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Creating a compelling culture rises to top of board agenda

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Women reviewing papers The late business management guru Peter Drucker is famously credited as saying “Culture eats strategy for breakfast.” The truth is culture gives life to business strategy and the two need to feed off each other. With a focus on culture, business strategy can drive a company toward greater results.

Despite the fact it’s been proven that a healthy, productive culture positively impacts a company’s bottom line, too few businesses spend time thinking about how culture, strategy and capabilities align to create true organizational transformation.

In fact, a joint study between the Fuqua School of Business at Duke University and Columbia Business School which surveyed over 1800 CEOs and CFOs worldwide found that while more than 90% of respondents said that company culture was very important, only 15% indicated their own company culture “was exactly where it needed to be.”

Yet, culture continues to rise to the top of the agenda for today’s businesses. A 2015 survey cited by Heidrick & Struggles revealed that 87% of organizations listed culture and engagement as a top challenge with a full half of business leaders ranking the issue as “urgent”.

Earlier this year, the National Association of Corporate Directors announced the creation of its 2017 Blue Ribbon Commission to explore the role of the board in overseeing its organization’s corporate culture.

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  Source: Grant Thornton International, "Beyond compliance: The building blocks of strong corporate culture"

Boards, overall, are spending more time discussing company values and culture with some addressing the topic as a standalone agenda item, while others address it in a more integrated way. In fact, according to a new Grant Thornton International Business Report, “Beyond compliance: The building blocks of strong corporate culture,” boards are taking very specific steps to address culture and behavior.

The number one step boards in North American companies are taking is establishing internal controls that address culture and employee behavior. Three-quarters of companies are establishing internal controls while 60% are considering a business customer’s culture and more than half (54%) are benchmarking their corporate culture against that of their competitors.

Benchmarking culture against competitors is a priority unique to the North American region, which may be attributed to the ease in identifying real life examples of culture thanks to social media and technology and the recognition that a strong business culture equates to a tangible benefit for companies.

Erica O’Malley, Partner and Organizational Strategy Practice Leader at Grant Thornton US, noted in the GTI report that the increased focus on culture can be attributed to the explosion in availability of information via social media, which allows for perspectives and experiences to be shared quickly and broadly.

“Organizations are realizing the impact that culture can have on results, “O’Malley said. “The fact that more information is being shared means momentum builds. This is a driver which leaders cannot ignore.”

Moreover, increasingly the two key functions of a board—to oversee the business today and look forward to the business of tomorrow—have a shared focus on culture and technology. “Culture is all about the unwritten rules, and the spirit of the organization, which is difficult, but not impossible, to quantify, but you know it when you experience it,” added O’Malley.

When looking to build a strong culture, there is plenty a board can do to make sure all the right building blocks are in place. Based on findings of the GTI research, here are some practical recommendations to successfully develop a strong corporate culture.

  1. Conduct a culture audit
    O’Malley encourages businesses to survey their employees on their understanding of company culture. “Culture comes to life when employees interact with each other,” she explained. “This creates subcultures and the only way to find out they exist is to ask people.”
  2. Create open channels of communication for culture to flow
                    Erica O'Malley
    “Boards need to go off-script, and interact and experience the culture in order to understand whether there’s a potential cultural problem.”
                                               Erica O’Malley
    Test culture against real life business problems and make sure the culture is working for the challenges your business faces. “It is very challenging to convince an organization to analyze their culture overall,” O’Malley acknowledged. “What I recommend is asking ‘what is your business challenge right now and how confident are you that you’re going to achieve it?’ If there’s any doubt, consider evaluating the impact culture is having on the ability to achieve results.”
  3. Factor culture into ongoing risk governance
    Board members have responsibilities when it comes to risk, and assessing behaviors and processes through a risk lens helps to maintain corporate culture. Behavior which could derail culture should be captured as part of risk assessment activity.
  4. Ensure cultural alignment with key stakeholders
    Boards are also concerned with the culture of those customers and suppliers with whom they do business as these external stakeholders have the potential to negatively impact a company’s brand and reputation.
  5. Develop strong relationships with senior management
    Boards are engaging in more in-depth conversations with senior leaders to better understand how culture impacts day-to-day operations. “A more free-flowing behavioral-based conversation will help boards experience an organization’s culture,” explained O’Malley. “Board agendas are typically quite prescriptive. They need to go off-script, and interact and experience the culture in order to understand whether there’s a potential cultural problem.”
  6. Make culture an actionable corporate objective
    Boards are requiring leadership teams to make culture a strategic objective and giving them additional accountability to ensure that culture is embedded throughout the business properly.

Assess and measure
One key aspect of making culture a strategic priority requires defining the best approach to assessing and measuring it. Boards need to understand that indicators are being used to measure culture in order to ensure they are achieving the right outcomes. For example, some boards are tasking their leadership teams to develop a single report of cultural indicators which allow for the tracking of individual functions in relation to behaviors and culture. Board discussion then focuses on a small number of meaningful measures that provide critical insight and can be tracked over time.What are the top corporate culture questions every board should ask? Download our top 25 list.

Investors, too, increasingly are requiring companies to improve reporting on culture. Cultural indicators need to be both relevant and meaningful for investors. Boards need to carefully consider what information is most useful. Moreover, boards increasingly will leverage technology, including evidence-based tools that allow for the layering and presentation of information from a range of sources, to assess and monitor culture risk.

Ideally, culture indicators presented to the board should include definitions of the indicators, core insights about the company culture, identified areas of concern and recommended action steps. Information should also be captured about sub-cultures and outliers. Without a shared language or framework to discuss culture — or data about the health of the culture — boards and leadership teams don’t know where to start or how to have a productive conversation about the topic.

Conclusion
In the public arena, corporate culture is too often viewed as either good or bad, without the recognition that it is a complex, stable and sometimes difficult to explain phenomenon that differs from one organization to the next.

As Howard Schultz, Executive Chairman of Starbucks once noted, “In this ever-changing society, the most powerful and enduring brands are built from the heart. Their foundations are stronger because they are built with the strength of the human spirit, not an ad campaign. The only competitive advantage we have is the culture and values of the company. And we all have to own it.”

Board governance is indeed now shaping up as the next frontier in molding and influencing that corporate culture as boards increasingly recognize that accurate knowledge of company culture can enhance governance decisions and drive business success.

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Contact:
Erica O'MalleyErica O’Malley
Partner, Organizational Strategy Practice Leader
T +1 312 602 8786