Tough new corporate laws (and tougher legal penalties) have made corporate ethics a growth industry. But if your firm has a designated ethics officer, how closely does he or she work with the board?

Often an ethics officer is too far away from the board (on the management chart) to do much good. “Ethics officers don’t have a direct enough line to the board, and they don’t talk to each other enough” observes Leonard Bucklin, head of legal and ethics consulting firm Bucklin Of Counsel. While the need for strong, confidential channels between corporate counsel and the board has grown apparent, a separate department handling ethics is usually too low in the pecking order. “You may call the position an ethics officer, but its not treated as equivalent to the general counsel or corporate secretary.”

The board should assure “as a first order of business that the ethics officer has a direct report to the board, typically the chair of the audit committee” says Steve Priest, president of Ethical Leadership Group. Another technique is for the board to call for a report on ethics to be added to each meeting’s board info. A confidential briefing to the board by whoever handles ethics, perhaps at one meeting per year, will also help (this could be assigned to the audit or governance committee).

Corporate ethics is a field where the board can lead management, rather than vice versa. Fortune 500 firms may well have a distinct Ethics Office, but below that level a solid ethics infrastructure grows less and less common. The boards at these smaller companies should send a message to management that it wants regular updates on company ethics issues and the ethics oversight process -- which should prod some action. “You don’t need a Fortune 50 level [ethics structure] in a $100 million-dollar company, but you’ve got to have something” warns Steve Priest. “If the board isn’t overseeing corporate ethics compliance, you’re liable according to the [Delaware] Caremark decision.”

From the September 2003 issue of Boardroom Insider.