In late August I attended the annual conference of the Governance Professionals Canada in Victoria. It was an amazing event, attended by ~300 lawyers, board members, corporate secretaries and governance experts from across Canada.
L&C sponsored a panel, which I chaired: “What Role Should the Board Play in Organizational Culture?” The wonderful participants were Deborah Rosati, Founder and CEO, Women Get on Board; Christie Stephenson, Executive Director, Peter P. Dhillon Centre for Business Ethics, UBC Sauder School of Business; and Geoffrey Creighton, CEO, Global In-House Counsel (pictured above, left to right with me moderating at the far left).
The conversation was lively, and the session was well-attended, with about 150 people in the room.
What were the takeaways?
- Organizational culture has become a topic that boards are paying attention to, big time. It has become clear to most boards that there is a direct correlation between financial performance, success in executing strategy, minimizing unwanted turnover, etc. and a “high performance culture.”
- But how does a board know if their company’s culture is high performing? A wonderful definition that comes out of the Barrett Values Centre in the UK:“Imagine a workplace culture where there’s excitement in the air, where everything is done to enhance the customer’s experience, where innovation thrives and teams easily adapt to unforeseen circumstances, where senor leaders work toward a shared vision of success, and where people genuinely care for one another, feel recognized and are supported within the organization.” https://www.valuescentre.com/sites/default/files/uploads/building_a_high_performance_culture_tvdo_2017.pdf
But members of the board tend to be remote from the day-to-day goings-on of a company. So how can board members get a handle on culture?
One way, of course, is to carry out a formal culture assessment, an assessment that is complementary—not the same as—an engagement survey. Our clients use the Barrett Values Survey, a tool that provides quantitative measures and mapping of the underlying causal factors that promote or inhibit performance.
Geoffrey talked about the notion of building a “culture dashboard.” The dashboard can track important metrics such as turnover and the results of exit interviews; it can measure trends in engagement scores and it can measure adherence to values through employee surveys. Another way is to ask the CEO and governance professional to arrange site visits and informal meetings with staff at all levels.
- Most critical is getting culture on the board agenda. The Financial Reporting Council carried out research on “Corporate Culture and the Role of Boards” in 2016 and concluded: “The Board has a responsibility to understand behaviour throughout the company and to challenge where they find misalignment with values or need further information.” https://www.frc.org.uk/getattachment/3851b9c5-92d3-4695-aeb2-87c9052dc8c1/Corporate-Culture-and-the-Role-of-Boards-Report-of-Observations.pdf
Deborah, Christie and Geoff all agreed that board retreats are a good venue for delving into culture-related issues, but that the topic ought to be reviewed at least 2 to 3 times a year in regular board meetings.
The board agenda is usually crowded, and typically is controlled by the chair and the CEO, but Christie pointed out that the governance professional can play a significant role in creating agenda items that directly relate to the potential for risk. As an example, regular educational updates can be included in the board meeting during which crises that are faced by other organizations are considered and used as a springboard to inspire the board to ask: “Could that happen here? And why not?”
- And what about “codes of conduct”? Geoff pointed out that most companies have a code of conduct of some sort; but this includes companies that are deeply dysfunctional. Not to say that there ought not be such codes; but the real question is whether the CEO, the executive team and the board set the tone at the top.He read Netflix’s Code of Ethics, which seems a little unusual at first reading as it is based entirely on employees’ trustworthiness.
“…Netflix Parties are expected to act and perform their duties ethically and honestly and with the utmost integrity. Honest conduct is considered to be conduct that is free from fraud or deception. Ethical conduct is considered to be conduct conforming to accepted professional standards of conduct….”
But what does this say about the culture? That Netflix hires people who would behave ethically and honestly and treat each other accordingly. Not bad.
- And finally, are there natural homes for the discussion on culture within the board governance structure? Deborah pointed out that audit committees are increasingly paying attention to culture. A recent Forbes.com article pointed out that “Corporate culture is front and center today for customers, investors, employees and regulators—not only as a risk but as a strategic differentiator in driving sustainable long-term corporate performance.” https://www.forbes.com/sites/insights-kpmg/2018/08/15/five-focus-areas-for-audit-committee-members/#5a1294165d36.Deborah’s point is that having the audit committee explicitly paying attention to culture will reap a multitude of benefits beyond better financial performance ranging from attracting better talent, improving audit quality and reducing risk.
The Future for Boards, Culture, Financial Returns and Risk
A study published in the UK in 2016 by the Financial Reporting Council concluded that boards of directors must oversee both strategy and the culture that drives the mindsets and behaviours of the organization.
But it is not readily apparent in Canada HOW to undertake and manage this oversight role. As such, L&C along with the Institute of Corporate Directors, The Governance Professionals of Canada and The Rotman School of Management at the University of Toronto, are developing an in-depth research study involving governance professionals, Board chairs and CEOs across all industry sectors, geographies and types of business (private, public, not-for-profit, crown…). The aim of the study is to understand how Canadian companies, and specifically boards, address matters of culture within their own firms. From the research collected we will be developing a set of benchmarks for best practices for boards, CEOs and governance professionals so that they have a roadmap for how to get culture on the board agenda, and if it’s already there, how to measure and monitor a company’s culture.
If you or your company would be interested in participating in our culture survey, please reach out to me at [email protected]