The 2019 Justice Hayne led Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia (the largest of its kind in the OECD) has put the spotlight on company culture, in particular, the role boards play in its oversight. A generalised awareness of culture that goes beyond what are proximate strategies such as reviewing culture related metrics, is no longer good enough. Neither is defaulting to the use of remuneration as a primary tool for shaping culture and behaviours. Despite the challenges associated with measurability of culture, there are a number of ways boards can turn generalised awareness into skills required to better steward company culture. This is now a priority for boards.
When companies say they measure culture, they may be viewing culture too narrowly. An unfiltered view of culture is difficult to achieve because it is the cumulative total of unwritten rules that drive thousands of decisions employees make day to day. Company culture is multi-layered and complex in that there is a tangled relationship between personal and company values. Current metrics fall short of assessing the internalisation of a company’s espoused values.
Most boards and their People Committees regularly review a range of metrics which include:
Customer experience survey results and net promoter scores
Recurring patterns of customer complaints and the speed and diligence in how they are resolved
Unexplainable spikes in revenue, profits driven by sales incentives
Defection of key customers, accounts or contracts
Use of escalation and whistleblowing processes and key themes
Employee engagement survey results (including sub-culture distinctions); pulse surveys at regular intervals on discrete issues
Correlation between performance of the unit and the unit’s appraisal outcomes
Turnover trends in critical roles (in particular those that monitor risk and other assurance functions)
Attrition of talent (including the lack of attrition where there should be)
Diversity reflected in key appointments (beyond just gender)
Glassdoor and other social media data
While reviewing metrics may be comforting, they are proximate measures and will not tell a board everything it needs to know about the culture of the company. Metrics can mask deeper underlying issues as was evidenced in cases of poor culture where boards had diligently reviewed such metrics. Most boards also supplement the review of metrics by instituting a rhythm of feedback loops such as visitations, planned and unplanned conversations and board-sponsored special investigations. This too can provide proximate, anecdotal glimpses of culture. A more systemic approach is called for that goes back to the fundamentals of how culture forms in the first place.
A rethink of the approach and associated board skill needs to extend to how strategy conversations are approached and how governance rhythms and habits can be strengthened through rethinking committee charter scope and nature of deliberations. In addition, boards need to ensure an alertness to the boards own ‘ways of working’ and the implicit signals it sends to the broader organisation.
Strategy, risk and culture are not as connected as they should be. Revelations from the Royal Commission point to the inattention to cultural/behavioural consequences of strategic options a company decides to pursue. A bad culture is sometimes the consequence of badly thought through strategic choices. Therefore by evaluating strategic options using a ‘culture lens’ to decide those it adopts or rejects, boards become more skilled at pre-empting cultural issues. Other decision habits the board can role model and sponsor as good management practice is also critical to ensure a culture of constructive challenge is actively fostered.
There is also significant scope to strengthen the governance rhythms within the company, ensuring that the culture related intent of these are better structured and communicated. A more multi-disciplinary, issue-driven approach to internal audits, strengthening the voice of group functions to provide more definitive board assurance and a rethink of how committee charters might incorporate more thorough deliberations on the cultural assumptions of decisions they take, are some of the ways in which boards can strengthen their governance rhythms; as are efforts to ensure that codes of conduct better distinguish between ‘must do’ and aspiration, and that there is better company antenna to judge reasonable public expectations and how these are evolving.
Last but not least, the board’s own culture can strengthen or weaken the impact of its oversight. New research shows that how boards choose to manage director dilemmas, implicit in the exercise of their non-executive roles, sets the tone, as does the resulting working culture. The more work the board does on itself, its openness to new ways of working to address the enablers and impediments of a healthy board dynamic and associated skills, the more effective it will be in conveying cultural imperatives to the broader organisation.
In summary, when companies say they measure culture, they may be viewing culture far too narrowly. To properly oversee the culture of the organisation, a board has to first own its own culture and become alert to the implicit signals it sends the wider organisation it governs about what it values and what matters. Coupled with efforts to strengthen its own dynamics, a board has at its disposal a range of less obvious strategies it can deploy to strengthen it’s oversight of company culture. It starts with a more observant and alert board, skilled at recognising the cultural consequences of strategic options it considers and adopting a more clear-eyed view of management’s ways of working and what it reveals about the gap between espoused and practiced values.
Dr. Meena Thuraisingham is author of “Identity, Power and Influence in the Boardroom” (Routledge, 2019). A psychologist by profession, Meena has recently undertaken a unique doctoral level study viewing board effectiveness through the lens of social psychology and group dynamics. Meena is founder and principal of advisory company BoardQ and a non-executive director of The George Institute for Global Health. She recently delivered a keynote on this subject at the London Business School at KPMG, UK and at a Herbert Smith Freehills organised event for non-executive directors in Sydney and Melbourne.