In today’s business press, you don’t need to search too far to find articles that link business failure to corporate culture.
The Financial Reporting Council’s (FRC) UK Corporate Governance Code also highlights that corporate culture – how people in an organisation think, feel and behave – is a pressing issue. As of 2019, the code’s second principle states that:
“The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.”
This puts responsibility on boards to assess and monitor the corporate culture and assure itself that the business is proactively managing it. This, along with the FRC’s requirement for businesses to ‘comply’ or ‘explain’, ensures boards actively engage with corporate culture.
But what does this mean in practice? How does this accountability fit with the myriad questions, areas and challenges that time-constrained directors must deal with?
In our experience, there are five things boards need to do to ensure their corporate culture is up to scratch:
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Culture takes time to form. So, this isn’t about the board going away for two days and defining the purpose, values and behaviours that are important ingredients in any organisational culture. It’s about deciding the role it wants to play in influencing and evolving the corporate culture.
A great corporate culture is a differentiator – it’s one of the few things that no competitor or new entrant can copy. It comes to life in the way the organisation interacts with its customers, how its people work together and how it engages with, and brings out the best of, its partners and suppliers.
The question for the board is how to take advantage of this unique strength while managing characteristics that are unhelpful or even destructive. For example, ut must make sure the culture is effective and an asset, without dictating or directing. The board needs to find ways for the culture to work with the strategy and operating model, not against them.
As your corporate culture is a strategic asset, it’s worth making sure you understand its value. Being clear on the culture – that is, the common threads that run through the multiple cultures within your organisation – is an essential starting point.
We’ve seen organisations that value and nurture their culture can bring it to life. This isn’t a case of simply sharing existing purpose, values and behavioural statements, but getting the perspectives of people in and around the organisation. This is possible using culture tools and surveys (which are different from engagement surveys), but in our experience, you need to look below the surface to appreciate what the culture looks, sounds and feels like.
For instance, an international FMCG asked their 10 biggest customers and suppliers to describe what it was like to work with them, and received remarkably similar descriptions. In parallel, they held discussions with over 10 per cent of their workforce to understand their experience. One component was to choose 2-3 photos from over 50 that represented what the company was like. Amazingly, people consistently chose two pictures. These insights gave the executive team and board a feel for what their culture felt like from different perspectives and, just as importantly, led to them running an annual celebration of their culture on the same day globally.
Having this understanding of the existing culture, and regularly returning to it, lets the board challenge the organisation to make the most of this intangible and evolving asset.
Corporate culture is one of those things that the board and executive can influence and shape but can never fully control. So, they need to know how they can play to the organisation’s cultural strengths and mitigate the weaknesses. This is the same approach taken to strategy, where the board is accountable for it and the executive need to deliver it.
Here, the role of the board is to agree with the executive team how to continually nurture, shape and influence the culture. The board needs to be clear about how they want the culture to evolve, what behaviours will mitigate any rough edges and what aspects of the culture they want to enhance and protect. Importantly, the board needs to give clear responsibilities to the executive team. At one of our clients, the CEO was clear about their responsibility for driving and shaping the culture, and that the role of the HR Director was to support them, not the other way around.
In turn, the executive team needs to be clear with the board about what they see as their culture priorities, what they want to achieve and how they’ll deliver.
Within the board, Non-Executive Directors (NEDs) aren’t as immersed in the culture and how it works. But people from across the organisation participate in and attend boardroom meetings, taking behavioural cues from the board. In that sense, the board is the custodian of the culture, so even the NEDs must find a way to model it.
This custodian role is vital. The board are looking after the organisation until handing it over – hopefully in a better condition – to those who come after. As custodians, the board needs to consider the impact of key decisions through the lens of culture. IKEA is renowned for this, even changing a decision because of concerns that a key step might negatively impact its culture.
But the role of board members isn’t confined to the boardroom. Active NEDs find the opportunity to interact with employees through visits, attending key internal sessions and informal interactions. At these times, the role of the board member is to be an ambassador for the culture. Promoting the values and behaviours they want to see and experience, as well as testing and prompting employees to understand how they experience the culture. This ambassadorial role also needs to be at the forefront of board members’ minds when they interact with the organisation’s customers, suppliers and investors.
A board that’s taking its accountability for corporate culture seriously will ensure culture is an ongoing discussion and action point. There might be an annual exploration of what’s happening from a cultural perspective, just like there is around the strategy, but culture should always be front of mind. That means considering the cultural impact of everything from major strategic decisions to the appointment of a new board member. Ultimately, it’s about making sure the culture and organisation are in sync with each other.
The role of the board has never been under more scrutiny. The demands and requirements are intense and growing. The challenge for any board is to know where to devote its limited time and deep expertise. Undoubtedly, as the apex of the governance framework of the organisation, culture is a vital area boards need to pay attention to. In so doing, it’s essential they know how they can be most effective.