Corporate Culture and the Role of Boards

Company culture can influence everything within a company from business decisions to employee behaviour and vice-versa, which is why boards should have a continuous focus on it. A positive culture will help to deliver productive behaviours over the long term. A negative culture can directly affect your organisation’s value and reputation. If shareholders sense a poor corporate culture, they may be more likely to sell their shares.

Some signs to watch out for are:

• Lack of openness and communication
• Dominant Chief Executive
• Aggressive leadership
• Low levels of engagement
• Lack of diversity

Boards must lead the way when it comes to corporate culture. The Corporate Governance Code states that boards must set the ‘tone from the top’ and it starts with the chief executive. The CEO is responsible for setting expectations, driving behaviour and helping the board adapt to change. He/she has the most influence when it comes to corporate culture so should be accessible and approachable. Will he/she listen and take criticism? Good leadership, starting with the CEO, can be felt throughout the entire organisation. It can result in employee retention, high morale and sustainable success. It also positively impacts relationships with stakeholders including shareholders, employees, contractors, suppliers, customers and everybody else that plays a role in keeping the business going.

Leading by example is one way in which boards can demonstrate to management the corporate culture they want to implement, but first boards must fully understand the goals and values of the business. Why does the company exist? How does it make money? Only with a thorough understanding of the business can boards then take action and communicate to management effectively.

When there is a lack of communication, it results in frustration from the board, all the way to the bottom. Staff do not understand the goals of the company and fail to see the importance of their role, and this makes it impossible for them to take an interest in anything the company stands for. Good corporate culture ensures open communication where everybody who plays an active role in the business understands its values and goals. When everybody knows what the company stands for, they can make better business decisions whatever level they operate on.

There is no ‘correct’ corporate culture and every board should consider what fits with the values, goals and strategy of their own organisation.

Some boards believe that their corporate culture is intrinsic, understood by all and therefore rarely discussed, but they should be wary about complacency or an underlying reluctance to discuss it. While culture should be intrinsic, that is, part of every aspect of business, it still needs to be considered whenever decisions are made.

You can ask yourself if your board is discussing culture enough at board meetings, if you’re leading by example and if the behaviour you demonstrate reflects the behaviour you expect throughout the company. To help embed your preferred corporate culture, consider a code of conduct which can translate values into policies and guidance that people within your organisation can follow.

Another aspect of good corporate culture is that of management’s willingness to listen to employees. Don’t make the mistake of thinking that your staff don’t want the company to succeed as much as you. Most will be in it for the long term and will have ideas which can help the company succeed. It pays to open up and maintain a dialogue with staff, to make them feel valued. This will help create a positive culture within your organisation.

Measuring corporate culture can be difficult, but spending time in the organisation and ‘on the shop floor’ can you help gain a true understanding of your corporate culture. Don’t be afraid to challenge senior management if you don’t see them implementing your desired culture effectively. Ask questions, probe and request access to relevant information. You can also develop a picture of your company culture by using:

• staff surveys,
• exit interviews,
• employee retention rates, and
• reading reviews from employees on websites such as Glassdoor

To read the full report on corporate culture by the Financial Reporting Council click herehttps://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Corporate-Culture-and-the-Role-of-Boards-Report-o.pdf