to some than to others, but today’s challenges to our democratic institutions and the public health and welfare of stakeholders face every enterprise and their boards, who must do what they can to provide positive solutions.

If a pandemic is not controlled, cybersecurity not protected, employment not available, and the environment not sustainable, then society and the businesses that serve it will suffer mightily. Many boards have begun to address these issues. But it is incumbent on all boards to rise to this challenge and lead.

R. William Ide is a partner at Akerman and has served as general counsel of Monsanto, president of the American Bar Association, and a public company board director. He is cochair of the advisory board to the Conference Board’s ESG Center and program chair for the Conference Board Chief Legal Officers Council. He currently serves on the Clark Atlanta University board of trustees.

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Nir Kossovsky January 22, 2021

The reputational value of every company is in the hands of its many stakeholders. That there is a diversity of stakeholders with potentially opposed interests makes it no easier for directors to understand their firms' reputational center of mass. Nevertheless, under Caremark and more recently Marchand, it is the boards's duty to oversee how their firm's enterprise risk management apparatus manages, mitigates, and ensures their firm's reputation. For today, reputation is too valuable, and its loss too costly, to be a matter set aside for another time.

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