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The chair’s role in culture and conduct

type
Article
author
By Guy Beatson, GM Governance Leadership Centre, IoD
date
13 May 2022
read time
2 min to read
Person standing on a rock at night with starry sky

The importance of culture and conduct considerations for chairs and boards has been brought into sharp relief in New Zealand with the backlash to Simon Henry’s comments about Nadia Lim on the My Food Bag IPO prospectus. In the UK, Aviva Chair George Culmer defended the board and CEO from inappropriate comments made by shareholders during their AGM.

The Four Pillars of Best Practice Governance emphasises the unique role chairs have in leading their boards and acting as a mentor/advisor for the chief executive. This includes leading an inclusive culture and promoting diversity on the board and executive management.

Overall, this helps the board to collectively set the “tone from the top” for the organisations they govern and lead.

An effective tone from the top impacts on many of the top five issues for directors in 2022 including:

  • Board character. There are increasing public and investor expectations of ethical behaviour and attention to stakeholder/ customer, as well as shareholder, outcomes. That character is also determined by the extent of board member diversity as reflected in the NZX Corporate Governance Code (2.5) which notes that gender diversity on boards is associated with better financial performance.
  • Talent attraction and retention in an increasingly tight labour market where demand for talent is escalating. In the IoD/ASB 2021 Director Sentiment Survey report 57% of directors said that labour quality and capability is one of the biggest impediments to national economic performance, up from 32% in 2020.  In this context, research suggests that the best employees leave organisations because of poor culture and leadership, both of which boards and chairs have a critical role in establishing.
  • Reconnecting internationally with suppliers, customers and other partners. At the heart of this reconnection is personal relationships with people from diverse backgrounds, cultures and genders. The culture that boards engender through their own practices sets the tone for the organsiation and the way in which senior executives interact with their international counterparts.

Paying attention to these issues is critical for boards and management. Highlighting best practice and speaking out against bad behaviours, whether staff, clients, suppliers, investors, the executive or even the board itself is critical as is the board's focus on reputation and brand. 

The IoD/ASB 2021 Director Sentiment Survey notes that:

“the proportion of [survey] respondents who think the CEO should speak out on social issues has almost doubled (50%, up from 28% in 2020). Meanwhile a slightly higher proportion (54%) thought the board should …… we [also] found a strong majority of boards (85%) regularly discuss the organisation’s brand and reputation.”

As we've seen in recent weeks, societal expectations of boards and executive leaders go beyond legal compliance to expecting high standards of ethical behaviour, care and diligence.

Chairs  should embody, inspire and promote organisational values and ethical behaviours and hold themselves and others on the board and executive to account. Failure to do so may have a significant negative impact on the brand, reputation, productivity and ultimately the bottom line of their organisations. 

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