Everyone, it seems, talks about the importance of corporate culture, specifically a single company’s culture and its value in setting the firm apart from its competition. But really, what is corporate culture? Culture has been defined as a set of mindsets, accepted assumptions, norms of behavior, beliefs and values that influence levels of engagement and trust in discussions and decisions.
Importance of Corporate Culture
While creating, maintaining and “enforcing” a firm’s culture is a shared responsibility between the C- Suite Executive Team and the Board of Directors, Boards should play a particularly active role in this process. This Board, by design, is removed from the day-to-day operations with its attendant crises and requirements for immediate decisions. It would not be surprising to find that senior management doesn’t spend a great deal of time pondering its firm’s culture.
On the other hand, the Board can, and should, take advantage of their longer-term perspective and their removal from the day-to-day operations, which often don’t allow management the time to focus on cultural development. Boards, “above the fray,” must play an active role in defining the culture. The Board also has an excellent opportunity to lead by example by living up to the cultural standards the company has defined and desires to integrate into its working world.
It seems a natural function of Boards, in increasingly complex global business environments, to focus attention on external opportunities and threats – strategic initiatives, financial results and risk management. And there is certainly pressure to treat these issues as the real work of the Board. Indeed, most would define these outward-looking functions as a Board’s key responsibilities.
And yet an inward focus is where culture will be found, examined, developed, implemented and monitored. The internal operations of the company are where employees of the firm live and work together, guided by the values they share. Many would argue that here is where the real success of the company will be established.
How then should a Board play an active role in the company’s culture and, at the same time, allow the CEO and the management team to run the operation? The first responsibility of the Board in this regard is to learn about the very nature and function of corporate culture and its benefits and then develop its own process for interacting with management on cultural issues – one that strikes the right balance between oversight and calling the shots.
Steps For the Board to Take
With these general observations in mind, what specific steps can Boards take to improve an organization’s culture?
- Recognize the Value of Corporate Culture
A healthy corporate culture is a valuable asset, a source of competitive advantage and vital to the creation and protection of long-term value. It is the board’s role to determine the purpose of the company and to ensure that the company’s values, strategy and business model are aligned to its purpose. Directors should not wait for a crisis before they focus on company culture. In addition, the Board should be continually inquisitive about other successful companies that are developing unique cultural paradigms.
- Demonstrate Leadership
A culture can only be effective if it is lived and spoken. The CEO has a particular responsibility for incorporating the firm’s culture into his every behavior, including his formal speeches and casual chats. Starbucks’ success is an exemplar in this regard. Boards must be educated or demand to be educated about the course of the firm’s cultural path and, if the Board sees it heading off course, it must take swift necessary action to bring leadership back on track. The only way a Board can effectively do this is to continually learn and understand from management about planned cultural changes and potential culture problems.
- Bring the Voice of Culture to the Boardroom
Good culture won’t develop by writing a moving memo and posting it in the company newsletter. While everyone at the firm needs to know and live the culture, key departments play larger roles in implementing management’s cultural vision and assessing its success – human resources, audit, legal, compliance and others. The Board can play two important roles here. First, by assuring that these teams are empowered to do the job and, second, by bringing group representatives to Board meetings to report on cultural progress and potential problems on the horizon.
These cultural groups should also be charged by management and the Board to develop systems to measure the success of the culture, “just like sales or ROI.” The Board’s ultimate responsibility in this regard is to hold the firm to its cultural performance standards just as it does to its financial goals.
- Incentivize Cultural Success
Unfortunately, all the prior discussion about systematically developing a clearly defined company culture is not the typical way a culture develops. In reality, people just start working together, often under grueling start-up conditions. The Board and the C-Suite can proclaim cultural norms, in fact demand them, but the key to shaping a positive culture from a chaotic situation is to incentivize the behavior you want. Rob Asgard quoted his mentor, who said, “Managers do things right; but leaders do the right thing.” It’s easy to see how focusing reward on doing the “right thing” is the best start in building an ethical environment and culture.
The reward system should support and encourage those behaviors that are consistent with all that the company stands for and aims for as it watches and learns from its cultural development and the successes of others. The board is the one entity capable of, and therefore responsible for, describing this alignment to shareholders, employees and all other stakeholders.
For all the reasons above, the Board retains the key responsibility for implementing and driving a high-powered culture. The Board is not in the position to carry out all the duties necessary to succeed, but frankly no one else is either. But by making culture a key priority and demanding results from key constituencies, the steps above can lead to a thriving and exciting workplace culture, one in which all employees will look forward to playing their part. At the core of culture is the human factor.