The New Board Imperative: Organisational Culture Beyond High Performance Metrics
The Financial Services Royal Commission and Boeing’s 737 MAX crisis highlight a modern governance dilemma: whilst a company’s scorecard may be positive, when it comes to measuring up to community expectations, even high trust brands are falling short.
Where then, can stakeholders look for indicators of ethical leadership, when performance metrics such as customer experience ratings, revenue, growth, staff turnover and R&D paint a picture of organisational health?
The answer is the big, scary C word. Culture.
Responsibility for culture has long sat with the Executive, often the direct remit of the Chief Executive Officer, and implemented – and occasionally measured – by the head of People and Culture. You’d be hard pressed to read the opening letter of an Annual Report of any of the world’s leading companies and not come across the word, placarded as a key focal point. However you could argue that the current cultivation of culture is focused more high performance metrics than alignment with values.
Given an organisation’s need to drive and incentivise performance from the Executive down, is it time then, for the Board to be accountable for culture? According to APRA and the Royal Commissioner Kenneth Hayne, this expectation is already on the agenda.
"..in looking at culture and governance, every entity must consider how it manages regulatory, compliance and conduct risks, said Hayne as he presented the interim report.
“And it must give close attention to the connections between compensation, incentive and remuneration practices and regulatory, compliance and conduct risks."
How then, can a Board begin addressing culture?
Start by analysing your existing company culture
Every organisation has a culture, whether it’s intentional or not. So the starting point is to define the state of your current culture. What are its strengths and weaknesses? What does the organisation value, and why? How much does this differ from shareholder and community values?
Culture is a team effort
Sharing the responsibility of setting and adhering to culture collectively across the Board creates buy-in and uniformity in applying values throughout an organisation. Should accountability for culture be appointed to single Director, the temptation may be to narrowly define success, or induce reactionary responses to failure that disrupt strategic initiatives.
Marry Commitment with Action
Elsa Pahnke, Senior Learning and Development Consultant at Leading Edge reiterates that it's not enough for Boards to outline culture on paper: progress requires attention and action.
“While it is fundamental that Board Directors ensure leaders understand their pivotal role in fostering a values-based culture, there must be an equal focus on their commitment in action, said Pahnke.
“Boards must direct their ongoing attention to actively measuring how the culture is doing from compliance to customer service and openly address progress, both the wins and the failures.”
Regular Engagement and Pulse Checks
In an interview with the Australian Institute of Company Directors, Governance expert and Adjunct Associate Profession in Law at Western Sydney University, Dr Ulysses Chioatto stated that Boards must get closer to their market and shouldn’t rely on the Annual General Meeting as a primary method of engagement.
“Overseas companies are using new technologies, such as smartphone apps, to gauge stakeholder sentiment in real time, said Chioatto.
“That’s real accountability when the Board understands what stakeholders are thinking now about the organisation, listens to their concerns and responds where appropriate.”
Test and Challenge Leaders & Systems
The Royal Commission uncovered three key systemic failures that Boards either ignored or unwittingly trusted without contest:
failure to adhere to existing regulatory obligations and deal openly and honestly with the regulators;
an indifference by a number of firms to delivering good consumer outcomes;
a lack of investment by some firms in systems and processes to monitor product performance and staff conduct.
Every Board can learn from these examples. Put in place an ability to challenge leaders’ adherence to organisational values, and test the extent of transparency and trust in processes (such as regulation and fault fixing) that measure alignment with culture.
Preparing for a Culture Change project? We’ve shared our 7 Tips to Change Your Company Culture.
Complacency is the greatest risk
Ultimately, Boards must be prepared to be leaders, setting culture standards that don’t merely respond to expectation, but go beyond them – because as AMP’s historic AGM in May 2019 shareholder votes against Board remuneration and balance sheet shows, shareholders and consumers are voting on it.
Do you support Boards becoming accountable for culture? Where would you have Boards focus their efforts?