Culture is critical to success – Five questions for boards

As organisations navigate recovery from COVID-19, culture should not be overlooked as it will be critical to their new normal and future success. There will be few organisations that won’t have first-hand experience of workplace and worker disruption and harnessing what’s been learnt, and taking a lead on organisational culture, will pay back in spades.

There has been much scrutiny on organisational culture in the last few years. And the ramifications of having best practice low on the list have loomed large for many organisations. Whole movements have been built as a response to poor culture but that can’t be counted as a good result. Boards should and can drive a different and positive way forward by setting the tone for a healthy culture and by modelling and championing positive behavioural norms and standards. Board responsibility for culture and conduct and the need to set the tone at the top has been reiterated in the past year in the FMA/ RBNZ banking and life insurer reviews and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia.

Clarity is the crux of the matter. Setting clear expectations and a shared understanding of what culture is, why it is valued and ensuring that the culture of an organisation is aligned with the organisation’s strategy and values.  A board needs to establish a clear benchmark so that you can understand and test whether you are within the lines of what is deemed appropriate and right for an organisation.

Regular monitoring and assessment will allow you to ensure culture is playing its part in serving the organisation and getting it to the right outcomes. In 2019 the IoD’s Director Sentiment Survey revealed that less than half (43%) of directors said their boards received comprehensive reporting from management about ethical matters and conduct incidents. Ignorance is no get out clause and it is essential that boards hold management to account and ensure they receive robust and comprehensive reporting.   

While the data reported will vary from industry to industry all boards will need to monitor performance measures that will include targets and trend information relevant to the desired culture goals established for the organisation. The key is to find meaningful metrics to provide useful and actionable insights. 

Reporting alone is never enough especially in matters of culture. Getting a holistic view and really understanding how a culture operates may need more proactive and creative action. Engage with workers, customers, suppliers and other stakeholders. Go on site visits unscheduled as well as planned, attend staff events, engage with internal and external surveys and do some social media listening. Carry out activities that allow you to really see, understand and appreciate how your culture is operating.

It is also important to stay on top of potential stresses in the system through a culture risk framework. This can include looking at the way people are motivated (eg through incentive schemes) and considering whether current employee compensation practices encourage behaviours that are in line with the desired culture.

Staying on top of culture risk, particularly during times of change and disruption is essential. As a result of the COVID-19 pandemic there are more people working from home, reductions in staff numbers and a whole range of other situations that may impact on culture. Boards need to be extra vigilant and ask for the right information, they also need to be comfortable challenging and verifying the reports they receive and to ask the right questions. Asking questions does not mean a lack of trust in management but it should be a board philosophy to ’trust but verify’ or ’don’t tell me, show me’ as this will help to avoid unwanted surprises and ensure you stay on top of important priorities.

Five questions boards should be able to answer

1. Do we have a common understanding of what our desired organisational culture is?
2. Is there a high level of engagement with culture data and are we receiving regular comprehensive reporting from management that provides a range of metrics, data and trend information?
3. Are issues, incidents and risks identified quickly, referred up the management chain, and reported to the board, including follow up on actions?
4. Do our current remuneration schemes and any incentives promote the right behaviours?
5. Does the board have a good understanding of how COVID-19 has impacted the organisation’s culture?

Further information on culture

• Financial Reporting Council, Corporate culture and the role of boards 
• KMPG US, Board oversight of corporate culture
• Financial Markets Authority, A guide to the FMA’s view of conduct

Also see the Corporate culture oversight resource centre prdocued by our GNDI colleagues in America, NACD.