Corporate Stewardship: The "Buck" Stops with the Board
Westcott, Kathi S.
For-profit and nonprofit corporate governance is more alike than it is different. Although chief executive officers and executive directors are usually the public face of an individual corporation, legally and structurally, the buck stops with the governing board for both types of corporations. As such, it is incumbent upon corporate governing boards to set the appropriate ethical "tone at the top" to promote the long-term health of a corporation and to prevent the kind of corporate malfeasance the United States saw in the late 1990's and into the 2000's. During that period, the federal government stepped up oversight efforts in response to the growing concerns about serious and seemingly pervasive illegal and unethical activities in both the for-profit and nonprofit sectors. Both legislation and regulation, such as the Sarbanes-Oxley Act of 2002 and the 2008 release of the Internal Revenue Service's best governance practices for tax-exempt organizations, was pursued to address a perceived culture of greed and corruption. Unfortunately, the 2008-2009 financial crisis and the fraudulent loses reported by nonprofits since 2008 make it clear that laws and regulations alone are not enough to curb bad behavior. Boards of for-profit and nonprofit corporations must take it upon themselves to apply higher ethical standards to their oversight and decision-making processes. More than mere compliance with laws, greater principles must be at play whereby boards of directors do what is right for the long-term interests of all corporate stakeholders. In this paper, I present case studies of Enron and WorldCom, on the for-profit side, and American University and the Smithsonian Institution, on the nonprofit side, to explore the similarities in governance structures between the two types of entities and to investigate the concepts and importance of applying the ethical principle of stewardship in corporate governance. It is through the application of this ethical principle that we can turn the tide back from greed inducing short-term self-interest and towards the pursuit of long-term outcomes leading to successful and sustainable corporations which are beneficial for all stakeholders.
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