How to assess director and CEO candidates – regarding values, morals, and ethics.

There have been numerous corporate scandals, with questions as to “where were the directors”.

This tool focuses on possible behavioural questions (i.e. can be confirmed via reference checking) to ask director and CEO candidates.  The nomination committee/board should have a discussion on each question and document:

  • What might be good, OK or unacceptable answers
  • What answers would eliminate the candidate from further consideration.

This document does not address skills or functional competencies.

It is up to each board to determine what they mean by values, morals, and ethics.

Many would advocate that the one single decision which has the greatest impact on long term corporate value is the appointment (or termination) of the CEO.  Let’s first consider some possible questions to ask each director candidate who would have to vote on CEO appointment or termination.

  • What is the most senior level of person you have terminated?
    1. Why? Performance (i.e. impact on profit or value creation & preservation)? Non-compliance with laws, regulations or company policies? Ethics or values?
  • Looking back in your career what’s an example of person you decided not to hire or promote, due to ethics or values?
    1. What were the ethics and values issues?
  • What is the most senior level of person you either appointed or recommended for appointment?
    1. What were the 3 most important reasons you did that?
  • As you look back over the people you have appointed or recommended for appointment, what was your greatest “mistake”? How did you determine it was a mistake?  What have you done differently since then, when appointing people or recommending appointments?

Now let’s look at the values, morals, and ethics questions that could ask of both director and CEO candidates.

  • What is the most courageous business action you’ve taken and what was the impact on company profits, your career and your family’s financial situation?
  • What was the most difficult ethical business decision you have made and what was the impact on company profit? What definition of ethics did you have in this situation?
  • What has been the greatest crisis you have had to resolve? What was your role?
  • When dealing with an issue, what is an example of how your probed deeper into the company to understand the causes of the issue?
  • What is the biggest issue or problem you’ve encountered where you wished you’d informed the board earlier?
  • What was the most significant issue (ethics and values) which a subordinate or colleague brought to your attention? How did you deal with it?

What is the value of a for-profit advisory Board?

What is the value of a for-profit advisory board?

Advisory boards have a major impact on sales and productivity, comparing the three years after an advisory board vs the three years before an advisory board:  sales growth of 67% vs 23% and productivity growth of 6% vs 3%.1

What is an advisory board?

A group of independent people who advise the CEO (or board of directors) on specific problems and meet on a regular basis.  The advisory board has no voting authority the and company has no legal obligation to follow advice.

The board is independent.  Ideally the members have no other business arrangement with the company other than being on the advisory board.  If the members have other financial arrangements, their advice may be biased.

How do you measure value?

There can be two sets of “hard metrics”, especially if it is possible to compare the times before and after the advisory board creation, as well as comparison of any improvements relative to industry benchmarks.

  • What is the impact on sales, earnings, and productivity?
  • What is the impact on key business milestones, growth, and innovation?

It can be difficult to establish a direct cause-and-effect relationship between the advisory board actions and business results.  A key indicator can be whether or not the advisory board impacts the decisions made by the CEO (or by the board of directors).

What are the major benefits of an advisory board, as perceived by companies with advisory boards?

85% believe that the advisory board had a significant impact on success.2

Some of the benefits, according to business leaders (rating on a scale of 1 to 10):3

  • Is an essential tool 8.2
  • Allows you to develop a broader vision 8.0
  • Improves strategic business choices 8.0
  • Forces management to look at the company 7.5
  • Challenges the company’s management team 7.5
  • Puts in place a better management structure 7.4
  • Brings rigour in to the company 7.2
  • Reassures shareholders and investors 7.2
  • Avoids costly mistakes 6.7

What are some of the impacts of an advisory board, according to the business leaders (rating on a scale of 1 to 10):4

  • Company vision 7.7
  • Innovation 6.9
  • Risk management 6.8
  • Profitability 6.8
  • Survival 6.6
  • Sales growth 6.6
  • Hiring the best employees 6.2

Who has advisory boards?

  • 75% of SMEs (Small Medium Enterprises)5 have no board. 19% have a board of directors only. 6% have an advisory board (Half of those also have a board of directors)6
  • 11% of companies with more than 100 employees have an advisory board.7

How do you recruit advisory boards?

56% of the advisories come from the company’s network, 8% from external recruiting such as associations, only 3% from company’s financial institution or investors.8

How do you organize an advisory board?

  • You need to determine the skills and experience required on your advisory board. Look at you 3-5 year business forecast.  What are the opportunities and challenges over that time-horizon?  What is the talent (skills and experience) you need?  What are the talent gaps when you look at the management team (and board of directors) What is the talent you need on your advisory board.
  • The written advisory board mandate must have the objectives, terms of reference and time commitment. Each advisor commits to reading preparatory documents, actively participating in the meetings and follow-up.  The mandate also addresses advisor out-of-pocket expenses and compensation (if any). If business development is a role, then there can be performance bonuses based on business development results.
  • The mandate must be clear – are the advisors expected to act in the best interests of the owner(s) or the best interests of a broader set of stakeholders? For example, a recapitalization could provide capital to the owner but risk the long-term viability of the company.
  • It must be clear how the company and advisory board interact. (e.g. meetings only with the CEO or including C-Suite members?  Are all questions (from management and advisors) funneled through the CEO?)  The advisory board may meet monthly, quarterly or as required.
  • The role of the chair is crucial, working with management, the board of directors, and the advisory board members.
  • The individual advisor roles must be clear, e.g. help develop business by opening doors, act as a company ambassador at social events, etc.
  • Individual advisors bring specialized experience, knowledge and contacts which the board of directors does not have. The advisor capabilities are not a replacement for capabilities which should be on the board of directors or management, but rather be complementary.
  • Each advisor must also have a degree of passion and interest in the business.
  • The advisory board has simpler processes than a board of directors, does not require elections, term limits, committees, public disclosure, etc.

 Why don’t companies create advisory boards?

57% believe it is too much work.9

The creation of an advisory board does create more work for management, and more fact-based data collection and analysis.  The question for the CEO, board of directors, and/or owners is whether or not the increase in profitability warrants this additional work.

What does an advisory board cost?

The cost is driven by the value the advisors can create as well as the cash available.

  • A small angel-investor-backed start-up may have a volunteer advisory board meeting on an adhoc basis or even once a year. Advisors will focus on survival issues, CEO coaching, and shifts in strategy.
  • A growing company with 4-6 advisors may provide $15,000/yr compensation for each advisor, with more for the chair – and the time commitment may range from 60 to 125 hours a year. The advisors will focus on the long-term direction and initiatives which have a major impact on value growth and preservation.

Is your CEO or board of directors ready to create a formal advisory board?

The advisory board asks questions and challenges the CEO (or board of directors).  The advisory board does not prepare reports or analysis.

There are three criteria to determine if you are ready for an advisory board.

  • There is a management team who can free up some of the CEO’s time. It can take the CEO 120-150 hours to setup and recruit and advisory board, plus another 60 hours per year for ongoing operations (this assumes 4 one day meetings per year of the advisory board).
  • There is a strategic plan. This plan answers several questions:
    1. Who are the target customers?
    2. What problems or needs do they have?
    3. What is your solution?
    4. Why do the target customers perceive that your solution is a better value than the competition’s solutions?
    5. Who is your team and what are their relevant skills and experience in understanding the customer and to deliver your solution?
    6. How are you going to get customers?
    7. What is your business model for delivering your solution?
  • There is a 3-5 year financial plan, tied to the strategic plan. The financial plan has two components: the cashflow forecast, and the budget.  There is already a process in place to track budgets to actuals.

If you don’t meet the above criteria, you are not ready for an advisory board.,

 Next steps

To enable discussion with your investors, board and management, download the following one-page slide:

What is the value of a for-profit advisory board?

To create a formal advisory board, contact the Business Development Corporation of Canada, who have a proven process for creating advisory boards.


Advisory Boards: An untapped resource for businesses  March 2014  Business Development Bank of Canada

1 Page 1

2 Page 10

3 Page 9

4 Page 10

6 Page 6

7 Page 11

8 Page 13

9 Page 12

5 Industry Canada definitions (2018 May 9): Small business: < $5 million in revenue, < 100 employees; Medium business: between $5 million and $20 million in revenue, 100 to 499 employees.

 Further Reading

Small company boards: Questions for advisors and directors.  CPA Canada

Survey: What is the role of advisory boards.

What is the corporate governance ecosystem?

The governance ecosystem is comprised of: the board, management, shareholders, other stake holders, third parties, and society.  All components of the ecosystem interact with all other components. The board and management must understand and plan to manage the ecosystem as it exists today and the future. The assumptions regarding the future governance ecosystem are key inputs to determining board and management talent requirements.


  • Why do you need to understand the corporate governance ecosystem?
  • What is the company’s ecosystem?
  • What is corporate governance?
  • The corporate governance ecosystem is the same as the company’s ecosystem.
  • What do you do if you are a SME?

The purpose of this article (supported by a one-page slide) is to provide a framework, process, and facts to enable discussion and action planning among owners/shareholders, boards of directors, CEOs, and advisory boards. There is no one-size-fits-all answer.  The approach and action plan will be unique to the specific situation of each corporation.

Why do you need to understand the corporate governance ecosystem?

  • Governance requires management of the conflict of interest among the board, shareholders, management, other stakeholders, third parties, and society – in other words, the governance ecosystem.1 You cannot manage what you don’t understand.
  • Understanding of the governance ecosystem can be a competitive advantage, or disadvantage. A global McKinsey survey showed that less than 20% of executives had frequent success in influencing government policy and the outcome of regulatory decisions.2
  • McKinsey has written “..each company must earn the ‘social license’ to be in business..”3
  • The challenges and opportunities arising from the vision of the future governance ecosystem are a key input regarding the required board of directors talent.

Merely understanding and complying with external laws and regulations is not sufficient to achieve long-term value creation.

 What is the company’s ecosystem?

A corporation’s ecosystem is the network of people and organizations, including stakeholders and third parties directly and indirectly in the operation of the business through both competition and cooperation. The idea is that each entity in the ecosystem will affect and is affected by the others, creating a constantly evolving set and nature of relationships in which each entity must be flexible and adaptable in order to survive, as in a biological ecosystem.     The actions and behaviours of the ecosystem vary, depending upon what attribute of the corporation is considered. For example, the ecosystem has different behaviours when regarding the second to second corporate delivery of products or services versus when the corporation is dealing the event of personal information of hundreds of millions of users being hacked.4

The implication is that you need to understand the dynamics and interactions within the ecosystem, and not just how each component interacts with your company.

What is corporate governance?

“Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.  Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined”.5 This definition of governance demands and understanding of the ecosystem

The corporate governance ecosystem is the same as the company’s ecosystem.

The involvement of the ecosystem members, their role, expectations, and behaviour will be specific to governance.  Further understanding of the governance ecosystem is based on the above definition of corporate governance.

  • Relationships: What is the nature of the relationship, if any, with the members of the governance ecosystem?
  • Setting objectives: What role do the ecosystem members have in setting objectives?
  • Determining how to meet objectives. What role do ecosystem members have in the preparation and execution of plan to meet objectives?
  • Monitoring performance. How does each ecosystem member assess the performance of the company?

What do you do if you are a SME?6

Everything written here applies to you.  You may have a smaller ecosystem, which is easier to understand and manage.


The governance ecosystem is comprised of: the board, management, shareholders, other stake holders, third parties, and society.  All components of the ecosystem interact with all other components. The board and management must understand and plan to manage the ecosystem as it exists today and the future. The assumptions regarding the future governance ecosystem are key inputs to determining board and management talent requirements.

 Your next steps

To enable discussion with your board of directors, CEO, and advisory board, download the following one-page slide:

What is the corporate governance ecosystem?

Questions for your board and CEO/management to consider

Ask the following questions and document the agreed upon answers, as well as points of disagreement.  Remember, the Supreme Court does not always have a unanimous point of view.

  • Who are the key members of the governance ecosystem? Which members assess the performance of the company?  Which members believe they should have some sort of involvement in the objective settings and planning to meet the objectives?
  • Who is managing the relationship with each ecosystem member? Board?  CEO, C-Suite?  Employees?  Contractors? What is the nature of the relationship? (observing, communicating, meetings, working together or working against)
  • Which members, if any, have you decided not to have relationships with?
  • What is your definition of corporate governance?
  • What is your process for setting objectives for the board and management? How do the relationships impact setting the company’s objectives? What are the various interests of the ecosystem members?  How does the board and management deal with the many conflicts of interests and expectations?
  • What is your process for determining how the board and management meet their objectives?
  • How do you assess the performance of the board and management, in creating long term value and in meeting their respective objectives?
  • How are the members of the ecosystem involved in the setting of objectives, plan preparation, and performance assessment?
  • How do you communicate the objectives, plans, and performance to the members of the ecosystem?
  • What are the different perspectives among ecosystem members as to how to monitor and assess the company’s performance? How is the board’s, and CEO’s performance measured by different components of the ecosystem?
  • Based on the answers to the above questions, what is the action plan, if any, for the board and for management?


1 Professor Didier Cossin and Abraham Hongze Lu, “The four tiers of conflict of interest”, IMD, Global Board Center,

2 John Browne and Robin Nuttall, “Beyond corporate social responsibility: Integrated external management”, McKinsey Quarterly, March 2013,

3 Jim Brennan, Greg Kelly, and Anne Martinez “Tough choices for consumer goods companies” McKinsey Dec 2013,

4 Adapted from Investopedia 2018 May 11

5 Based on “G20/OECD Principles of Corporate Governance”, 2015  I added the concept of third parties,

6 Industry Canada definitions (2018 May 9): Small business: < $5 million in revenue, < 100 employees; Medium business: between $5 million and $20 million in revenue, 100 to 499 employees.

Further reading

What does society thinks of institutions and corporations “56% companies that only think of themselves will fail”, “60% CEOs are driven more by greed than by a desire to make a positive difference in the world”,2018  Edelman Trust Barometer Global Report,

Jeffrey Sonnenfeld, Melanie Kusin, and Elise Walton “What CEOs really think of their boards”, Harvard Business Review 2013 April,

Professor Didier Cossin and Estrelle Metayer “Does your board really add value to strategy?”, IMD Global Board Center,

What are your values and morals? Survey Tool

The following is a survey tool designed to gain individual perspectives regarding values and morals.  This tool can be adapted to a specific company situation.  The tool must be used by a trusted third party in order to maximize the chances of getting valid and confidential input.

The tool can be used anywhere in the company, from front line staff to the board of directors, or controlling shareholders.

I have suggested two decision-making values (making more money and career progression) because I’ve perceived these as very important to some people.

Identify the values and morals based on your complete life i.e. 24 hours a day.  Note any differences between your complete life vs your work life.  The last two columns are solely regarding your work life.  In terms of importance, its fine if more than one value has the same importance (e.g. three values are #1)

The survey collects the following information

  • What are the company’s documented values and morals, if any?
  • Which values and morals are used by your leaders and colleagues?
  • Which values do you believe are moral?
  • What are the most important values you use throughout the year to make decisions and guide your actions? Personal financial success and career progression may be some of these.
  • What are the differences between your values vs what you perceive to be the values of your colleagues and leadership?


Value and related decision making, actions, behaviours Is this value, decision making, action or behavior a “moral” characteristic? Which values are most important to you? (#1, #2) Which do you perceive as most important to your work colleagues? Which do you perceive as most important to your management?






Making more money        
Career progression        

How do you find governance information?


You are in Ontario, Canada and looking for information about governance.  Where do you go?  The attached document provides a partial list of (mostly) non-profit governance organizations.  I exclude most for-profit organizations such as lawyers, accountants, etc.

The type of governance I focus on is the board of directors of a corporation and its relationship with its ecosystem (e.g. shareholders and members; the CEO; etc.).

This document does not recommend any individual governance advisors or consultants.  There are countless numbers of those.

My focus is Ontario.  I do consider Canadian and International organizations whose governance information and resources may be accessible and helpful to Ontario.

The Governance Resource Directory is a 37 page document.

Please contact me with any corrections, updates, or additions you’d like in the document.  This is a volunteer activity, so it may take some time before I can reflect your input.

Governance Resource Directory

Survey – what is the role of advisory boards?

Survey – what is the role of advisory boards?

I did a survey of people on my LinkedIn network who are on an advisory board or a CEO with an advisory board.  This survey was done because I was appointed chair of an advisory board and wanted to learn from others.  If you are an advisory board member or chair, please contact me – I’d like to include your learnings.

The following contains the email I sent out as well as the responses, which are anonymous.

The email I sent out

Hello XXX

I have a few questions regarding what sort of things you do for your advisory board (I saw your role on your profile). I ask because I’ve been appointed chair of an advisory board for a financial services firm and need to resurrect the board.  I need to learn some details about what other advisory boards do.

Thank you.


Possible actions:

  • Prepare for and attend regular face-to-face meetings?
  • Available for consultation between meetings?
  • Serve on advisory board committee?
  • Introduce potential clients to the firm?
  • Spend time with potential clients?
  • Introduce other executives to the firm?
  • Provide new business ideas and opportunities?
  • Promote the firm via your personal social media (twitter, website, blogs, Facebook, LinkedIn, etc.)?
  • Provide suggestions and advice regarding functional areas (sales, marketing, finance, HR, etc.)?
  • Have functional meetings outside of regular advisory board meetings?
  • Other????

The anonymous responses

Advisory Board #1 member

That’s right on the money It’s really an opportunity to bring strategic resources and thought leadership to an organization People on the boards usually have some expertise that you can draw on including Sale’s, marketing, finance and leadership. The chair is the quarterback to draw out that experience and knowledge.

Advisory Board #2 member

Happy to help you if I can.

As of this past month, I am Chair of the Program Advisory Council for the XXX program at the XXX School of Business. We basically work with the faculty and students to help support and improve the overall program and the various components within it.

I am also an XXX Advisor on the Board of Directors for the Canadian XXX Council I provide the “XXX” on that Board with a CIO perspective on the various issues that they deal with. In addition, I do serve on various Committees of the Board along with the other Board members. So, I am not sure that my experiences are directly compatible with your Advisory Board role question. However, along with my other two Board of Director roles, I would say the possible actions of #1, 2, 3, 6, 7 and 8 fit best with my general understanding of what needs to be done.

 Advisory Board #3 member

My role is for a small co (very) and it’s really ad hoc to have a halo support group with supplementary skills. If yours is bigger then the types of things you describe could be formalized and scheduled. You want to be mindful of people’s time. Maximize their value add at the time their skills/connections are most useful, minimize procedure…. my 2 cents Congrats and good luck!

Advisory Board #4 member

It can be whatever you define. At the minimum is for pick up the phone when the ceo needs and can go to everything else in your list. At this point my commitment is limited to picking up the phone as I am busy with my own startup. Hope this helps.

Advisory Board #5 CEO who had an advisory board


  • The role depends upon the stage of the company and the growth/profitability issues a company faces.
  • In all cases, the network of the advisor is critical. At the very least, the network provides information to the advisor.  In some cases, the advisor may introduce: potential customers, potential investors, potential suppliers, potential new employees.

 Where do you find advisors?

  • They can be senior executives, towards the end of their career, who are somewhat bored and eager to work with other executives on some challenging issues.
  • The executives could come from: current customers, potential customers, other organizations in the company/customer ecosystem.
  • It is key that all advisors be “A” quality. If some are “B” or “C”, then the “A” quality will leave.

What is the role of the advisory board?

  • The advisors provide advice to the CEO and perhaps management.
  • The advisors must have skills, experience relevant to the challenges and issues the company will be facing in the next 2-3 years. g. if going public, then need CFO or another executive who led an IPO.
    1. Advisors should complement the knowledge, skills, and experience of the management team. e. The combination of the advisory board and management team should have the knowledge, skills, and experience relevant to the major challenges and opportunities arising in the next 2-3 years.
  • The board does not make decisions. Thus, requires less information than a decision making fiduciary board. A dashboard of key metrics is useful.
  • The role of the CEO and management is to listen and learn, not to make long presentations.
  • Set the expectations for advisors upfront. Consider a fixed two-year term.
  • If there are 6-8 advisors, there will be a 80% participation rate.
  • There should be no dominant personalities on the board, recognizing that the chair should enable the discussion.
  • The advisors must provide unvarnished input to the CEO and management.
  • Each board meeting and call can be a problem-solving discussion focused on the issues raised by the CEO. It’s not necessary for the advisors to agree on a single solution – what’s important is to maximize the input and learnings to the CEO and management.

What was the advisory board role when you were the CEO?

This was a company with a fiduciary board of directors.

  • The advisory board had a one-day meeting down south in the winter. Fly in day before for dinner. One day meeting, then fly out. The CEO and management attended.
  • Three quarterly advisory board conference calls of 1-2 hours each.
  • All meetings/calls were scheduled 1 month prior to fiduciary board meetings, to enable CEO to learn regarding key issues – almost like a dry run. The CEO also shared strategy and strategic plan with the advisors, to get their comments.
  • The CEO and management also made occasional phone calls to the advisors.
  • The advisors received material before meetings/calls. This enabled the meetings to focus on discussions and not review of material.
  • The advisory board chair was paid $25,000 per year. The advisors were paid $500 to $1,000 per-diem, with out-of-pocket travel costs covered.

Society’s trust in corporate leadership and political leadership is low.

  • Only 15% of Americans aged 18-29 believe “things in the nation are headed in the right direction”.
  • Only 1 country of 38 countries surveyed had a majority of people believing that representative democracy was the only way to govern a country. Only 44% of Canadians had this belief.  Sweden (at 52%) was the only country with a majority belief in democracy.
  • 80% of Canadian believe that “The elites who run our institutions are out of touch with regular people”.
  • 26% of Canadian believe a board of directors, 25% of Canadian believe a CEO.

You may click to download a one page PDF with more facts Low trust in leadership

You may contact me to obtain more detailed reports and more insight into the facts.

This document supports the discussion of  Why are values, morals, and ethics important?


U.S. Army Values

Many of your companies have statements regarding company values.  It would be interesting to compare your company’s values with the values of the U.S. Army.

Two question that arises immediately are:

  • What is the purpose of having company values?
  • What are corporate leadership and employees supposed to do with those statements of values?

Values – U.S. Army

The U.S. Army Values document supports the discussion of  Why are values, morals, and ethics important?




Why are values, morals, and ethics important?


  • What are values, morals, and ethics?
  • How are they used?
  • How do they impact company value growth and preservation?
  • What role should they play in hiring, promotions, and terminations?
  • How do you understand your company’s position?

What are values, morals, and ethics?

People often use these terms interchangeably. The concepts are different, which can result in confusing sets of expectations. e.g. many board of director’s mandates mention meeting “highest ethical standards”, but what does that actually mean? Many in corporate leadership1 believe ethics means compliance with laws, regulations, and company policies.  Many in the broader public associate ethics with morals and doing what is right.

To illustrate the confusion: for a few years Apple Computer only paid .005% income tax on billions of Euros of profit in Ireland.  The CEO stated that what Apple did was alright because all the laws were followed.  Many people felt that paying .005% income tax was “not the right thing to do.”  As it turned out, the European Commission ruled in August 2016 that Ireland’s tax agreement with Apple was illegal and that Apple owed billions of income tax.

The following are my definitions.  You should have your own definitions.  You cannot have a discussion about VME (values, morals, and ethics) if everyone has different definition of what the words.

Values: Values are the rules by which people make decisions about what they should or should not do. Values have different importances, which is helpful when needed to trade off or balance one value versus other values. Values are what someone thinks and feels internally.

Morals: Morals are decisions, actions, and behaviours which people feel are right or wrong, good or bad.  Morals are actions and behaviours arising from one or more values.  Not all values are related to morals.  Morals are based on a broader perspective than just the individual. You are judged by others as to whether or not your actions are moral or immoral.  You make a decision based on what you believe is “the right thing to do.” Morals reflect external observable actions and behaviours.

Ethics: Ethical decisions, actions, and behaviours are based on following a document set of standards or principles.   Many companies and professions have a Code of Ethics.

VME should also tie back to the purpose of the corporation.2 Is the sole purpose to make as much money as possible, constrained by laws, regulations, and company policies?

How are values, morals and ethics used?

Values and ethics are used by individuals when making decisions regarding their actions and behaviours.

Corporate leadership makes decisions and recommendations within an ecosystem3 where stakeholders and third parties have VME with major differences and conflicts.  Corporate leadership uses their VME to manage the conflicts of interests within corporate leadership, and with stakeholders and third parties.

Lawyers would point out the fiduciary duty e.g. in Canada to act in the best interest of the corporation (fiduciary duty varies by country).  But is that the right thing to do?  Professor Didier Cossin makes the following observation, “The doctrine of maximizing profitability may be used as justification for deceiving customers, polluting the environment, evading taxes, squeezing suppliers, and treating employees as commodities. Companies that operate in this way are not contributors to society. Instead, they are viewed as value extractors. Conscientious directors are able to distinguish good from bad and are more likely to act as stewards for safeguarding long-term, responsible value creation for the common good of humanity. When a company’s purpose is in conflict with the interests of society, board members need to take an ethical stand, exercise care, and make sensible decisions.”4

Documented ethics arise from interactions between the company, stakeholders5, and third parties6. Companies, stakeholders, and third parties all lobby the government to change laws and regulations to benefit what they believe is important (i.e. their values and morals).  How should corporate leadership deal with the conflict of interest regarding laws and regulations which provide value to society vs providing value to the corporation?  Some people believe laws and regulations exist to protect the interests of society as a whole or protect those who cannot protect themselves.  Some companies have Codes of Ethics written to minimize legal risks to corporate leadership.

When, if ever, do “the needs of the many outweigh the needs of the few”?7

 How do values, morals and ethics impact company value growth and preservation?

Many companies have formal ESG (Environment, Social, and Governance) policies.  Commonly these are focused on corporate or shareholder value enhancement.  In other words, ESG is good for growing long-term profits and value.

But what do you do when ESG could reduce long term profits?

Some companies consciously decided to take actions which they believe is better for the broader society but may result in lower profits.  E.g. Vancity Credit Union (in Vancouver, British Columbia) pays its workers a living wage and expects its suppliers to pay their workers a living wage.  On the other hand, Loblaws shareholders, in an early 2018 Annual General Meeting, voted not to pay workers a living wage.

The value from mergers and acquisitions can be threatened when companies have different sets of VME. It can be extremely hard to change the values and moral behaviour of people.  Even ensuring compliance with a new set of documented ethical standards may be a challenge.

VME impacts the type of employees who want to join and stay with your company.  I have met MBA graduates who deliberately decide not to pursue the highest paying jobs, but rather focus on the purpose of the company and its VME.

Shareholders trust the board of directors to make the right decisions.  The board, in turn, delegates the bulk of authority to the CEO.  The board and the CEO must be able to manage a broad range of conflicts of interest, especially personal.  E.g. with average CEO tenure below 4 years, it can be a challenge for the CEO to focus on the long-term, rather than maximizing the value of short-term bonuses and stock options.  Directors have been known to question a merger when their own director roles are in jeopardy.

If the board and CEO have different sets of VME, then the CEO’s decision making, and tone setting for the company, will not be aligned with the board.

Corporate leadership, through their actions and behaviours, communicates what the acceptable VME are. It is important that the leadership, when making difficult decisions, communicates how those decisions are related to VME. Children by the age of seven have already developed a set of values and morals.8 They observe their parents and learn from their parents.

The most difficult decisions made by corporate leadership (e.g. times of crisis, re-organization, major merger, major change in strategy, CEO appointment or termination, etc.) often reveal what the true VME are.  It’s easy to talk about VME when it does not take major personal courage to make a difficult decision.

What role should values, morals, and ethics play in hiring, promotions, and terminations?

Warren Buffet said “You’re looking for three things, generally, in a person: intelligence, energy, and integrity.  And if they don’t have the last one, don’t even bother with the first two”.

You can teach new skills and provide new experiences to corporate leadership.  It can be very hard to change values, morals, and ethics, especially with leaders who have many years of inappropriate VME.

What do you do if you are a SME (Small Medium Enterprise)?9

All of the issues discussed above apply.  It can be more complex in a private SME, with major or controlling shareholders who have different VMEs from the founders or CEO.  VME can be simpler in a startup, with everyone in the same physical space as the founder(s) and learning VME directly from the founder.


Value, morals, and ethics are some of the underlying factors for business success and business failure.

Your next steps

To enable discussion with your corporate leadership, download the following one page slide:

Why are values, morals, and ethics important?

The board and CEO must decide if VME is important enough to warrant time investment by corporate leadership.

What is your current situation?

  • The following next steps are a series of questions, including a survey tool. The intent is to enable corporate leadership to understand the perspectives of various individuals regarding VME.  Once there is that understanding, you’ll then need to decide actions to take, if any.
  • Does corporate leadership have an agreed upon purpose for the corporation? Is the sole purpose to make money?
  • What are the definitions of VME used by your corporate leadership? If your company has documented values, how are they used?  What are employees supposed to do with the values?  How do you know how the employees are using the values, if at all?
  • What are the differences, if any, between VME during “working hours” vs non-working hours?
  • Do you know what the employee point-of-view is?
  • Does all of corporate leadership have the same view?
  • What are the difference between the employee and corporate leadership points-of-view?
  • Read and discuss the values of the United States Army. What are the differences between your company values and morals relative to the U.S. Army.  The Army explicitly identifies morals – do your company values identify morals? The Army values guide individual conduct 24 hours a day. Are your VME intended to guide decision making, actions and behaviours only during working hours or 24 hours a day?  Some would argue that the company has no business in what an employee does in their non-working hours.
  • Look back over the past 5 years. How have VME guided critical board and CEO actions?  g. during crisis, making important one-time decisions such as appointing or terminating a CEO.
  • What questions, if any, are asked of director candidates and CEO candidates to assess their understanding and commitment to the company’s VME? Which VME, if any, are a perquisite for hiring? Which violations of VME result in immediate termination or hold back promotion?
  • Use the VME survey tool to gather input from different groups of people regarding their VME views. Corporate leadership needs to discuss the findings.  If there are differences, determine what actions need to be taken.


1 Corporate Leadership definition: Board of directors, CEO, advisory board and C-Suite.

2 Purpose of the corporation definition: What is the purpose of the corporation and why does it exist?

Is the only purpose of the corporation to create wealth?  Is there a higher purpose, either to a community or to society?  Or you may conclude the only purpose is to create wealth for shareholders and the C-Suite.  Peter Drucker said: “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”

3 Ecosystem definition: A business ecosystem is the network of people and organizations, including stakeholders and third parties directly and indirectly involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving set and nature of relationships in which each entity must be flexible and adaptable in order to survive, as in a biological ecosystem.

4 “The four tiers of conflict of interest faced by boards of directors”, Professor Didier Cossin and Abraham Longze Lu, IMD Global Board Centre

5 Stakeholder definition: Stakeholders have an economic interest in the corporation: Shareholders, Non-equity capital, Customers/ users, Employees/ unions, Suppliers, partners

6 Third party definition: Politicians, Regulators, Third party standard setters (e.g. Proxy advisory firm, accountants, lawyers), Society

7 “The Wrath of Khan”, Dr. Spock, Star Trek

8 “Teaching young children morals”, Meri Wallace, Psychology Today, April 6, 2018

9 SME Definition: Industry Canada definitions (2018 May 9): Small business: < $5 million in revenue, < 100 employees; Medium business: between $5 million and $20 million in revenue, 100 to 499 employees.

Further reading

“Society’s trust in corporate leadership and political leadership is low”  Society’s trust in corporate leadership and political leadership is low.

“Values – U.S. Army” Values – U.S. Army

“Why is trust critical for transformation” Why is trust critical for transformation success?


“What are your values and morals?”, What are your values and morals? Survey Tool

What is different about private equity governance?


 Private equity governance is driven by value growth, not just compliance.  There’s a 100% focus on realizing major growth in shareholder value, either in the short or long-term. Transformation of the board or C-Suite may be required.  Shareholders make decisions which are often made by the board of a public company.  e.g. CEO appointment or termination. Change management principles are critical.

 Private equity governance has six major differences from many public companies

#1 Private equity governance is driven by realizable value growth, not just compliance.  The key is realizable value growth.  Private equity will exit at some point, thus value growth is based on what someone will be willing to pay for the shares.  Value growth is enabled by three sets of changes: 1) sales growth via acquisitions or organically expanding, such as geographic expansion; 2) improvements in the business model; 3) improvements in the management team.

#2 There’s a 100% focus on realizing major growth in shareholder value.  Decision-making is simple when the most important criteria is “How does this impact future shareholder value?”  Private equity has the mindset of “Who will buy?  Why will they buy? What maximizes the amount they will pay?”

#3 The time frame may be short or long-term.  Some private equity firms make “quick fixes” to enable a quick exit with significant increase in shareholder value.  Some private equity firms focus on long-term growth and planning for a strong future growth story to be able to attract buyers at exit time. Surveys show that many public company directors focus decision making on the short-term.  Many shareholders, including mutual funds, do not have a long-term horizon because they only hold the shares for the short-term.

#4 Transformation of the board or C-Suite may be required.  Change starts at the top.  Director and C-Suite changes may be made.  Many public company transformations fail because the transformation is focused on the bottom layers of the organization, while the top layers are unchanged.

#5 Shareholders make decisions which are often made by the board of a public company.  The decisions which have the greatest impact on realizable value are made by private equity:  when to sell the company, under what terms and conditions; setting the strategy and approving the strategic plan; appointing or terminating the CEO; and approving major business changes such as entering a new line of business or major changes to financial leverage.

Note that all the above decisions could be made by a public company board of directors.  It really comes down to the difference in the people with the authority to make decisions:  people on a typical public company board versus private equity decision makers.

#6 Change management principles are critical: the shareholders, board and C-Suite all have a sense of urgency to achieve financial results from a future exit;  the core group of shareholders, board and C-Suite have the commitment and authority to make all required changes; the core group and overall business have a commonly understood and clear vision of what the future success looks like; all business decisions are based on achieving the vision; there are short term wins; all hiring and promotion decisions as well as all new projects and initiatives help achieve the new vision; leadership development programs and succession plans help achieve the new vision; and  there is regular, perhaps weekly, communications among the shareholders, board and CEO.


The future vision – there is common understanding among private equity, the board and management as what the future company will look like in order to maximize shareholder value, upon exit.  Everyone is committed to the strategy, the strategic plan which builds a business model maximizing value creation. This is all built on a thorough understanding of the customer and marketplace.

The above is perhaps the greatest difference from a public company board.  A McKinsey survey of company directors showed that many did not understand the strategy, how the company created value, nor the market place.

In order to achieve growth in value, private equity may make changes to: the board, the C-Suite, the strategy, and the strategic plan.  How often does the board of an under-performing public company make those same transformational changes?

 Your next steps

To enable discussion with your shareholders, board of directors, CEO, and advisory board, you should download the following one-page slide:

What is different about private equity governance?