Fixing the 12 Biggest Mistakes Boards Make About Culture

Ruth Sullivan recently posted a great article that was commissioned and published by Board Agenda on the twelve most common mistakes that boards make about culture. Like all good articles it got me thinking …

What if there were some practical responses? How can boards avoid, correct, or (at least) mitigate the impact of these mistakes?

Here are my thoughts, based on Ruth’s inspiration and structure:

1. Culture is not important to us!

If this is your board’s problem, then it is YOUR problem. Every director has a duty to lead the board at some time and on some topicsTry sensitising the board by including articles for them to read among the papers; regulators are starting to turn their attention to culture and boards that are not aware of regulators’ requirements will soon suffer. Once the board is aware of the need for culture to be on their agenda bring in expert help. Consultants (such as Steve Simpson of Unwritten Ground Rules) can help a board to see the real cost of poor culture as well as steps to help change.

2. We can easily change it

Change is possible, but, as Ruth Sullivan mentioned in her original article “it is a slow, difficult process to shake it up, needing skill and persistence”. It is not so much the presumption that is false, but the presumption of ease or speed of the desired change. A great tool for boards to use is David Gleicher’s change equation which itemises the necessary element of desire to change, an acceptable magnitude of change, clarity of the vision of the change, and clarity and ease of the first steps towards the change. These elements are multiplicative; if any element is small, non-existent or negative the change will not happen.

3. Culture is the CEO’s problem

Governance includes stewardship; that carries accountability. Although the CEO is responsible for the day to day operations, short term planning, and delivery of performance it is the board’s role to ensure that CEO has a personal culture that closely approximates the desired culture, is appropriately incentivised to behave as required, and is supported in ‘taking the hard decisions when so-called soft performance indicators are not good enough’. The board should have in-camera sessions to discuss any qualms they may have about the CEO’s personal values or behaviours and how these may affect the delivery of the desired culture. The chair should then candidly feed back to the CEO what needs to improve and how.

There is no ‘perfect CEO’ without strong leadership from a board to reinforce and support the desired behaviours. Incentives must be aligned to the behaviours that exemplify the culture; mixed messages will always cause misunderstandings and, in particular, the board must place equal or stronger emphasis on the ‘soft’ measures that drive culture. The CEO might be the board’s most effective cultural change-agent but the board must define and manage the terms of the agency agreement!

4. The CEO doesn’t ‘live’ the culture

Jim Collins spoke of leadership as getting "The right people on the bus, the wrong people off the bus, and the right people in the right seats”. If there is ever any concern that the CEO is the wrong person the board must act, and act fast. Get that wrong CEO off your bus!

Sometimes boards are frightened to move a financially or operationally competent CEO because of a cultural deficiency. All too often this sends ‘mixed-messages’ that subtly tell management ‘it’s okay to say one thing and do another’ or ‘the board don’t mean what they say’. These messages are dangerous. Boards that have ignored this issue can find themselves on the front pages because of a particularly egregious transgression. The reputation damage can be irreparable.

The CEO must be the board’s most important culture-change-agent.

5. We are not responsible for culture

If you find yourself on a board where your colleagues are irresponsible, get off!

The board should discuss culture as a strategic imperative (“what culture do we need to meet expectations and deliver the plan?”), they should then set KPIs that will tell them if the culture is as they would wish, and (as with any other deviance from strategy) take steps to return to plan if performance does not reach the required level.

6. We wouldn’t know if culture was wrong (or how to fix it)

Quoting from the original article “This can be disastrous for a company. Recent corporate history is full of examples where boards have failed to do this. The cartel of banks involved in rigging Libor, the key benchmark rate; Volkswagen and the long-running practice of emissions cheating, and Wells Fargo’s failure to tackle negative culture and corporate governance issues are just a few.”

The board must describe the desired culture, design KPIs to monitor culture and, importantly, get out of the boardroom and see the culture in operation. In all of the examples above the board rarely visited the operations and, when they did, it was usually as part of a formal and carefully crafted itinerary. The Chairman of Myer Holdings Ltd came in for some very severe criticism recently when he remarked that he ‘was incredibly old-fashioned’ and only shopped once or twice a year. Modern directors are expected to have first-hand experience of their businesses.

7. We have a very specific,tight, definition of culture

Is anyone reading this old enough to remember Bill Clinton’s vehement denial, based on a tight legal definition, of ‘relations’ with Monica Lewinski?

Culture underpins the way in which work is done, or even if it is done at all! To help the board to see culture in all its aspects it is vital that the board get out of the boardroom and into the operations. Preferably, this will be done in small groups so that individual directors have unique experiences and can then debrief the whole board on their insights. Arranging a week when different directors visit different operations and then talk about what they have seen at the next board meeting can give invaluable insights.

Some aspects of culture are, and must remain, all pervasive. Apple’s fixation with good design and intuitive operation is a good example. Other aspects will vary across the organisation, perhaps a culture of excellence in the accounts department and a culture of responsive empathy in the sales department for example. The board must be aware of the variations in culture and assure themselves that these do not pose a risk (as happened for example, when the claims departments of certain insurance companies denied valid claims on technical grounds rather than empathising with the customer as the board’s desired culture would have had them do).

8. We fixed it – phew!

Culture must vary over time to accommodate changing community standards. The board must also change as directors reach the end of their tenure and new directors replace them. This constant evolution allows new ideas to lead the process of culture change in incremental steps. Boards that fail to keep vigilant about their company’s culture can find themselves dangerously removed from societal expectations.

Adding a section on desired culture to the strategic plan will ensure that culture comes up on the board’s agenda every time the plan is reviewed (at least quarterly in a well-governed organisation). Having cultural KPIs that are reported at each board meeting will keep both the desired culture and the actions to move towards it clearly in the board’s view. If the culture change is happening as desired and the KPIs are showing improvement, then the board can continue hands-off oversight. If the KPIs are deteriorating or stagnant then the board must intervene.

9. We aren’t expected to live the culture

Directors often forget how powerful they are as symbols of success in the organisation’s culture; whatever the directors do staff will feel is acceptable behaviour for them. Good boards will have a director’s agreement that sets out, alongside the terms and conditions of employment, requirements to comply with the company’s code of conduct and to act in a way that exemplifies the desired culture. Each new director should sign and return a copy of the agreement to indicate that they agree to be bound by it.

In Australia the board of Fairfax Media refused to grant a board seat to an investor with a significant large shareholding when she refused to sign, and agree to comply with, their code of conduct which included provisions about journalist’s independence.

10. Nobody will care about culture (if we make profits)

Good culture will always help if things go wrong. However, it may not be enough. Boards should be prepared to hire in specialist help in managing the aftermath of any disaster. Correcting a first impression is hard and many boards are not given the chance.

11. We are all happy with the culture

As mentioned in item 8, the board’s composition must change with time. Everyone has a natural human bias to prefer people who are like they are. Preventing that bias from resulting in ‘stale, pale and (usually) male’ boards takes effort. Developing a list of the skills and experiences that are sought before starting to consider candidates is imperative. Once the skills are agreed then the board can advertise (there are free sites for NFP or smaller boards to advertise positions so that cost is not a deterrent) or brief a professional search consultant.

If a board member has a friend or acquaintance whom they believe to be a good candidate, they can encourage them to apply or give their contact details to the recruiter.

12. We don’t want to change our culture

Of course, not every board wants to change. Change is hard, and scary. To keep change on the agenda it is essential that board composition is driven by the skills matrix and that the skills matrix is driven by the strategy. Asking ‘what could the board do different?’ at each in-camera session is a great way to constantly challenge comfortable practices.

Keep directors actively engaged in the community; they should all have insights about customers, staff, host communities, suppliers and shareholders. They won’t develop those insights in the boardroom. They must go out and gather them. To stay abreast of emerging societal expectations directors must constantly upskill and engage through education, not-for-profit board service, site visits, study tours, conference attendance, and focussed inquiry.

Finish each board meeting with the questions “what has anyone learned since our last meeting that may be insightful for the board”, “what did we do today that was really good?” and “what did we do today that we might try differently next time?” These will give the board insights into practices that could be improved.

Boiling the ocean

There will always be opportunities for improving the interface between the board and the culture of the organisation that it governs. Constant appraisal of culture, first hand, and a willingness to listen to difficult truths will help the good boards to remain aware of divergence between desired and current culture.

No one director will ever have all the insights, between them, the whole board will be able to generate enough insights. Break the task into lots of small ones. Practice cultural observation, understanding and interpretation at every opportunity. Lots of small observations will add up to great insight. You wouldn't boil the ocean; but you might boil one bucket at a time.

Constant effort and willingness to change will build a nimble, responsive and agile board that can address culture change from the boardroom, to the back room and out into the customers’ universe. The price of success is vigilance; is your board looking to pay or are they preparing to rue the cost of being culturally out of alignment?

About the author:

Julie Garland-McLellan is a company director and board adviser. She is also a public speaker and professional conference MC in demand for courses, seminars and conferences, combining personal anecdotes, humour, world-class expertise and extensive experience as a director to engage, stimulate and educate.

As the author of many books and training materials for company directors, Julie is an acknowledged expert on resolving a wide range of complex governance issues. Her newsletter 'The Director's Dilemma' reaches readers in 33 countries. Get your copy free at https://www.directorsdilemma.com/

 Photo Credits:

Stock photos in this paper are provided courtesy of Shutterstock.com

Author Photo ? Julie Garland-McLellan