THE CULTURE GAME – HOW CAN BOARDS EFFECTIVELY GOVERN OVER THE OPAQUEST, BUT MOST VALUABLE OF ALL ORGANISATIONAL COMMODITIES…?

The content of this article is not based on any one organisation, previous or current employer, or any one or groups of individuals. The author writes in a purely private capacity, and does not represent nor speak for their current employer, on this topic.

There are certain things in corporate life that one cannot buy off the shelf – any shelf, anywhere, for any price.

A strong, value-adding and sustainable organisational culture is one of them.

Nor can you buy a trouble free, risk free time as a Board Director when governing over culture. It simply doesn’t exist. ?What Boards can do however, is take repeated, deliberate, no nonsense, and tailored approaches when governing over a company’s culture, in order to mitigate cultural risk to the greatest extent possible.

Culture is the hardest thing Boards have in their responsibility set. This is because ABSOLUTELY EVERYTHING in the company derives from culture, and it’s the one thing you can’t see in just one measure. ??

Companies can die in just a few days because of a culture implosion. If the foundations of the company’s house – ie the grounding which holds up the walls and the roof – finally give way from months or years of unseen toxic seepage getting into most critical part of the structure, then you’ve got a potential disaster on your hands.? ?

Boards must keep their noses close to the foundations and critically watch and test for issues – ensuring that any hairline fractures detected are appropriately treated and monitored. What you don’t want is for that hairline fracture to build up over time and then one day burst, causing sometime irreparable damage to the company (and indeed sometimes the Board). Corporate land is full of such stories.

What is critical is how the Board gets its understanding of how the CEO is interpretating and then applying their vision, strategy and culture in a real time setting – and over various time periods.

Later in this article I share tips on how I’ve seen Boards successfully govern over culture. Before then, I just wanted to share a few points extracted from a great publication by law firm Allens which I found to be a very helpful way for Boards to think about how to start on this journey:

• “…What does an organisation need to do to undertake an effective culture assessment?
• The starting point is the development of a clearly articulated culture and an explanation of how that aligns with the business strategy, organisational structure and governance frameworks.
• The assessment must test how the organisation lives up to this vision.
• It must be independent, cross?functional, and rigorous, making findings based on evidence, not conjecture.
• It must be adapted to the organisation and thoughtful, not a box?ticking exercise.
• It must identify root causes, not symptoms.
• It must be continuous, not a one off or periodic process.
• …the review itself must then draw upon all available data points to identify the culture within the organisation – ranging from senior board and senior executive interviews, employee, supplier and customer feedback, to compliance, risk and audit reviews.
• Reviewing real case studies can also help identify cultural strengths and weaknesses.
• The assessment must document findings, cite evidence to support findings, and encourage and empower those involved to speak honestly and openly.[1]

No one person, Board, or corporate governance educational institution has nailed the exact formula of how to effectively govern over organisational culture and never get it wrong. As long as humans continue to make up our workforces and our Boards, so too will culture be a moving feast of complexity, spectrum, and risk.? It’s an area that as a Director, you can never take your eyes off. ?

The Board’s job is to be interpreting the signals – overt and otherwise – so that you don’t find yourself with a whole aria of canaries in your goldmine i.e. you have to be alert and privy to what’s going on in the bowels of the company from a variety of different viewpoints to ensure you can pick when there’s smoke up ahead (and therefore quite possibly, a nasty and potentially combustible fire).

So lets move on to the ‘how to’. The following are some ideas from my experience over the 18 years I’ve spent around Board tables, as well from the tales and tribulations of Board experiences reported in the media or by other methods. Critically, a Board must design an effective framework based on what is right for the company – context is everything to achieve effective governance[2].

Has the Board documented the culture for the CEO and the organisation? ?A CEO cannot implement and lead on culture if it hasn’t been defined by the Board. They are not mind readers. Tone comes from the top; the fish rots from the head etc – we’ve all heard this. The Board must set down what it expects in terms of how the employees of the organisation are to behave, and what’s non-negotiable. Otherwise, it’s a guessing game that will only end in confusion and underperformance.

Complaints are a golden goose of information for Boards as to how a culture is faring:

• Does the organisation have a complaints system? If not, why not?
• How is it structured? Who runs it? Who does it report to?
• Where’s the independence in the structure to guarantee authenticity in the reporting and decision making?
• How is a complainant treated? Are there timeframes whereby the complainant must receive an outcome? What support measures are put in place for the complainant but also the person being complained about (innocent until proven guilty); where does one make complaints and are they anonymous etc?
• In which direction are the complaints trends heading? Do the stats point to any one manager or division on a recurring or volumes basis??????????????
• Have complaints risen especially in a particular area due to a recent traumatic event e.g. a restructure?
• How are the cultural indicators faring for those parts of the company furthest away from the Board? How do these differ from the divisions closest to the Board, CEO and the Executive? If they do differ, why?
• Is everything being reported as ‘green’ – no issues to see here?

You must also ask for data and receive regular reporting on same:

• How many complaints were made in a certain period? What’s been the trajectory over recent and earlier time periods?
• Who were they from in terms of locations, departments etc? Do those locations or departments have any management in common?
• Are there staff absence data points and trends that can be presented on those departments?
• How impartial is the judge in the complaints system? What’s the proximity of that role to those being complained about? Examine these issues, because the proximity and relationships of the determiners and the defendants can produce sometimes unsavoury and potentially catastrophic outcomes for culture.

The reason these are all important things to ask as a Board is because a complaints system is a critical part of the governance infrastructure to effectively govern over culture. If I were on a Board, I’d be asking all of the above questions, and insisting that the Board has a private session at least 2-3 times a year with the head of the complaints system – or the role which is designated to review and opine on the complaints made. ?

Also ensure that the complaints system has an independent external assurance review every 2-3 years. I’m a huge fan of having your biggest risks independently reviewed on a periodic basis, and the complaints system is one of these. As much as you might like and admire the executive team, you can’t always be sure they are batting the same way you are when it comes to protecting the workforce.

You need to ask your CEO to report in writing how many complaints referred to them personally were then returned for local management (and what that means); vs how many were referred to independent external parties for arbitration.

Also important is to ensure that the Board has a complete reporting framework in terms of the number of whistleblower complaints, and that the whistleblower system is also periodically externally audited and assured.

Absences data is also critical. Boards should be receiving information on a regular basis as to workforce absences – and the breakdown of same:

• Unexpected personal leave; elongated sick leave periods; mental health leave trends etc.
• Sick leave due to workplace injuries: what are the drivers of the injuries? How is this potentially linked to the organisation’s approach to safety? What are the trends over the past 5 years?
• Is there a correlation to other workforce statistics e.g. staff turnover, unfavourable exit interviews, downward trend engagement scores?
• Is there a connection to undercutting safety training spends?
• Unhappy, ineffective and unsafe workplaces will raise their heads in the form of concerning workforce statistics and strategic underperformance, so get in underneath these and see what you can find.

Media reports and social conversations are also a great way to pick up on any potential issues spiking in the company. People talk. Listen to it carefully, and then take it forward e.g. raise it with your Board Chair and other Directors in your next Private Session at a Board meeting. Should it be raised with the CEO in private by the Board or the Chair?

It’s not often in my experience that people gossip just to be malicious – it’s quite common that there’s something kicking around that you might want to get on top of.? Where there’s smoke…

Employee surveys can surface potential culture issues in an organisation. But don’t overly rely on them as the solitary road sign of corporate health. You need multiple year trends to determine how certain areas are faring, and the Board must also try to see the qualitative answers to questions.

• Now, the latter could be difficult for companies with literally thousands of employees – I totally get that. But what if the Board asked for just one department’s qualitative results? How can you be sure that management is not concealing some of the data? The answer to the latter is to have the data externally reviewed and assured or to suggest that the CEO has the surveys conducted by an independent party.
• I don’t accept that this is overstepping and telling the CEO how to run the company; this is too important of an issue to just take what’s handed out to you as a Board without appropriate challenge. Surveys are not just the tool of the CEO and Executives; it’s your Board tool also. Be really engaged in the elements of how these surveys are done, and by whom. Be curious and challenging in this space

Find an organisation who has blown it out of the water when it comes to amazing culture results, and then get their Chair or CEO into your Boardroom to explain how they did it. This is an invaluable opportunity if you can make it happen, because learning from others – including how not to do it, but also what has been really effective for them – is better than what any theoretical governance model can provide you.

Governing over distributed workforces who work 24/7 (think organisations with multiple location footprints - fire, ambulance, police, SES, supermarkets, media companies, Defence Forces, SAS etc) – these are tricky situations for Boards to get in underneath what’s really happening in these worlds. ?The CEO can’t be everywhere all the time, so how are they managing these geographic challenges?

• As the Board, you have the responsibility of ensuring that the systems of protection your CEO has in place are such that the wholesale level of indiscretions, and breaches of culture and safety are reported up to you in a timely, effective and instructive way. How trustworthy are your Executives? How do they fare in employee surveys? What do people say about them when they’re not in the room or when completing an anonymous survey? Have you been out on site with employees in these remote areas to ask them about how they feel in terms of culture and safety?
• The further away the workforce is physically from the Board, there can be a heightened chance of cultural tone from the top seeping away and becoming irrelevant. Samantha Crompvoets wrote about this so skilfully in her book “Blood, Lust, Trust and Blame”[3]. For me, it’s a must read for all Board Directors given what it can teach you about governing over the culture of organisations which have a hierarchal top brass issuing the instructions to an on-the-ground workforce literally thousands of kilometres away.
• In such workforces, how are the victims of bad cultural cases treated? What happens to the perpetrators? How often are the victims moved and not the bad guys? Has anyone asked the questions? Are Non-Disclosure Agreements still used by the CEO, HR or the Legal team – if yes, why? Ask for this intelligence and don’t rest until you get it.
• There is a lot of information on the web available to Boards from cases already tested for their cultural ineffectiveness and failures: ambulance services, police, fire, Country Fire Associations, the Australian Defence Forces etc. It’s all public and the lessons to be learned for Boards are all there for the taking.?

Boys or other exclusionary clubs: sadly, these are still out there and still running strong in some organisations. What is the CEO doing about these? Have you asked them about whether they exist? Has the CEO even asked the question themselves? Who else are you asking? Who is getting the promotions? What’s the male/female/other make up across the various levels of the company? What does the CEO stand for, promote, value, communicate and implement policy wise in terms of diversity and inclusion across the entire company?

• This is presented not to be to hysterical or provocative. It’s just that these clubs still exist and they can be a real driver for superb talent walking away from companies who ignore these exclusionary groups – and it will be costing the company real money and intellectual capital. Even in the most culturally strong of organisations can this issue arise. Ask the question. Ask different people. Observe. Contemplate. Discuss as a Board.

Go to the workplace: if you are on the Board of an organisation whereby you can access the workforce on the ground doing their jobs e.g. at the supermarket, in the department store, on the mine site, in the ambulance stations (both metro and regional), in the hospital, on the trading floor, in the bank branch…then go there. Experience what the consumer and/or employee is experiencing.

• Use the products. Take in the service. Listen – how are the employees speaking to each other? How are they speaking to customers? Watch the humans in their workplace and see what it tells you. Ever insightful and hugely valuable.
• Enabling Board Directors to periodically visit – unaccompanied and unsupervised - a staff situation where the CEO can’t control the conversation is critical. This allows very honest and open conversations between the Board member and the staff, but also provides the Director with a golden opportunity to ask employees insightful questions about their everyday experiences of culture and working in the company – what’s good and to be celebrated, and what’s needing refinement or wholesale change. It’s a program of engagement that’s an exceptional way to tap into real life sentiment and to then consider it through a critical lens with the residual Board.

Social media can also be a great way to see what’s potentially happening in an organisation – review sites which speak to employee experiences: what do they say and what should the Board take from this? This type of insight can be a bit interesting in that you can’t always guarantee what’s genuine and what’s been posted negatively to punish the company for employee grievances. But it’s definitely a form of intelligence that’s interesting to contemplate if nothing else.

Ask your friends, family and other colleagues what they experienced when dealing with the company? What can this feedback tell your Board about how people not connected with the company or its infrastructure have been treated by the workforce? Where there repeat feedback themes to share with your Board colleagues and to therefore enquire with the CEO about?

What does the company celebrate? Is it a constant flow of self-congratulation for achieving certain profit targets or revenue benchmarks? Or is it also about safety, community contributions, or employee achievement?

• Whilst not an entirely defining character of culture good, bad or indifferent, it’s an interesting ingredient to observe – how much of the cool aid is being drunk vs how forthcoming management is about where they have obvious improvements points in their cultural settings, and how honest they are as to where they’ve erred in people or cultural issues? This also goes to the reporting discussed previously where all the indicators point to green – nothing to see here!
• It's always a good sign when your CEO and the Executives quickly tell the Board about things which need improving or where they’ve gone wrong. ?

I also like to see Boards watching for when the spend on culture related initiatives, and/or safety training changes i.e. in a downward direction – especially if the spend is being directed to P&L enhancing activities. Get in underneath this and explore it – why are important components of managing a great company being traded off for other expenditure areas? It may be perfectly fine and defendable in some cases, but do ask the question.

A very good overt indicator of culture and the Board’s connection to same is how the Board meeting agenda is structured. Where does culture sit in the listings? Where does safety also feature? How often does it get included, and how much time is assigned relative to other areas of the Board’s responsibilities? Coming onto a new Board, this is a good checkmark to look out for to enquire about if you think it’s not quite what you would have expected given the company involved.

An oft-lacking understanding of successfully governing over corporate culture is when Boards don’t seek evidence of ‘how effective’ the CEO or management’s activities, programs and initiatives have been. It’s great to have reporting which says “…we delivered this leadership or culture program however many times, to this many people”.? Because what’s more important is how effective (successful, valuable, sustaining, moving the dial) those efforts have been. Can they show or prove this to you?

As you can see from the above, governing over culture is not linear; it’s an art and a science all tied up together and it can be described as a human minestrone soup – it has lots of different ingredients, of all shapes and sizes, and this makes it often difficult to see the bottom of the bowl because of everything swooshing around altogether!?

Effective governance over culture means knowing what questions to ask (and when), what good looks like for your company, to get and interrogate the evidence, to know what is not acceptable, to find where the red flags are – and not being afraid to ask questions just because they might offend someone or make them feel challenged.

That’s your job as a Board. Don’t ever flinch from this. It’s is your responsibility.

Oversighting culture is governing over the organisation’s most precious asset – ignore the required commitment to asking the right questions, seek the right information, and challenge management on key issues and you do so at your legal, commercial and reputational peril.

?

?

[1] corporatecultureguide.pdf ( allens.com.au ) – accessed 21 July 2024

[2] Effective governance is not the same as everything being perfect all the time; effective governance is having the right combination of experience, capability and diversity around the Board table, choosing the right tools to measure the right things at the right times, and then knowing how to assess the results – to know what good looks like etc.

[3] Blood Lust, Trust & Blame - Monash University Publishing – accessed 30 June 2024; Samantha Crompvoets; published August 2021; Monash University Publishing.