From the Chairman

Susan Ellen Wolf

Dear Fellow Members,

As I began to write my first letter to you as Chairman of the Society for 2005-2006, it was the first time I slowed down enough to consider what our Board has accomplished since the National Conference in June. I am excited to report to you that we have been busy and are moving forward on a number of fronts.

The Board elected Kathy Shannon as Treasurer of the Society. Kathy has already provided valuable oversight and support on investments and expenses to David Smith, Society President, and Sara Berman, Senior Vice President of the Society. Kathy replaces Tony Horan of JPMorgan Chase whose service as Treasurer was most appreciated.

We appointed Patty Wilkerson of Dominion Resources and Frank Zarb, Jr. of Morgan Lewis & Bockius as Co-Chairs for the 2006 National Conference in Philadelphia. They are both members of the Society's Middle Atlantic Chapter. Patty and Frank are already busy at work with Suzanne Walker, Vice President of the Society to make sure that our 2006 National Conference will include a dynamic and enjoyable business and social program. It will be a special year as the Society celebrates its 60th birthday!

Board members Andrea Dulberg of International Paper and Neila Radin of JPMorgan Chase led our development of an updated standard description of the Society for use in Society comment letters to the SEC, PCAOB, NYSE, NASDAQ and other key organizations. The updated description emphasizes the Society's dual expertise in corporate governance and securities law. The description is available from the National Office.

David Smith, our President, and I have coordinated our personal goals for the year. We are pleased by overwhelming support and enthusiasm from our Board colleagues and many members for our ambitious agenda.

A key project for the year is celebrating the Society's 60th birthday in a number of ways and venues.

Another area of focus is to work on our branding. Excellent work under Peggy Foran and Kathy Gibson led to our new name, new logo and a quick uptake of the new brand by key governance thought leaders. We will work to take this to the next level, re-inforcing the Society's dual expertise in governance and securities law.

An important area of focus is our own governance process in the Society. Board work in this area includes:

• By-Law Review. David Smith is leading an effort to identify potential by-law changes to make sure we follow best practices in our own governance.
  
  
• Board Structure. Board Member, Rich Koppes of Jones Day — and himself a nationally recognized governance expert — designed a Board survey and is conducting an analysis of Board terms of office, Board structure and related matters.
  
  
• National Committee Structure. Former Society Chair, Carol Ward of CIGNA, is leading a Board evaluation of the National Committee structure. The process will include making sure there is emphasis on subjects that have taken on additional significance to members in today's environment, including listing requirements and interactions with proxy advisor firms, like ISS, Glass Lewis and Proxy Governance Inc. We also appreciate significant contributions from Carol Hayes of The Coca-Cola Company on this project.

Board Member Kathy Combs of Exelon Corporation is doing a fantastic job organizing a retreat to be held in November in Chicago. The Board, the Committee Chairs, Society Officers and a number of past Society Chairmen will gather to consider strategic planning. Our goal is to keep the Society strong and optimize the value to be provided to members in future years.

I hope many of you will be able to attend our Issues and Governance Update in New York this year on Thursday, December 8th. The emphasis at Issues Update is on practical topics, the kind of things that help us all do our jobs on a day-to-day basis, whether our primary focus is on corporate governance, securities law, disclosure, state corporation law and other topics relating to public company boards of directors. Given the challenges we all face, this is a great opportunity to share your experience in a network of peers, and to hear current, expert thinking on issues of the day. As is usual with Society programs, CLE credits are available at Issues Update.

The Society's Essentials of the Corporate Secretarial Function seminar will be held on January 25-27, 2006 in Phoenix. This is a good way for those who are new to the basics of the corporate secretary role — or who wish to refresh their knowledge of key concepts — to get up-to-speed and to build valuable networking relationships.

I urge each of you to get the full benefit of your Society membership by participating in Chapter and National activities. And I am always interested in your views on Society matters, so please be in touch.

Cordially,
Susan Ellen Wolf

2005 National Conference: Los Angeles

At right, Fun at the Santa Monica Pier at the Family Night party sponsored by CSC. The night included a roller coaster right on the pier, balloon sculpting, and face-painting along with a Beach Boys soundalike band and lots of food and drink.
	Left, Kathy Salmas, our National Conference chair, is surrounded at the Opening Reception by, from left to right: Joel Feuer, John Filippone, Gene Capello and David Dixon.
Right, Henry Winkler brought the audience to laughter and tears as the luncheon speaker. Below, Winkler meets with young fans.
Right, Blanca Rosbach of the National Office manning the Society’s booth in the Vendors Exhibit Hall.
	At left, families on a private tour of the Walt Disney Studios, arranged by Society member Marsha Reed. The statue is Walt Disney and the biggest star in the Disney universe: Mickey Mouse. Below, some of the girls check out Julie Andrews' autograph.
	Left, Bob Lamm, Earl Franklin, Steve Norman and Tina Van Dam on "The Corporate Governance Professional" Panel.
Right, Solomon Katz, Kathy Gibson and Pauline Candaux at the Opening Reception. Below, Lydia Beebe and Chuck Doyle take a turn on the dance floor.
	Below, at the Closing Reception and Dinner Chairman-elect Bill Mostyn gives Earl Franklin the Bracebridge H. Young Award.

Beyond Compliance: Creating an Ethical Organization

By Barbara Palmer, Principal, Palmer Communications

As if corporate governance wasn't already daunting, last year's amendments to the Federal Sentencing Guidelines for Organizations made it more so. Current thinking is that complying with the law isn't enough. Corporate governance professionals must help their organizations move beyond legal compliance to ethical behavior. They must be an active force ensuring that ethical behavior takes root in the organization and permeates it.

The Federal Sentencing Guidelines for Organizations (FSGO) were amended in November, 2004 to be more specific regarding ethics. Developed by the U.S. Sentencing Commission in 1991 — almost a decade before the current climate evolved — the Sentencing Guidelines apply more broadly than Sarbanes-Oxley. They address not only public companies, but also private business, non-profit organizations and unions.

The FSGO amendments require that board members, senior executives and "substantial authority personnel" must "promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law." This focus on ethics requires more than compliance. And, although infusing an organization's culture with ethics is no small task, the benefits are many — among them:

• improved mutual trust,
• better morale,
• less need for "policing," and
• a more collaborative, less authority-driven workforce.

Ethics: Exceeding the Standards Set by Law

To accomplish this, organizations must distinguish between compliance and ethics. Codes of Compliance are rule- and law-based. Inflexible, they include descriptions of what constitutes violations and what disciplinary actions result.

Codes of Ethics are based on values, aspirations and vision. Rather than focus on wrongdoing, they are open to the application of analysis, reason and decision-making.

Organizations may have separate Codes of Compliance and of Ethics or may blend the two but must be absolutely clear on what constitutes each and what the expected behaviors are for each. According to Insight 2000, a report of the Fellows Program of the Ethics Resource Center, "Ethics officers and leaders naturally have assumptions about the scope, roles, structures and required investments of an organizational initiative focused on ethical values. More times than not, these assumptions are not adequately differentiated from those required for legal compliance."

The ERC report lists possible pitfalls of not adequately differentiating compliance from ethics, among them:

• Implementing compliance-oriented systems and structures that inhibit using values for organizational and individual decision-making.
  
  
• Failing to recognize that ethics-based programs and compliance programs require different definitions for success.
  
  
• Inaccurate communications about an organization's focus to stakeholders, creating unfulfilled expectations.

The challenge for corporate governance professionals is to know the roadmap for achieving a Code of Ethics. Compliance is straightforward; ethics presents a wide field for choice. Ethics codes are based on organizational values and priorities, as well as vision, and must be fully fleshed out, explained and interpreted so that employees have a set of decision heuristics to act independently but in alignment with the organization and its values.

This is a difficult undertaking to accomplish without external help. In addition to issues of expertise and manpower is the simple one of objectivity: Most organizations need a fresh perspective to determine values and a new paradigm for driving ethical decision-making deep into the organizational culture. Leadership is the key to making this happen. However, leaders can get boxed in by their successes and their authority tends to isolate them. Consulting firms of various sizes and capabilities can help throughout the organization from the Board to the plant worker. Training organizations can support implementation of these programs.

The Obligation of Leadership

Leaders must set the tone of an organization's culture, ethical or otherwise. While leadership of an organization is usually composed of people who are "good" people, being a "good" person is not enough. Not only must the leadership be mindful and aware of their values and intentions and be able to imbue these throughout the organization to mobilize all employees toward the vision, the leadership must be mindful of their roles as leaders.

Further, leaders should not be satisfied simply to communicate the importance of ethics but should be obligated to telegraph and to model ethical behavior. This is not a task that can be done superficially; it takes personal time and involvement and must be sustained.

In order to be accountable in this way, leaders — including corporate secretaries and governance professionals — must be intentional about ethics. It's no longer a case of shared assumptions or lip service. What are we talking about when we talk about ethics? How are they to be interpreted and applied in organizations?

Ethics and moral philosophy require study and research for understanding; however, a quick survey can reveal the extent to which ethics demands to be explored.

Values, Morals and Ethics

The underpinnings of ethics are values and morals. Use of these words is often politically loaded, but in and of themselves, they represent neutral concepts.

Values are the glue of any community including a business or corporation. Morals keep it functioning and orderly. There are different kinds of values, both moral ("don't lie") and non-moral (aesthetic, economic, educational).

We acquire values when we are children along with language and other socialized behaviors. We are largely unaware of them; they motivate our behavior and choices. Values are the personal, or individual, building blocks for morals. The actions resulting from value-based choices usually have an effect that intersects with someone else's life or value-system; the common definition of what is acceptable for this playing out of personal values is "morality."

As we grow into adulthood, values determine what is important in our lives. Usually we don't consciously examine, review or systematize our values until we experience a challenge which triggers a reaction – not a considered response, but a reaction. This is an important point that bears on decision-making when ethical dilemmas arise. According to Socrates (the Father of Ethics) and the ancient Greek philosophers, we need to be mindful about our values — what is driving us — so that when presented with an ethical dilemma, we can make a reasoned, intelligent and moral choice: We must do the right thing for the right reason.

Reactive behavior is unthinking behavior; we may own it, but it arises out of habitual, ingrained patterns, not out of fresh, sentient problem-solving. According to the ancients, the unquestioned following of rules — and, I might add, even the conscious following of rules (compliance) — does not equal a moral (or ethical) life.

In the corporate world, it is in the best interest of the organization to ensure its communal values are examined, evaluated and shared with stakeholders so that ethical decision-making is a conscious process: deliberate and aligned with stated corporate values and standards.

Further, moral conscience involves thinking of others, as in the Golden Rule: Do unto others as you would have others do unto you. At its core, moral conscience is about creating human connection as well as mutual trust. For both profit-making and non-profit organizations, trust is at the core of an ethical organization as well as a high-morale, highly productive organization with an esprit de corps.

Creating an Ethical Organizational Culture

To create an ethical organizational culture, leaders must go beyond the "vision thing" that has been so popular in management jargon and must substantiate vision with well-considered and examined values that are germane to its priorities, goals and success. It is a matter of not letting the external environment – the market, competitive landscape, available technology, laws and regulations – dominate leaders' knowledge, intuition and experience, including what is right, what is balanced, what works, doesn't work or could work, and – above all – what is principled. That is to say, leaders must not be reactive but centered.

When we talk about an organizational culture as opposed to an organization, we are talking about people: their development, preferences, skills, knowledge, values. An ethical culture therefore is one where ethical behavior — based on common knowledge, values, and rules for decision-making — is embedded, not only superficially communicated.

An organization based on trust — trust in the leadership and trust in each other — arrives at the best solutions and avoids wasting time on internal competition and politics. An ethical organization is not based on a command-and-control, top-down punitive model. Instead it is rooted in an organizational model of learning and shared decision-making, which is not only a strong model, but a flexible one.

An elite force like the U.S. Marines knows this. In the June 27 issue of Fortune magazine, which focused on decision-making, General Peter Pace of the U.S. Marine Corps and vice chairman of the Joint Chiefs of Staff, said, "On a battlefield, you don't have time to gather a lot of opinions . . . . What I have learned is that if you're collaborative when you can be, it builds trust, so that when you have to decide right now, folks are more likely to trust your decision. . . ."

Embedding Ethics: From Code to Behavior

Once intentional ethical leadership is established, the challenge is to mobilize the entire organization to act ethically. Mobilization calls for ethical behavior to become so ingrained throughout the organization that it becomes part of the day-to-day behavior of employees.

Unfortunately, many organizations approach developing an ethical code with dispatch rather than thoroughness, and they communicate it in the same way. Ethics codes are rolled out with announcements, posters, slogans, newsletters. Perhaps they are followed up with a discussion group or workshop. But it is not enough to effect behavioral change. Leaders must be comfortable talking about ethics and must be actively involved in participating in discussions about ethical behavior in the organization. The leadership must be clear about accountability, expectations and the importance of reporting unethical behavior or misconduct.

The ethics code and dialogs within the organization about ethics need to include the reasons particular values are relevant to that organization's business; examples of ethical dilemmas and decisions with explanations of the decision-making process; industry case studies or best practices, or case studies from within the company. The goal is to make these standards accepted and practicable in every corner of the organization. Ethical standards that are truly integrated into the behavior of every employee will help prevent the kind of cynicism or alienation that destroys collaboration and the team mentality.

Workable ethical standards — along with mindful reinforcement on the part of the organization — means that everyone understands expectations and consequences down to the tactical, everyday level: How are people in your organization treated by each other, supervisors, managers, senior leaders? What are the rewards and punishments for behavior? Are the guidelines about reporting misconduct clear and enforced . . . and enforced impartially? Is there a structure or system for discussion of questions that arise regarding dilemmas? Will ethical decisions make employees outcasts or team players? What does the organization expect of each individual regarding ethics? How is each individual, given their role in the organization, accountable?

Corporate governance professionals must think more widely about ethics and ethical organizations in order to give the best counsel and the best ideas to those they work with. They need to make alliances within and outside of their organizations to spark the changes needed not just to comply with the law but to go beyond what the law requires to sustain individual and corporate integrity.

Updates: Chapters, Committees, and Membership

Chapter Events

For full details of the late-fall and winter chapter meetings, please visit the Society's site and use the link for "Chapters" and then the "Calendar of Events" link that can be found on the left side of any page on the site in the blue navigation bar.

Corporate Practices Committee

This committee is working on two publications: the first, a brand new report called Developing a Web Portal for the Board was published in early October and is available to members for free (You can find it on the Society's home page). The second, a revision of our existing minutes monograph is scheduled for publication later this year.

Securities Law Committee

PCAOB Subcommittee Chair Stacey Geer led drafting of a comment letter from the Society to FASB on a recent FASB staff interpretation regarding the date of equity grants. The letter is available on the Society's site.

Public Company Affairs Committee

This committee is working on updates for Annual Meetings of Shareholders and Manual for Solicitation of Proxies.

Membership

Ever since Sarbanes-Oxley, your role has expanded. Simultaneously, time and budget pressures may have left your staff without the resources to keep up with the new demands. Maybe you need a "Second Society Member" at your organization. As you know, the advantages and insights of Society membership are enormous. Wouldn't now be a good time to share this valuable resource with others on your staff?

Additional members, in most cases, pay reduced annual dues. If you'd like to have your colleagues become members, please have them go to the Society's site and click on the "Join Us" link on the left side of any page.

They can start enjoying membership today!

The Corporate Secretary & Governance Professional is published quarterly throughout the year as a service to members of the Society of Corporate Secretaries and Governance Professionals. Articles or statements appearing herein do not constitute legal opinion, advice or judgment and should not be relied upon as such.

Inquiries regarding the content of this newsletter should be directed to Geoff Loftus: (212) 681-2000, gloftus@governanceprofessionals.org. Inquiries regarding membership or publication orders should be addressed to:

Society of Corporate Secretaries and Governance Professionals
521 Fifth Avenue New York NY 10175
212-681-2000 - Fax 212-681-2005

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