Do Corporate Boards have a “Six Sense” for Company Scandal?

Who quietly enforces internal standards of behavior and decorum at the world’s biggest
corporations — standards even the CEO must meet? The corporation’s board of
directors, says the March issue of online governance monthly Boardroom INSIDER.

“Boards play a little noted, but crucial role as the enforcers of propriety within the
company,” writes BI editor and business commentator Ralph Ward. The ouster of
Wynn Resorts director Kazuo Okada on suspicions of illegal foreign payments, and
the “jumped or pushed” departure of Stryker CEO Stephen MacMillan over an office
romance are some recent incidents — and among the few outsiders ever hear about.

Ward writes that boards are often (and justly) criticized for being passive. But, he
adds, “directors can be the first to smell that something is not right in the actions of the
CEO, or one of their own.” The board of directors has a sixth sense for mischief that
prompts them to lose faith in a CEO, perceive danger, and suspect what shareholders,
regulators or reporters will think before anyone else. “They may misread the
situation, act too soon, or sometimes too late,” notes Ward. But he observes that the
board’s “sixth sense” is often surprisingly effective in heading off corporate scandals.