Over my nearly 13 years’ in corporate governance practice, there have been a handful of issues which I’d hold out as being particularly challenging or opaque for boards and directors.
And that’s often because they don’t come with a predefined chapter in your governance handbook, or you’ve not yet been exposed to a high calibre board that routinely deals in these matters as skilfully and seamlessly as they might in strategy or finance.
Cybersecurity, technology and digital transformation are just some topics that come to mind — these are often issues about which directors are told ‘… you must, you have to, boards should be…. etc etc’. But the rhetoric often falls short in providing directors with requisite guidance as to how to execute their governance duties across these topics.
Culture is probably the granddaddy of all opaque governance topics:
- Outside of the academic literature (and the oft-quoted Peter Druker description), what does culture really mean to the average director and board? If I pulled you up on the street tomorrow or in the lift, what would your authentic answer be?
- How important is it really — relative to other risks or opportunities for your organisation?
- How much of your attention should you be giving it as a director and board?
- And just how do you go about wrapping your directors’ arms around it, and understanding just where it’s at in your organisation?
- If you find something questionable, what do you do about it?
If you’ve been involved in a board or governance setting for more than five minutes, you’ll have noted the amount of attention being levelled at this topic by both the directorship community and various regulators. And with good reason, given what’s at stake if you get it wrong.
Culture is a governance area that fascinates and energies my work — more so for the upside and value-add it can contribute to the success of an organisation. But also for the intense contribution it can and will make to an organisation’s downfall if neglected or left untouched due to a lack of understanding of ‘how to do it’.
And even if it doesn’t sink your organisation, it can be costly — just ask NAB, Westpac and ANZ who have recently been ordered to put aside some extra $500m to ‘…force them to address major flaws in their culture and the way the banks are run’.1
I have written about this in Eyes wide open: A first timer’s guide to the real world of boards and company directorship2. While you can ‘buy in’ a whole lot of things to uplift the capability and success of an organisation, culture isn’t one of them. ‘…it has to exist within the bones of the organisation and it starts with the board’.3 When doing your due diligence before joining key questions to ask include:
- How does the company and the board lead culture on a daily basis? How is this articulated to you by the chair, and how early on in your due diligence does that topic come up?
- What are the behaviours which are organic to the company and its operations?
- How is culture tested, how often and by whom?
- What is the staff turnover? Are there exit interviews performed? If yes, does the board receive verbatim copies of same (particularly for senior management, or those who’ve stayed for only a short tenure)?
- How does the board work together, both in and outside of the boardroom?
- What are the respect levels amongst the directors?
- Behaviour wise, what’s never tolerated, and who can articulate that for you?
- Who sets the boundaries of what’s an acceptable culture — is it being led and exampled by the board and CEO, or is it controlled or overly influenced by disparate sectors of the organisation?
When considering joining a new board, you should seek to test any disparity in the cultural lens offered up by the chair and CEO — the wider the gap, the deeper you should probe before signing your consent to act.
I also advise to look for the conversation about culture to be natural, rather than orchestrated — if someone quotes you the standard play about what culture means to the organisation, there’s a good chance it’s not being given the bespoke attention it deserves on either the board’s or management’s priority list.
Once you’re on the board, how should you be looking to get in underneath this most significant governance issue?
Culture is probably the granddaddy of all opaque
There are numerous ways to do it, and these should be built upon over time. It’s really important to start from a baseline position and to work upwards from there. It’s not a topic to be reviewed and sorted out in one board meeting (or once per annum). Culture is one of those topics which needs to remain on the infinite review spectrum of a board’s activity set, and must never be allowed to be put on the bench because ‘we did that last year…’.
A non-exhaustive list to get started in this space include the following:
- It’s an imperative that the board has a unified, collective definition of culture — both from an academic / governance viewpoint, but also what it means for your own organisation (don’t copy and paste from others — dig deep into what makes your culture special or what makes it problematic; define it from within)
- The board needs to take a progressive examination of different components of the organisation’s culture —where it’s at now, where it’s heading, where it’s being strengthened or challenged, where it differentiates across the business, and where improvement opportunities might exist for future exploration. This can be assisted by doing a deep dive into the following areas.
- The board can facilitate either its own workshop, or conduct a joint session with the executive team and CEO — the benefit of undertaking the latter is that you can utilise pre-workshop culture surveys to determine both the degree of alignment (or otherwise) about culture between the board and senior executives, as well as identifying those areas that require further investigation, attention or investment.
Undertaking a compare and contrast of the cultural temperature of the organisation — as understood by the board and the executive independently — is instrumental in both sides being privy to the other’s position and perspective.
Given that it’s the executive who actually implements and delivers on the board’s cultural agenda, it’s an imperative that the two (2) positions are intensively reviewed and understood at the outset.
- The board needs to collaboratively determine what KPIs, internal performance measures and other evidence points need to be brought together on (what) periodic basis to allow the board to review, test and consider culture.
The key to making these reviews effective is to overlay related, but not aligned measurement areas e.g. don’t just consider all people related metrics in isolation — combine and overlay these with what’s happening in your professional conduct unit (or equivalent), your OH&S statistics, your external and internal complaints data, your internal audit review outcomes etc.
What’s happening regionally, geographically, seniority, product or division wise? Areas of mischief or concern may lurk in micro-pockets, rather than that sometimes presented via consolidated, vertically aligned data.
When you bring together what might appear to be disparate measures, you could be exceedingly more informed about pockets of potential problematic areas not earlier recognised by a straight run of KPI outcomes.
- When your board is reviewing the results of organisational or divisional surveys, look not only for those areas which score heavily one way or another, but also for those where there are outliers. We’ve all heard about the dangers of the ‘quiet ones’.
It may be that these scores represent a courageous and informative voice for the board — rather than being recognised as a small group holding a fragmented viewpoint. Dig in and listen to what they are telling you.
- Also look to surveys which provide widely disparate results in questions which can sometimes unearth issues with staff connection to management, leadership, safety, integrity, training investment etc — ask why there’s a spectrum of responses.
- A pivotal issue for all boards when seeking to better understand culture is to realise that there is very often a sub-structure of cultures at play in your organisation, that is, what’s going on or accepted in one area, may be quite the opposite somewhere else.
Regardless of the organisation’s size, this is a really important question to be asked and explored — don’t let it go until you understand the fundamental differences of where the cultural divides start and stop, who determines or influences this, and how embedded these are.
To be clear, having sub-cultures is not necessarily a bad or concerning issue — it may well be that this is an inherent strength of the organisation, rather than being a detriment. What’s critical is that the board makes the point of asking the question about whether these exist in the first place — and, if they do, make it the their business to get underneath the skin and environment of these sub-structures.
Where did they come from? Are they beneficial? Do they value-add or detract from the organisation? How can they be harnessed for good? Where do or could they field both intel and challenges for the executive and board (if any)?
At some point in the entity’s history, an issue or experience has seeded or fueled one (1) or more sub-cultures — where a vacuum exists in an organisation, something inevitably fills that gap. Understanding why that is so (and whether it’s been for good or evil), is your job as a board director.
- The board must run a ruler over how often, by what means, and to what extent its board and Committee agendas and discussions touch upon culture as part of their normal course of business. If it’s under-done, raise it and then fix it.
- Whilst it’s an imperative that the board, CEO and executives are aligned in their definition of culture, so too is the board defining its cultural ambitions for the organisation. In your memory as a director, has the board ever relayed to the CEO and executive management what the board’s actual cultural ambitions are for the organisation?
Its suprising how powerful a clear articulation of this can be in taking the cultural agenda forward. As a CEO, how can you manage to an ideal that hasn’t been outlined for you? And that’s absolutely the job of the board.
- As a director, when was the last time you spent time in the business, meeting various levels of staff, management, customers, patients, customers, consumers, suppliers? It’s true that staff are at the forefront of information value in being able to procure a good cultural insight; but go a little bit further into any of the other aforementioned stakeholder areas and see what is returned. Be sure to engage with parties other than staff when retaining a governance oversight across culture — every connection point with the organisation tells a story that may / may not be aligned with what’s in your board papers
- Complaints are an absolute goldmine for boards in understanding their organisation’s culture — these often untapped, hidden sources of significant cultural intelligence sit awaiting your director’s review. And these are both externally and internally received complaints.
Look to voluminous complaint areas, and be sure to secure a timely review of same. Why are these problematic? What are the causative attributes of the complaints? Are they symptomatic of something deeper, and therefore potentially more concerning? Is the data accurate and independently verified? Is the board privy to a verbatim copy of the most serious of complaints? If not, why not?
Don’t be afraid to dig underneath concerning trajectories, and where lower acuity complaints are being received in large quantums. There’s quite possibly a wealth of information waiting to be discovered in the confines of your complaints data.
Like most other board skills, understanding and being a good governor of culture is about knowing where to look, what questions to ask, and to be fearless in your pursuit of information and the truth.
Outperformance in one area should not be automatically taken as a signpost to the organisation having a great culture. The banking royal commission was a proof point to the fact that financial outperformance is not a primary indicator of having one’s house in good order.
You can never over-invest in culture as a board — its implosion and impact will suffocate any band-aid solution you might apply to lessen its impact. It’s not hard, and it’s not expensive. It’s the only investment your board can’t afford not to make.