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Five actions your board can take to improve oversight of corporate culture

By Kerryn Newton (CEO) & Jane Crombie (Board and Governance Specialist)

Post the Financial Services Royal Commission, there has been an increased focus on organisational culture, its importance to governance and performance, and the role of boards in setting and monitoring corporate culture and conduct risk.

Various regulatory frameworks and other guidelines inform and reinforce the board’s role in culture.

Implications of organisational culture failings include a loss of trust by stakeholders in the company and board, safety breaches, reputational damage and fraud.

In our experience, most boards accept – and many embrace – their role regarding culture. However, determining how to effectively oversee culture in practice is perceived as difficult. Remote ways of working forced onto organisations by COVID-19 have increased the challenge.

There are five actions that we recommend all boards undertake:

Action 1: Confirm the desired organisational culture 

Before culture can be monitored it must first be defined. Culture should be informed by the company’s purpose and reflected in stated values and corresponding behaviours.

Action 2: Embed the desired organisational culture 

Key to embedding organisational culture is design of the CEO’s and organisation’s performance management framework. This framework should ensure performance outcomes are achieved in a way that is consistent with the company’s stated values and behaviours.

Action 3: Define the information which will provide the board with visibility of desired culture 

Numerous metrics can provide insight into organisational culture and whether it is being lived in practice. Categories include:

  • Community, customer and supplier metrics
  • Employee and safety metrics
  • Audit and integrity metrics

Much of this data is already held within organisations but isn’t collated into a ‘culture dashboard’ to inform an overall picture.

Evolving data technologies have the potential to equip directors with analytics to help bridge the culture measurement gap. For example, AI tools are developing which can sense the office mood through language used in emails.

Action 4: Observe culture first-hand

It is critical that the board has opportunities to view ‘lived’ culture first-hand through appropriate engagement with employees and other stakeholders.

This might be supported by:

  • a clear stakeholder engagement plan outlining the board’s role in engagement activities, and
  • a discussion at each meeting around ‘stakeholder feedback’ allowing the Chair and directors to share information gleaned with management and agree to requisite actions.

Action 5: Model the desired culture 

Finally, but critically, directors and executive should model the desired culture through their own actions and behaviours.

In our experience, directors sometimes forget that they are ‘on show’ to their organisation at all times, and that their actions are important to culture-setting. For example:

  • Directors demonstrate desired culture by their behaviour towards each other, and managers who present to them.
  • A board which is overseeing cost-cutting but continues to fly directors business class to overseas conferences is failing to live by its own mandate.
  • The organisation’s workplace health and safety message is undermined when directors attend site visits but fail to wear the requisite personal protective equipment.

Next steps 

If it isn’t already on your agenda, now is an opportune time to reflect on how your board sets and oversees culture. COVID-19 has arguably made this task more complex and challenging, but never so imperative.

Directors Australia has developed a culture framework to assist boards to work through the identified actions. This can be conducted as a stand-alone activity or as an addition to a board performance evaluation. 

In 2018, Jane completed an MBA at QUT, focusing on strategy, entrepreneurship, and leadership in complex organisations. Reflecting her passion for ethics in governance, Jane’s final thesis explored ethical best practice for boards as competitive advantage. The project developed a methodology to enable directors to measure, improve, and sustain an ethical culture throughout their organisation.

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