Boards and Culture: from Compliance to “Rocket Fuel”

 
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It’s not just #metoo that has company culture rising as a Board level concern.

This time last year HBR devoted pretty much the entire issue to culture, with definitions, models, frameworks (as only HBR can do…), and the direct connections between culture and outcomes.

Long a soft and squishy notion championed by HR and some renegade, ahead-of-their time CEOs (Patagonia’s Yvon Chouinard comes to mind), the importance of culture is no longer a question. The question is what to do about it. How to begin, or do more. How to hardwire healthy culture into the fabric of the business.

Well, there’s nothing like Board oversight to get everyone else’s attention. And Boards themselves are feeling the spotlight from myriad stakeholders – investors, employees, regulators, customers, consumers – who increasingly are watching and expecting more from the entities they do business with. (“Where was the Board…?”)

Two excellent recent reports spell out why Boards must make culture a key oversight factor, where to focus their efforts, and what levers will increase accountability and impact.

According to the National Association of Corporate Directors’ (NACD) Blue Ribbon Commission on Culture as a Corporate Asset, “Oversight of corporate culture should be among the top governance imperatives for every board, regardless of size or sector. … inextricably linked with strategy, CEO/senior leadership selection, assessment and evaluation, and risk oversight.”

“Culture matters, because a strong, positive corporate culture provides a framework not only for risk mitigation, but also for both short- and long-term value creation.” So begins “Corporate Culture Risk and the Board,” published by Deloitte & Touche experts in the Harvard Law School Forum on Corporate Governance and Financial Regulation.

Bottom line, as in much of life: it’s all about risk and opportunity, accountability and focus.

 “If led and managed well, culture is the rocket fuel for delivering value to stakeholders.” NACD

“On the other hand, a damaged or broken culture can create dysfunction throughout the organization and create risk to critical assets, including brand reputation, intellectual property, and talent. As recent developments demonstrate, these and other negative impacts can destroy value and, ultimately, the organization itself.”

What are Boards urged to do now in their “culture oversight” roles? (And with direct implications for corporate leadership.)

  • Make it part of everything you’re already doing – not a separate culture committee or workstream. Embed metrics, discussion and rigor into all oversight functions – e.g., audit, compensation, talent strategy.

  • Get beyond a compliance and risk focus – add some offense to your defense, based on the concept of culture as a core asset.

  • Walk the talk – define behavior and values of Board membership, operation and accountability. (Tone at the very top, you might say; Board, oversee thyself.)

  • Align the moving parts – do corporate policies reinforce values and culture? Is compensation designed to reward strong organizational culture?

  • Set CEO/leadership selection criteria – leadership qualities and experience to build, maintain or evolve healthy culture

  • Identify culture red flags – be on the lookout for leadership (or Board) tolerance of unacceptable behaviors, misalignment of policies and compensation, for example

  • Never rest on laurels – insist on continuous improvement and adaptation to change

  • Communicate with stakeholders – emphasize the importance of culture and be transparent about issues and status with shareholders, employees, regulators, customers, et al. (I anticipate a growing wave of corporate culture health reports analogous to environmental sustainability reports…)

  • Get data and monitor – insist on meaningful metrics and insights, as in all other parts of the business. Make reporting a standard practice: institute a culture dashboard, with multiple sources of culture-related data: employee hotline activity, third party culture surveys, HR talent analytics, ethics and compliance reporting, customer experience data, and more.

“Boards should set the expectation with management that regular assessments of culture will include both qualitative and quantitative information and incorporate data from sources outside the organization.” NACD

[Note: I do a lot of work with leadership teams to help them understand and act on the results of their culture survey results, most often as a consultant with Energage clients. (Energage notably provides the research engine for Top Places to Work rankings around the country among other solutions.) It is absolutely transformative to see where the strengths are and where to focus, do more of what’s working and address what’s not. Not to mention being able to demonstrate fact-based knowledge of the state of the organization’s culture and a game plan for improvement.]

What can and should company leaders do? Leverage the rising Board attention to gain support for investments that build and protect high performing cultures and get the risk/opportunity math right.

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Culture, Leadership, Boards, Risk/opportunityJanet SwayslandHBR, NACDComment