By Louise Kelly, Audit Partner, Grant Thornton in Belfast
Corporate culture is finally moving to centre stage. A series of corporate scandals and the banking crisis has raised serious questions about the standing of business in society, in turn questioning whether poor behaviour reflects a flawed internal culture.
To find out more about the information that boards are currently receiving in relation to culture in their organisations, the Institute of Business Ethics (IBE) surveyed 28 large companies in a wide range of sectors.
They found that 82% of respondents said their board monitored data related to culture. This is a significant new challenge for business leaders and requires a systemic approach to measuring culture.
The Central Bank of Ireland has recently undertaken Behaviour and Culture Reviews at the five main Irish retail banks. These reviews focus primarily on the executive leadership teams, due to the importance of these teams in setting ‘the tone from the top’, including the drivers of behaviour in terms of group dynamics and mindset.
The outcomes produced detailed insights into behavioural and structural patterns in leadership, decision-making, communication, group dynamics and mindset that affect the way consumer needs are considered. The banks are required to deliver action plans to address any risks identified in these reviews.
Measuring corporate culture is a challenge and responsibility for all boards, as a way of understanding ‘the way we do things around here’. Culture is the combination of factors that define the way people in an organisation behave. Culture starts with a clear set of values and purpose, which leads on to the development of a framework, in which the values are built into the way the company and its staff operate on a day-to-day basis.
Embedding the desired culture is the main job of the executive, but boards have a vital role in measuring and monitoring the culture, to ensure there is alignment between the rhetoric and the reality.
An effective board is fundamental to safeguarding the long-term success and sustainability of any company. Effective boards understand the role and influence of organisational culture and diversity in decision-making at both board and executive levels.
Increasingly, the evaluation of a board’s effectiveness requires consideration of the dual aspects of the role of the board, to consider its conformance and performance dimensions. Whilst the governance and compliance processes remain important pillars, forward-thinking boards increasingly embrace a review that goes beyond the compliance dimension to generate insights into the human and behavioural aspects of board performance – the culture. More and more of our clients are requesting culture measurement as part of their board review, to address proactively any aspects of the culture that are not aligned.
An important part of board oversight of culture, however, remains the assessment that flows from first-hand observation. The demeanour of the CEO, the degree to which he or she embodies the desired values and the way in which the management engages with the board speaks volumes.
The level and direction of debate over the last couple of years leaves little doubt that culture matters to companies. The way employees behave and the way the company relates to the outside world can have a profound bearing on its reputation. Measuring culture is no longer an optional, nice thing to do. The increased focus on culture provides a great opportunity for boards to develop their thinking and practice to be truly effective.