In today’s governance landscape, the extent to which judgment is exercised by boards with respect to decision-making is increasingly questioned. Board members are expected to exercise sound judgment when making decisions (which ultimately translate into corporate strategy and operations) while balancing the ESG (environmental, social, and governance) perspectives of stakeholders with diverse interests.
This is difficult because the expectations of non-shareholders may counter the notion of shareholder wealth maximization. Corporate directors are legally and ethically obligated to act in the best interests of the corporation. The fiduciary duty they bear requires a commitment to principles of loyalty, good faith, and integrity. Embracing and following the tenants of leader character can play a critical role in helping boards uphold these obligations while considering the firm’s societal obligations to ensure ethical governance and its long-term viability.
Courage empowers boards to make difficult but necessary decisions and to accept responsibility for the outcome. Courage-backed decision-making combined with justice and humanity, plays a key role with respect to boards addressing ESG and PRI concerns, as directors must challenge outdated norms and advocate for sustainable business practices, even when faced with resistance.
Speaking out against unethical management practices or pushing for long-term ESG commitments in the face of short-term financial pressures requires both moral and intellectual courage. Board members who demonstrate transcendence and courage understand their purpose in fulfilling their fiduciary duty such that their organizations remain on the right path, even in the face of external pressures or internal disagreements. For example, Unilever, long known for its sustainability initiatives, effectively doubled down on its efforts by restructuring and more deeply integrating sustainability goals into all aspects of its operations (despite anti-ESG pressure) to stay true to its purpose.
Accountability ensures that board members take responsibility for their actions, uphold their commitments, and act transparently. Research shows the importance of accountability in fostering a culture of responsible leadership. When boards emphasize accountability, they promote governance practices that discourage unethical behavior and create an environment of trust and reliability. Transparency further strengthens governance by ensuring that board members disclose potential conflicts of interest and maintain open communication with stakeholders.
The stakeholder-centric approach promoted by the Business Roundtable also necessitates intellectual humility from board members. Directors must recognize the complexity of modern corporate governance and be open to diverse perspectives from various stakeholders. This shift challenges traditional business assumptions, requiring leaders to embrace adaptability and ongoing learning. Leader character experts emphasize that intellectual humility, humanity, and a learning orientation contribute to adaptive governance, enabling boards to make informed and forward-thinking decisions. Humility fosters openness to diverse perspectives and continuous learning to ensure that board members strive for continuous improvement of their own skills and knowledge while seeking to learn and implement governance best practices to better fulfill their duty of care.
Temperance is another crucial component of leader character, allowing board members to exercise restraint and self-regulation when making decisions. By maintaining a balanced perspective and avoiding impulsive actions, directors can navigate ethical dilemmas with composure and integrity. Leader character experts emphasize that temperance contributes to effective decision-making, enabling board members to act with fairness and impartiality.
Diligence is a foundational element of the duty of care. Board members must actively engage in corporate affairs, attend meetings regularly, and thoroughly review financial reports and strategic plans. Directors who demonstrate diligence are more likely to challenge management assumptions, assess risks thoroughly, and contribute to effective decision-making. Experts argue that leader character traits such as drive and collaboration enhance diligence and therefore board effectiveness by fostering an environment where directors actively participate in discussions and work together to achieve corporate objectives. For example, a collaborative mindset was integral to Microsoft CEO Satya Nadella’s push into cloud computing with the Azure platform. He and the board worked together to shift the firm’s priorities, turning the firm into an early mover and creating an industry-leading product.
Integrity is perhaps the most essential aspect of leader character with respect to board decision-making, as it helps board members make ethical decisions, adhere to corporate policies, and resist pressures that might lead to self-serving behavior. Corporate scandals such as those at Enron and WorldCom serve as cautionary tales of what happens when board members and executives lack integrity. In these cases, compromised ethical standards led to fraudulent financial reporting, significant investor losses, and corporate collapses.
The shift toward ESG-focused governance further reinforces the importance of judgment, as directors must navigate complex trade-offs and long-term considerations. Investor pressure for initiatives such as greater transparency in sustainability reporting or ethical supply chain management requires boards to integrate ESG concerns into corporate strategy. By demonstrating leader character–informed judgment, board members can effectively respond to evolving investor expectations and maintain corporate credibility in the marketplace.
Judgment is particularly important in crisis situations, when boards must remain composed and proactive in addressing challenges. Whether facing a financial downturn, a cybersecurity threat, or a corporate scandal, directors must be capable of making good decisions. Poor decision-making during crises, as seen in the 2015 Volkswagen emissions scandal, often results from a failure to exercise strong leader character traits.
[For more from the author on this topic, see: “Boards Under Fire: Fulfilling Fiduciary Duty in an ESG Environment.”]
